NovoCure Limited (NVCR) Earnings Call Transcript & Summary

Can you just give an update, either of you, on the process of launching additional pancreatic cancer trials and kind of where you stand in terms of expanding that opportunity?

Yes, we're actively looking at where do we go next within pancreatic cancer. And I think it's such an evolving landscape right now in terms of the entry of the [ KRAZATI ] into actual commercial use, different RAS inhibitors, targeted RAS inhibitors. I think we'll have more to say as we go into next year. At a high level, one of the things that we've challenged our teams to recognize and address is that in these markets where there's emerging therapies coming to trial constantly throughout the year and really having the potential to be used, we're going to have to be able to disrupt the landscape over and over again. We need to be more flexible, nimble, and faster getting to data readouts that can lead to registration versus, I think, I think historically when we were a less proven therapy, we had the burden of doing these large drug-like trials trying to get to overall survival. But going forward, I hope that we can find a way to do that in a faster way.

OK. I think the idea of global expansion of your product is going to be a very important part of the growth story going forward. So I know you've secured CE Mark for PACS, and have also submitted for approval in Japan. So can you talk a little bit about any upcoming European launches, Japanese approval expectations, and kind of how you think about the global opportunity here?

Absolutely. Yeah, we're really excited and proud of the fact that Novocure, literally starting from being a startup in Israel, has now grown into having operating businesses in 16 countries around the world. And that means we have this very diversified business now between GBM, PANC, Lung, and we're excited to launch the Optune PACS device for pancreatic cancer in Europe already, in Germany, where we're able to go case by case in our launch. And then looking ahead, we have said we hope to have approval in Japan by the end of this year with a reimbursement approval sometime in the first half of next year. So Europe, Germany will go first, then we have to begin working on markets like France where it's more regimented national reimbursement. And so we think, to put it in context, I would think of the pancreatic business in Europe will probably take a year plus to mature and we'll really know where it's going. In Japan, we have national reimbursement. So if we are successful and we believe we will be successful, we go into next year launching, we would go into the first half of next year launching with national reimbursement, an indication that it has a higher prevalence in Japan than in the United States. Absolutely. And there are challenges because it is a market where we will have challenges over payment levels. And so we are confident.

Okay. So it sounds like in Europe it's a little bit more on a country-by-country basis, working through the reimbursement kind of, not challenges, but just working through that operationally.

That we can work through those, but it can be a long process as we've seen with GBM to really get the European businesses up to stable levels.

Okay. Anything you want to mention just on the lung cancer launch and kind of how you see that going forward?

Yes, so as you know, we launched our non-small cell lung cancer device, Optune Lua, at the end of 2024. It is targeted into second-line Stage 4 non-small cell lung cancer. This is a very sick patient population. In the U.S., unfortunately, the data from our clinical trial was, I would say, scientifically and clinically compelling, but unfortunately the standard of care shifted. So we've seen real challenges in our U.S. business trying to commercialize and launch. We are kind of where we are now in terms of the U.S. business. The flip side, though, is that in Japan, the clinical treatment guidelines are more flexible in terms of continuing an immune checkpoint inhibitor from first line to second line. And so it aligns more closely with the data that we have from our pivotal trial. So at Q2, we were pleased to talk about our success in Japan with the initial launch for non-small cell lung cancer. And we see that continuing, and we feel that's going to be a good tailwind for the business in Japan for years to come.

Right. Just turning to Christoph for a moment, you know, you've been very vocal about your pursuit of profitability as a company, and you're kind of turning the corner on that. So can you give us a little bit of an update and kind of, you know, what are the next benchmarks in your path to profitability and when you expect to reach them? Yes. So...

In terms of profitability, we said for us it's a three-step process. Step one is to become break-even on adjusted EBITDA as a proxy for profitability. Step two is to become cash flow break-even, and then step three is to become truly break-even on a net income U.S. GAAP basis. We are quite happy in terms of where we are this year or the progress that we have been able to make this year, in terms of true enterprise-wide focus on not only growth, but also profitable growth. So as we said in the past, we believe we made largely the investments that we need to go through the launch period and now extract the leverage out of the P&L, meaning revenue growth being higher than expense growth. And we see the fruits of this this year with the guidance that we gave at Q2. We said that at a minimum, we believe we will be break-even on an adjusted EBITDA level by the end of this year, potentially up to 50 million positive adjusted EBITDA. Again, the next step once clearing just the EBITDA break-even would be to become cash flow break-even. And that's approximately 30 to 40 million more in terms of profitability that we need for that. We haven't given explicit guidance, but we believe that it's in reach in the foreseeable future.

You guys have clearly done a great job of kind of managing costs. I mean, how do you think about managing that OpEx when you think about global expansion going on, multiple programs reaching later stage trials or enrolling or reading out? Clearly there's a lot you're trying to manage through. So how do you think about kind of controlling that OpEx?

