NovoCure Limited (NVCR) Earnings Call Transcript & Summary

All right. Good morning from the virtual JPMorgan Healthcare Conference. My name is Cory Kasimov. I'm the senior large-cap Biotech Analyst, and it's my pleasure to introduce our next company, NovoCure, and Executive Chairman, Bill Doyle. Please note that following this presentation, we will have a Q&A session where you have the ability to submit questions via the little blue, ask-a-question button in your conference portal. So with that, Bill, thanks for being here today, and let me turn things over to you.

Hello, Cory. Good morning. I'm joining you from NovoCure's operations center in Portsmouth, New Hampshire. And I want to say hello to everybody. Good morning to everyone in the U.S., and hello to everyone in the rest of the world. I'm going to call out the numbers of the slides that I'm going to be presenting this morning, so that everyone can follow along. I'll start with Slide 2. I will be making forward-looking statements and you can read our full forward-looking statement on the website. But now if go to Slide 3. For those of you who have been following us for some time and certainly, since our IPO in 2015, you know that at NovoCure, we are building a company based on the invention of Tumor Treating Fields, a new cancer therapy modality that was invented by Professor Yoram Palti at the Technion in Israel. We've gone from literally petri dishes in Professor Palti's basement to finishing 2020, as you see on this slide, with 3 FDA-approved indications. We've treated over 18,000 patients globally by the end of the quarter. We had revenues approaching $0.5 billion in 2020. And importantly, those revenues allowed us to invest over $100 million in R&D, and we'll talk more about those investments in the presentation. We also significantly matured our capital structure in 2020. We retired our venture debt, and we're able to, with the help of JPMorgan, issue a convert and make other changes and now have over $800 million of cash on hand. This is important because it gives us the flexibility and the fuel for growth. And that is going to be a key theme. It's a key theme in NovoCure, and it's a key theme of this presentation. We have 5 indications in late-stage development, and I won't talk about this any further in this presentation, but we have 185 issued patents and patents pending globally. This is a tremendous intellectual property moat around our company. And as we improve and continue to invent to develop our technology, we continue to file new applications. And this occurred in 1919 in 2020, and we expect it to continue into the future. While 2020 was a challenging year for all of us, and it was challenging at NovoCure as well, notwithstanding those challenges, we continued our track record of execution. And I'm not going to read every single one of these achievements during the year. But when you look at the sum total, it really is, I think, a testament to the dedication of the NovoCure team that all of these accomplishments were notched during the year. We opened clinical trials, including our first trial, the EF-31 trial in China. We received national reimbursements in Israel, National reimbursement in Germany, National reimbursement in Switzerland. We received approvals for Optune in China. We received our CE mark. So approval for Optune Lua, our mesothelioma product in Europe, just at the end of the year. We announced major clinical trial collaboration with Merck, as well as a major research collaboration with NYU. And again, that -- if I move now to the next slide, on my Slide 5, you can see that while we were making that operational progress, we also sustained our commercial momentum. And I think, again, given the year, this was a an extremely important accomplishment. You can see growth in all of our markets, the U.S., Europe, Japan and now through our partnership with Zai Lab, you can start to see the contribution from Mainland China. This was a 41% year-over-year revenue growth, and we ended the quarter very strong with almost 3,500 patients on therapy. So while that was an extremely strong year, if I go to Slide 6, we really do believe at NovoCure that we're just getting started, notwithstanding the accomplishments. And we -- when we think about our company and we think about every day, we are thinking about bringing our therapy to many, many more patients in the future. This, from an investor perspective, represents our comprehensive growth strategy, and it's based on 3 pillars or really, 3 underlying priorities that drive all of our activities within the company. Those specifically are to drive commercial adoption in our approved indications in our existing markets. To advance our clinical program to expand the use of our platform in other cancers. And to deliver product innovation and what we mean by delivering product innovation is that we have the opportunity to take our existing Tumor Treating Fields platform and improve it, so that the efficacy that we deliver is substantially greater, notwithstanding