After its stock fell 31% on Aug. 28, leaving it down by 72% in the last 12 months, NovoCure (NVCR 3.31%) shareholders are bound to be quite displeased. The cancer-treating device maker remains unprofitable despite having its Optune portable therapy machine approved for sale in the U.S. as an adjunct treatment for glioblastoma and also mesothelioma.
The culprit for the stock's sharp drop was a failure of its device to improve patient survival in a phase 3 clinical trial for treatment-resistant ovarian cancer. Now, investors are right to question whether the company's other late-stage trials are at risk of a similar fate.
Let's examine its financial position as well as its remaining pipeline to get a sense about what's at stake and when key catalysts will occur.
The latest stumble could portend further troubles
NovoCure's product, the Optune, is an oncology therapy that's unlike others on the market. It's a wearable device that emits tumor treating fields of electromagnetic energy. Those fields interfere with cancer cell metabolism and migration, which, when paired with the application of other treatments like chemotherapies, can buy patients with aggressive and tough-to-treat cancers like glioblastoma a bit more time -- typically between three to six months, though in some cases significantly longer.
The more hours of the day that patients wear the machine, the more it can slow the progression of their illness. Importantly, it isn't associated with side effects that are as serious as the therapies it's normally co-administered with, and it utilizes a dramatically different mechanism of action than common treatments.
So it's a therapeutic modality that is broadly compatible with others, lowering a few of the medical barriers to patients being treated with it. That suggests the company could ultimately get it approved for additional indications in oncology, thereby significantly increasing the size of its addressable market.
Sales of the Optune brought in trailing-12-month revenue of $507 million, up 119% from five years ago. Its pace of growth isn't jaw-dropping, and in fact its sales have shrunk over the last 12 months by around 6%. The company attributes the decline to lower-than-anticipated collections from appeals of previously rejected insurance claims. In other words, insurers appear to be reluctant to cover the treatment, which is likely because it usually doesn't provide patients with much additional time.
Whiffing the ovarian cancer clinical trial will not help to change their mindset, and it might even make insurers less willing to reimburse patients for the currently approved indications. To say such a trend is a bad omen for this healthcare stock is an understatement.
Don't rule out a turnaround, but don't bet on one
Despite its recent failure, don't write NovoCure off just yet. Management thinks that the market for the Optune could one day be 14 times larger than its current annual revenue. If it's right, the company could eventually have a top line of more than $7 billion annually. Growing from where it is now to reach that level would likely take years of seeking new indications and then successfully commercializing them.
To reach those lofty goals and help patients along the way, it still has a lot of research and development (R&D) legwork to do in the clinic. Before the end of 2024, NovoCure will report the results of two phase 3 clinical trials, one testing the Optune for its efficacy in treating brain metastasis after therapeutic surgery, and the other testing its efficacy in combination with a pair of chemotherapies for pancreatic cancer. The stakes will be high for both of those trials. It'll take some pretty impressive data to convince both regulators and the market that significant sales might be on the way.
But remember, NovoCure already has two approved and marketed indications for the Optune, so there is a solid chance that it can get even more. The fact that the therapy is relatively safe should help its chances with regulators if the clinical trial data are somewhat ambiguous. Still, now is a risky time to invest.
The upcoming catalysts are not guaranteed to turn out positively, and any more problems will scare off more shareholders as well as possibly clinicians and insurers, either of which would be a revenue headwind. What's more, there does not appear to be much organic growth potential for now. So it's probably best to find a better opportunity to invest in for now, even though NovoCure could make a turnaround if the next couple of years go its way.
