NovoCure Limited (NVCR) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Larry Biegelsen, the medical device analyst at Wells Fargo. It's my pleasure to host this session with NovoCure. With us, we have Bill Doyle, Executive Chairman; Ashley Cordova, the CFO. In terms of format, it's going to be fireside chat. If anybody has a question, please raise your hand, we'll come around. Bill and Ashley, thanks so much for being here.

Thank you, Larry. Thanks for having us.

Thanks for having us, Larry.

Of course. So let's start with the INNOVATE-3 top line results that you guys released, I don't know, about a week ago. Bill, maybe just provide us with your perspective on the data?

Sure. So for those of you who follow us, you know that we announced that our INNOVATE-3 Phase III trial in late-stage ovarian cancer did not meet its primary end point. This was clearly a disappointment for us. We enter into all of our Phase III programs with the intent to succeed. And it was also disappointing given how strong our Phase II results were in the same cancer. So let me -- let me give a little perspective, if I can, Larry, on this. So just to remind everyone, when a woman is diagnosed with ovarian cancer, they're treated today with chemotherapy, typically a platinum-based chemotherapy and increasingly with a PARP inhibitor in the first line. Approximately 80% of the women, so the vast majority will respond to that therapy, 20% crash right through, and that's a population for whom we need a solution. But then the women will recur. And then they're rechallenged on the same chemotherapy and PARP inhibitor, they'll recur. And ultimately, at some point, they will stop responding to that chemotherapy or chemotherapy plus PARP. Those were the patients that we enrolled in our study. So INNOVATE-3 was a study, again, for patients near the end of their treatment journey who had failed up to 5 prior lines of chemotherapy. In our Phase II trial, the majority of the women were -- had only failed 1 or 2 prior lines. It turns out in this trial, again, because we allowed women who had failed up to 5 lines, the majority of patients who were recruited were in the other end or in the tail end. And what we have seen now, and we've seen this in GBM, we can talk about it in lung. We can -- we see it in ovarian that for patients to drive real meaningful benefit with Tumor Treating Fields, they need to start at the earlier end of the journey. What we did see in the trial, we mentioned this in the press release, and we'll describe it in future presentations and publications. For those women who entered the trial after only failing 1 prior line of therapy, which is about 10% of the patients in this trial. We saw a statistically significant benefit for those women, clinically meaningful and statistically significant on a relatively small patient population. So what does it tell us? It tells us that the thesis is intact. The Tumor Treating Field platform works. It works when it's used early, not late. And so this is not a therapy when a patient is near the end. And our plan is to continue to analyze the data. There's a lot that we're learning here. We're the KOLs, this remember, was a trial that was done in conjunction with the 2 cooperative groups, ENGOT in Europe and GOG in the U.S. are fully engaged. They see the positive signals, and we'll assess and we'll move forward. I do want to say the one exception to everything I just said, and this relates back to LUNAR. In the late stage, where we see the benefit is when we combine with immune checkpoint inhibitors, so immunotherapy. And this makes sense. We have a regional therapy, it works as an antimitotic when we can encompass most of the cancer earlier on. Once it's spread all over the body, we can perhaps have an improvement, but we're not encompassing the whole tumor, except now we combine with immunotherapy and the combination creates a systemic benefit. So where do I see the future. Just like in GBM, I see the future -- we have no added systemic toxicity, bring Tumor Treating Fields as early in the treatment journey as possible with either chemotherapy or better yet immunotherapy. If you have to, for whatever reasons, treat later in the patient journey, it better be with immunotherapy.

Okay. 10% of patients is what -- remind me of the sample size.

It's around 50. So there were 540 patients in that trial.

So 25 and 25, and you're seeing stark difference. You didn't put this stat in the press release. Did you...

No. We talk about the meaningful benefit.

Meaningful [indiscernible]. I guess without doing -- are you going to do another study? I mean do you have the time and resources...

So we're going to go the FDA.

You're going to -- so the second part -- yes, my question is you're going to go the FDA with this data and see...

And show them, talk to them about it. This is a patient population with tremendous unmet need. There's nothing for them. I do not want to raise the expectation that this will be fileable although it's not a 0 probability. But we're going to talk to them about what the right next steps are for this program.

How committed are you to this program right now given the time and cost to run another trial?

