NovoCure Limited (NVCR) Earnings Call Transcript & Summary

Okay. Thanks, everyone, for joining us this morning. Very pleased to have NovoCure with us. I mean it's a fascinating story. As far as TAM stories go, NovoCure is probably one of the best TAM stories out there. To tell us more about the company, we have Bill Doyle, Chairman of the company; and their Chief Scientific Officer, Uri Weinberg. Bill and Uri, thank you for joining us this morning.

Maybe let's start on that theme, Bill. I put on my simplistic device hat, right, and sometimes it gets confusing. Is this a biotech stock? Is this a device stock? It has elements of both. And how would you classify the company? Maybe for some people who are not familiar with the story, give an overview of the technology and what it does.

Sure. So thanks, Vijay. And thanks for having us, and I welcome Uri, too, to the conversation today. We are a -- at our fundamentals, we are a global oncology company, bringing a novel therapy that was invented in Israel 20 years ago called Tumor Treating Fields to patients with solid tumors. The way that the technology works is that we have a medical device that creates a very specific tuned electric field that we deliver to the region of the body where the cancer is located through another medical device element, our specialized transducer arrays. And when that electric field enters the body, it creates a very drug-like effect. In fact, we're often called the electric taxane. Those electric fields apply a strong force to the proteins that are involved in the cell division. We can selectively tune the field. So it only goes into the cancer cells of interest and has no effect on the normal dividing cells. And we create a mitotic catastrophe with the electric fields and the cells die. We conduct clinical trials just like drug trials. So we have to do long Phase III trials where we compare ourselves to whatever the standard of care is in a particular cancer. But we apply to the device regulatory body in whatever country or region that we're applying. So in many respects, I think we have, I hate to say, the best of both worlds, but it really is kind of the best of both worlds. The advantages of medtech includes significant IP protection that we can renew as we improve and develop the technology. Hopefully, we'll have some time to talk about that because there's tremendous opportunity to further evolve and improve the efficacy, and that gives us more IP and more protection. Our reimbursement falls in the medtech reimbursement categories that gives us a lot of separation from some of the automatic things that happen in some countries around drugs. And also, if you think of our R&D expenses, they're very medtech like, meaning that we don't have to go to the discovery bench for each new indication. We do development of our therapy, not research. So we're just applying the same mechanism back to the TAM story to tumor after tumor after tumor to create growth. On the biotech side, we price like a drug. So most medtech, they're selling a disposable or an implantable, we're able to charge per month of therapy because we provide the same sorts of benefits. And as I think, again, the data that we produce is very biotech-like data. It's Kaplan-Meier curves. It's not a surgical outcome type product. So that's a little bit of the overview. As a company, we're focused on 3 priorities. Our strategy is very simple. We are developing a platform. We are working to bring that platform for -- to as many patients around the world as who can benefit, starting with our commercial indications, primarily GBM, which has been growing since we introduced it. And particularly over the last 5 years, we've grown every single quarter, and we're now profitable. And we're taking the profits from that existing business and reinvesting those profits in the clinical program, which Uri, of course, can talk about. And into the technology development that I just described, which should support the TAM expansion that we expect over the next few years.

That's a great overview, Bill. And it's interesting, your comments on R&D. I didn't think about the R part, like you've done the R, it's really the development and the trial expenses. That's a nice analogy. And for those of you thinking about the company, NovoCure has an approved label for GBM, that's a brain tumor, and they have numerous Phase III trials going on in other solid cancers. Maybe, Bill, a quick overview on what trials you're running and sort of what are we expecting for '21 from a data perspective?

Sure. Let me turn it over to Uri to give a rundown of our clinical program.

