NovoCure Limited (NVCR) Earnings Call Transcript & Summary

Let me get this presentation started. I'm Gavin Scott. I work on Cory Kasimov's team here at JPMorgan. We're going to have NovoCure present. Let me introduce their Executive Chairman, Bill Doyle. Bill.

Good morning, everyone. Thanks, Gavin. Thanks, JPMorgan, and thank you all for your interest in NovoCure. If you're interested in our forward-looking statements, you can go to our website, you could read them in great detail. But otherwise, let me jump in. Tumor Treating Fields cancer therapy was invented by Professor Yoram Palti at the Technion 20 years ago. And in the 20 years since he invented Tumor Treating Fields, at NovoCure, we have built a platform around that invention, where, by which, we are working to deliver Tumor Treating Fields therapy to patients to treat some of the most difficult forms of cancer. I'm going to talk a little bit about the platform this morning. But essentially, we've created a global commercial business, treating patients with glioblastoma and now malignant pleural mesothelioma. That business is driving financial strength. Last year, we achieved cash flow -- operational cash flow breakeven and profitability for the first time. And that financial strength allow -- is allowing us to invest in building additional clinical evidence in many other large difficult-to-treat cancer indications, plus, and this is very important, I'll talk about it, to continue to improve the performance of our technology. So that we can improve efficacy, and we can improve the patient experience. We start 2020 on the back of tremendous momentum from 2019. It was really an extraordinary year for our team, and it's actually -- I have to thank and congratulate the NovoCure employees for what they've accomplished. This includes initiating our fourth Phase III clinical trial in ovarian cancer, receiving our first FDA approval in a torso indication. This is the FDA approval for mesothelioma, again, another extremely difficult-to-treat cancer where very little progress has been made. Big accomplishment, we received Medicare coverage for newly diagnosed GBM. I think those of you who've followed the company know that this was a long road, but we're extremely pleased that we'll now be reimbursed for the percentage of patients who are Medicare beneficiaries. We made our first big steps into China, of course, the largest market in terms of patients. We created a partnership with Zai Lab, and we've now submitted our application for approval for GBM in Greater China. This is after launching, of course, in Hong Kong earlier. A couple of things that are important, but maybe less visible, we had what I think is really a seminal publication in the Red Journal. The Red Journal is the premier journal in the field of radiation oncology. I'll talk a little bit more about this later, but this is the publication that showed that our performance is clearly linked to dose of Tumor Treating Fields, and it paves the way for many of these improvements that I alluded to in our technology. And then I think as underlying evidence that we are becoming part of the oncology fabric with our clearly out of the box -- or at least initially out-of-the-box therapy, there were over 250 publications, presentations across the major conferences. And the majority of which were not from NovoCure, that these are presentations and publications by independent researchers who are studying our therapy. And then finally, and this gets to the financial strength, we added $80 million to our balance sheet at the same time we were making all these investments that I alluded to. So again, what are Tumor Treating Fields? When you think of applying forces to an object, you think of a hammer and a nail. Physical contact applies a force. But forces can also be exerted at a distance through fields. We're all familiar with gravity. This is the force between masses. We're all familiar with magnetism. Of course, if I have a magnet and a pile of nails, this is the force between magnets and ferromagnetic materials. Electrical fields are analogous. These are the forces between charged bodies. So if we take a plate and you see in my diagram with a negative charge on the bottom, my particle with a positive charge is pulled at a distance to the positive plate. It turns out that much of the machinery of cell division consists of proteins that are charged. And the original insight of Professor Palti was that if we can get that electric field into the cell, we can line up those charged proteins and prevent them from slotting into the position that they need to in order to create healthy division. And in fact, this is what we see. I've shown this slide many times because it's such a good visual representation of Tumor Treating Fields therapy. But on your left, you see what looks like normal cell division. The green material is the healthy spindle. The spindle attaches to the chromosomes and separates them into the daughter cells. And on the right, you can see a cell in the presence of Tumor Treating Fields. And you can see a complete discombobulation of the chromosomes, too many going to the right, too few going to the left, this cell dies. And so instead of one cancer cell becoming 2, 2 becoming 4, the cancer cell dies in mitosis. A couple of very interesting facts about Tumor Treating Fields. First of all, this slide attempts to show where we fit into the spectrum of physical therapies. At low frequencies, electric fields stimulate nerves and muscles. This is, of course, the basis of pacing and ICDs and other stimulation technologies. At higher frequencies, they create heat. This is the basis of our ablation therapies, and at very, very high frequencies, they ionize atoms, and this is, of course, radiation therapy. We fit in the middle, in a region that was previously thought to have no biologic activity. But again, as Palti hypothesized and then proved, we have this antimitotic effect but important for our therapy within that frequency band, we can actually tune our destructive effect