NovoCure Limited (NVCR) Earnings Call Transcript & Summary

Good morning, and welcome to day 2 of the 40th Annual JPMorgan Healthcare Conference. My name is Gavin Scott, and I'm a biotech analyst here at JPMorgan. This morning, it's my pleasure to introduce Novocure and the company's Executive Chairman, Bill Doyle. Please note that we will be going straight into a Q&A session following the presentation. So please feel free to use to ask a question button on your screen or e-mail me directly. With that, I'll leave it to you, Mr. Doyle.

Okay. Good morning, everyone. Again, I'll add my welcome to Gavin to the first presentation of the morning. Just mechanics here, I believe you have the presentation on your screen, but you need to advance your own slides. So I'm going to reference the page numbers as I move forward, but you need to move the slides yourself. So first, I have to mention that I'll be making forward-looking statements. If anyone wants to see the full statement. It's available on our website. And with that, I'll start with Slide #3. Again, I know many of you are familiar with Novocure. But for those of you who are new to our story, Novocure was founded over 20 years ago now by Professor Yoram Palti, Professor of Medicine at the Technion in Israel. And his fundamental hypothesis at the beginning of Novocure was that the electric properties of proteins could be used rather than their chemical or biological properties as a target to fight cancer. The diagram here shows the principal mechanism of action. And as we all know, when cells begin to divide, they round up. As you can see in the left panel, the nuclear membrane disintegrates the chromosomes line up in the middle of the cell and a structure called the spindle self-assembles from proteins that are floating in the cytoplasm. It turns out these proteins are very polar. In other words, they have a large electrical charge. And Palti's hypothesis was that if we could get an electric field into the cell, we could disrupt the formation of the spindle. And rather than 1 cell becoming 2, 2 becoming 4, et cetera, we could induce cancer cell death. And that's what you see in the panel on the right. A couple of things I'll mention with respect to this mechanism of action. First of all, we're able to tune the frequency of the electric fields so that they only enter the cancer cells. This is very important and results in a therapy with essentially no systemic toxicity. Secondly, we can add in 2 other therapies. And you'll see throughout this presentation, the Tumor Treating Fields works with radiation, works with pharmacological therapies and I'll show some data how it works with immunotherapies. And again, because of this low toxicity, we're able to deliver the therapy for extended periods of time. If we go to the next slide 4. One of the interesting things about Novocure is that while we do clinical trials like a biotech. You'll see our business model is similar to a biotech business model. We actually deliver our therapy via a medical device. You can see the device on the left side of the slide, consists of 2 components. One is a small field generator, the current generation weighs about a kilogram, and that's connected to arrays. These are sophisticated transducers that attach to the body in the region of the cancer and deliver the therapy. This allows patients to receive therapy at home without going to the clinic, I mentioned without any systemic toxicity over long periods of time. So if I go to Slide 5, I mentioned that we've been at this for over 20 years. And during that 20 years, we've come from the original hypothesis of Professor Palti to the point where we've now built a global oncology company. We have the first 3 FDA-approved clinical applications, and we've built a business around those indications. We're commercial in the U.S., Europe and in both Japan and China, in China through our partnership with Zai Lab. We've treated over 22,000 patients to date. And we've established tumor treating fields as a platform modality. I'll talk about more -- talk about that more in a minute. But the mechanism of action that I described is not just applicable to brain cancer but is applicable to all the solid tumors of the head, neck, chest and abdomen. Perhaps the most exciting thing to report today is that building on this platform, we are now approaching a critical inflection point as a number of our late-stage trials are poised to read out over the next couple of years. If we go to Page 6, just a little more information about our GBM business. Our business is strong and it's sustainable. You can see that our gross margins approach biotech gross margins, approximately 80% and this business has enabled us to amass the cash reserve of approximately $1 billion. We've not raised equity financing since our 2015 IPO, and we are taking the profits from this business and investing in the tremendous organic growth opportunities that we see before us. If we go to Page 7. Our strategy for growth is straightforward and unchanged. We're focused on driving commercial adoption in our approved indications. We're focused on developing, and I'll make a difference between research and development here. We're developing our therapy by conducting clinical trials with the same mechanism of action in new indications. And one of the things, again, that differentiates us because we are delivering our therapy through a medical device, we're able to improve both the efficacy and the other aspects of the therapy through product innovation and we're investing there, too. So just a little more detail. So if I'll skip over the Slide 8 and go straight to the commercial adoption discussion. So as I mentioned, our principal business today is focused on the malignant stage IV brain cancer, glioblastoma. GBM is one of the worst diagnoses that a person can receive. It's -- the incidence is approximately 15,000 cases per year in the U.S. and similar number based on population in other regions. Early detection is essentially impossible. We're all not going for brain scans. It's detected when a patient is symptomatic, often with a seizure or with some other neurological deficit. And prior to Novocure, the average survival was a year to 1.5 years with only a 5-year survival of 5%. If I go to Slide 10, you'll see the results from our critical and pivotal Phase III trial in newly diagnosed GBM. You see the data and the Kaplan-Meier curves here on the left. You can see that approximately half of the patients on Optune therapy were alive at the 2-year mark, and that we've essentially tripled the 5-year survival from 5% to 13%. And we show that in the sort of a graphical form in the lower left. These data resulted in the first new FDA approval in GBM in well over a decade. These