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Up 1,100%, This Cancer-Fighting Stock Has Room To Run

By Justin Pope - Updated Jun 29, 2021 at 4:41PM

Key Points

  • NovoCure is pioneering a breakthrough treatment for cancer.
  • NovoCure's technology could have an enormous addressable market as it proves itself effective against additional types of cancer.
  • NovoCure achieved high margins and was profitable in 2020, supporting its future financial needs for research & development.

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NovoCure's unique treatment for cancerous tumors is both a medical breakthrough and an investment opportunity.

In 2020 alone, almost 10 million people lost their battle against cancer. However, oncology company NovoCure (NVCR -0.96%) and its new category of cancer treatment  is improving the lives of patients. And with 1,100% gains since its IPO, it's also improving investors' lives. If you're afraid that you've missed the boat, here are three reasons why NovoCure could still keep winning. 

1. Novocure is alone in its field

Over the past century, the basic methods for treating cancer have remained the same: surgery, chemotherapy, and radiation treatment. Unfortunately, these treatments are invasive, and they often damage both cancerous and healthy tissues, leading to side effects and additional health ailments.

Since its founding in 2000, NovoCure has instead pursued tumor-treating fields (TTF), in which low-powered electrical fields disrupt cancer cells' ability to multiply. In addition, NovoCure designed and brought to market its Optune System, a device that applies tumor treating fields to a patient as they wear it throughout the day.

Doctor reviewing medical data with patient.

IMAGE SOURCE: GETTY IMAGES.

NovoCure's Optune system doesn't cure cancer; rather, it enhances existing treatment. For example, a study conducted by NovoCure showed that patients with newly diagnosed glioblastoma, a form of brain cancer, achieved a two-year survival rate of 31% and a five-year survival rate of 5% when using chemotherapy treatment alone. But used in conjunction with NovoCure's Optune System, two-year survival jumped to 43%, and five-year survival increased to 13%.

NovoCure's Optune treatment can target cancerous cells, preserving healthy tissues, leading to fewer side effects during a treatment program. Tumor treating fields was an unproven technology as NovoCure worked on it, so NovoCure is the only company that offers such a product. TTF technology is also patented, protecting NovoCure's intellectual property from the competition.

2. The addressable market is enormous

NovoCure's business is already generating revenue and net income despite only having three applications with FDA approval:

  1. Recurrent glioblastoma
  2. Newly diagnosed glioblastoma
  3. Mesothelioma

These cancers are generally rare. Remember that 10 million figure of global cancer deaths? On average, glioblastoma takes roughly 241,000 lives per year, with mesothelioma claiming another 43,000. This represents less than 3% of all cancer-related deaths each year. 

NovoCure is actively pursuing FDA approval for new forms of cancer, and it's reached Phase 3 and Phase 4 trials for applications in:

  1. Brain metastasis
  2. Non-small cell lung cancer
  3. Pancreatic cancer
  4. Ovarian cancer

The lung cancer approval alone would be a game-changer. Lung cancer contributes to approximately 13% of total cancer cases, and 84% of lung cancer is non-small cell.

It's not a stretch to envision the difference that NovoCure can make for patients over the years ahead. If NovoCure can receive approvals for more common forms of cancer, the company's addressable market could easily multiply as much as 20X from its current size.

3. NovoCure boasts strong financials

Investors don't need to wait on many "what ifs" to benefit from NovoCure's business. The company has been generating revenues since its first FDA approval back in 2011. It grew revenue by 26% annually from $248 million in 2018 to $494 million in 2020. In the first quarter of 2021, NovoCure generated revenues of $134.7 million, up 32% year over year. This growth could accelerate if regulators approve new uses. Right now, just 3,454 patients use NovoCure's product, and that total has increased for 25 consecutive quarters.

NovoCure enjoys tremendous 80% gross margins because it charges a lot for its device. On average, Optune costs approximately $21,000 per month. But the average patient only pays $100 of that, thanks to wide acceptance by insurance companies and Medicare, making Optune a lot more affordable for those that need it.

It's important to note that NovoCure is a profitable company despite having FDA approval for just three use cases. It generated net income of $20 million in 2020, though it showed a loss in Q1 of 2021 because of increased R&D expenses related to pursuing new FDA approvals. As NovoCure is able to expand its addressable market with new use cases, it could accelerate earnings growth.

One big "catch" to keep in mind

There is a lot to like in NovoCure, a growing, profitable company making a positive difference in people's lives. However, investors need to be aware of one big "catch" before jumping onboard.

NovoCure's entire company rests on its tumor treating fields technology. The case for a long-term investment depends on the continued FDA approval for new types of cancers. If the technology is ineffective with other cancers, it would potentially lower NovoCure's ceiling as a long-term investment.

If all goes well, the company could gain a major catalyst next year. NovoCure expects data from its LUNAR Phase 3 trial for non-small cell lung cancer sometime in 2022. If that trial's successful, NovoCure's 1,100% run thus far could be only the beginning for life sciences stock investors.

Fool contributor Justin Pope has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Novocure. The Motley Fool has a disclosure policy.

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