So maybe I'll get at that I want to back end into the answer to that question. What do I mean by back end? So where are we heads-down focused? We are heads-down focused on continuing to grow our GBM business. We had the best 6 months ever in the first half of this year. We're doing that through a variety of -- by pulling a variety of levers. First, it's just better execution on the ground. We post COVID, we shook up our organization, getting people out of their kitchens and into the field. We have new leadership. We're also fully staffed now across all territories in the U.S. We had a transition period in Germany, where we were going from billing on a named patient basis through national coverage, we had to really focus on in label versus out of label. We're through the worst of that, and that will now continue to improve in Germany, so that's a benefit. Our first big geographical expansion is now fully launched underway. I'm talking about France. And that launch has gone, hopefully, if this would be the case, but based on prior experience, it's been our best launch yet in France, and we'll start to see revenue towards the end of this year from France. And next up will be Italy and Spain there. And then I did bring my show and tell, which we've talked about, but these are our new GBM arrays. These are lighter more flexible and deliver -- have the potential to deliver more energy because they dissipate the heat much better. We pilot launched these in Sweden and Austria. The pilot launch went phenomenally well. I mean absolutely met our expectations, patients love them. And right now, we're in the process of rolling out to the rest of Europe. And they'll come to the U.S. sometime next year. This has, again, the potential to improve compliance, deliver more energy and extend the benefit. And of course, based on our subscription model of billing, every month, the patient survives is great for the patient, but it also means more revenue just on our existing base. So a long-winded way to get at your question about ovarian, heads down on GBM. Second, heads down to launch in lung. Lung is a very large indication with huge unmet need again in metastatic disease after platinum failure, kind of a similar scenario that I described in ovarian, except in this case, because our trial recruited patients right after failure, we were successful. So we have successful data, we have filed in Europe. We're close to filing in the U.S. We would expect them or preparing to launch starting in Germany early next year to be followed by the U.S. So that's a key focus. And then we have the upcoming readout, the fully enrolled trials in brain mets from non-small cell lung cancer. I'll put that with our non-small lung cancer program and then followed by pancreatic in first-line pancreatic. So those are the -- if I had to rank order, those are the focus areas. So to the answer to your question, we need to really now look at the data in ovarian. We have to go to the FDA. We have to discuss what would be the next steps and then come back and figure out where that fits, given what we hope will be a very successful launch in lung. The one thing I didn't mention is a clinical trial program in lung to bring lung to the first line and then what hopefully will be a launch in pancreatic. So I covered a lot of ground to answer your question. But the succinct answer is finish the data analysis and then with our KOLs go to the FDA and talk about what should come next.

Okay. All right. A lot -- a follow-up question here in 23.5 minutes for me. I'm just going to hit some big topics. One, given the results, are you planning to make any changes to your strategy or how you operate the business to preserve cash?

I'm going to start, and I'm going to turn it over to Ashley. So our mission and strategy has not changed in the 23 years I've been involved. Our mission is to bring this therapy to all the patients who can benefit. Our strategy is to expand in the markets where we have approvals in reimbursement. I talked about what we're doing in GBM and what we're going to be doing in lung. Second leg of the strategy is to engage in a robust clinical program to bring it to more indications. There are some implications there that I'll let Ashley describe. And then third, keep improving the technology, keep delivering more energy, keep making it more comfortable, so patients can comply and keep patenting so that we can maintain our exclusivity through IP protection. And with that, Ashley, why don't you talk about...

Yes. I mean just to directly answer the question, we're always looking at this, right? So we're very -- GBM is a strong business that generates about $100 million in cash on an annual basis that we're able to invest back in R&D. We have a strong balance sheet, but we recognize that we need to be focused on that cash run rate, and we are. That's the first message I would like everybody to take away. Practically what this means, as Bill noted, we're committed to continuing the best in GBM, driving leverage there but making sure we drive growth. We're committed to launching in lung, that will take some working capital and some sales force build-out, and we're making sure that we're reserving the capital we needed to do that. And then what remains, we're pumping right back into our pipeline. We believe that with our current balance sheet, we can run about 5 randomized Phase III trials at once. We would like to run more than 5. And so practically, what does this mean? This means we're limited to about 5 trials right now. Where do we go with those 5 trials? We go earlier in the treatment journey in diseases where we have the opportunity to expand the eligible patient population, and we have established efficacy. That means LUNAR-2, LUNAR-3. It means Keynote D58. It's these trials that we've been talking about that take tumor treating fields earlier in GBM and lung and ideally add them on top of an [ NIO ]. As certain trials roll off, we will be ready to roll the next one on. So as LUNAR rolled off, we rolled on LUNAR-2, as INNOVATE rolls off, we'll roll on LUNAR-3, but we feel like the current run rate of R&D can sustain about 5 trials. And as we look ahead, we'll be eager to open up additional trials when capital...

The 5 includes METIS and...

