NovoCure Limited (NVCR) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the NovoCure Q2 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ingrid Goldberg. Please go ahead.

Good morning, and thank you for joining us to review NovoCure's Second Quarter 2024 performance. I'm joined this morning by our Executive Chairman, Bill Doyle; our CEO, Asaf Danziger; and our CFO, Ashley Cordova. Other members of the executive leadership team will be available for Q&A. For your reference, slides accompanying this earnings release can be found on our website. www.novocure.com on our Investor Relations page under quarterly report. Before we start, I would like to remind you that our discussions during this conference call will include forward-looking statements and actual results could differ materially from those projected in these statements. These statements involve a number of risks and uncertainties, some of which are beyond our control and are described from time to time in our SEC filings. We do not intend to update publicly any forward-looking statement, except as required by law. Where appropriate, we refer to non-GAAP financial measures to evaluate our business, specifically adjusted EBITDA, a measure of earnings before interest, taxes, depreciation, amortization and share-based compensation. We believe adjusted EBITDA is an important metric as it removes the impact of earnings attributable to our capital structure, tax rate and material noncash items, and best reflects the financial value generated by our business. Reconciliations of non-GAAP to GAAP financial measures are included in our press release, earnings slides and in our Form 8-K filed with the SEC today. These materials can also be accessed on the Investor Relations page of our website. Following our prepared remarks today, we will open the line for your questions. I will now turn the call over to our Executive Chairman, Bill Doyle.

Thank you, Ingrid, and good morning. Our mission at NovoCure is to extend survival in some of the most aggressive forms of cancer through the development and commercialization of our innovative therapy, Tumor Treating Fields. We have built a strong foundation treating glioblastoma and with an anticipated approval to treat second-line non-small cell lung cancer, we are on the threshold of helping many more patients in need. As we approach this year's milestone, the urgency of our mission is even greater for the entire NovoCure team. Entering 2024, we identified 3 key objectives which would best position us for success this year and beyond. One, to grow our commercial business in glioblastoma; two, to launch TTFields therapy in non-small cell lung cancer; and three, to deliver on the promise of our clinical and product development pipelines. These objectives are ingrained in our business units and have been rallying points for our global teams. I am pleased to share that we are making significant progress on all 3. And with the focus and dedication of the entire NovoCure team, we believe we can deliver on all 3 in 2024. This morning, we will review our progress on each objective, review our financial performance and then open the line for questions. We ended the second quarter with 3,963 active patients on therapy, our highest number of active patients since commencing commercial operations. Our French GBM launch, now in its fifth quarter, continues to be a tailwind. France serves as a blueprint for a successful launch employing our new synchronized commercial structure, a blueprint we will leverage in future expansion across the big 5 EU markets. Real-world evidence of the benefits of TTFields therapy is a key resource for engaging with prescribers. In June at ASCO, Dr. Olivier Bahr of the General Hospital at Aschaffenburg-Alzenau presented top line data from the TIGER trial. TIGER examined TTFields therapy in the routine clinical care of newly diagnosed GBM patients in Germany. TIGER is the largest prospective non-interventional TTFields trial completed to date. Dr. Bahr reported a median overall survival of 19.6 months and median progression-free survival of 10.2 months corroborating the leading survival outcomes observed in our Phase III EF-14 trial. Last month in the Journal of Neuro-Oncology Dr. Mrugala of the Mayo Clinic published updated findings from a post-marketing safety analysis of over 25,000 TTFields patients. Dr. Mrugala's analysis confirmed that TTFields therapy was well-tolerated and that no signs of additive systemic toxicity were detected in the patient population, corroborating the safety findings of the EF-14 trial. In April, in the Journal BMC Cancer, Dr. Kumthekar of Northwestern published a qualitative review of key factors driving patient adoption of Optune Gio for the treatment of GBM. Dr. Kumthekar's team found that the 2 most influential drivers for adoption are knowledge of Optune's proven survival benefit and the treating physicians opinion. Real-world evidence from trials like TIGER and Dr. Mrugala and Dr. Kumthekar's analyses are important additions to the ever-growing body of studies supporting Optune Gio for the treatment of GBM and they underline our commitment to generate, and share data with physicians to support and broaden the adoption of TTFields. We are also focused on product development to improve the patient experience. We have rolled out our next-generation arrays in our key European markets, and patient feedback continues to be positive. We submitted a PMA supplement to the FDA in December and expect a decision from the FDA later this year. After approval, we will commence U.S. rollout. Our team is working on improvements to the digital experience for prescribers and patients with the goal of providing dashboards to streamline patient starts and optimize usage and persistence. We believe our fully aligned commercial approach, supported by real-world evidence and digital innovation will help to drive strong commercial performance in the second half of the year. Our second key objective this year is the approval and launch of Optune Lua for the treatment of metastatic non-small cell lung cancer. Regulatory submissions have been filed, and we are engaged with authorities in all of our major markets. As a reminder, prior to our May earnings report, we had recently completed our 100-day meeting with the FDA with no indication that the PMA will be referred to a panel. To date, a panel has not been requested and our expectations remain unchanged. We eagerly await the FDA's decision later this year. In Europe, we are waiting for CE mark approval. The new MDR process in Europe has lengthened time lines, and we continue to engage with new reviewers at TUV Rheinland, our EU notified body. While the review process has taken longer than originally projected, our expected outcome has not changed, and we anticipate a final decision in the second half of 2024. Internally, our German and U.S. lung teams are hired and are preparing to launch immediately following regulatory approval. We plan to treat patients in the U.S. and Germany as soon as possible following approval, using a named patient reimbursement process with additional country launches expected next year. Non-small cell lung cancer represents the next major step forward in the NovoCure story and we are eager to pursue this opportunity. Asaf will now review our clinical progress in the quarter.