the fact that today, for instance, in GBM, we delivered the best results available to patients. We believe that we can significantly improve those results through product innovation. And I'm going to touch on each of these growth drivers in a little more detail. If I go to Slide 7 now. We think there's significant room for further growth in GBM and MPM. On the left-hand side here, you can see our approximate penetration in our existing geographies. So the good news here is that we have succeeded in taking a brand-new therapeutic modality that was unexpected. And quite frankly, in the early days, was often considered voodoo in the community, simply because no one had studied the use of intermediate electric fields to treat cancer. And we have brought that to a point where we have significant penetration in all of the major regions of the world. That said, the bad news here is that, of course, for instance, in the U.S., where 40% of the patients are receiving prescriptions, 60% of the patients who can benefit are not yet receiving prescriptions. So our first significant drive within the company is to continue this penetration. This is primarily an exercise in education and getting physicians familiar with all the aspects of this new modality. But beyond this, we have more opportunities. We can enter new markets. We entered China with Zai last year, and we expect continued penetration in that, the largest market in terms of patients. But in Europe, our market is primarily a German market. I mentioned, we also have received reimbursement in Switzerland, Israel, Austria, Sweden, but that leaves the other big 5 countries. We've started our efforts in France, and we will continue through Italy, Spain and the U.K. to grow through those new markets. We're also working to extend the average revenue per patient. Those of you who have followed us know that our business model enables us to charge our payers per month of therapy. So the better the patients do, the longer they live, the longer they stay on therapy. It's of course, better for the patients, but it also drives more revenue for NovoCure. So I mentioned reimbursement in Israel. I mentioned reimbursement in Germany, reimbursement in Switzerland. We also continue to progress the administrative ramp-up in Medicare that we started last year. We think we're about 2/3 of the way there. So there's more benefit to come from the Medicare program. We also are working to extend the duration of therapy. I mentioned before that the better the patients do, the better we do. And we have a variety of programs to help patients improve their compliance, which improves their therapy. And there are some other programs that I'll mention here in a moment. So with that, let me now turn to the second priority, which is growing through the expansion into new cancers. If you go to Page 8, I'll remind everyone that we have a fundamental mechanism of action. Electric fields that are tuned appropriately can enter cells. And when they enter cells that are dividing, they exert strong forces on the charge proteins that are involved in cell division. And the picture that you see here on the right, which is a picture I've used in many presentations, shows a normal cell division. And then on the right, a cell division that's been affected by Tumor Treating Fields. An interesting aspect of our progress, though, can be seen in Slide 9. While we understand the fundamental mechanism of action. It turns out the electric fields, these strong fields that we're able to tune to penetrate cells have other downstream effects on cell division as well. These effects are being explored by researchers within NovoCure but also researchers and academic and industrial institutions around the world. And we're learning things like Tumor Treating Fields prevent double strand DNA repair. They stimulate abscopal immunity and also because they stimulate or they create immunogenic cell death, they expose the cancer microenvironment to the immune system. We also see through work that was done at Stanford University, that the exposure of Tumor Treating Fields can increase cell membrane permeability. This is not electroporation, but a much more subtle effect that allows for large molecules that may not have been able to get into cells to penetrate cells. We see that Tumor Treating Fields up-regulate autophagy. And also they prevent cells or they reduce cell's ability to migrate. Which has implications for metastatic disease. All of these discoveries or understandings are enabling additional strategies beyond the basic ad tumor treating fields to the standard of care strategy that we've pursued. And I think promise great applicability across the board as we continue to study. Now it's not important for us to just, of course, study the scientific aspects of Tumor Treating Fields. But if we go to the next slide, my Slide 10, you'll see a snapshot of our clinical pipeline. In the early days of NovoCure, we were able to do 1 trial at a time. We did a recurrent GBM trial then we did a newly