to specific cell types. As a result, the therapy is very specific to cancer cells, and we see no systemic toxicity when we apply Tumor Treating Field therapies to humans, even over very long multiyear periods. Additionally, Tumor Treating Fields don't have to be used by themselves. Because of this low tox, we can use them with other standard cancer therapies where we see, in most cases, additivity or synergism. On, again, your left, you can see the effect of Tumor Treating Fields plus radiation, where we dramatically increased the efficacy of radiotherapy when applied with radiation. In the middle, you can see the effect when added -- in this particular case, this is lung cancer culture with a taxane. We see great synergy. Taxanes, of course, are also spindle poisons when they're used with taxanes. And I think, importantly, to the right, because this is clearly the -- a great topic of interest in oncology, we see increased activity when we add Tumor Treating Fields to immunotherapies. And this is a subject of great interest, and you'll be hearing additional news about the use of Tumor Treating Fields plus immunotherapies in the coming months. So while our therapy works like it's a drug, we do trials like it's a drug. We deliver our electric fields with a medical device. The device consists of 2 components. You can see it on the left, there's a box that the patient carries and that box is connected to transducer arrays that surround the region of the cancer. This is a therapy that's administered at home. And the patient can receive this therapy, 24/7, while maintaining all of the activities of normal life. And you can see a picture on the right-hand side. This is one of our mesothelioma patients. Again, the arrays in the case of torso applications will be applied to the skin of the torso, and then the patient carries a box to give the Tumor Treating Fields. So in addition to this extremely innovative therapy, we also have an innovative business model that was extremely important to the progress and the success of NovoCure to date. We're not selling to hospitals. We're not selling to pharmacies. We're not selling to any distributors. NovoCure receives the prescription directly from the clinician. Once we receive the prescription, we send a technician, a device support specialist to the patient's home. We provide the gear. We train the family, and we provide 24/7 support to that patient. So there's none of this friction in the middle, worrying about inventories at hospitals, et cetera. And then we bill our patient's payers per month of active therapy. So we're not selling boxes. We're not selling disposables. You can think of it almost like a subscription or the way that you would buy a drug per month of therapy. And because we are taking the payment risk and because we've developed the expertise to submit for payment. Again, we don't lose anything in the middle. And this is, again, I think one of the important factors in the success of the company. And that's resulted in the revenue growth that you've seen. I mentioned last year was a great year. We had over 40% revenue growth year-over-year, and in fact, quarter-over-quarter. And we've built this 20 consecutive quarter now track record of patient growth. We have a lot of room to grow from here in the base business. This is a little bit of a busy slide, and I hate busy slides in these types of presentations, but what we're trying to show you here is that in our 3 core businesses, we are around 30% or so penetrated, a little less in Japan in the base GBM business. There's no physiological limit to our penetration. It's not as if there's a certain genotype or phenotype that is presenting -- preventing the continued growth. This is about the normal blocking and tackling that's required to educate physicians who are used to prescribing drugs with a completely new therapy. So #1 source of growth is increasing the number of active patients, of course. #2 is getting paid for more and more of our patients. I mentioned that we received Medicare reimbursement last year. That hasn't yet kicked in to our numbers. We expect it to kick in over this year. And so that will improve our payment. In Europe, we expect payment decisions from Israel and Switzerland. This year, we've announced that we've started to go into France. In Japan, we started there later. We have quite a bit of organic growth opportunity in Japan. And as I mentioned, we're expecting approval in China early this year, which will, with our partner, add further revenue opportunity. So there is clearly near-term growth opportunity beyond where we are today and beyond what we demonstrated last year. Again, it's nice to be able to put up charts like this up. I'm not going to read them to you. But you can see that revenue has increased. Importantly, our SG&A ratio continues to improve. This shows that we're getting financial leverage as we grow. We've made great investments in the infrastructure of being a global oncology company. And so we are growing our cash flow faster than revenue. And again, adding to the balance sheet with over $300 million cash on hand, allowing us to make all the investments that we need for long-term growth. And what is the long-term growth opportunity. The mechanism of action that I described to you is a basic mechanism of action. It's, again, not dependent on a particular mutation or particular gene configuration. It's based on the machinery of cell division for all cells. And as I said, we can tune it to specific cell types. Therefore, we have a great series of targets in both the brain, the chest and the abdomen. Our current pipeline, and I think sometimes this is underappreciated, is supported by strong Phase II evidence. So we're not just throwing this against the wall to see what sticks. And the Phase II evidence is extraordinarily consistent. And I go back to the fact this is physics. If we get the fields where they need to be in order to disrupt the spindle, we create a strong benefit in survival. So you can see here, just our Phase II curves for