As Bill mentioned, our third key objective this year is to deliver on the promise of our pipeline. This quarter, we made significant progress towards achieving that goal across our clinical programs in GBM, non-small cell lung cancer and pancreatic cancer. We have reached a key milestone in our non-small cell lung cancer program. Last month, Dr. Minesh Mehta of Baptist Health, South Florida presented data from the Phase III METIS trial at the ASCO Annual Meeting in Chicago. METIS evaluated the use of TTFields therapy with best supportive care for the treatment of brain metastases from non-small cell lung cancer. METIS met its primary endpoint, demonstrating a median time to intracranial progression of 21.9 months in the TTFields arm compared to 11.3 months in the control arm. A positive trend in the majority of assessed quality of life scales was also measured and there was no evidence of worsening cognitive function in the TTFields arm. Consistent with prior clinical trials, TTFields therapy was well tolerated with no additive systemic toxicity. Final analysis of the METIS trial data is ongoing. We intend to publish the data in a peer review journal later this year. We have expanded our non-small cell lung cancer clinical program to include another registrational Phase III trial, LUNAR-2. LUNAR-2 will explore TTFields use with pembrolizumab and platinum-based chemotherapy in first-line metastatic disease. This trial is open and enrolling at initial sites, and we are focused on expanding the clinical footprint. We are also in the process of opening a Phase II pilot trial LUNAR-4. This trial will evaluate immunotherapy retreatment in metastatic non-small cell lung cancer. Turning to KEYNOTE-B36. We are evaluating appropriate next steps for this trial, given its pace of enrollment and our focus on LUNAR-2. Our GBM program includes 2 additional registrational Phase III trials, TRIDENT and KEYNOTE D58. TRIDENT is exploring the use of Optune Gio concurrent with chemoradiation. If TRIDENT is successful, we will work to expand our label and enable physicians to prescribe TTFields therapy several months earlier with chemoradiation rather than after chemoradiation as is indicated today. TRIDENT is fully involved and will read out in 2026 once follow-up is complete. We are also preparing to open KEYNOTE D58. KEYNOTE D58 will explore the addition of pembrolizumab to TTFields and temozolomide in GBM and builds upon the promising results of 2-THE-TOP Phase II trial conducted by Dr. David Tran. Finally, we are nearing an important readout in our pancreatic cancer program. In the fourth quarter, we expect to announce the top line data from the Phase III PANOVA-3 trial which is starting TTFields together with gemcitabine and nab-paclitaxel for the treatment of first-line locally advanced pancreatic cancer. We are also currently enrolling patients in our Phase II PANOVA-4 trial. This trial is exploring the use of atezolizumab with TTFields, gemcitabine and nab-paclitaxel in metastatic pancreatic cancer. Pancreatic cancer is a devastating diagnosis with 5-year survival rates of 10%. We are eager to learn more about the potential benefits of using TTFields in the treatment of this aggressive disease. So far this year, we have reached 1 successful Phase III readout in METIS and are hopeful for a second in PANOVA-3. We are awaiting potential regulatory approvals in lung cancer and our solid commercial GBM business continues to fuel additional R&D initiatives. We are launching several new clinical trials this year that have the potential to expand TTFields use dramatically. We are pleased with our progress this year and are eager to continue pursuing our goal to deliver the promise of the clinical pipeline. I look forward to providing further updates later this year. Ashley will now review our financial performance for the second quarter.