diagnosed GBM trial. But our financial strength has enabled us to make significant investments that allow us -- now we group them in 3 basic categories. Continued trials in brain cancer, a large program in lung cancer and also a very large program in cancers of the organs of the abdomen. A little more detail on those. If you go to Slide 11, you'll see that we have not stopped investing and continuing to improve the outcome for patients with GBM. We opened a very large trial in 2020 that we call the TRIDENT trial. And the TRIDENT trial is based on research that I mentioned that shows that Tumor Treating Fields will prevent double strand DNA repair. Well, when radiation is ionizing radiation penetrates a cell, it does its damage by damaging DNA. Turns out that as organisms that have evolved in the sunlight were actually very good at repairing that damage. And that's one of the chief factors that requires even higher doses of radiation as this self-repair. When we did our original EF-14 trial in GBM, newly diagnosed GBM. We added Tumor Treating Fields after radiation. In TRIDENT, we're comparing a cohort where we continue to add Tumor Treating Fields after radiation to a cohort where we will start Tumor Treating Fields with radiation. Again, with the goal to extend survival in these patients. This is a large trial and from the business perspective, this allows us to engage with academic centers studying GBM. It allows us to engage with radiation oncologists, who are a very natural prescriber for Tumor Treating Fields. And it allows us the opportunity again, by extending life to extend the duration of therapy and thus improve our business as well. Moving to Slide 12. You see a snapshot of our thoracic cancer program. We're now calling it. These are the late-stage programs here. They include our METIS trial in metastases from non-small cell lung cancer. The largest source of brain metastases disease is non-small cell lung cancer, and we are testing our ability to fight those metastases as well as our LUNAR trial in second-line primary non-small cell lung cancer. Both of these are recruiting. We expect final data from METIS in 2022 and final data from LUNAR in 2023. Moving to Slide 13. You see a summary of our late-stage abdominal cancer program. This includes our PANOVA trial in pancreatic cancer, as well as our INNOVATE 3 trial in ovarian cancer, 2 cancers with tremendous unmet needs, as you can see by the incidence of these cancers. Again, we anticipate final data from these cancers, both in 2023. On Slide 14, I want to highlight something that may be less familiar to some of you. In addition to these company-sponsored Phase-III trials. There are also, today, approximately 30 additional investigator-sponsored trials of various aspects of Tumor Treating Fields that are ongoing at academic research centers. We sponsor investigator trials when they submit to us ideas that we think are meritorious of study. Very often, these are Phase-II trials. And I want to highlight one that we highlighted at our R&D day to give you a sense of the sorts of things that we're working on. The to-the-top trial is being conducted at the University of Florida by Dr. Tran. In this trial, he's looking at newly diagnosed GBM patients. These patients are almost all comers, he's taking patients that have had total resections, partial resections as well as biopsy only. They receive standard chemoradiation, followed by temozolomide, Optune and KEYTRUDA or pembrolizumab, Merck's anti-PD-1 cancer agent. This is a very interesting trial. Dr. Tran at R&D Day signaled early results where he's seeing very strong responses. And we're all really looking forward to seeing the final data later this year. It's a particularly interesting application of Tumor Treating Fields. And again, it goes back to my circle chart where the fact that Tumor Treating Fields have effects on the immune system that may, in fact, be synergistic with immunotherapies. We see this in our animal experiments, and now we're very interested in investigating this in patients. This is also, of course, the basis of our partnership with Merck in first line non-small cell lung cancer to test Tumor Treating Fields plus KEYTRUDA in that environment. So if I go to Slide 15. And so you sort of look at the sum of the parts in terms of the business opportunity. If we just look at what we have in the late stage. So I'm not counting the Phase II programs. We see a market expansion potential of 20x. So really an extraordinary potential. And then from there, we have 10 additional cancers where we have preclinical evidence of efficacy. So this is why I say notwithstanding the progress of the last 20 years, we really feel like we're just getting started at NovoCure. If I go to Slide 16 now. I'm going to talk about the third overarching priority. We know through our clinical analysis of our clinical data that Tumor Treating Fields are dose dependent. What does that mean? It means that the higher the dose of Tumor Treating Fields energy, the more Tumor Treating Fields