Novocure (NVCR 7.48%), a fast-growing medical device company focused on cancer, reported its first-quarter results on May 2.
NovoCure's stock has been red-hot over the last few years as it works to bring its innovative product -- a device called Optune that makes use of a new therapy called tumor treating fields -- to more patients who suffer from a deadly form of brain cancer called glioblastoma multiforme (GBM).
Novocure's stock rose more than 8% on the day following the earnings announcement. What was in the report that left Wall Street feeling giddy? Here are the five biggest takeaways for investors.
1. The financials are improving
Novocure has been in high growth mode for quite some time, driven by management's decision to plow all of its available resources into expanding its commercial footprint and building out its pipeline. Those investments have translated into soaring revenue growth.
Here are the key numbers from NovoCure's first-quarter:
- Revenue grew 41% to $73.3 million.
- Gross margin expanded 800 basis points to 73%.
- Operating costs only grew by 28%, at a slower growth rate than revenue.
- Net loss fell 41% to $12.2 million.
Revenue is growing fast, margins are improving, and the net loss is in decline. These are exactly the kind of numbers that should please investors.
2. International expansion is going well
The U.S. is the biggest healthcare market in the world and currently accounts for the lion's share of Novocure's revenue. Growth in the number of active patients who use Optune -- the key metric for NovoCure investors to watch -- remained quite good at 23%. The company ended the quarter with more than 1,778 U.S. patients.
However, NovoCure also sells Optune in a number of international markets including Germany, Austria, and Japan. Growth in each of these markets remains robust:
- Active patients in Germany and greater Europe, the Middle East, and Africa grew 35% to 735.
- Active patients in Japan grew by 490% to 118.
On the conference call, NovoCure's Chairman Bill Doyle provided investors with an update on its recent foray into China:
Another 2019 catalysts for growth is the potential approval of Optune for GBM in China. As a reminder, we announced the license and collaboration agreement with Zai Lab in the third quarter of last year. Zai has begun to treat commercial patients in Hong Kong and has taken steps to progress the regulatory filing for Optune in China. Zai is seeking a trial waiver from the Chinese regulatory authorities enabling a potential launch in China as early as the fourth quarter of 2019.
3. A new FDA approval could be just around the corner
Optune has won FDA approval as a treatment for two indications: recurrent glioblastoma and newly diagnosed glioblastoma. But the company has long believed these designations are just the tip of the iceberg for patients who could benefit. NovoCure might be on the cusp of winning FDA approval for a new indication for an aggressive form of cancer called mesothelioma.
Moving to mesothelioma, we submitted a Humanitarian Device Exemption or HDE application to the FDA in October 2018 for approval in malignant pleural mesothelioma based on the successful completion of our STELLAR trial. The STELLAR trial demonstrated a significant extension of median overall survival to 18.2 months for patients treated with Optune plus pemetrexed and cisplatin or carboplatin. No serious device-related adverse events were reported. We received comments from the FDA on our HDE application and submitted a response in March. The FDA has 75 days until mid-May to review our response and act on the submission. Our discussions with the FDA have been constructive and our US commercial teams are preparing for a 2019 launch.
4. Medicare coverage is coming
NovoCure has been very successful with expanding insurance coverage since Optune was launched a few years ago. The company estimates that more than 245 million Americans already have access to Optune. The biggest reason that number isn't higher is that Medicare is the last major payer remaining large U.S. payer that consistently denies coverage.
To put some numbers behind this problem, management estimates that about 25% of the company's U.S. active patient population are Medicare beneficiaries. That's why gaining Medicare coverage has been a top priority for a long time.
The company is making good progress with obtaining Medicare coverage, executives said on the call. The process is currently in a 45-day public comment period and after it is concluded a final determination will be published.
Doyle said the company expects plenty of support from patients and providers:
We do expect tremendous support during the public comment period. All of the relevant patient advocacy organizations have already been in touch with us to determine how they can best support us and so we think that the process will unfold and that's why we're still, remain confident that this will happen in 2019.
5. The pipeline is progressing
NovoCure has long believed that tumor treating fields could also be useful in treating a range of cancers beyond glioblastoma. The company was already conducting three separate Phase 3 trials with the goal of winning label expansion claims to treat brain metastases, lung cancer, and pancreatic cancer. There's exciting news regarding another phase 3 trial that was recently launched:
We enrolled the first patients in our Phase 3 pivotal INNOVATE-3/ENGOT-ov50 trial in ovarian cancer during the first quarter 2019. The INNOVATE-3 trial will study Optune in combination with weekly paclitaxel in 540 patients with platinum-resistant ovarian cancer.
How big could the total pie become if NovoCure is successful in these other disease states? This slide from its recent investor presentation helps put the potential in perspective:
Overall, it was an excellent quarter all around. Bulls have plenty of reasons to remain excited about the future of this business.