NovoCure Limited (NVCR) Earnings Call Transcript & Summary

Good afternoon. I'm Jason Bednar. I cover med tech here at Piper. Next fireside chat is with NovoCure. Very happy to have with us today, Executive Chairman, Bill Doyle; and CFO, Ashley Cordova. Thanks a lot for being here, both of you. Really appreciate it.

So why don't we get right Q&A. A lot going on with the business right now. We did just -- I first wanted to touch on really the latest news. We had a press release yesterday, 8-K discussing a fairly large restructuring I think the first that I can recall for the business, some headcount reductions, I think it looks to me like maybe just some good corporate hygiene. I don't -- maybe that's insensitive, but really trying to prepare the business for that next stage of growth. So I don't want to put words in your mouth, but how did you come to the kind of the conclusion that now is the right time to restructure? And how did you settle on the, I guess, the parameters you did that are involved in the restructuring?

Yes. So neither Ashley nor I want to be insensitive about this either. But I think this is really an obligation of leadership of companies who, on a regular basis, take a look at what's going in our markets and in the outside world and at the same time, take very hard looks at the internal structure of the company, the employee makeup and really revisit the priorities of the company. And that's exactly what we've done. Our focus was to maintain and really double down on our priorities to drive growth in the near and midterm. And at the same time, look at opportunities in the longer term and make decisions about where we invest. I mean we're in a very privileged position at NovoCure. One, that we have a very stable business in GBM that throws off cash that we have the opportunity to invest in a very robust platform that has, in some ways, more opportunities to advance, then quite frankly, we can fund responsibly right now. In an era where capital was essentially free, we had more latitude to pursue more programs simultaneously. Those days are over, right, at least for the time being. And so we wanted to focus our activities on this near and medium term. And I think I'm going to turn it over to Ashley to describe exactly the strategic priorities that we're investing in.

Yes. Great. And I mean we outlined this all in the press release. What we effectively did was take $60 million out of what we call our residual operating. That's kind of the day and then we're turning around investing that right into the business, which is lung launch, right? We're preparing to launch lung in multiple geographies. It's also data readiness for our METIS and pancreatic trials, which will read out next year and then it's continuing to fund increasing investments in the pipeline, and we focus that pipeline on GBM, lung and again, additional data readouts which are indications where we have established efficacy and we have line of sight to the ability to go earlier to larger [ patient ] [Audio Gap] combination with IO. So I would expect our burn rate to be consistent year-over-year next year in our total OpEx to be roughly in line. But what this enables us to do is to invest in tomorrow without increasing the OpEx part.

Okay. Perfect. Yes, I think that was all pretty clear, but I appreciate all the color here. Why don't we go to probably your favorite topic, everyone's favorite topic, we'll go to LUNAR. What's -- refresh us on where you stand in the process, the regulatory approval process for non-small cell lung over in Europe as well as prepping for a PMA submission here in the U.S. as well as a possible panel with the FDA?

Sure. So for those of you who are newer to our story, LUNAR is a shortcut word for our focus in non-small cell lung cancer. So in June, we reported data from a Phase III trial in metastatic non-small cell lung cancer for patients after platinum failure. And we are now in the -- and those data we presented at ASCO, they were published in Lancet Oncology, so now peer-reviewed, and we are in the regulatory process. The regulatory process in Europe is the CE process. And we announced earlier this year that we have completed that submission, and we are now in the process of working towards labeling and final approval. In the United States, we are under the PMA framework. So this will be a new PMA submitted to the FDA. This submission is what they call a modular submission, so it doesn't go in all at once. It goes in, in pieces. We have submitted the first 3 pieces to the FDA and the interactions on those pieces are underway, and we are on track to submit the final piece, the final module by the end of the year. So very shortly now. We expect, and it's always impossible to determine with precision these regulatory processes, but we would expect the first approval to come in Europe, and we're saying mid next year. And that would be followed by the approval in the U.S. that we would expect later, sometime in the second half of next year. And while we haven't mentioned it, we are also preparing the submission in Japan, and that will go in after, sometime after the FDA submission. And then we would expect approval in Japan in due course as well. We are preparing for success here because we know the data, we know the process. We don't know the timing precisely, but we're preparing to launch, and we will launch first in Germany, second likely in the U.S. and then followed by Germany. And again, with some regulatory process luck, Germany will come first mid next year and followed by U.S. later in the year, and it's still a little too early to say exactly what will happen [indiscernible].

