NovoCure Limited — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial amounts are in U.S. dollars; figures below are in millions unless otherwise noted. NovoCure develops and commercializes Tumor Treating Fields (TTFields) systems, including Optune for glioblastoma (GBM) and Optune Lua for malignant pleural mesothelioma (MPM). It also conducts clinical and product-development programs across other solid tumors.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $133.5 | $115.9 | $268.2 | $217.8 |
| Gross profit | $104.9 | $90.5 | $213.2 | $167.8 |
| Gross margin | 79% | 78% | 79% | 77% |
| Operating income (loss) | $(12.3) | $6.7 | $(12.4) | $3.3 |
| Net income (loss) | $(14.6) | $1.7 | $(18.8) | $5.6 |
| Adjusted EBITDA | $18.1 | $28.0 | $39.2 | $43.1 |
| Operating cash flow | $26.2 | $12.7 | $44.0 | $14.7 |
- Q2 revenue increased 15% year over year; first-half revenue increased 23%. Management attributed growth primarily to more active patients, improved net revenue per active patient, and the Optune launch in China.
- At June 30, 2021, the company had $349.1 million in cash and equivalents and $549.9 million in short-term investments, or $899.0 million combined. Current assets were $1,045.6 million and current liabilities were $116.2 million.
- Long-term debt, net, was $560.6 million. This primarily reflects $575.0 million principal of 0% convertible senior notes due 2025. The $150.0 million secured revolving facility had no borrowings outstanding; the company said it complied with its covenants.
- Management stated available cash, cash equivalents and short-term investments were sufficient for at least the next 12 months under its existing plan, while noting spending is expected to rise and may outpace gross profit, potentially requiring additional capital.
Material changes versus the prior-year period
- Revenue growth was accompanied by higher operating expenses: Q2 R&D and clinical-trial expense rose 68% to $50.3 million; sales and marketing rose 20% to $34.1 million; and general and administrative expense rose 29% to $32.8 million. First-half operating expenses increased 37%.
- Higher operating costs drove a shift from operating income and net income in Q2 2020 to operating and net losses in Q2 2021. First-half results also shifted from modest operating income and net income to losses.
- Adjusted EBITDA declined 36% in Q2 and 9% in the first half, which management attributed to investments in R&D, commercial activities and other operations. Share-based compensation was $27.9 million in Q2 and $46.7 million in the first half.
- Active patients at quarter-end totaled 3,487, up from 3,278 a year earlier. Q2 prescriptions received were 1,450 versus 1,422. In the U.S., 15 MPM patients were active at quarter-end.
- First-half operating cash flow increased to $44.0 million from $14.7 million, reflecting higher cash earnings, lower interest payments, tax refunds and the timing of receipts and payments. Investing cash flow was $51.6 million provided, largely due to net maturities of short-term investments; it should not be read as recurring operating cash generation.
Outlook, commentary and risks
- The filing provides no specific revenue or earnings guidance. Management expects continued increases in R&D, clinical-trial, sales and marketing, and G&A spending.
- Clinical pipeline developments: the LUNAR Phase 3 NSCLC trial continued after an interim review; following FDA approval of protocol changes, final data were expected in 2022. COVID-related site expansion delays pushed anticipated last-patient enrollment in the METIS brain-metastases trial back by two quarters, with final data expected in 2023.
- The company reported that COVID-19 had not materially affected financial results through Q2, but described ongoing volatility in patient volumes and care patterns, challenges from virtual commercial engagement, and impacts on trial enrollment and operations.
- Medicare fee-for-service revenue was $8.2 million in Q2, down 24% year over year, primarily because appeals for certain claims were taking longer. NovoCure said the decline did not indicate fewer active Medicare patients or a lower expected ultimate contribution; it recorded no material incremental revenue from successful appeals in Q2.
- In July 2021, after quarter-end, NovoCure reported HEPANOVA Phase 2 liver-cancer results and said it was designing a potential Phase 3 trial. These results are preliminary clinical evidence, not established commercial revenue or approval.
- The company early adopted ASU 2020-06 on January 1, 2021. Adoption increased reported long-term debt by $129.0 million and reduced additional paid-in capital by $132.5 million, with a $3.5 million reduction in accumulated deficit; future interest expense is expected to be lower under the revised accounting.
- Management reported no material changes to previously disclosed risk factors, no material change in internal control over financial reporting, and no off-balance-sheet arrangements. It stated ordinary-course legal matters were not expected to materially affect financial position or results.
Most important facts for investors to verify
- Whether patient adoption, net revenue per patient and revenue growth continue, particularly as Medicare claim appeals and reimbursement timing evolve.
- Whether higher clinical and commercial spending leads to expected pipeline progress and eventual returns, and how long current liquidity supports those plans.
- Clinical-trial timelines and outcomes, including LUNAR, METIS and any proposed liver-cancer study; these remain subject to trial, regulatory and enrollment risks.
- The implications of the $575.0 million convertible notes due 2025, including potential conversion dilution and the company’s ability to meet future cash obligations.
- The sustainability of operating cash flow and adjusted EBITDA, taking account of working-capital timing, substantial share-based compensation and investment spending.