Young medical companies with new therapies often navigate a challenging path. That's true today for NovoCure (NVCR 3.31%), which makes a wearable device for treating cancer. The average investor might see NovoCure as yet another struggling cancer therapy company.
But smart investors see its less-appreciated advantages -- and also its lesser-known warts. So without further ado, let's dive in and think about three of the nuances that smart investors can see about this business.
1. It has no competitors -- or any on the horizon
The biggest thing that smart investors know about NovoCure is that it's pretty much the only business making wearable anti-cancer devices that deliver tumor-treating electromagnetic fields to patients to slow down the rate of tumor growth in aggressive cancers.
Its product, the Optune, is the only such device in the world, and it's approved in 10 countries, including the U.S., to help treat glioblastoma and mesothelioma as an add-on treatment to traditional modalities like chemotherapy. With the exception of Zai Lab, which licenses the Optune to commercialize it in Greater China, the rest of the world is NovoCure's oyster, which can't be said of many other cancer stocks.
The benefits of being the only fish in the pond are obvious. The company can penetrate markets at leisure without fear of a competitor putting pressure on its margins. In 2022 it brought in $538 million in revenue. Since there's no indication of anyone else working on making competing products, it's reasonable to say that it'll enjoy the current state of affairs for the foreseeable future.
2. Its product may eventually treat many different cancers
Right now, the Optune is only approved for a pair of conditions. But as wise investors know, NovoCure's pipeline indicates that it could one day be used to treat at least five other cancers, including non-small cell lung cancer (NSCLC), brain metastasis, and pancreatic cancer, to name just a few. Its addressable market could ultimately be gargantuan, depending on how many different indications it can get the Optune approved to treat.
While testing for treatment of ovarian cancer proved unsuccessful (barely increasing patients' survival times compared to a placebo), data from two other programs are expected next year. Smart investors likely recognize that there are risks of similar stumbles with both of those, not to mention the company's other ongoing trials. In fact, per data published from its phase 3 trial investigating the Optune's helpfulness in the context of NSCLC on August 29, treatment appears to confer only a median of three months of survival time.
Such modest benefits are, unfortunately, a common story with NovoCure's trials. Even for the indications it's approved for, treatment tends to confer only around five months of additional survival time for patients. And that's directly linked to the next thing we'll discuss.
3. It's having trouble convincing doctors and insurers
As favorable as it is that NovoCure doesn't have any competition, and as positive as it is that the Optune could be helpful in the context of many different cancers, the device has a core problem: It can't give patients much additional time. Though the treatment's side effects and its impacts to quality of life are thankfully not too burdensome, patients also need to wear their Optune device for as many hours a day as they can, preferably around-the-clock. That's a barrier for patients to want to receive treatment.
Canny investors know that the Optune's marginal benefits make it a hard sell for insurers, who prefer to only cover high-impact treatments. Likewise, they know that oncologists may be unwilling to prescribe using the Optune if they have questions about its benefits relative to its cost. Per its Q2 earnings update, the company is already experiencing trouble on the insurance front. It lost more than $13 million in collections due to denied insurance claims in the U.S. against total quarterly revenue of $126 million.
NovoCure rents Optunes to patients for $21,000 per month. Five months of treatment would put the total cost of a typical duration of treatment at more than $100,000, and, as mentioned previously, it isn't sufficient to save the patient's life. Rigorous analyses published in scholarly journals have largely found treatment to not be cost effective, though it's important to note that those findings haven't prevented socialized healthcare systems in Japan and the E.U. from covering the cost of treatment anyway.
Smart investors are doubtlessly aware that further trouble in NovoCure's clinical trials will make both insurers and clinicians all the more skeptical, which could be problematic for its future revenue growth.
