NVCR - Navigating NovoCure's TTFields Therapy In NSCLC: Mixed Results And Rating Downgrade

2023-06-13 23:49:18 ET

Summary

• NovoCure's Tumor Treating Fields (TTFields) technology is seeking FDA approval for use in non-small cell lung cancer (NSCLC), despite the company's recent stock decline.
• The Q1 2023 financial report shows decreased net revenues and increased expenses, resulting in a net loss, with significant cash reserves remaining.
• The LUNAR trial demonstrated improved survival rates with TTFields therapy for NSCLC, leading to a planned FDA submission.
• Despite promising trial results, market concerns about TTFields therapy's modest survival rate improvement, variable benefits, potential side effects, and uncertain FDA approval have resulted in a shift from "Buy" to "Hold" for NovoCure's stock.

Introduction

NovoCure ( NVCR ) is a leading player in the global healthcare space, specializing in oncology. Their unique technology, Tumor Treating Fields (TTFields), utilizes electric fields to target and destroy cancer cells through various mechanisms. The company's main goal is to expand the usage of its FDA-approved TTFields devices, Optune and Optune Lua, and to continue their trajectory of clinical and product innovation. Optune, used alongside chemotherapy, is employed in the treatment of glioblastoma ((GBM)), while Optune Lua is applied with traditional chemotherapy for malignant pleural mesothelioma (MPM).

I previously analyzed NovoCure's objective of gaining FDA approval for TTFields as an auxiliary treatment for stage 4 NSCLC, which is supported by LUNAR data. The company could see a significant market expansion for TTFields as the current GBM and MPM usage has plateaued at about $500 million in annual revenue. Despite the device's somewhat bulky nature, capturing between 10-15% of the NSCLC market could almost triple the number of active TTFields users. NovoCure's stock suffered a ~50% drop due to some challenges, but impending trial data could spark renewed growth. Since my "Buy" recommendation, NovoCure's stock has declined by 21%, compared to a 10% return from the S&P.

Recent developments: On June 6th, NovoCure shared detailed NSCLC data at the ASCO conference, which led to a plunge in the stock to its lowest point in 52 weeks.

The purpose of this article is to provide an updated investor analysis in light of the detailed NSCLC data.

Q1 2023 Financials

NovoCure's financial results for Q1 2023 showed total net revenues of $122.2 million, marking an 11% decrease from Q1 2022. This revenue was chiefly derived from the United States ($85.2 million), Germany ($15.1 million), Japan ($8.7 million), and other active markets ($7.9 million), with an additional $5.3 million coming from its partnership with Zai Lab in Greater China. The quarter's gross margin stood at 76%.

Significant increases in expenses were noted: research, development, and clinical studies expenses rose by 41% to $59.7 million due to costs related to the PANOVA-3 and METIS clinical trials. Sales and marketing expenses jumped 35% to $51.2 million due to geographic expansion and pre-launch activities for TTFields. General and administrative expenses were up by 37% to $41.9 million, reflecting increased costs for personnel, geographic launches, supply chain expansion, and IT enhancements.

The quarter ended with a net loss of $53.1 million and a loss per share of $0.50. The adjusted EBITDA was a loss of $18.4 million. As of March 31, 2023, the company held $958.0 million in cash, cash equivalents, and short-term investments.

Mixed Results for Novocure's TTFields Therapy in NSCLC, FDA Submission Imminent

NovoCure has announced mixed results from its phase 3 LUNAR clinical trial at the 2023 ASCO Annual Meeting. The trial evaluated the TTFields therapy for non-small cell lung cancer (NSCLC). Significant improvements in median overall survival [OS] were observed when TTFields therapy was combined with standard treatments, resulting in a median OS of 13.2 months compared to 9.9 months in those receiving standard therapies alone (HR: 0.74, P=0.035). Particularly noteworthy was the subgroup receiving TTFields therapy and an immune checkpoint inhibitor ((ICI)), showing a median OS of 18.5 months versus 10.8 months in patients treated with ICI alone (HR=0.63; P=0.03). A threefold improvement was observed in the three-year survival rate for patients treated with TTFields therapy and standard treatments, rising to 18% versus 7% for patients receiving standard therapies alone (P=0.015). NovoCure anticipates using these results for a Premarket Approval [PMA] submission to the FDA in the second half of 2023.

Market Apprehensions Surround NovoCure's TTFields in NSCLC Treatment Landscape

While NovoCure's NSCLC data from the LUNAR clinical trial involving TTFields has demonstrated a positive impact on OS, market apprehensions could stem from the complex treatment landscape of NSCLC. The relatively modest median OS extension of slightly over three months, despite being statistically significant, might be seen as insufficient given the progressive advancements and options in NSCLC treatments.

Moreover, the variable benefits of TTFields across different patient subgroups might raise questions regarding its optimal positioning within the treatment paradigm. The markedly higher improvements in the ICI subgroup suggest that TTFields' efficacy may hinge on concurrent therapies, complicating its integration into current NSCLC treatment protocols.

Further, while TTFields was generally well-tolerated, device-related grade 3 adverse events could potentially hinder its acceptability, impacting its adoption and positioning in the market.

Lastly, the uncertainty of regulatory approval is a critical factor. Even with encouraging clinical trial data, the rigor and unpredictability of the FDA approval process might lead to concerns about TTFields' eventual role and acceptance in the NSCLC treatment landscape.

My Analysis & Recommendation

To summarize, the latest insights paint a complex picture of NovoCure. This company is still leading the charge in the oncology sector, especially through its groundbreaking TTFields technology, which shows promise in managing NSCLC. Yet, the true impact of TTFields within the NSCLC market, according to the LUNAR data, seems less certain than initially predicted.

Though TTFields have been linked with statistically significant improvements in survival rates, the scale of these enhancements might not be sufficiently compelling in an intensifying NSCLC treatment arena. The efficacy of TTFields appears to be impacted by concurrent therapies, possibly causing difficulties in integrating it into NSCLC treatment protocols. Moreover, potential device-related side effects may act as obstacles to its broad acceptance. Another variable to consider is the unpredictability of the FDA approval process. Given these factors, at this stage, it is my opinion that investors should be cautious about ascribing significant value to TTFields in NSCLC based on the LUNAR data - the uncertainties surrounding its role in the treatment landscape seem to overshadow the minor advancements in patient outcomes.

From a fiscal perspective, NovoCure's declining revenues and swelling expenses, as indicated in the latest financial report, make the scenario complex. Even with a robust cash position, the Q1 2023 net loss signals a potentially bumpy road ahead.

Nevertheless, the company's forward-looking plans hint at promising developments. The anticipated top-line results from the Phase 3 INNOVATE-3 trial in platinum-resistant ovarian cancer later this year offer another possible avenue of growth. Early 2024 is expected to reveal top-line results from the Phase 3 METIS trial, investigating the use of TTFields for treating brain metastases from NSCLC. Moreover, the expected Phase 3 PANOVA-3 trial readout in locally advanced pancreatic cancer in 2024 provides additional hope. These pivotal clinical trials could form the foundation for NovoCure's next growth phase.

Given these considerations, my recommendation for NovoCure moves from "Buy" to "Hold". While potential for expansion exists, the current data and market conditions call for a more conservative stance. Investors should monitor how LUNAR data influences market adoption and NovoCure's revenue growth, whilst also keeping an eye on the upcoming trial readouts to refine their investment strategies.

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