energy that a patient receives the better their outcomes. That dose includes 2 components. It includes their time on therapy, both in terms of the hours-per-day and the months, times the strength of the fields we talk about how we tune the fields to a specific frequency to get those fields into selected cells. The other parameter that's important then is the strength of those fields. And the strength of those fields is determined by our equipment. If I go to Slide 17, you'll see the 3 areas of active product development within the company. I said in our early days, we could only do one thing at a time. We could only do one trial at a time. We could only do one development program at a time. Today, we have the financial resources to mobilize separate groups in each of these areas. So we have teams working on the next-generation of field generator, make it smaller, more powerful, to change the wave patterns to make them more efficacious. We have teams working on arrays, and we have teams working on software for both the patients and the doctors. Slide '18 is a bit of a busy slide, but I'm going to use it to just give you a little bit of a sense of what we're doing here. Our device 3.0 -- current device, 2.0 was much smaller, easier to use than our first commercial device. Device 3.0 will further optimize not only the size and weight, but the way the fields are generated. It turns out we can do things with the shape of the field, for instance, in order to improve the efficacy. We have a tremendous amount of work in the arrays. For those of you who have heard in my presentations, you know that our fundamental limit of intensity or energy is the heat that's generated between the arrays and the skin. We are making these new arrays in ways that dissipate that heat that are much more comfortable, much more easy to change and ultimately allow patients to get longer times comfortably and much higher doses. This is a very important source of innovation for the company. And I don't want to underestimate software. We have a new software application that we call MAXPOINT that's in beta testing with radiation oncologists that allows doctors to better position the arrays and individualize the therapy for patients. We also introduced a new product and software called MyLink, which allows much more frequent and remote monitoring of patients' compliance. This allows us to give feedback and also to spot issues. If a patient is having some challenge with a device for instance, in the early days of learning to use it, we can identify that now much more quickly and help those patients. So those are our 3 overarching priorities, again, driving our commercial business and our existing and new markets, driving a very ambitious clinical development program. In new indications and driving innovation of our hardware to improve efficacy, improve comfort, improve ease of use and, of course, to generate further patent barriers to protect our business. So I'm going to end on Slide 19 or this will be the end of my remarks. When we started 20 years ago, Professor Palti, I remember, met with me at a restaurant in Israel and explain what sounded like a crazy idea. We're going to use electric fields rather than surgery, chemotherapy or radiation to fight cancer. In the 20 years since, we have done rigorous science and that science continues. We continue to invest within NovoCure, as I've described. We now invest to help researchers outside of NovoCure. We have a program to award research grants to young investigators who are investigating the use of Tumor treating fields. We have what we call our Inovivo and invitro systems that we provide to academic institutions to allow them to study tumor treating fields. And of course, we have -- and we are expanding our investigator-sponsored trial program to allow an even broader reach in clinical trials. And then I don't want to miss our patient support network. We have patients and caregivers we have our prescribers, and we have patient advocacy groups that have really become involved, gotten behind the education in bringing tumor treating fields to patients who can benefit. On Slide 20, I'll summarize. Our mission at NovoCure is clear. We are striving to extend survival in some of the most difficult, aggressive intractable cancers. We do this by developing our platform, Tumor Treating Fields. We have established a commercial business that's now profitable, this allows a tremendous financial strength that allows investment in our clinical programs and in product innovation. This is a virtuous cycle that will drive growth as we progress into the future and will allow us, I believe, to build one of the largest and most valuable medical device companies in our industry. So with that, I'm going to take a breath. I'm going to ask my colleagues, Asaf Danziger, the CEO of NovoCure; Ashley Cordova, our CFO; Uri Weinberg, our Chief Science Officer; and Pritesh Shah, our Chief Commercial Officer, to join me for Q&A. And with that, I'll turn it back to Cory to moderate the Q&A session.