Okay. Germany, U.S., Japan. Yes. Okay. And then in Germany because there's a lot of Germany issue, but there's a big question out there from the investment community of will patients -- will clinicians use it, will patients fit into the label, will there be any exceptions to that label based on what we saw in the data on the trial was designed? So I guess, how do you feel about kind of some of those questions as we sit here today, what do you think that label is actually going to look like? And do you think payers are going -- sorry, not payers. Will clinicians actually put those patients and payers pay for those patients with -- that are actually fall within that label.

Sure. So that's a big question that you just asked. And I have to tell you what I think, right, because I don't know. So this is what I think. This was a very well-designed, clean trial where we met the primary endpoint with absolute certainty, number one, the efficacy endpoint. Number two, as always, with our therapy, there's essentially no toxicity. So if you look at the risk/reward between efficacy and tox, we also score very well on that perspective. And so I would expect that the labels in the U.S., Europe and Japan will be consistent with the primary endpoint, which is for patients with metastatic non-small cell lung cancer after platinum failure with either chemotherapy or immunotherapy. So that's the definitive answer to what I believe for your first question. Now the second question, which is will prescribers prescribe it? And the root of this question comes from the fact that while we hit the primary endpoint, when we looked at the powered secondary endpoint, we saw contribution from both arms, but we saw trend in the combination with chemotherapy, and we saw overwhelming statistical significance in the arms combining with IO. And so the genesis of this question is given that IO has moved from second line to front line, are there any patients in the second line for whom this would be applicable? And the answer that we're hearing from the community, and when I say the community, from prescribing physicians, and we've been doing ad boards since ASCO, actually since before ASCO, under NDA and now since ASCO. And these ad boards start with the question, do you have patients? And we usually get an answer, some. Then we go through a process because remember, this is a new therapy. These doctors didn't study it in medical school. It has not been applied in thoracic oncology, then we really explain the data, both the efficacy data and the safety profile, how it would be used, how it would be prescribed, what their burden is, and by the end of the day, we ask the same question and we get back an overwhelming, I absolutely have patients. I have patients who I'm planning to give chemotherapy, who want the best possible combination. And with this safety profile, I understand that it wasn't statistically significant in that small arm, but I want to give it to those patients. And then for my patients who I am continuing on IO, it's a no-brainer. And I'm probably going to consider even more patients to continue IO with these data. So will it be KEYTRUDA? Will it be used for every patient? The answer is no. Is there a significant number of patients for whom it will be prescribed? We believe, yes, and to put it in context, we believe that it will certainly be larger than our GBM business that's already in hand. So I hope that was as clear as I could possibly make it. And I think people who think there's no market here, we're going to have to prove it. We're going to have to show it, but it just doesn't make sense. This is a patient population where there's been no progress in over 7 years. These are patients in the doctor's office, where the only thing they have to offer today are old chemotherapies with terrible side effects and the patients and their families are asking for more. And now the doctors are going to have something to give them.

I'm going to ask you to humor me one more time on some speculation though. It was really helpful. But the next piece is payment rate, right? And again, we can -- we're probably just going to sit here and speculate. But we have at least a reference rate in GBM. At the smaller patient population, payers are not in the game to be paying more. You have a larger patient population with non-small cell. Where do you expect it shakes out Germany or U.S.? And actually, you're kind of nodding along. I think you're totally prepared for this question. So go ahead.

Yes. I mean I think at the beginning, we would expect the GBM reference price to be the right reference price. With volume as volume grows, these are always dialogues that you have with payers. But at the beginning, I think that's the best anchor. And I mean this is the value of it being launched in GBM and going into the markets and establishing the path to reimbursement. We don't have to start from ground zero. We know how we will get reimbursed. We have fee schedules in markets that anchor the discussion, and we would expect that payers would -- on the volumes of the LUNAR patient population that GBM is a successful price point. Now with incremental volumes and over time, the long opportunity grows, I think we'll see where that goes. But we feel like the GBM price point is an appropriate anchor from where we'll start the discussion.