Thank you, Asaf. The second quarter was a period of consistent execution as we drive towards our 3 key objectives for 2024. Our GBM business turned in the best quarter to date. We are laying the groundwork to launch a non-small cell lung cancer, and we continue to purposely invest in clinical research and product innovation. Walking down the P&L, we generated $150 million in Q2 net revenue, an increase of 19% year-over-year and ended the quarter with 3,963 active patients on therapy, an increase of 11% year-over-year. The French market continues to be a tailwind to growth and contributed $14 million in net revenue this quarter with 369 active patients. We also continue to see a benefit in average selling price from improved approval rates in the United States. I want to call everyone's attention to 2 important points on the revenue model. Beyond the benefit in period, improved approval rates in the U.S. generated a $5 million benefit in Q2 net revenues from prior period claims. In addition, we received $3 million in Q2 net revenues from a private payer in the United Kingdom, where payments are not yet routine. We do not expect these 2 benefits totaling $8 million to recur and would remove them from baseline expectations when projecting future revenue. Gross margin for the second quarter was 77%. SG&A expenses totaled $94 million in the quarter, a decrease of 5% year-over-year. This decrease was primarily driven by lower personnel expenses and support functions, which more than offset our continued investment in sales force expansion ahead of a non-small cell lung cancer watch. Research, development and clinical trial expenses totaled $55 million in the quarter, in line with the same period in 2023. Our net loss for the second quarter was $33 million, or $0.31 per share. We ended the quarter with cash and short-term investments of $951 million. This quarter, we saw positive adjusted EBITDA of $1 million, an increase of $28 million from the same period in 2023. While this was in part due to the one-time revenue contributors, we also saw material benefits from reduced operating expenses resulting from the strategic restructuring we undertook at the end of 2023. As we actively invest for growth, profitability remains a critical goal for us at NovoCure and something we are actively driving towards. I would like to close this morning by highlighting one of our Optune Gio users, Marino DiRienzo. Marino began using Optune Gio in January 2022 following debulking surgery. A father of twin adult sons and a grandfather of 3, Marino prides himself on living an active life and was eager to get back on his feet as soon as possible after his GBM diagnosis. Marino was able to integrate Tumor Treating Fields therapy into his daily activities quickly and was soon back on the baseball field with his sons and playing golf with friends. Marino is the embodiment of living each day to the fullest and a great reminder of what's at stake in extending survival for our patients. It is so fulfilling for our colleagues to be able to help Marino and his family, and I'd like to personally thank Marino for allowing us to be a part of his journey. With that, we will open the call for your questions.

[Operator Instructions] Our first question comes from Jonathan Chang of Leerink Partners.

Can you give us an update on the LUNAR regulatory process in Germany and the U.S.? You mentioned a new process in Europe, I believe. Could you give us additional color on that front? And finally, could you just confirm your current thinking on time lines in both Europe and the U.S.

Sure, Jonathan. This is Bill. So as we stated in the prepared remarks, our expectations with respect to approvals in Europe and the U.S. have not changed. The FDA time line also remains unchanged. And importantly, in the U.S., we still believe there will not be a panel. We have not received any indication as we mentioned, in the 100-day meeting that we had or subsequently that the PMA will go to panel. In Europe, it's not a new process for us. It's a new process for Europe called the MDR process that has, to some degree, lengthened the timing from submission to approval for everyone in the medical device space. Initially, we had projected an approval in the first half, we're actively interacting again, as we mentioned, with our notified body, and we now expect that to occur in the second half. So that's the only change.

Understood. Are you able to elaborate on the MDR process? Or are there -- like what are the boxes that need to be checked?

Yes. So we never talk about the specific back and forth other than to say it's constructive. And again, we don't expect -- we still expect the same outcome. We just expect it to be a little later in the second half.

Our next question comes from Jason Bednar of Piper Sandler.

Nice quarter, everyone. A couple of questions to start from us. I wanted to focus first on maybe the commercial side. The U.S. active patient number improved sequentially for the first time in a year. That was good to see. Can you talk about the sustainability of this type of improvement? How do you build upon that going forward? Or should we more simply think of this active patient number remain around 2,200 patients or so going forward? And then, Ashley, I think you also said that your payer approval rates continue to improve in the U.S. How would you have us think about U.S. revenue in the context of that comment? Does your revenue algorithm change near term or revenue per patient change near term and how we calculate and model that out?