It includes the -- yes, it includes 4 fully loaded Phase III trials that we've talked about plus TRIDENT. TRIDENT is a large multinational randomized trial as well.

I got it. And Ashley, I'm going to jump around here, but on GBM. Just want to get it out of the way because there's a lot of other questions on LUNAR and stuff. But because you talked about France, you talked about some positive momentum at the beginning of this year, build it. Actually, you've been good, you don't give guidance, but you comment on consensus -- consensus in '23. I think it's down -- sales down 5% year-over-year. And then '24, it looks like consensus has 8% revenue growth. Anything you want people to calibrate?

Yes. Again, so we'll anchor people to active patients because remember, active patients is that unit driver of our core business. And as we go through reimbursement transitions, revenue can have some noise in it. We saw that when we look at year-over-year comps, '23 versus '22 because we had about $40 million of aged Medicare claims in that baseline. That's what's driving the decrease year-over-year. We've been transparent about that. When we look ahead, that's not on our comps moving forward. So as active patient grows, as active patient trends grow, you should expect revenue to grow, that is a very reasonable assumption and we are focused on driving that active patient growth. It's both through geographical expansion in France. I think it's the most tangible success there to date, but we are seeing very promising green shoots as [indiscernible] in the U.S. market, too, from the focus of our CNS range.

Okay. So I asked you about '23 and '24 on top line. You don't -- I didn't hear you highlight any...

Again, I think we're at a point now where active patient growth will drive revenue growth, and I think these assumptions are within the realm of reason that we see.

Okay. Moving on jumping around I just want to hit some highlights here. So the any read-through Bill from INNOVATE-3 to PANOVA-3 on top of the taxane, but earlier in the treatment paradigm, obviously, a different tumor type. People are worried about PANOVA-3 because of what they saw in INNOVATE-3. And in also LUNAR, it wasn't statistically significant on top of docetaxel. So how are you feeling about PANOVA-3?

Yes. So I'll start with the caveat, different tumor, different disease, it's fully enrolled. We'll see the data at the end of next year. Okay. So I have to start with that. That said, if you were to ask me based on what we've seen in LUNAR, which was second or third line after platinum failure or what we saw in INNOVATE, which was up to fifth line after platinum failure. How would I -- if I could design today PANOVA, I would design it exactly the way it's designed, which is first-line locally advanced pancreatic cancer. So in terms of the -- if you will, the boundary conditions, this is exactly where we would want to use Tumor Treating Fields in the disease course. So from or -- so I don't think it's -- and let me say what I'm not saying, I'm not -- the other would be, for some reason, we were treating pancreatic cancer after first chemotherapy failure as a salvage that is not this trial, Larry. This is a first-line trial. And so I think I'm very optimistic. And I'm also optimistic about the market here, too. The reason that we're in the first line is because nothing has worked here. Chemotherapies have a hard time getting to the pancreas cancer because of the pressure differences in the stromal tissue. You will have heard, we're able to treat and get our energy, get our Tumor Treating Fields to this cancer. And with success here, knock on wood, there is a tremendous market opportunity here as well.

Bill, I heard you talk about launches coming up. You included pancreatic. Maybe I didn't hear, but I didn't -- maybe I missed it, but I didn't hear brain metastases. And that comes first.

Yes. So part of the reason maybe you didn't hear me say it is the infrastructure that we need there is already in place because we're treating GBM, the doctors who treat these brain mets are the same doctors. So it wouldn't be a new sales force. It would be more of an add-on. So I didn't mean to imply that we're not enthusiastic about METIS but the launch preparation is just much more incremental for that indication.

And you talked about where Tumor Treating Fields works. And if it's metastasize, earlier if it's localized or metastasizes, you talked about being tougher if it's metastasized. But does that change, METIS is basically lung cancer metastasizes in the brain? Does that impact how you're thinking about METIS, what you said earlier? So I didn't say that very articulately.

No, no, but I understood what you said. So this is the way I would describe that. So metastases trials and METIS included is a bit of an outlier. So all of our other trials the endpoint is overall survival, and we're looking at the extension of life of the patient. When you're looking at the effect on metastases, the patient still has a primary disease that is progressing or not with the other therapy that they have on board. And we're just treating the mets. So in the case of METIS, the endpoint is progression of the mets. It's not overall survival. So a bit of an outlier. And what I think that means practically is that there is a large population of lung cancer patients who get brain metastases, but it's a more heterogeneous population many of whom won't see treatment because they'll be near the end of their -- again, the end of their journey. Now it's still so big that it's multiples of GBM, even if you're treating 10% of the population or 20% of the population. That's different, again, than first-line pancreatic, where we would -- or even first-line GBM, we're in that first-line setting. We would expect the vast majority of those patients to be seeking therapy and to be seeking the best therapy available. So it's just a little bit of a different dynamic where I still believe that we'll have a very nice market, but we're not going to treat 90% of the people with brain mets because again, many of them will be near the end, where pancreatic, I think we have the opportunity, again, based on the data that we'll see, but with good data to treat a very large percentage of the population.