Very happy to do that. Thank you, Bill, and good morning, everybody. So I'll go over our clinical study program, starting with the late stage trial first. And the lung cancer program actually includes multiple different studies that are currently ongoing. The METIS study for brain metastases from non-small cell lung cancer targets 1 to 10 brain metastases from this specific malignancy, following the treatment of the same lesions with stereotactic radiosurgery, attempting to eradicate them. Unfortunately, in this condition, the disease comes back in the brain itself, and there is a very frequent recurrence rate. And therefore, our aim is to apply TTFields at 150 kilohertz in this case, the frequency that was shown to be effective in non-small cell lung cancer and keep the disease under control, targeting new lesions that may potentially evolve, and killing the remaining tumor cells following the stereotactic radiosurgery. And therefore, our primary endpoint on this brain metastases study, the METIS trial is intracranial progression. The study is enrolling 270 patients, and is planned to readout in 2022. And this is the first Phase III trial that we are currently running in non-small cell lung cancer. But of course, the study has implications way beyond non-small cell lung cancer. Brain metastases are just an unmet need in multiple different other cancers, including brain -- including breast cancer, for example. So we are hopeful that being able to demonstrate efficacy through the METIS study will have an implication that will affect the course of other cancers where treatments just don't get into that brain as opposed to tumor treating cell. The second study in our lung cancer program is the LUNAR study for advanced Stage 4 non-small cell lung cancer patients. This study offers physicians to combine either docetaxel or taxane, with which we have seen synergy in preclinical models or new checkpoint inhibitors for which we also have very promising and interesting preclinical data, selecting one of these standard of care options and systemic therapy for advanced patients following platinum failure allows the treating investigators to maintain the same systemic therapy that they would otherwise select for these patients. But adding TTFields, in this case, applied to the upper torso, treating the main burden of the disease with overall survival being the primary endpoint in this 534-patient study, which intends to be completed with readout in 2023. Last on -- our lung cancer program is the KEYNOTE B36 study that NovoCure is about to conduct with Merck in collaboration with MSD. This is a very nicely complementary study to the rest of the lung cancer program, which I described as we target the disease, the first-line treatment with pembrolizumab being used concomitant with TTFields, pembrolizumab, KEYTRUDA, and anti PD-1 inhibitor. I mentioned the preclinical results, which are very interesting. We have seen greater immune response against cancer in multiple in vivo models in animals with neurogenic cell death and increase in the inflammation in the presence of immune cells inside the tumor when TTFields were added to anti-PD-1 therapy in those animals. So this pilot trial with Merck is going to start enrolling patients next year. And it's a single study for 66 patients with overall response rate being the primary endpoint. I will quickly mention the rest of the study is just -- there is a lot to say about each of them, but I would like to leave room for additional questions. So we have ongoing late phase studies in pancreatic adenocarcinoma, locally advanced pancreatic cancer, the PANOVA 3 study. Again, overall survival is the primary endpoint, readout in 2023. We have another pivotal study or Phase III trial in ovarian carcinoma, recurrent ovarian cancer, combining TTFields with weekly paclitaxel with overall survival as the primary endpoint, which will readout in 2023. And we have our other pilot studies, the liver cancer and gastric cancer studies, which are going to be available for a readout in 2021. And I'll stop here. There are a few others, but perhaps they will come up later in the conversation.

No, that was great. A lot going on in the pipeline. Maybe, Bill, I look at the stock. Last week was -- stock was volatile. There was some confusion around the LUNAR trial. For those of you, this is a second-line trial, a Phase III interim readout is expected around sometime next year. I didn't think there was anything surprising in the statements you guys made, Bill. So maybe just take a step back, what exactly was said last week? And why did it cause confusion, if you will?

