Business context and reporting period
NovoCure Limited filed this Form 10-K for the fiscal year ended December 31, 2021. The company develops and commercializes Tumor Treating Fields (TTFields), marketed as Optune for specified glioblastoma (GBM) uses and Optune Lua for malignant pleural mesothelioma (MPM). Most revenue comes from Optune, particularly in the U.S., Germany and Japan. The filing also reports selected unaudited fourth-quarter results.
Financial performance and liquidity
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Net revenue | $535.0 million | $494.4 million |
| Gross profit / margin | $420.2 million / 79% | $387.9 million / 78% |
| Operating income (loss) | $(44.3) million | $30.4 million |
| Net income (loss) | $(58.4) million | $19.8 million |
| Adjusted EBITDA | $60.8 million | $115.3 million |
| Cash from operating activities | $82.8 million | $99.1 million |
Revenue increased 8%, principally reflecting 176 additional active patients (5% growth) and improved revenue operations, partly offset by lower net revenue per active patient in Germany. Gross margin improved by one percentage point. Operating expenses rose 30% to $464.5 million, led by a 52% increase in research, development and clinical study spending. The company attributed the decline in Adjusted EBITDA chiefly to higher pipeline investment and pre-commercial spending. FY 2021 share-based compensation was $94.9 million, compared with $75.7 million in 2020.
For Q4 2021, revenue was $133.2 million versus $144.0 million in Q4 2020. Gross profit was $103.5 million versus $115.8 million; operating loss was $23.4 million versus operating income of $12.1 million; and net loss was $26.5 million versus net income of $4.9 million. The filing does not give a specific explanation for the year-over-year Q4 revenue decline.
At year-end, cash and cash equivalents were $208.8 million and short-term investments were $728.9 million, totaling $937.7 million. Total assets were $1.14 billion and current liabilities were $142.6 million. Net cash provided by operations was $82.8 million; investing activities used $144.8 million, including $120.7 million net purchases of short-term investments; financing activities provided $25.7 million. Long-term debt, net, was $562.2 million, representing $575 million principal of 0% convertible notes due 2025. The $150 million revolving credit facility had no borrowings outstanding. Management said available cash and investments were sufficient for at least 12 months under its existing business plan, while noting that spending may outpace gross profit and additional capital may be needed.
Material changes, outlook and risks
- Active patients increased to 3,587 from 3,411; prescriptions received were 5,662 compared with 5,613. U.S. MPM activity remained limited: 11 active patients and 48 prescriptions during 2021.
- Enrollment was completed in the phase 3 LUNAR study of NSCLC and INNOVATE-3 study of ovarian cancer. Data were anticipated in 2022 and 2023, respectively. METIS brain-metastases data were anticipated in 2023 and PANOVA-3 pancreatic-cancer data in 2024. The company also reported FDA breakthrough-device designation for its liver-cancer system and was evaluating a larger study.
- Management expected research and development investment to continue growing into 2022, with continued significant commercial and general and administrative spending. The filing provides no specific revenue, earnings or margin guidance.
- Medicare fee-for-service revenue under the established coverage policy was $40.3 million in 2021, versus $36.1 million in 2020. No material revenue was recorded in 2021 from successful appeals of older denied claims, compared with approximately $19 million in 2020; future appeal payments are unpredictable. Optune Lua reimbursement access was still developing.
- COVID-19 had no material impact on 2021 financial results, according to management, but disruptions to care patterns, eligible patients, staffing, clinical studies and commercial engagement continued to pose risks. Other material risks include dependence on two marketed products and successful new indications, reimbursement and payer pricing, clinical and regulatory outcomes, single-source suppliers, competition, intellectual-property protection and cybersecurity. Several early patents began expiring in 2021; EU medical-device rules also changed.
- The company reported no unresolved SEC staff comments. Management and the auditor concluded internal control over financial reporting was effective, and the auditor issued unqualified opinions on the financial statements and controls. Management said existing legal matters were not expected to materially affect consolidated financial position or results, while noting litigation outcomes are uncertain.
Important facts for investors to verify
- Whether upcoming clinical-trial results support regulatory approval and commercialization, particularly for NSCLC, ovarian cancer and liver cancer.
- Whether active-patient growth and revenue per patient can sustain revenue growth, including the effect of Germany pricing and payer mix.
- How Medicare appeals and Optune Lua reimbursement develop, and their effects on revenue and cash collection.
- Whether increased operating and clinical investment can be managed without materially reducing the substantial cash and investment balance or requiring new financing.
- The potential dilution and repayment implications of the $575 million convertible notes, alongside patent expirations, supply continuity and evolving regulatory requirements.