Okay. Switching gears to LUNAR. So the LUNAR trial was just published in Lancet Oncology. The editorial says the data are unlikely to be treatment changing and docetaxel's dominance in relapsed non-small cell lung cancer might be threatened by datopotamab, what's your view?

So again, I want to remind everybody that we are -- we had outstanding -- first of all, we met the primary endpoint with -- and the design of the trial was adding Tumor Treating Fields either to docetaxel or physician's choice immunotherapy. And we hit the primary endpoint, statistically significant and clinically meaningful. We also had 2 powered secondary endpoints that were roughly 50% of the patient population, where we showed dramatic improvement when added to immunotherapy. And we saw a trend but not statistically significant when added to docetaxel. Also remember, no -- as usual, with Tumor Treating Fields, no systemic toxicity. So we're now out in the market, educating physicians and talking to them about their patients based on our data. And what we are hearing and I'll say, first and foremost, is that we don't expect to treat 100% of these patients. But what the doctors are telling us is that when they look at these recurrent patients, they look at them and they can divide them up into the patients who are really crashing through with terrible spread disease. And then there's another category that they characterize as 30% to 40% that they call the smoldering recurrence. These are the patients that they will keep on their immunotherapies and add tumor treating fields to it. And then over in the docetaxel side, for the younger patients who can comply with our therapy who really want to give it everything, the trend and the fact that it's going to be on label says, what do I have to lose to add this? I know there can be benefit. So we're hearing that the population that's on immunotherapy, and that population keeps growing even without us. We're going to get those patients, and we're going to get a chunk of the patients on docetaxel.

So the immunotherapy, smoldering patients, that's not what was studied in LUNAR, right? There was no -- these were not rechallenged immunotherapy patients, the ones that responded, you can't promote off-label, and I'm not saying you will, but what about how are payers going to respond to that?

Again, we have to engage in the payer conversations. We are working to generate more data in that area. But I think these are going to be used. They're going to be paid for, and we're going to see the benefit.

And it would be on label. I want to be clear on that, our label will be all you have to have done is failed platinum in metastatic non-small cell lung cancer. That's how the trial was designed.

Okay. So immunotherapy rechallenge will be on label.

People have been -- and LUNAR, people have been asking for additional data, World Lung, you have an abstract presenting in a week or so or a couple of days with the PD-L1 status. And it shows a strong benefit in patients who have PD-L1 status between 1 and 100, but it's borderline statistically significant. How do you think clinicians, regulators and payers are going to view that data?

So I'm going to take it in the reverse order. Let's start with regulators. Because I get asked this question, is this approvable. I think the answer is, I'm getting asked these questions by people who haven't gone through the regulatory process. This is a clinical trial that was successful in its primary endpoint intent-to-treat population with no added toxicity. That's very close to a slam dunk, okay? Now in terms of will clinicians use it, they're going to look at all these data. Remember, we're now in small patient populations, but the benefit that we're seeing -- and patients who are high PD-L1 expressors, they do -- they're the 20% that do very well on immunotherapy alone. It's that middle group that does okay and then fails, that's what we're showing at World Lung were the tremendous beneficiaries. There's no reason to believe, by the way, that somehow rechallenge is going to prevent that benefit from occurring. We create immunogenic cell death. We expose the immune system to the antigen. So the immune therapy can do its work. And that's what we're seeing in this patient population. Those are the patients who, I think, based on these data are going to be the patients were the obvious first choices to get this therapy. And if you don't express it at all, those are the patients who should be on docetaxel with TTFields to get -- if they're young enough to comply. If they can't comply, they shouldn't be on Tumor Treating Fields therapy. That's the other aspect here. If you're so far along that you can't get a good dose every day, then it's not the right therapy to start.

Do you think you have the panel? FDA panel?

You never know. But in the cases where you meet the endpoint, and there's no toxicity. Those are not typically cases that go to panel.

Recurrent GBM, you did have a panel that did not hit the primary endpoint. But case in point, it got approved.

Correct.

Okay. And why haven't you shown the data, the patients with the PD-L1 status versus patients without PD-L1 status? I know you've said they look the same. But in terms of additional data that...