So Vijay, I agree with you. I don't think there was anything surprising said either. I think that maybe there was some misinterpretation in 1 article that was written. But let me emphasize that our statements have been 100% consistent. And we said nothing different than we've said from day 1 in the LUNAR study and what's written in the LUNAR setting protocol. So I think the confusion surrounded the interim analysis just generally, in large, multiyear cancer trials, the FDA and the investigators often would like an interim analysis. The principal reason for an interim analysis is so that it's clear that the trial is not going to succeed either because there's a toxicity issue that was unanticipated or because the drug just doesn't work, the trial can be stopped early due to futility and the patients can seek other therapies. But there's other possibilities, too. One is that the therapy is so efficacious that at the interim, the statistics suggest that you don't need to complete the full study and sort of the reverse is true that the study has stopped due to success. This is a very high bar. It's a bar that we happened to have jumped over for our GBM trial, but it's not what we are suggesting or people expect. And I think this was maybe the confusing thing when I stated that I think people should focus and expect as we do that we will conclude -- that we will complete these trials as designed, that somehow that was considered to be confusing. Although again, I think it's very consistent with what I have always said. And then the third possibility, of course, is that middle possibility, which is the most likely one. This is where the data safety monitoring committee looks at the data available at that point in time, determines there's no safety signal -- adverse safety signal. And determines, based on the statistical analysis, that while the high bar of early stopping has not been reached, that all looks good, and the trials continued. That is by far and away, in our case, the most likely outcome. Because number one, we don't see systemic toxicity, never have; and number two, we're supported by very strong Phase II data before going into this trial. And it goes back to what I said before. It's the same mechanism of action that we've used in many Phase IIs and the torso, it's the same mechanism of action as our mesothelioma approval. So that's what our expectation is with some very high bar chance that it stopped early. I don't think that's confusing. You don't think that was confusing. But unfortunately, some people got confused. What can I say?

I mean I have a job because of those confusions, Bill. Let's -- there is a silver lining amongst all of this. So no, taking the jokes apart, in all seriousness, to be fair, you guys have said this publicly in the past. And I think you've been extremely consistent in saying the trial was designed not to be stopped at interim. The stat plan was always to go for completion. So it is where it is. Hopefully, these are short-term noise, will get solved in the longer term. I guess, what should be -- from my understanding, Bill, the interim analysis trigger as an enrollment criteria once you hit a certain number. So is there some sense on timing on when we could see this interim analysis? And what can we expect to see? Because it looks like you won't have access to the data. So what exactly will we get to know at the interim analysis?

Yes. So our expectation is the interim analysis will occur next year. And you'll see what we see. As you say, the data will remain blinded. Again, assuming the middle, the green light track, the data will remain blinded. We will get the funds up from the data safety monitoring board, and we will press release that, that the board met and that they concluded that the trial is proceeding on track and that it should continue. That will be -- that's what we will know, and that's what you will know.

And in terms of timing, Bill, perhaps when -- I know the pandemic has impacted a lot of clinical trials when it comes to enrollment. I'm curious on what its impact been for you guys?

So we made an announcement in Q1 with respect to the timing of our trials. We did extend, as we said by multiple quarters, the recruitment for PANOVA and LUNAR. It's more related to our ability to open trial centers than the recruitment rate, per se. Although that is regional, right? As the pandemic hits some regions, the R&D efforts in overburdened hospitals does slow. But for us, the biggest impact has been on opening new centers. Turns out our INNOVATE study in ovarian cancer, notwithstanding the pandemic. And I think this may have to do simply with the competition for patients in ovarian cancer, is recruiting faster than we had projected. And so that one, we actually brought in a year. But we have made no changes to the timing since that announcement in Q1.

Got you. And the best case right now is mid of 2021 when we could see some of these interim trials, both -- I mean you have 2 interim coming out next year, the pancreatic and the lung cancer. Would that mid of 2021 time frame makes sense? Or is that some sensitivity around the timing?

Yes. We haven't specified when in the year. As we get closer, we usually narrow down the window. And so for instance, we have narrowed down the availability of the HEPANOVA data to Q1. But for all the reasons that you described, we can't accurately predict to quarters yet the timing of the interims.

Got you.

And just to mention that we are going to have a third interim analysis performed in 2021 on top of the 2 that you mentioned on the ovarian Phase III trial.

That's nice. The third interim -- sorry, this was the ovarian trial for next year?

Yes. Thanks for reminding us of that, Uri. That's the one that got pulled forward. Yes.

Got you. So your next press release, Bill, that has to be updated because I'm going off your last press release. That's fantastic. Good for you guys. Maybe starting with -- on the lung. So this more -- the question came from our biotech colleagues, Bill, and I hadn't appreciated this. And I think there's -- the question was the LUNAR trial is a second-line therapy trial. And when you're looking at the patients in the trial, you have a chemo arm and an IO arm and the device will be compared against those 2 modalities. And the question was, look, post-IO, you will never find that second-line patient who was on chemo because everyone is getting an IO therapy now. So how relevant is this data to real-world application? And to be fair, when you guys designed the trial, IO drugs weren't approved. So I think there are some puts and takes. Maybe address those questions that come more from the biotech folks.