Great. Thank you, Bill, and welcome to the whole team. Let me just remind our audience that you are able to ask questions with the little blue ask question, toggle in the portal. We have a few in there already. So I guess what I'll probably do here and I'll work the audience questions in as I go through. Maybe just a couple on commercialization. And then we'll talk pipeline and maybe some bigger picture product development after that. So to start on commercialization, post yesterday's pre announcement, can you sort of just talk a little bit about the commercial dynamics that you observe that kind of drove fourth quarter performance as well as the tailwind that you're seeing from prior Medicare settlements?

Sure. I'm going to let Ashley and Pritesh answer this question. I will say, though, that we are tremendously proud of what we were able to accomplish in 2020 and to grow through the pandemic, that notwithstanding the fact that nothing was easy in 2020. And maybe Ashley, you can talk about the Medicare both the existing claims and the prior claims and then Pritesh maybe a little color on the market.

Certainly. So thank you for that question. So the answer on Medicare is relatively straightforward. We did continue to work through our administrative ramp-up in the fourth quarter. We're about 2/3 of the way through that progress. And we booked $9 million related to claims, which started post that coverage decision policy in September 2019. So $9 million to $10 million, that number was $11 million in Q3, represents about 2/3 of the opportunity there from an ongoing durable, sustainable run rate. Now we also booked $11 million in revenue from claims, which were appealed from date of service prior to coverage. That is much less predictable. And for that reason, we've called it out. It was $8 million in the third quarter. There's a large bucket of opportunity there that we are pursuing, but it's not yet a bucket of revenue that we can tell you exactly at which pace will cadence on. I would expect on our call with the 10-K and in the fourth quarter earnings in February that as we continue to gain additional experience, we'll provide additional color there.

Okay. And just to work in an audience question here, is the right way to think of Medicare catch-up payments going forward of roughly $10 million per quarter until you fully catch up?

It's hard. Again, we're not giving any guidance on those catch-up payments because they're not yet predictable. So we don't have an official right way to think about the catch up payments. I do think that, that kind of $9 million to $10 million to $11 million ramping up to the full Medicare benefit for our durable sustainable Medicare population is something that should be modeled. The rest I would set aside until we get further guidance.

Okay. And then a follow-up commercial question, probably either for Bill or Pritesh. With the penetration numbers bill described in the presentation and talking about the education that's necessary to kind of continue to push that forward? How much education is typically involved to get a physician or a center to try Optune. And when they do try it, do you have data that kind of is indicative of the uptake from there?

Okay. Sure. Bill, would you like me. Great. Okay. Thank you for the question. So I'll remind you of one aspect of our product that -- where the education starts, it's certification trading. So in the United States and the majority of other parts of the world, NovoCure offers a training on the Optune device to our prospective providers. And that really is the journey that the provider takes to ensure that they can then take that information and help the patient and the caregiver understand about the benefits of the product and then all the logistical aspects that will entail and how NovoCure will support patient throughout that journey. So education is clearly important. As you've heard Bill talk about in all of our presentations that we're bringing a brand-new modality to the marketplace. And the penetration rates that we see today are a direct result of that education being pulled through in experience in the clinic, and allowing patients to benefit from our products. So it plays a key role. One of the areas that we see where it has a particular impact is in the confidence level that the physician has in our therapy, understanding it first and then breaking it down to the patient and the caregiver in the role that option will play as an opt-in LUA will play as part of their treatment journey. So much of our efforts over the last several years and they will continue on is on strengthening this confidence level that the prescriber has to explain the therapy to the patient. Now one of the benefits that we have because the patient and the caregiver also involved in the treatment is working directly with them. So we have initiatives such as the ambassador program, where we have patients and caregivers who are familiar with Optune and Optune Lua talk to other patients who may be thinking about the therapy or maybe about to start the therapy to give them additional level of support there. And then finally, opportunities to ensure that we can bring that education to a broader number of patients we have, what we call open houses. So our forms to better understand our product. And situations where in some parts of the world where our sales specialists are also able to talk about our product, the logistical aspects about our product to patients. So it's really a push-pull effort. And when we get both of those right, the opportunity for patients to, say, yes, to the treatment and physicians to treat their patients with confidence results in clinical outcomes.

Okay. All right. Terrific. So as we transition we're about 8 minutes left and talk about some on the pipeline, we have multiple Phase III trials that are ongoing. Do you look at any of these as having a relatively higher probability of success than the others based on either the tumor type being targeted, the standard of care it's being compared to or the earlier evidence that's been generated in your prior clinical trials?

Yes. So I'm going to start, and I'm going to let Uri and maybe then Asaf weigh in too. It's important, I think, for people to come back to the fact that we have a very fundamental mechanism of action. It's an antimitotic mechanism of action. And that mechanism of action has shown in preclinical and clinical work to be effective in every single cell line that we have tested every single animal model that we've tested and now every single Phase II -- first-in-human Phase II, Phase III that we have undertaken. So it's a very basic mechanism of action. We have to be able to deliver the fields to the region of the tumor. And we have in each of these areas in the brain, in the thoracic cavity and in the abdomen. We have shown, measured, proven that we can deliver the electric fields at the appropriate frequencies to the region of the tumor. Each of these programs is also supported by strong Phase-II data. So it's not a situation where we have -- we're throwing it against the wall, if you will, to see where it will stick. We are only going into Phase-III when we have the strong preliminary evidence of a Phase II. I'll say further, because we don't have any systemic toxicity. Another reason -- obvious reason for failure in clinical trials is an unexpected tox signal, it's highly unlikely. There'll be any sort of a TOX signal with Tumor Treating Fields based on experience, again, not just luck. So all that adds up to, in my mind, a suggestion that these are all -- and the reason we're investing in them is the probability is strong in each one of these trials. And as a result, I don't have any favorites. So with that, Cory, you have a favorite.