Well, that's -- this is the [indiscernible] so that's this weekend at World Lung.

But you're not showing the overall.

There's no material difference there on the top line, that's I think what we said, we're showing the relevant kind of data that we have.

So you're showing it by the different...

You're asking a different question. Let me underline for everybody because we did -- there are some elements of the bare thesis here that I'd like to dispel. In this trial, because it occurred, it started at the time when PD-L1 status was not routinely measured. For the patients early on in the trial, we didn't have those measurements. And then as it became routine, we started measuring it. And what -- at the end of the day, we had the PD-L1 status on 60% of the total patients and 80% of the patients in the U.S. And the thesis was somehow that 40% that we didn't have the measurements would have skewed the data that, that -- even though everything else was well balanced, those 40% could have been all super expressers and that would have -- if we take just the 60% for whom we have the measurements, the curves are exactly the same.

As overall.

As Overall. So pretend we didn't have those 40% of the patients.

And you've shown that data?

We've described it.

No plan to show it?

I mean...

I mean you have all the information.

You have the -- there's no difference. And by the way, the converse of that is, if we take the 40% for whom we don't have the data, it's also exactly the same. So there is no statistical anomaly in these data. That's a pure rent [indiscernible].

Okay. Then you said that you wanted to dispel one aspect of the bare thesis.

I just felt [indiscernible].

Put it on your website. I'm just curious, I believe you, but why not just put the data out there?

Yes. I mean there's really no there, there is what we're trying to say. We say in our clinician discussions, this is not something that we're talking about. So this does feel unique to the [indiscernible].

Okay. Bill, what are some of the other things that other -- are there more data coming that you think could convert the skeptics, clinicians and investors?

Our focus is first and foremost on clinicians. So I think approvals, the approvals will -- should help investors because that's who we're talking to. And we're leaning into the launch. That's ultimately, we'll start to see patients on therapy next year. But in terms of data, one of the next important data sets is going to be the results as a function of compliance, right? And that we know and that will be published. So we'll start to see dose response and those sorts of things that I think are always very, very telling, which are the how well did patients do as a function of their time on Tumor Treating Fields.

And on the docetaxel part, where you said that why not, can you try it. How do you think payers are going to respond to that? So I can understand the patient saying, hey, why not? Or a doctor. But a payer might say, this was not statistically significant. You're charging $10,000, $12,000 a month. That's why not. So?

The study hit on the primary endpoint. That's -- now no payer in the world says, yes, please, we want to pay for everything. But when we have these discussions about the therapy on label. That's the way that we have the discussions. And the other thing I'll remind you, which is our unique business model, which is that we are paid per month on therapy. So if a payer or a clinician decides that younger, healthier, it's not just young, but a healthier active patient should be on the therapy with docetaxel. If it doesn't work, they're only going to pay for a month or 2 of therapy. If it does extremely well for them, then they pay sort of the full load. And that's one of the things that's different than a drug where they have to pay the whole amount upfront for maybe 20% of the population that benefits or 30% of the population that benefits. We have a built-in risk share, if you will, with the payers. And that lands -- that's a discussion that they get and they understand. So the patients with docetaxel that they pay for will sort of be by definition, the ones that do well.

Less than 2 minutes left. I want to give you the last word, Ashley and Bill, what else -- what is the other -- what are the other controversies you wanted to spell?

Ashley, maybe I'll give it to you first, and then I'll...

No, I just want to say that we are kind of laser-focused on execution now as we look to growing GBM as we look to preparing for Lung launch. And as we look to advancing the pipeline both on the clinical side and the product development side, I think we're kind of very focused internally and its impact despite the kind of noise in the stock valuation, it's a very exciting and kind of focused and energizing time to be at NovoCure right now, and we look forward to sharing updates with it as we progress. That's where I would land.

Yes. And I'll come back, Larry, to the conversation we just had. I think right now, we're the biggest disconnect between NovoCure and our customers and the market is on the potential of the lung. I think it's that simple. By the way, we're getting no value for the pipeline at all. And I hope I'm reinforced why there should be tremendous potential in brain mets and in pancreatic cancer and in the future of lung, bringing it to first line. But we believe that we're going to have a hard time not stumbling into a business that's bigger by multiple than our GBM business in metastatic lung. It's not going to be KEYTRUDA. It's not going to be 26 billion. But there are patients either who are going to be rechallenged with immunotherapy or we're going to have our therapy added to their chemotherapy that we will be treating and will be paid for that.

All right. Perfect. Thanks so much for being here.

All right. Thank you.

Thank you.