were delivered in a backdrop where essentially every Phase III trial of a pharmaceutical agent has failed over the last decade plus, and they've also resulted in the NCCN category one listing for Optune therapy. As exciting as these results are, and is promising for patients if they only tell part of the story. And if I go to the next slide, Slide 11, you'll see one of the things that really is an important aspect of Optune. I mentioned this is a home use therapy. When it's on, it's killing cancer cells. When it's not, of course, it's not. If I look at the top left part of this graph, we've shown a clear dose response to Tumor Treating Fields. So if you see patients who use the therapy at least 12 hours a day, derived a significant -- statistically significant survival benefit. But if you look at those patients who use it the most, who used it 90% of the time, those patients saw a dramatic increase in median overall survival. And if I go now to the bottom of the graph, you can see how the 5-year survival of the compliant patients compares to the control. So as I said before, using the prior standard 5-year survival of 4.5%, about 5%. For compliant patients, we go from 4.5 to about 30%. So a dramatic increase in survival with compliance. If I go to the next slide, I'll go to our next focus. So we're driving commercial adoption. Our second pillar of our strategy is to -- pardon me, our first pillar is to drive commercial adoption. So how are we doing that? Today, we're depending on our key market, U.S., Europe or Japan, were between about 35% and 40% penetrated. That means we receive a prescription today for about 35% to 40% of the patients diagnosed with GBM. On the one hand, we're quite proud of that achievement, given that we're a brand-new modality. On the other hand, that means the other 40% -- pardon me, the other 60% of the patients who are not receiving a prescription can benefit from the therapy. And we're focused on reaching those patients. We're doing that through a number of initiatives. We want to focus and strengthen the recommendation of the providers. In this case, the neuro-oncologists and the radiation oncologists. We're doing this through a variety of education initiatives with clinicians. We're also continuing to do research in GBM to engage academic centers. But importantly, we're also entering new geographic markets. The next geographic market on our list will be France, which we expect to enter later this year. This is an opportunity about the same size as our German market today. And then finally, we're really now focusing on the patient. We're unique in many ways with respect to medical technologies or pharmaceutical technologies and that we deliver our therapy directly to the patient. We send our device specialists to the patient's home. We teach them how to use the device. We then interact with them over the course of their therapy. And so we want to increase our outreach principally digitally to diagnose patients, to increase their knowledge and their ability to request the therapy. So if I go on now to the second pillar of our strategy, which is to expand our market by advancing a significant clinical program. I'll go to Page 14 and you'll see the underpinnings of our strategy here. We are focused on clinical trials that investigate the use of our platform in new indications. We're also exploring synergies with new standards of care, and we're working to expand the label in our approved indications. And I'll touch on the first 2 here in more detail. If you go to Page 15, you'll see in 1 page, the graphic representing our clinical trial program and where we stand in that program. First of all, if I look on the left, I'll emphasize that this, again, is the same mechanism of action. Its essentially the same device, just modified for the different regions of the body. And it's supported by 20 years of preclinical data that show that when we apply this mechanism of action to any cancer cell type we see the desired effect. So I think with respect to the near future, you can see that we have completed now enrollment in our Phase III LUNAR trial in nonsmall cell lung cancer, and we expect a readout next year with completed enrollment in our INNOVATE-3 trial in ovarian cancer. And we expect readout in 18 months in 2023. We are nearing completion of enrollment in our METIS trial in brain mets, again, expecting readout in 2023. And in our Phase III pancreatic study, PANOVA-3, we're enrolling and we expect readout in 2024. So 3 very exciting years upcoming with respect to Phase III data. So let me go now to Slide 16. This does summarize what I just described in terms of the randomized Phase III program. So again, LUNAR enrolled. We've finished INNOVATE, enrollment. METIS we're ranging in to final patient and PANOVA, we're working to get that enrolled with final data in 2023. And so what does this mean for us from a market -- potential market perspective? If you go to Slide 17, notwithstanding the fact that we've built our foundational business in GBM to drive future growth in the GBM business by the mechanisms and the programs that I've described. GBM is really the smallest of the indications that we expect to bring to market over the next couple of years. So in simple numbers, just with the current Phase III pipeline, we see a TAM of over 14x what we see today. And when we add to that the additional cancer types, that we're working on, both preclinically and in our Phase II program, the number is dramatically larger than even the 14x. And with that, let me move to Page 18 in the presentation because I do want to underline not only the clinical research but the more basic research that we're undertaking. Perhaps not unexpectedly, when we expose cells to electric fields, we not only affect the mitotic spindle, but we are affecting other mechanisms in the cell that have charged cellular components. I'm going to mention just a couple of these. I'm going to talk about in tumor immunity in more detail, but we see an effect on, if you will, making cold tumors hot, but let me focus on the left here. We see the Tumor Treating Fields prevent double strand DNA repair, and that is leading us to not only treating cancer cells, for instance, in GBM after radiation therapy, but treating them with radiation to enhance the effect of radiation and treating them with PARP inhibitors to enhance the effect of PARP inhibitors. So the science that we're engaged upon, we believe, will deliver additional strategies to benefit patients in the future. So I am -- as I mentioned, if I go to Page 19, I'm going to dive just a little deeper into a very exciting area for us. We have seen now that when we combine Tumor Treating Field and immunotherapies, we enhance and see a synergistic effect of these 2 