Jason, this is Frank. Thank you for the question. I appreciate the note on the commercial performance. Yes, we are -- first, just looking globally before I come to the U.S., we're really pleased that we've now approached 4,000 patients on therapy worldwide, and that is a high watermark for us. With respect to the U.S., what we have been able to do is to return the active patients to sequential growth from year-end, as you noted. And as a reminder, at the end of last year, we did realign our organization so that our teams have a focus -- our commercial teams have a focus not just on driving demand as measured through prescriptions coming in, but really have a comprehensive plan to then convert prescriptions to starts and then ensure that the patients can stay on therapy to enjoy the full benefit of the therapy. So I think what you've seen in the numbers the last 2 quarters is our ability to tighten up operations and to really ensure that we do maximize the value of each prescription coming through and maximize the benefit to the patient. As you know, we don't give guidance looking out into the future. So I won't comment specifically on where we see this number going, but I'll remind you, as always, that we do believe there are more patients who can benefit from the therapy. And as an organization, we're committed in all of our markets to ensuring that we drive growth and help the most number of patients possible.

Great. And Jason, this is Ashley. I'll jump in with some commentary on the net revenue per patient. You heard us clearly call out $8 million from this quarter's net revenue, which we believe essentially are -- I don't like the 1 term in nature because fundamentally, this improvement in approval rate is recurring, but the benefit in the quarter, we give both the capture benefit and the in-quarter benefit. If you take that $8 million out of the Q2 net revenue, you can then use that net revenue per active patient number projecting for it in the model. And specifically in the U.S., which is where you see the improved benefit from the approval rate, if you take that $5 million out, you'll see the improvement, it's about 200 basis points year-over-year, and that is sustainable. We do believe that the improvements there will endure, but you don't get both the catch-up and the improvement every quarter moving forward.

Got it. Okay. That's helpful. One clarifying follow-up from the prior question. Bill, did you say that CE mark is now expected later in the second half, so basically implying that it's a fourth quarter target? So I just wanted to check on that, if I heard that right. And then just wanted to see if you have any updated thoughts or perspective on the regulatory path for METIS, just how you're going to proceed there?

Sure. So I did not say late in the second half for CE mark. And then Asaf, maybe you want to comment on the next steps for the METIS submission.

Yes. Thank you. So we're right now evaluating and finalized the all analyses and preparing for submission, and we are planning to do it in the near future. And we will come back and we'll let everyone know exactly which department in the FDA, but we are working on.

Maybe to follow up quick I mean any -- is this something we should expect submission before year-end? Is this a '25 just dynamic? Just trying to understand as we kind of pencil things out from a milestone standpoint, where METIS is going to land?

So our goal is to try to finalize this year.

Our next question comes from Larry Biegelsen of Wells Fargo.

Just a follow-up on that last response. Asaf, when you say our goal is to finalize this year -- I assume just maybe this is just a little bit of a language barrier, but when you say finalize, you're saying we plan to submit the METIS application in 2024 in the U.S. and Europe. Is that what you meant by finalize this year?

Yes, refinalize.

Okay. Okay. And maybe just a follow-up on METIS, what are you guys hearing from clinicians? How do they see Tumor Treating Fields fitting into the treatment paradigm? And I had a follow-up.

Yes. Larry, this is Frank. Thank you for the question. What I can say is that we unveiled the data from METIS at ASCO in June. And we really saw across the board strong interest in understanding the data. I think I'd also just shared the anecdote that at ASCO this year, we saw just broader awareness of Tumor Treating Fields across all of the indications where we've released data. And I think really seeing that strong interest both from the radiation oncology attendees, but also from the medical oncology attendees, strong interest, really focused on the fact that the delay in time to progression is a clinically meaningful endpoint in terms of helping patients with brain mets. So I'm really pleased with what we saw at ASCO this year, and we're encouraged to move forward with clinicians to help these patients.

And the treatment paradigm, what are you hearing?

Sorry, I'm not sure I fully understand the question. But I think in terms of sort of details on what drugs may be used concurrently or the exact specific patients, that's some of the analyses that's still ongoing from the trial, and we'll update you as it becomes available.

Okay. And then on B36, can you -- you provided a little bit of an update in the prepared remarks there. How many patients have been enrolled? What are the options for the next steps? And how does that impact -- how you think about enrollment of LUNAR-2? I guess, it's taken a long time to enroll B36. I guess the concern is that it's going to take equally long to enroll LUNAR-2.

This is Nicolas. Thank you very much, Larry, for that. Great question. I think something that's very, very important that B36 is not the go-to tool in a lot of different aspects. And what we said is that we are just evaluating appropriate next steps for B36. Now let me remind you what B36 is. It's a Phase II study in first-line non-small cell lung cancer with monotherapy pembro. And just to remind you, monotherapy pembro is 5% of patients in the U.S., and it's a trial just being run in the U.S. And again, it's a Phase II trial. Now Phase II trials have the characteristic to lead us for Phase III trials and inform us how we need to run Phase III trials. Now LUNAR-2 is a Phase III pivotal trial that is exploring TTFields and pembro and platinum-based chemotherapy, which is one of the main foundation in U.S. patients at least, 95%. so we are having a very, very, very different situation here.