NovoCure Limited — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. NovoCure develops and commercializes Tumor Treating Fields (TTFields) devices, including Optune for glioblastoma and Optune Lua for malignant pleural mesothelioma. The unaudited results are compared with Q1 2021 unless otherwise noted.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenue | $137.5 million | $134.7 million | +2% |
| Gross profit / gross margin | $109.8 million / 79.8% | $108.3 million / 80.4% | Margin down about 0.6 percentage points |
| Operating expenses | $110.6 million | $108.4 million | +2% |
| Operating loss | $0.8 million | $0.1 million | Loss widened |
| Net loss | $4.6 million | $4.1 million | Loss widened about 13% |
| Operating cash flow | $(3.7) million | $17.8 million | Decreased $21.5 million |
| Adjusted EBITDA (non-GAAP) | $26.8 million | $21.1 million | +27% |
Revenue growth primarily reflected 95 more active patients in currently active markets (+3%). Higher U.S. collections on previously denied and appealed claims supported revenue per patient, partly offset by lower German revenue per patient following payer contract negotiations. By geography, U.S. revenue rose to $97.4 million from $85.9 million, while Germany revenue fell to $19.2 million from $26.4 million. Cost of revenue increased 5%, mainly with higher patient volumes and shipments to Zai Lab; reported gross margin remained approximately 80%. Sales and marketing expense rose 21% to $37.9 million, while research and clinical expense declined 8% to $42.2 million, largely reflecting lower direct study costs.
Active patients were 3,549 at quarter-end versus 3,454 a year earlier; prescriptions received during the quarter were 1,384 versus 1,402. These figures include North America data for the U.S. and Canada in 2022, versus the U.S. only in 2021. Q1 share-based compensation was $25.0 million, up from $18.9 million; management attributed much of the Adjusted EBITDA increase to the changing mix of cash and non-cash expenses.
Liquidity, debt, and cash flows
Cash, cash equivalents, and short-term investments totaled $932.3 million at March 31, 2022, down $5.4 million from year-end 2021. Current assets were $1.081 billion and current liabilities were $127.8 million. Net cash used in operations was $3.7 million, with working-capital movements contributing to the decline versus Q1 2021. Investing activities used $17.4 million, including $12.3 million of net short-term investment purchases and $5.1 million of property and equipment purchases.
The company had $575.0 million principal amount of 0% convertible notes due 2025, carried at $563.0 million net of issuance costs. The notes were not convertible as of March 31, 2022. No borrowings were outstanding under its $150 million revolving credit facility, and the company reported compliance with its covenants. Management said available cash and investments were sufficient for at least the next 12 months under its existing plan, while cautioning that spending may outpace gross profit and additional capital may eventually be needed.
Outlook, developments, and risks
- No specific revenue, earnings, or cash-flow guidance was provided. Management expects research and development, sales and marketing, and general and administrative expenses to continue increasing and potentially outpace gross profit.
- Phase 3 programs include studies in non-small cell lung cancer, ovarian cancer, brain metastases, and pancreatic cancer. The company anticipated 2022 data from its completed-enrollment phase 3 NSCLC study and 2023 data from the ovarian cancer study. An interim review of the ovarian study found no need to increase enrollment; the independent monitoring committee recommended continuing to final analysis as planned.
- COVID-19 had no material financial impact through Q1, but staff disruptions, healthcare-system volatility, localized lockdowns, and limits on in-person education could affect commercial activity and clinical studies. Management said the timing and scale of collections from appeals of denied U.S. claims are unpredictable.
- Effective January 1, 2022, the company became a Swiss tax resident as its place of daily management and control moved to Switzerland. Q1 income tax expense increased to $2.1 million from $1.4 million, reflecting the mix of statutory tax rates across jurisdictions.
- The filing reported no material change to previously disclosed risk factors, contractual obligations, or market-risk disclosures; no off-balance-sheet arrangements; and no legal proceedings expected by management to materially affect financial position or results.
Important facts for investors to verify
- Whether U.S. appealed-claim collections recur, and how German payer terms affect revenue per patient and future growth.
- How patient counts, prescriptions, and revenue trends develop by market, accounting for the changed North America reporting scope.
- Upcoming clinical-trial timelines, outcomes, regulatory pathways, and reimbursement prospects for potential new indications.
- Operating cash generation and spending trends relative to the $932.3 million liquidity balance, the $575 million notes, and management’s stated 12-month liquidity assessment.
- The impact of share-based compensation on the non-GAAP Adjusted EBITDA comparison and on dilution; 7.9 million weighted anti-dilutive shares were excluded from diluted loss per share.