therapies. And I want to illustrate a typical pathway for us here with these 3 panels. So if you look at the left, this is just an example of the extensive preclinical research that we're undertaking. This is data that shows the effects of Tumor Treating Fields on calreticulin in vitro. So calreticulin is a marker of immunogenic cell death and calreticulin exposes tumors to dendritic cell infiltration. So you see in the controls. So cells not exposed to tumor treating fields, very low exposure of calreticulin, but after just 72 hours, a significant increase. That leads to the middle panel here, where I'll show some preclinical research in animal models. This is an experiment where we have control animals who are only exposed to a an isotype, so a sham control. Then we see animals, and this is -- we're looking at tumor volume here of lung cancer. We show animals exposed to anti-PD-1 therapy. And then next to that, animal is exposed to just Tumor Treating Field therapy. You can see a significant effect compared to the controls. But impressively, when the 2 therapies are combined, we see a significantly improved tumor control in the yellow box on the right-hand side. That has now translated into clinical data. So in November at the Society of Neuro-Oncology meeting, Professor David Tran of the University of Florida presented interim data from his to the top Phase II trial in newly diagnosed GBM. And so I'll lead you to the right-hand panel. And here, you see a cohort of about 25 patients, newly diagnosed patients treated with Tumor Treating Fields, plus the standard Stupp Protocol compared to our EF-14 data. Now remember, the EF-14 data are the best data reported in a Phase III trial to date. We show a progression-free survival of about 6 -- almost 7 months in the control group. Professor Tran has almost doubled that to about 12 months. And one thing that I'll mention is that the prognostic characteristics of his 25 patients are far worse than the prognostic characteristics of the EF-14 data. So we think this is tremendously interesting. It's the underpinnings of our partnerships with Merck in non-small cell lung cancer and Roche in pancreatic cancer. And I think we'll be talking much more about this in the future. Now to move quickly to the final pillar of our strategy, which on Page 20 is to deliver improvements through product innovation and engineering. So on Page 21, you'll see the 3 elements of our system. The field generator, the arrays and what's behind the scenes, software that we use to help doctors optimize the therapy and help patients to be compliant with the therapy. We've rolled out now our next-generation torso array, that was one of our big applications in 2021. We've also initiated a field beta test of our next-generation planning software. But let me focus for a minute on the arrays because we made a very important announcement with respect to our next-generation transducer arrays. So if you go to Slide 22. Slide 22, I'm going to recount again that we have shown in clinical data that both time on therapy and the intensity of the therapy lead to a dose response and improved results. We have a paper here from the Red Journal, where we analyzed our EF-14 Phase III data. And it's clear that those patients with the extended 5-year survivals are those patients who receive the most energy. If I go to Slide 23, this is new data for everyone. This is in vitro. So laboratory data that shows the kill rate of a variety of cells, like glioma, lung, mesothelioma, gastric cancer, ovarian cancer, cervical cancer as a function of field intensity. And what I want to show on this graph is that you can see relatively small increases in field intensity lead to significantly increased kill rates of cancer cells. Conversely, you can see on the left-hand side, until we get up to about a volt per centimeter, we're not killing significant cancer cells. So for us, clinically, we need to get above a volt per centimeter. And as we get to a volt and a half, 2, 3 volts, we see a significant kill rate. Now I will suggest too, that this is an experiment that was running for 72 hours. The other parameter is that we want to treat for very long periods of time. So on Slide 24, yesterday, we announced that we are significantly advanced with our next-generation arrays and that we expect to launch in Europe later this year and file for U.S. regulatory approval later this year. Why are we so excited about this? If I look to the graph on the left, you can see the energy delivered by our current array. You can see it goes up and down. It goes up and down because as it heats up, temperature sensors in the array will turn it off until the temperature comes down, then it will turn it back on, temperature goes up, turn it off, temperature goes down. And as a result, we get an average energy delivered over, in this case, about an 8-hour time period. If you look above, you can see our new arrays deliver their energy at a substantially lower temperature. That's important because it means they're not going on and off. And it's important because the energy that we can deliver is actually the maximum that 2,000 milliamps is the maximum that can be delivered by our core generation box. How does that translate? If I go to Page 25, here are 2 scans of a patient's brain. And you can see on the left, with our current arrays, the energy delivered versus the new arrays on the right. And then if you look at the scale, you can see that the light blue, yellow and of course, into the red, is where we need to be in order to deliver that maximum kill rate. So you can see why we're excited. These arrays will also be lighter and more comfortable on patients. As I said, we're currently doing healthy volunteer testing to provide data for our regulatory submissions, and we expect European launch later this year. So let me end on Slide 26. We see a catalyst-rich period in front of us. We really believe that the next 2 years will be transformational for Novocure. We are investing the profits from our GBM business to build the foundation to launch new indications in lung, ovarian and pancreatic cancer. We continue to invest to improve the efficacy and comfort of our therapy through product development, and we are determined to bring our therapy to all the patients, including all the GBM patients who today don't receive scripts through our new and determined sales and marketing efforts. So to end and to lead into Q&A, our mission is the same as the day that we were founded by Professor Palti. We're working with our patients. We're working with our providers to bring our platform therapy to patients and to extend survivals in really some of the most difficult cancer diagnoses that people face. And with that, Gavin, I'll turn it back to you for Q&A.