Yes. So I'll give the question to Uri to answer in detail. But let me just reiterate that our therapy is a new modality designed to be used with whatever the best standard of care pharmacology may be at the moment. And some are moving targets like lung cancer. Others haven't changed in decades like GBM. And our belief is that the sooner you use our therapy, because there's no toxicity, the better. So ultimately, the design or the intent is that this should be used as soon as the patient is diagnosed. And as we go forward with early blood-based diagnosis before you can even see a lesion, tumor treating fields makes so much sense because of the toxicity. The path to getting to first-line therapy, though, sometimes is different based on the cancer. And maybe with that general statement, I'll leave it to Uri to really go into the design of LUNAR and how we anticipated this changing landscape.

Thank you, Bill. So Vijay, I think you described the LUNAR study and reiterated what they started with and the combination with either docetaxel or immune checkpoint inhibitors. The standard of care, as we know, in the non-small cell lung cancer is an ever-moving target. So almost unrealistic to expect that a Phase III study will complete its accrual without some changes in the standard of care that it was launched with. We are happy that immune checkpoint inhibitors were moved to the first-line of patients with stage 4 disease, after demonstrating their efficacy in this setting. Actually, I mentioned our preclinical data earlier that showed that TTFields with anti-PD-1 leads to a better response. And as a reminder, this is also the basis of our work with Merck, our study with Merck. But taking all of these together, fortunately, NovoCure's scientific teams took such scenarios into consideration and design a study so that both immune checkpoint inhibitors or docetaxel to be the backbone systemic therapy on the study. And at this time, I have to highlight as opposed to what you may have suggested in the question itself, not all patients receive IO at the first-line due to multiple reasons. It may include reimbursement, availability, clinical considerations, other reasons. So those patients or at least some of them are then, for sure, amenable to receive TTFields concomitant with IO as part of LUNAR. And of course, patients who failed on IOs at the first-line are amenable to join the LUNAR study and received docetaxel concomitant with TTFields. So I think that our study clearly is compatible with the current real-world standard of care, and we anticipate it to continue and be relevant also at the time of the readout in 2023. And Bill mentioned already that TTFields, you've seen as a platform therapy. And may continue to be combined with multiple other treatments as the evolution of therapies in non-small cell lung cancer and other diseases continues to advance.

That's great. And I think the trial, when I looked at the statistical plan, it was designed to show an overall hazard ratio of 0.75. Now I know you have 2 different arms, the chemo arm and the IO arm. Is the trial designed to show a similar hazard ratio on those different arms? Or is this an overall hazard ratio?

So first and foremost, the study was designed to extend the overall survival of the entire population receiving systemic therapy by 3.5 months, considering mixed population. And that translates into the 0.75 hazard ratio that is part of this protocol and statistical consideration. And we did include the -- our secondary endpoints and special several combinations such as TTFields plus PD-1 inhibitors versus PD-1 inhibitors alone or the same for docetaxel versus docetaxel alone. We also included another secondary analysis, which is very interesting that compares TTFields plus docetaxel to PD-1 inhibitors alone in a noninferiority setting that may suggest in the end of the day, if that indeed shows noninferiority, that the combination of TTFields and docetaxel may serve as substitutes to anti-PD-1 therapy when patients, for instance, cannot receive the latter. So that is -- these are some of the secondary endpoints of the LUNAR study.

Got you. And when you look at those other interim coming in pancreatic, ovarian, maybe walk us through on what the expectation is. Are those similar to LUNAR in terms of the interim being triggered on enrollment? And what should or can we expect to learn at the interim for these trials?

