NovoCure Limited — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also provides unaudited fourth-quarter results. Amounts below are U.S. dollars unless stated otherwise.
Business context
NovoCure develops and commercializes Tumor Treating Fields (TTFields), delivered through Optune for glioblastoma (GBM) and Optune Lua for malignant pleural mesothelioma (MPM). Its commercial business depends primarily on monthly treatment revenue from patients in active markets. The company is also conducting trials across multiple cancer indications.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $494.4 million | $351.3 million |
| Gross profit / gross margin | $387.9 million / 78% | $262.7 million / 75% |
| Operating income (loss) | $30.4 million | ($0.9 million) |
| Net income (loss) | $19.8 million | ($7.2 million) |
| Operating cash flow | $99.1 million | $26.6 million |
| Adjusted EBITDA, non-GAAP | $115.3 million | $60.0 million |
Revenue increased 41%, principally from a 17% increase in active patients in commercial markets and improved net revenue per patient, including better U.S. reimbursement. Active patients at year-end rose to 3,411 from 2,909; U.S. Medicare fee-for-service revenue was $36 million, versus $6 million in 2019. Cost of revenue rose 20%, slower than revenue growth; management cited scale and efficiency gains. Research and development expense increased 67% to $132.0 million, while sales and marketing rose 22% to $118.0 million and general and administrative expense rose 22% to $107.4 million. Share-based compensation was $75.7 million, up from $52.4 million.
Fourth quarter: Revenue was $144.0 million versus $99.2 million in Q4 2019; gross profit was $115.8 million versus $74.4 million; operating income was $12.1 million versus $0.2 million; and net income was $4.9 million versus $4.3 million.
Liquidity and debt: At year-end, cash and cash equivalents were $234.7 million and short-term investments were $607.9 million, totaling $842.6 million; restricted cash was a further $11.5 million. The company reported $99.1 million of operating cash flow and $476.5 million of shareholders’ equity. Long-term debt, net, was $429.9 million, reflecting the accounting carrying value of $575 million principal of 0% convertible notes due 2025. NovoCure repaid its prior $150 million term loan in 2020 and had no borrowings on its new $150 million secured revolving facility at year-end. Management stated available cash and investments were sufficient for at least 12 months under its business plan.
Outlook, commentary and risks
Management expects research, development and clinical-trial spending to grow in 2021, with sales and marketing and administrative spending also expected to rise over the coming years. It cautioned that expenses could outpace gross profit and that additional capital may be needed. No quantified revenue or earnings guidance is provided.
Clinical milestones cited include anticipated 2021 data from the HEPANOVA liver-cancer trial; a planned Q2 2021 start for KEYNOTE B36 in NSCLC; and anticipated 2022–2023 data for several pivotal trials. These are expectations, not guaranteed outcomes.
COVID-19 did not materially affect 2020 financial results, according to management, but disrupted operations and contributed to fluctuations in treatment timing and eligible patient populations. Principal risks include dependence on Optune and Optune Lua, clinical and regulatory uncertainty, reimbursement and Medicare claim appeals, competition, reliance on some single-source suppliers, and execution of commercial expansion. The EU Medical Device Regulation transition and cross-border regulatory requirements are also relevant. Management believed ordinary-course legal matters would not materially affect financial position or results. The auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Whether Medicare claims, including appealed pre-coverage denials, are ultimately collected as estimated; revenue recognition for payer concessions was identified as a critical audit matter.
- Whether active-patient growth, treatment duration, reimbursement rates and Optune Lua adoption support continued revenue and margin expansion.
- Progress, enrollment and results for pivotal trials, and whether anticipated data timelines are achieved.
- The potential dilution and accounting effects of the $575 million convertible notes, including the conversion price of approximately $168.24 per share and the January 2021 election to settle conversions using cash and shares.
- The sustainability of reported profitability: 2020 included a tax benefit, and Adjusted EBITDA excludes $75.7 million of share-based compensation.
- Whether rising operating investment, reimbursement requirements and supply-chain or regulatory changes affect liquidity and the stated funding runway.