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Here's Why NovoCure Fell 36.8% in October

By Maxx Chatsko – Updated Nov 7, 2018 at 11:23AM

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The biopharma stock had more than doubled from the beginning of 2018 to the end of September. Why are investors suddenly pessimistic?

What happened

Shares of oncology medical device leader NovoCure (NVCR -0.76%) declined nearly 37% last month, according to data provided by S&P Global Market Intelligence. The stock entered October with year-to-date gains over 150%, but a combination of market volatility and company-specific updates nudged investors to take some profits off the table. It's worth noting that the stock is still up more than 65% for the year through the first week of November.

Nonetheless, investors thought NovoCure delivered unimpressive third-quarter 2018 results, which came just one day after the company announced notable changes to its board of directors. The company's founder, Professor Yoram Palti, retired from the board, although he will continue as the chief technology officer. Louis J. Lavigne Jr., the chairman of the audit committee, also retired from the board, which will be reduced to 10 seats.

A chart showing a steady positive trajectory and then a sudden decline.

Image source: Getty Images.

So what

NovoCure reported third-quarter 2018 revenue of $64.8 million, which represented year-over-year growth of 29% but fell just shy of Wall Street expectations. That figure also lagged the 34% growth in active patients reported, indicating selling prices are receding just a bit as the company expands in international markets. The business reported a net loss of $11.7 million for the quarter, but that was slightly better than the average analyst estimate.

Meanwhile, the reshuffling of the board of directors might simply be chalked up as normal business affairs. Both Palti and Lavigne were directors for a significant length of time and helped NovoCure to transition into a commercial-stage company. But rightly or wrongly, investors might have been wondering if the news was a sign of internal conflict.

Now what

Mr. Market still thinks highly enough of NovoCure to hand the company a market valuation exceeding $3 billion. That's a healthy premium relative to current operations, which shows confidence in the business' trajectory. As third-quarter 2018 operating performance demonstrates, however, there may be a few bumps in the road as the company works to deliver profitable growth.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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