So certainly, the interim analysis on the PANOVA 3 and the INNOVATE 3 studies is going to be conducted based on our plans at the time of the inclusion of the last patient in the study, first of all. And the interim analysis, as Bill clearly stated earlier on, is anticipated to demonstrate that those studies should continue as planned. And you have, Vijay, emphasize as well yourself that NovoCure is clearly stated that all studies were designed to complete their enrollment to completion. We do not anticipate any safety signal, any new safety signal on each of these mentioned studies. And we have very ambitious alpha for each of these interim analysis to be performed. So it will be very big supplies, which we are ready for, but we do not plan to have or do not work around such assumptions, and really plan to see the study finishing in time.

And this might be perhaps -- I'll blame it on my way of thinking. But pancreatic cancer, that's very similar to GBM. You haven't had upgraded drugs in that market. It's deadly. And is there a chance now because this is the first major therapy TTF. Is there a chance perhaps, when I look at those 3 trials, maybe for PANOVA to hit superiority at the interim, just given there's been no treatment for 20 years?

Again, our -- the expectations that we are setting is that these trials will recruit and continue to completion. I will point out that our Phase II data in pancreatic cancer were extraordinary, particularly in the population that we're treating in the Phase III trial, which is the locally advanced population. But as Uri said, we're ready but we're not planning and are not setting that expectation.

Got you. No, that's fair. Maybe -- I know the trial was designed to completion, but what should the data look like at the interim, if it were to be stopped for superiority? You mentioned 3.5 months, survival benefit, hazard ratio of 0.75. Is there a number at interim, what it should look like?

Sure. There is a number, but we haven't described publicly the detailed statistical mechanics for these trials. And again, I know -- believe me, no one wants these trials to succeed at their interims more than me, okay? Maybe except for the patients, if you had pancreatic cancer. That said, we are planning to -- and it's not a game. It's -- I'm not being acute. We are planning to fully recruit and perform these trials as designed.

And those are fair comments, Bill. I mean, these are not easy trials to run. And I completely understand where you guys are coming from. The other topic I want to touch upon, Bill, was typically, in my universe, people look at revenue growth. There is a multiple on the stock, which is based on revenue growth. If I had to just parse out the revenue growth for 2020, right, we're almost on track for 40%, call it, plus or minus, somewhere in that ballpark. You had CMS reimbursement come in, which I think was close to 10 points of growth. Active patients growth was another, call it, 20 points of growth. And those are really the big contributors, right? Next year, when we think about you don't have Medicare, should -- are we looking at revenue slowdown for next year? I know in the context of TAM, perhaps some people don't look at it, but there is a certain population who look at revenue growth numbers. Maybe talk about how we should be thinking about revenue growth trajectory for the company.

Sure. So you know we don't guide. So I'm not going to guide, but I will talk about the revenue drivers. So first of all, we look at growing revenue with a couple of levers. First of all, it's more patients on therapy, right? That's more scripts in our existing markets, one. And its expansion into more international markets where we are not currently in place. So just talking about those 2 aspects, we're about 40% penetrated in the U.S., about 30% penetrated in Germany and China, part of Germany and Japan. And there's no reason why we shouldn't be much higher penetrated, except that we're bringing a new technology to clinicians, and we have to bring our evidence. We have to get conservative physicians who aren't using specifics to use a physics-based therapy. That is a little harder in the COVID environment where we're not face-to-face. But we did have 40 papers at Snow. Most of them are from outside investigators, all of them consistent. So that's the blocking and tackling that's going on. And we do see -- quarter-to-quarter, there's variation, but we do see this general trend to growing our penetration in these markets. In terms of new markets, China just came on through our partner with Zai Labs, and I think we will start to see accelerating growth and real contribution from China. We will also be expanding into France. That's going to take some time to get reimbursement in place and then the other big European markets. So we expect growth there. The other driver of growth -- it's 2 more, is the revenue per patient per month. You mentioned Medicare is the big contributor. We're about 2/3 of the way to being able to fully recognize the Medicare revenue. So you are going to see some increased benefit from Medicare in the next couple of quarters, including in 2021. So we're not all the way there yet. We've also just started to recognize revenue from Israel. And we expect in 2021 to be able to get revenue from Switzerland. So markets that we're in, but we're not getting paid. So that -- there will be some benefit there. And then the third real driver is the duration of therapy. So we get paid per active patient per month. We have seen a big shift there as we've moved to front line. This is one area where we've probably reached the asymptote. We're about 80% frontline, and we may continue to push that up a little bit, but there's always going to be second-line patients who are on trials for 1 reason or another. But the other one is now increasing the time on therapy. And we do see that continuing to inch up. When we started, it was 7-ish months, then 8, now 9 months per active patient on therapy. And some of the things that we're doing, our TRITON trial, which will start the therapy 2 months earlier with radiation and then presumably get some benefit in the back end as patients live longer. That's going to start in 2021. We'll have patients -- we get paid for those patients. So on therapy, receiving their radiation. But in the medium term, that will extend it. And then the things that we're doing with high-intensity systems that we think can be step changes. And we didn't talk about it yet on this call, but very interesting data from Professor Tran at the University of Florida, just an early glimpse to these given all of us that combining Optune with KEYTRUDA and GBM is extending dramatically. The response rate is what he hinted at. We could see the effects of those combinations as we expect him to report his data at Snow next year. So there are multiple drivers for continued growth in the GBM business. And me personally, 40%, there are so many more patients who can benefit. We're not going to be happy until that percentage is much, much higher.