I do want to take your sentence about it. It's like we have a 4 phase [ call it ] like 4 childs that high maintenance feeds. We invest a lot of effort and energy and funds in order to finish these trials. So as Bill mentioned, we started this try in order to win in all of them. So go ahead Uri with the scientific aspect of your favorite.

So thank you, Bill, and Asaf. And the short answer is, obviously, that they don't have a favorite study. I'd like to just -- since we don't have much time left, quickly reiterate what Bill said about the basically ubiquitous nature of our mechanism of action. And in view of our deep understanding of the mechanism of action following 20 years of preclinical basic research that is now ongoing also in plenty of the academic -- leading academic centers in the U.S., in Europe, through programs, which bill mentioned on his presentation. Since we know that potential, we have already tested numerous different cancers preclinical multiple preclinical models. Now I'd like to help everybody understand the process that we follow in order to be able to convince ourselves to open a Phase-III pivotal study in specific solid tumor. We first defined and characterized the cell line that we start working on multiple cell lines for each type of cancer, then we reconfirm the mechanism of action. We find if there are specific combinations that could be specifically effective in the specific cancer type we are testing, only then do we take these 2 animal studies and test it in numerous Invivo testing experiments, and only then are we taking it to pilot studies first and then to pivotal randomized study. So I'd like to make everybody realize that we have a very, very high standard for selecting those studies that are then taken to Phase-III testing. And only after rigorous testing, we see all of these in our late phase clinical pipeline. So thank you for this question.

Yes. All right. Perfect. So just trying to work in a few more questions. We're not going to get to all of our audience questions here, unfortunately. But are you guys thinking of using Optune plus radiotherapy in bone mets? Can you just talk about the rationale of the Tumor Treating Field radiotherapy combination?

Yes. So that's a 2-part question. Uri, why don't you follow-up on the Tumor Treating Fields plus radiotherapy and then talk about the issues with bone?

Yes. So thank you for this question. And I'll start with the basic understanding of the mechanism of action, which is relevant for the synergistic effect that we have already seen in preclinical models when we combine TTFields with radiation therapy. And this is largely based on work that was conducted at UT Southwestern by Dr. Michael Story and his colleagues, demonstrating that applying TT fields to tumor actually inhibits, double-stranded DNA repair mechanisms that are well-known to the scientist, BRCA, for example, FUNK is another one. And that opens the way for TTFields to serve as companion for radiation therapy in numerous tumors, making those tumors more susceptible to the damage, which is elicited by applying radiation therapy. Inhibiting those repair mechanisms that come into play following the radiation therapy and improving the outcome of these patients who receive this therapy. I will mention that this has already been tested and I'm really giving you that part of the mechanism of action that is relevant here and in a nutshell, since we don't have the time, but this has already been tested in 2 pilot studies in glioblastoma. And the combination has proven to be safe in this patient population. And we definitely are planning to continue and develop this. And the Trident study for 950 patients that received TTFields in combination with radiation therapy and temozolomide in newly diagnosed GBM. This is the largest of its kind and certainly one that will give us a good understanding of the efficacy of this treatment combination, but it is also relevant for other cancers. Of course, when it comes to the bone, there are certain cancers that metastasize to the bone, and we can certainly consider treating when the lesion is basically exposed to TTFields and we can technically reach it in malignancies that reside inside the cortex, the nonconductive tissue of the bone. This is an issue, and we are unable to treat using TTFields. I would say, fortunately, so maybe because this prevents us from causing hematological adverse events and contributes to the great toxicity profile of TTFields. So I'll stop right here since we are up against the time.

Yes. Unfortunately, we are out of time. We have a lot more questions to get through, but we'll have to do that at another point. So thank you guys very much for taking the time to speak with us today, and have a great rest of the week.

Thank you. Thank you very much, Cory.