Yeah, we believe that we, I mean, we are very committed to keeping our expenses and expense growth, be very disciplined about it. And even more specific, what we said is that on R&D, to be exact, on the specific P&L lines, on R&D we don't expect growth. On G&A, we don't expect growth. I mean, there will be inflation-adjusted growth at most, and sales and marketing, there will be some moderate growth for the launches that we expect. But again, largely speaking, we have invested in our capabilities in the last couple of years, and we believe that now we have essentially the infrastructure in the 16 countries that we are in to go through this period of launches and internationalization with really only moderate additional investments needed. Yes.

Okay. And with 440 million on the balance sheet at the end of the quarter, do you think that, you know, your current capital position is adequate to achieve some of these goals without having to go access the capital markets again in the near term?

Uh, last time we reported 440 million, roughly speaking, on the balance sheet in terms of cash. That includes um, a 200 million of debt. At the beginning of the year, we made a decision. We had a credit facility that allowed us to go up to 400 million of debt. And we made a decision to basically stay at the 200 million level, because we thought um, it's more important to now really double down on profitability. And so, yes, we feel comfortable with the balance sheet that we currently have. We also think that that has a place on a P&L from a pure cost of capital perspective. We believe we don't need to go to capital markets.

Frank, another question for you. I know you've served in multiple different roles within the organization over the course of your career. I'm just thinking about, as you assess the team today globally, how do you think about you have the right players on the field to execute against your goals and how you think about the culture of the firm today?

Yes, it's a great, I'm privileged to answer that question. I really, it's, being in this role is really truly, because this is a company where you have people who have been here for 25 years, and you have people who have been here for 25 minutes. And you're trying to meld those two together into a world-class healthcare company. And I think that's the advantage, high level, that's the advantage we have is we have people who have been really dedicated, deep science research, deep knowledge of how the technology actually works, and we're now pairing that with bringing in people from outside who have had expertise running global businesses. And I think, as I think about it, about it, that's our biggest team dynamic challenge that we'll have in the coming year. But I think where this really comes down to, and it dovetails off the question about the balance sheet and capital allocation strategies, is, you know we are now in a place where we've earned the right and the privilege to control our own destiny. We this year got cost under control. We restarted growth in the businesses. You asked where do we have really outstanding leadership. I would highlight that our business leadership and our medical leadership broadly defined really came together and took a franchise that for 10 years had been in market and got it growing again in every key market. So I think we have really outstanding people here. And I think what we have to do now is take a step back and on the R&D side say, okay, what what does the future of R&D look like at Novocure? How are we going to conduct clinical trials? How are we going to be the device in the future? In these indications where drugs are evolving every year as opposed to every five or 10 years like it used to be. And I think that once we get that strategy articulated both internally and externally, you'll see pretty quick execution because we have the right people.

That's great. Kudos to you guys for kind of, you know, once you've been in the seat, you know, really taking responsibility around how you guide the street to, you know, forward-looking expectations, both from a financial perspective and an operational perspective. I think you guys have done a great job. Maybe just one final question before we wrap up for you, Frank. What do you think, you know, might be misunderstood about the story, and what are you most excited for looking at the next 12 months?

I think that in terms of the story broadly defined, I think that the breadth and diversity of our overall business is sometimes missed because for so long we were a glioblastoma business and we were a glioblastoma business in the U.S. Over the last two years, our business in France grew to maturity, our business in Germany after a trough has returned to growth. We've been able to get national reimbursement in Spain. We've put the right structure in place so that our team can execute in these smaller markets. Uh, so we've grown GBM outside of the U.S. and in the U.S. And then we've paired that with now a strong early launch in PANC. We acknowledge now we have [ KRAZATI ] on the market, and that's going to create some disruption in terms of practices and our ability to get into practices that we've seen a good early launch into Q2 and the And we've also seen a good launch in non-small cell lung cancer in Japan. So our revenue streams are diversifying, our geographic footprint is diversifying. And then I think to just really put a final, you know, statement out there, what I highlight over and over again is that our business in Japan today is the fourth largest business in our portfolio. And that's largely due to the fact that the incidence of GBM is relatively low in Asian populations and specifically in Japan. As we move into these bigger indications of lung cancer and pancreatic cancer where the incidence is either on par or greater than Western populations, Japan has the ability to be that that you know, financial driver for the business for more than just 2027. And so we feel like we have a really strong, durable, stable revenue base. We have good controls now over our operating expenses. And so I think now it's up to us to figure out, okay, then what does this look like, not just over the next one year or two years, but where do we go from here in terms of maximizing the clinical benefit of tumor-treating fields?

That's great. Well, congratulations on all the progress. Thank you. And thank you for joining us at the Morgan Stanley Healthcare Conference. Great to have you.

Have you here. Thank you very much. Appreciate it. This live transcript is auto-generated without human intervention or review.