Thank you, Bill, and welcome, Ashley, if you join the Q&A session. So given the focus on label expansion and the opportunities you have across solid tumors and gastric, ovarian, lung cancer. Got several questions on the INNOVATE-3 study yesterday in terms of the interim analysis. And I think the expectation from the clinical trial design was that it was enrollment driven. So I was wondering if you could just discuss some of the dynamics at play in the disclosure yesterday? And how that might impact how you're viewing the study now?

Yes. So the simple answer to your question is it doesn't impact how we view it at all. And I want to emphasize that the final -- the timing of the final data remains unchanged. So those are the 2 principal points. When we initiate a clinical trial, we may make estimates about the speed that the trial will recruit. And that's a function of the number of centers that we open in the recruitment rate per center. I'd like to tell you that the forecast is more than a guesstimate at the beginning, but it ends up being a guesstimate. And as that trial progresses, the guesstimate becomes an estimate, becomes a forecast and then becomes a complete. What that means is that, in some cases, the trials recruit more slowly than we estimate. And in other cases, they recruit more quickly. It turns out the INNOVATE study recruited much more quickly than we anticipated. There was much less competition for clinical trial patients in the ovarian space. And the interim analysis, while based on a recruitment target had a baked-in event rate assumption. Because of the fast recruiting rate, we just haven't hit the number of events yet. We see the total events. We don't see the data. We don't know whether the events are in one arm or another. But we can now project that will reach the appropriate event threshold at the end of Q1, and we're just saying that the data will be cleaned and the interim will be available on Phase II. Just again, for everyone, data will not be presented. We will not see data. This will be sort of a green light, red light, interim analysis that's typical. Our full expectation is that the trial will proceed through the full follow-up and that we will have data available in 2023.

Great. And then we might go circle back to ovarian. But on the lung cancer front, Obviously, we're in the follow-up period. You reiterated guideline -- guidance for data this year. Any other color you could provide in terms of that study? Or is it more watch and wait beyond the update we got last spring?

Yes. I think, again, the good news is notwithstanding pandemic headwinds, our team completed the enrollment. And so now we are literally on the clock waiting for the follow-up. And again, similarly for the ovarian cancer trial, we've completed enrollment, and now we're on the clock following those patients.

