These days, investors can find plenty of reasons to feel nervous about buying stocks. Surging inflation, soaring interest rates, and geopolitical tensions are all legitimate concerns for most businesses.
In these challenging times, investors would do well to remember that difficult economic conditions hardly ever limit the amount of healthcare we need. In 2023, nearly 2 million new cancer cases are projected to occur in the United States, and there's nothing the Federal Reserve can do about it.
Novocure's (NVCR 3.31%) medical device business can perform well in just about any economic environment, and analysts who follow the stock know it. H.C. Wainwright, an investment bank, recently changed its price target on the stock to $85, which implies a 99% gain from its latest closing price.
Should everyday investors be as excited about Novocure's future as the analysts who follow the medical device company? To answer, we'll need to understand why the stock tanked by 46% last week despite the company's announcement of "positive" clinical trial data.
Why Novocure stock fell
H.C. Wainwright actually lowered its price target on Novocure to $85 from $115 in response to new clinical trial data that the company touted as positive. Novocure's lead product is a device that emits electric fields to disrupt cell division and limit tumor growth. Its tumor treating fields (TTF) are already used to treat glioblastoma, but this is a form of brain cancer only diagnosed around 13,000 times annually in the United States.
It looks like Novocure has already saturated the limited population of glioblastoma patients with TTF access. First-quarter sales declined year over year, and they've been sliding slowly since the end of 2020.
NVCR Revenue (Quarterly) data by YCharts
Investors eagerly awaited the recently revealed results of the Lunar trial because it could lead to a much-needed expansion to a larger patient population. While the results were generally positive, it doesn't look as if TTF will become a standard second-line lung cancer treatment.
The application of Novocure's tumor treating fields (TTF) reduced patients' risk of death by 26% compared to standard care alone. When evaluating potential new cancer therapies, an improvement in overall survival is the most important goal, but there was a bigger problem with the trial's design.
Back in 2016, when the Lunar trial began, platinum-based chemotherapy was the standard first line of treatment for the vast majority of advanced-stage lung cancer patients. Checkpoint inhibitors such as Keytruda from Merck were still limited to patients with tumors that returned after an initial course of chemotherapy.
These days, most lung cancer patients receive checkpoint inhibitors first, followed by chemotherapy if the checkpoint inhibitors fail. In the Lunar trial, 31% of patients had received prior checkpoint inhibitors but Novocure didn't break out their results separately.
There's a good chance the U.S. Food and Drug Administration (FDA) will approve Novocure's device to treat the larger lung cancer population based on results from the Lunar trial. Without data that demonstrates its efficacy among the current second-line population, though, experts expect its uptake to remain limited to a small number of heavily pretreated patients.
A buy now?
Sales of Novocure's FDA-approved TTF device for glioblastoma, Optune, aren't strong enough to support further development of the technology for larger indications. As a result, the company lost $53 million in the first three months of 2023.
Novocure finished March with $958 million in cash and securities, so it will be at least a couple of years before it needs to raise capital again. If its devices haven't started reaching a larger audience by then, investors who buy at recent prices could suffer heavy losses.
It's probably best to watch this risky medical device stock from a safe distance until its cash flows turn positive.