The other thing I'll add. I mean, just to jump on this. I mean the ultimate leverage that payers have is competition, right? And we're in a very privileged position because we deliver our therapy through a medical device that we're continuing to improve. So in the important markets, the markets that respect intellectual property, we're the only company that has Tumor Treating Fields therapy. So we start with that perspective. It's not I'm going to pay for this IO or that IO or another IO. We're the only party with whom we're negotiating to bring this therapy.

Okay. All right. Makes sense. And then the last question here. I mean you are willing to go at risk even without payer coverage as long as those patients are fitting within the defined labeling guidelines that you end up receiving?

We would. We would expect to be that in Germany and the U.S., which would be our 2 first large markets. So again, we'll go at risk for patients for whom we would expect to ultimately get reimbursed. So this is not going to be an all [ coverage ]. They would need to fit the profile of the patients that would align with the protocol of our trial. But yes, we were comfortable going at risk of that, and we have experience in collecting those [ payments ] from the patient space.

Yes. And again, to remind everyone, we went at risk in GBM and ultimately selected the vast majority of the revenue from those [ on ] risk patients. We learned a lot during GBM. And first and foremost is really stay on label. That's the -- and even though doctors want to prescribe it more broadly, from an ultimate collection point of view, that's the limitation, to stay on label.

And probably important in Germany where you already have had that experience.

I mean it does, as everybody looks at the model, it does mean, though, that revenue will lag when we have [ demand shift ]. So I would just remind everybody of that.

Yes. Perfect. Well, let's move on to. There's a lot more to talk about in the pipeline. Next Phase III, where we'll have some form of update is METIS. Now, It's a little bit of a unique Phase III for you. It's the only one where you're using TTFields as a monotherapy. Also, the one where you're treating the mets, not the primary cancer. So how do we handicap success here? You've got a proven indication in GBM, but you're going after something that's entirely different, the primary endpoint is for regression-free survival not an overall survival metric. So how do we handicap success on our side?

So as you point out, we have two Phase III readouts on the calendar for next year. METIS and PANOVA 3 the first to come -- and these are now fully enrolled and just on the clock for follow-up. You're absolutely right. METIS is a bit of an outlier as a clinical trial for us, but an outlier for anyone who is treating mets. So it's very consistent with trials for metastases. You ask how you handicap it. I'll say first and foremost, wait till March and then you'll know. But if you need to handicap in the meantime, we've absolutely proven that we can treat cancer in the brain. This is clear with our extensive GBM experience, both in terms of our clinical trials, but also now in terms of 5-year real-world evidence. This really works in the brain. And also, we've shown that we can treat non-small cell lung cancer, both in our Phase IIs and in LUNAR. We're treating the full extent of the cancer when we treat in the brain. And the comparator is watchful wait. So in a sense, we're treating with monotherapy, although we're treating with whatever systemic therapy is on board for the primary tumor. So it's us plus the systemic therapy compared to the systemic therapy alone. And the endpoint is progression within the field. So I think those are all positive. If you have to handicap the negative, and just to give both sides is that this is a heterogeneous patient population. So when we do GBM, you almost don't need a control group, right? Because the control hasn't changed in 20 years. Pancreatic cancer, it's almost the same thing. It's very clear. In brain mets, it's younger patients, older patients. We have limited the study to patients with between 1 and 10 mets. So that does -- and of course, it's randomized. But that's the complexity is the inherent heterogeneity of this population.

Okay. And I know you said in March, just to level set everyone. So headline data in March, maybe it's April, I know sometimes we have a little bit of movement in the calendar. But somewhere March, April is when we should see headline data and then you'd look to present that when? Where?

At the first appropriate conference.

Okay. Okay. All right. Why don't we move over to the other Phase III you mentioned PANOVA 3, advanced pancreatic cancer Phase III trial. This one has a lot of similarities to GBM, right? It afflicts patients of all ages, really aggressive cancer. IO doesn't work. And it's another -- but it's another study that's pairing TTFields with chemo which the data has been a little mixed, to be very candid here, the last couple of years with not necessarily in pancreatic, but across the studies we've been looking at TTFields plus chemo. So I guess, why should we feel more optimistic or less optimistic about PANOVA 3?