That's helpful, Bill. And I know we have a last few minutes left, but a couple of quick points. I just want to touch upon -- you mentioned Zai Labs. I mean Q3 was really strong for you guys, almost revenues sequentially double. What happened in China? Are we at an inflection point? And is there a way to put some numbers around the China opportunity for NovoCure?

So Zai needs to report, and we don't want to get ahead of Zai. But the big thing was they launched in Mainland. We received approval and Uri had a lot to do with that, and then they launched. So prior to that, it was Hong Kong only, which was nice. But Hong Kong is 10 million people. So size of a small country. And of course, China is the largest incidence of GBM by a lot. Now the reimbursement issues, getting paid for all those patients is something that Zai will work on overtime. But as a market opportunity, it's the largest. And as you mentioned, Zai, and going back to our clinical trials, our partnership with Zai encompasses a commercial partnership but also encompasses a clinical trial partnership. So we started our first, call it, walk before you run Phase II trial in gastric cancer. But we also expect now working with Zai to include leading Chinese centers in our international global trials, good for them because they'll have the data and the indications to launch in China, but also good for us because it -- COVID is a bit cooler in China now than maybe Europe and the U.S. So we can open centers there.

That's great. And then one last quick one, Bill, if you will. The recent rate, the convert issuance was quite interesting. And a 0% coupon, a pretty healthy premium that just shows the appetite for these kinds of stories. But keeping the investor side apart, you guys are already cash flow neutral, right? I was really surprised to see the raise. Are you pulling forward some investments? Or what was the rationale for the raise?

Again, I'm not going to pat myself on the back because it's the market, but those terms were the best terms ever for an initial officer -- an initial offer. 0% coupon, 5-year and a 50% conversion premium. I think you should have taken us out and shot us if we didn't take that money. We still are managing in a disciplined way. We still expect to be profitable. But we do want to prepare now for 4 simultaneous launches. When we launched GBM, we were a small company. We weren't -- we just went public. We built the plane on the runway in that market. We are planning to launch the way Roche or Merck or a J&J would launch with the appropriate preclinical precommercial activities to really hit the ground running. And imagine 4 major indications simultaneously. We want to be prepared for that. And the market was just so attractive. As I said, again, you should have excoriated us if we didn't raise the money now. So it's in the bank, we're not spending it any differently today, but we're prepared for dramatic growth in the future.

Fantastic. I think with that, we're at the end of the time here, Bill. And it's fascinating, look, I mean, there are a few stories I can think of for those TAMs on what it could be, it's quite meaningful. I know, Uri, we didn't get into some of the preclinical work that you presented at the R&D Day. I mean the work with the IO drugs with radiation therapy, it's really, really interesting. Perhaps another conference or a future date, we'll dig into that. Otherwise, gentlemen. Thank you both for your time.

Thank you. Thanks, Vijay.

Thank you very much. We really, really liked it. Thank you for inviting us. Bye.