non-small cell lung cancer. Quite extraordinary curves in pancreatic cancer. I think most people know that pancreatic cancer is now the #2 cancer killer in the U.S. with terrible prognostic results, and our Phase II data in ovarian cancer. And that's created this program. Again, I'm not going to read these cells to you, but we have an ongoing trial in brain metastases from non-small cell lung cancer. The incidence of brain mets is an order of magnitude greater than glioblastoma. If we can treat GBM in the brain, the strong hypothesis is we can also treat brain mets. We expect final data from the brain MET study in 2021. I showed very promising Phase II data in non-small cell lung cancer. We have a large trial underway in non-small cell lung cancer testing Tumor Treating Fields plus a taxane, again, our most synergistic chemotherapy to date and an arm of Tumor Treating Fields plus anti-PD1 therapy. So a very interesting trial that we expect final data in 2022. And then the trial that I alluded to in pancreatic cancer, again, a large clinical trial. The end point here, again, is overall survival, where we're testing Tumor Treating Fields plus gemcitabine and ABRAXANE data in 2022. And then the trial in ovarian cancer that we started last year, 540 patients. Overall survival is the primary end point again, with a taxane. This is in second line with final data in 2024. So the cadence here, if our highly consistent physical therapy performs in the Phase III as it's performed in every other trial to date, results in a TAM, and we're operating with our current revenues in the far left corner of this diagram. But over the next 5 years, with an extraordinary opportunity to expand the revenue and the number of patients around the world that we can help. And this is one of the reasons -- I was actually asked the question because I've been involved. This is my third decade with NovoCure, how much longer, Bill? And I'm like, look at this graph. So I think in many respects, the excitement has just started here. So that's half the excitement story. The other half, when you develop a drug, the drug is the drug. And your next development is the next drug. With technology-based therapies, there's opportunity, tremendous opportunity to improve the therapy itself. And you can just imagine radiation therapy at the time of the Curies and where it is today. We're not quite at the time of the Curies with Tumor Treating Fields. But I would say, almost. And so with our financial strength, we're now making significant investments in improving our delivery system, our arrays and our treatment planning. And it's guided by these facts that were published in the Red Journal. So in our seminal EF-14 trial in GBM, and again, this is the only successful Phase III trial in GBM since the temozolomide trial now 15 years ago, we showed in the intent-to-treat population, an improvement from 16 months to about 21 months in median survival, and the 5-year survival we took from 5% to 13%. That's extraordinary. As I said in GBM, a tremendous advance for patients. But when we peeled the onion, and we looked at the dose response, we saw 2 things. First, on the right, that the more time on therapy, the much better patients did. And in fact, patients who used it 22 plus hours a day went from 16 hour median to 25 hour median. And then in more detailed work because we have the exact MRIs for every patient. We know we have the array maps for these patients, we were able to look at survival as a function of field intensity. And what we saw was, again, an extraordinary correlation between field intensity and survival. And when you looked at the 2, time plus high intensity, we saw the medians go from 16 to over 35 months and dramatic 5-year survivals. So question to my engineers in this particular map, by the way, the yellow is the high intensity, the dark colors are the low intensity, why can't we turn the whole head yellow? And the answer is, we probably can. And so today, we are in an active program. First of all, we will launch a second-generation torso device this year to make the torso much more convenient. We're going to launch a much more comfortable torso array. These are things that help improve the time. But I can say, if you look at the bottom, and we can say this now. We now have our first-generation of high-intensity arrays that have been on healthy volunteers. In fact, I'm looking at the healthy volunteer, one of them that the arrays has been on. And so we will expect these to be in patients in the near term. So this is not a distant application. This is something that is coming. And in addition to that, we are modifying our software that does the planning to maximize the intensity as well as a whole variety of other innovations that we have in the lab to further improve the field characteristics. So this is great for patients, it's great for NovoCure in terms of our ability to treat those patients. But something that I think may -- again, I have to remind my colleagues in the drug world for whom there's a patent and then a cliff. We've applied for 33 new patents in 2019. This is on top of our already broad and deep patent portfolio. As these patents begin to issue, we will have the opportunity to continue to extend our position as the leader in Tumor Treating Fields. So with that, I'm going to wrap up, and wrap up on the theme that I started, that we have built an extremely strong platform to build on going forward. Believe it or not, we've treated over 14,000 patients, commercial patients with Tumor Treating Fields to date. We have 4 indications in Phase III at our late-stage pipeline. We have 2 in Phase II. In fact, we just started a Phase II trial in gastric cancer in China and more to come. We have over 180 issued patents globally. And as I mentioned, the patents are continuing to come, and we have an extremely strong financial position. We don't need to raise capital in order to fund our plan. And with this, we plan to continue to execute to help patients with some of the most difficult-to-treat cancers. Thank you.