Yes. So I'll start with the obvious fact that we are a regional therapy. So we're applying our electric fields to either the head, the chest, or the abdomen. When you say mixed, I assume the 2 trials you're referring to are the chemo arm of the LUNAR and then the INNOVATE trial in ovarian, which did not succeed in the top line, even though they're really important signals that we've talked about a little bit and that we're analyzing for subgroups. Both LUNAR and INNOVATE 3 were trials in metastatic populations, where the cancer has spread beyond our treatment. Now as I said, we still showed a trend, and we still showed important signals in INNOVATE. But I think in the long term with metastatic disease, the real win is to treat with Tumor Treating Fields and immunotherapy where you get all the benefit of Tumor Treating Fields plus the benefit of exposing the immune system. Back to PANOVA 3, this is locally advanced pancreatic cancer. So it's in a population like GBM where we're treating the full extent of the cancer. We know we can get our electric fields there. We are combining with paclitaxel, weekly paclitaxel and gemcitabine, which are chemos we know it works together. But the key difference is that it's locally advanced, which is about, round number, 40% of the diagnoses for pancreatic cancer, 60% when it is metastatic. And for that, we have our trial where we're combining -- that we're doing with Roche, where we're combining with their immunotherapy. And that's what I would expect to be used ultimately for metastatic disease.

And that's first line in [ light of ] [Indiscernible].

Early on, when the patients can comply locally advanced, based on everything that we know today, if you asked me the question, if you could go back 4 years and design the trial, what would you change? In the case of PANOVA 3, it's nothing. In the case of INNOVATE, there are a number of things we would have changed based on what we know today in terms of how we would have designed that trial.

To be fair, you know the INNOVATE data, and you don't know the PANOVA data, but...

Absolutely fair. But you asked about handicapping, those are the facts that allow us to start investing, I would say, now for success in pancreatic.

That's all helpful. I wanted to take a little bit of time in the time we have left. It feels like we're maybe on the cusp of a little bit of a maybe philosophical shift in how we think about the pipeline and how we think about the strategic approach to using TTFields in future trials. I've been following your stock and your company for quite a while. Originally, it was, hey, we're going to go after really aggressive forms of cancer. And it made a lot of sense, these aggressive forms of cancer weren't responding to anything else. You had some really old data you were comparing against, also meant you didn't have to show a ton of survival improvement in order to theoretically get approved. But the other dynamic, as we started to see with some of these -- some of the trials you've been running, is they're late-stage diseases, patients are really, really sick. And we've started to hear, whether it's on some of the Phase II data or even on some of the Phase III data that, hey, it worked, but it worked in the less sick patients. So with that kind of preamble out there, do we need to see a little bit of a like, again, a philosophical shift in how we go about treating -- or starting new trial work and treating patients that are a little bit less sick and just end up having larger trials, larger ends in order to prove out that statistical significance?

So I don't think there's a philosophical shift at all. We've known for a very long time that you have to use Tumor Treating Fields for it to work, which means compliance and time on therapy. We've seen this in GBM, that for patients who use it at the time of diagnosis, they have a much better prognosis than if they wait until their first recurrence. I would say what is the newer news is that when you combine with immunotherapy, you get a profound synergy. Our second-line data in lung cancer is as good as Merck's first-line data. So I don't know that that's a philosophical shift. You want to start early and you want to combine with IO. And I think that's the future of solid tumor therapy. The way oncology works, sometimes you have to start with the sicker patients. It's not always possible to go right to first line. But I think we're at a point now where that's clearly the target, first-line therapy, combinations with IO, and that's where I expect to see the profound difference. And in GBM, we have a trial combined with IO. IO didn't work as a single agent in GBM. In our Phase II data, it's the best data anyone's ever reported. I already mentioned IO -- and you mentioned IO has not worked as a single agent in pancreatic, but we're combining it now in metastatic. And we're working to the front line in metastatic lung cancer. So we're not stopping with LUNAR. We're going to the next LUNAR trial to move it to the front line.

Okay. Really to summarize, catch it earlier, and that ends up being...

Yes. Catch it earlier and add IO.

Add IO. Add IO [ or ] applicable. Okay. Perfect. Very informative. Great color. Thanks so much for being here, Bill and Ashley. And everyone, please join me in thanking Bill and Ashley for their wonderful presentation.

Thank you.