NVCR - NovoCure: Catalysts Stacking For More Upside

Summary

• Powered by the robust Phase 3 (LUNAR) trial, NovoCure Limited shares recently rallied over 70% in one trading session.
• You can expect Tumor Treating Field to be approved for non-small cell lung cancer sometime next year.
• Later this year, two huge Phase 3 studies are set to release data to potentially give NovoCure more upside.

I have already made up my mind, don't confuse me with facts. - Phillip Fisher (Warren Buffett's mentor)

Author's Note : This is an abbreviated version of an article originally published in advance inside Integrated BioSci Investing for our members.

In biotech investing, you should focus on any pertinent clinical trial data report. A strong clinical report for the crown jewel of the pipeline usually substantially boosts the fundamentals of your stock. In response to such development, the shares usually (but not always) rally robustly. Nevertheless, if the data is negative, you can bet that the stock is nearly always going to tumble.

NovoCure Limited ( NVCR ) epitomizes the aforesaid phenomenon. Despite its large market capitalization, the stock rallied over 72% on the same day that the LUNAR trial delivered extremely robust results. In this research, I'll feature a fundamental analysis of NovoCure while focusing on the ramifications of the latest data development.

Figure 1: NovoCure Chart.

About The Company

As usual, I'll deliver a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. I noted in my previous article ,

Headquartered in St. Helier, Jersey, NovoCure is a global oncology leader that dedicates its efforts to the innovation and commercialization of a novel cancer treatment dubbed Tumor Treating Fields (i.e., TTF). Notably, TTF is delivered by a device known as Optune which is portable and convenient for patients. As an uncanny method of attacking cancerous cells, TTF is highly efficacious and safe against deadly cancers. As you know, the technology has been approved and launched for two indications. They include both newly diagnosed and recurrent glioblastoma multiforme (i.e., GBM) as well as mesothelioma. To boost further growth, NovoCure is investigating TTF for other cancers such as non-small cell lung cancer (i.e., NSCLC), brain metastases, and pancreatic, ovarian, liver as well as gastric cancers.

Figure 2: Therapeutic pipeline.

Tumor Treat Field - A Novel Approach

Many biotech companies claimed to have a novel treatment approach. While most do, there isn't a single company having such a differentiated and market-disruptive treatment technology as NovoCure. Precisely speaking, the company is harnessing the power of low-voltage electromagnetism to treat some of the deadliest cancers.

As you can appreciate, this is a stark contrast to the traditional use of therapeutics. More importantly, Tumor Treating Field (i.e., TTF) can also be utilized in combination with conventional medicine to boost their efficacy.

Figure 3: Mechanism of TTF.

Robust LUNAR data

On January 05, NovoCure published stellar data for its Phase 3 ((LUNAR)) trial. As a pivotal, open-label, randomized study, LUNAR evaluates the efficacy and safety of TTF in combination with standard therapies (either docetaxel or immune checkpoint inhibitors) in patients afflicted by the deadly stage-4 NSCLC.

Figure 4: LUNAR trial.

Keep in mind, the patient's cancer already progresses while on or after the treatment with platinum-based therapy. Regardless of the cancer's bleak prognosis, TTF demonstrated clinically/statistically significant improvement in Overall Survival. Precisely speaking, patients on the TTF combo showed superior OS improvement compared to standard therapies alone. At the same time, the treatment demonstrated an excellent safety profile. Commenting on the development, the Executive Chairman (William Doyle) enthused,

We are pleased with the positive readout of the LUNAR study. Prior to LUNAR, the last phase 3 trial to lead to significant improvement in OS in late-stage, platinum-resistant non-small cell lung cancer was six years ago, underlining the difficulty in treating this disease. We are also pleased by the profound performance of the TTFields together with immunotherapy, which has the potential to meaningfully extend patient survival beyond what was previously possible ...

Ramifications of LUNAR

Going forward, NovoCure will release the full LUNAR results at a future medical conference. You can expect results to be extremely robust. Riding excellent data, the company anticipated filing a premarketing approval application with the FDA in H2 this year. The company also files for application in Europe around the same time.

On top of the GB and mesothelioma indications, NovoCure is now in a great position with LUNAR results. That is to say, NovoCure can now potentially gain another approval for NSCLC. More approval leading to additional label expansion is a great way to garner blockbuster sales. That aside, the strong data is solid proof in the pudding that TTF is here to stay. Most importantly, it signals that TTF has the potential to become the premier cancer treatment of the future.

Figure 5: Stages of NSCLC.

Estimated NSCLC Market

According to the Institute for Clinical and Economic Review ((ICER)) and the National Institutes of Health ((NIH)), 85% of new lung cancer in the U.S. are NSCLC. Growing at 13.9% CAGR, you can expect this market to reach $76.3B in 2030. Of that figure, 46K patients would receive second-line treatment for Stage 4 NSCLC each year.

Facing such statistics, TTF can certainly enjoy leaping revenue growth from the upcoming approval/launch. Nonetheless, it won't be as drastic because the indication is not the first line. Now, when NovoCure starts to push TTF into first-line indication like for GBM, you can then enjoy blockbuster sales.

Financial Assessment

Just as you would get an annual physical for your well-being, it's important to check the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll assess the 3Q2022 earnings report for the period that ended on September 30. Given that I already went into great detail about financials in the previous research, I'll briefly go over key metrics here.

As follows, NovoCure procured $131.0M in revenue compared to $133.6M for the same period a year prior. That aside, the R&D for the respective periods registered at $51.9M and $48.1M. Additionally, there were $26.5M ($0.25 per share) net losses compared to $13.1M ($0.13 per share) net declines for the same comparison. Regarding the balance sheet , there were $970.3M in cash, equivalents, and investments. On top of the $131M quarterly revenue and against the $125.8M quarterly OpEx, there should be adequate capital to fund operations indefinitely without worrying about a cashflow constraint.

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the most important concern is if NovoCure can gain FDA approval for TTF's use in NSCLC next year. That aside, there is the risk that PANNOVA-3 and INNOVATE-3 won't post strong data.

Conclusion

Once every few decades, you'd start to see leaping progress in medical innovation. Now, you're witnessing history in medicine with NovoCure technology that harnesses the power of electromagnetism with TTF to treat deadly cancers. Already approved for GBM and mesothelioma, you can expect another approval next year. At the next quarterly report, you'll likely get an update on when NovoCure Limited will release data for the other two trials (INNOVATE-3 and PANNOVA-3) for ovarian cancer and pancreatic cancer, respectively. Moreover, you can also anticipate revenue to reach halfway toward blockbuster.

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