Great. And assuming LUNAR is positive, maybe you can frame the ultimate commercial opportunity within lung cancer as well as just the lung program in totality, given the METIS study thereafter?

Yes. So I'll start and I'll turn it to Ashley. But of course, lung cancer is the #1 cause of cancer death. It's the largest cause of cancer death in the U.S. and similarly around the world. There has been great progress made, particularly with the emergence of immunotherapies, KEYTRUDA being the workhorse drug in this area. But most patients who are diagnosed with lung cancer will still die of lung cancer. And many, in fact, the majority of patients are still not -- don't have the appropriate genetic factors to have a significant benefit from the current immunotherapies. So our trial, the LUNAR trial is in second line non-small cell lung cancer. And we designed it with 2 arms, so 2 treatment arms. One treatment arm includes Tumor Treating Fields plus paclitaxel, which is a taxane with which we see the most synergy. So all the chemotherapy agents, we see the best work. And this is a chemotherapy agent, of course, that's used in non-small cell lung cancer. And then the second arm is designed to be used Tumor Treating Fields with immunotherapy. And in the presentation, I showed why we're excited about that combination. So that's the Phase III data that we'll read out towards the end of this year. In addition to that, as you mentioned, the #1 cause of brain metastases is brain metastases from non-small cell lung cancer. It's a significant complication. And it's a complication for which there's not really a good therapy. The immunotherapies are not have shown not to be effective in the brain, just as the immunotherapies, by the way, have not shown to be effective as single agents in GBM. And so in METIS we're treating those brain mets. And then finally, we have now initiated a partnership with Merck. Merck had early access to the [ Tran ] data that I showed here today. And based on that discussion, we have initiated a Phase II trial. In first line, non-small cell lung cancer, combining Tumor Treating Fields and KEYTRUDA in those patients. So it's a comprehensive program. This is an area where the standard of care has been evolving, but we think the full nature of the data that I just described will enable clinicians to determine the best use of Tumor Treating Fields. And Ashley, maybe you can comment on the opportunity.

Yes. Yes. I won't add much. I think you covered it well other than to say the second line of [ treatment ] population, we believe, is about 1/4 of the incidents in the U.S. So that will be the label at launch. But again, I'll just reiterate what Bill stated that we continue to invest in our lung cancer program, he highlighted 3 additional trials, but this is an area of ongoing investment reviews for us. We fully expect that Tumor Treating Fields will have a role to play in that treatment of lung cancer throughout the treatment journey over time.

Great. And you shared some data on the high-intensity arrays. I know there's a study approaching this year, evaluating that in a Phase II study. Maybe you can discuss that opportunity and kind of your confidence that this preclinical data that you highlighted in the presentation is likely to translate into that tumor setting as well as other tumor settings.

Yes. So let me just emphasize again that there's absolutely a dose response of Tumor-Treating Fields and cancer death. We see it in vitro, we see it in vivo, and we see it in the clinic. I didn't spend a lot of time talking about the Red Journal paper, but it's very clear that those long-term survivors in our studies. And by the way, in the real world. So we have huge amounts of real-world evidence now of very long-term survivors. Those are the patients who received the higher doses of Tumor treating fields. So we ask ourselves, how can we deliver that high dose effect to everyone. One way is through things like our [indiscernible] software and -- which optimizes the placement of arrays and our work with our patients to ensure compliance. But most importantly, we want to actually deliver more energy. And -- To date, we've been limited by the temperature of the skin that with our Generation 1 arrays as you turn up the energy the point of maximum resistance is the point between the array and the skin and so generate heat. And that limits, as I showed very clearly in that graph, the amount of energy that we can deliver. This new array overcomes that problem through engineering in which we've invested. And we do have a first Phase II trial. I will say that's with a older generation experimental, high-intensity array. But this new array gives the benefits of high intensity, but it's also lighter. It's more comfortable. So we think it's going to improve or has the potential to improve compliance and energy delivery. And again, I tried to show in a region that's important. So it's 1 thing if you went from 1 to 2, but you needed to get to 10 it wouldn't matter. We're going from 1 to 2 in a region where going from 1 to 2 makes a big difference in terms of efficacy.

Great, Bill. Well, with that, I think we've come to the end of our time here. I want to thank Bill and Ashley for -- and the rest of the Novocure for joining us today, and I hope everyone has a great day.

Yes, we want to thank everyone for your interest and look forward to 2022.

Thank you.