Cancer is one of the leading causes of death worldwide. That's why dozens of healthcare companies are constantly seeking new ways to treat, diagnose, or prevent it.
Medical device specialist Novocure (NVCR 3.31%) boasts one of the more innovative approaches to fighting cancer. The company markets wearable devices indicated to treat certain forms of the disease. However, developing innovative products alone isn't enough to make a company's shares a buy.
Does Novocure's overall business justify an investment today? Let's dig in and find out.
Looking at Novocure's financial results
Novocure is pioneering an approach that utilizes Tumor Treating Fields (TTFs) to treat cancer. TTFs are electric fields produced by devices attached to patients' heads that can help slow cancer cell division and growth. Novocure's device, the Optune, is approved in the U.S. to treat glioblastoma (GBM), a brain tumor. Optune is in 10 markets worldwide, and more than 3,600 patients have been treated with it.
GBM is normally akin to a death sentence. The 5-year survival rate for newly diagnosed patients is typically between 5% and 10%. However, in a phase 3 study, 13% of GBM patients using Optune and chemotherapy were still alive five years later versus just 5% of those on chemotherapy alone.
How have financial results been? Not so great, as the company's third quarter demonstrates. On the top line, Novocure's revenue of $127.3 million decreased by 3% year over year. Management blamed the decline on issues with third-party payers and the company's inability to collect some payments from them. However, moving forward, Novocure expects its top line to better reflect the drivers of its underlying business: Active patient starts on its cancer-treating devices, time of treatment, etc.
On the bottom line, Novocure's net loss per share of $0.46 was much worse than the $0.25 reported in the third quarter of 2022. Novocure ended the period with $921.2 million in cash, equivalents, and short-term investments, compared to $969.4 million as of the end of 2022. That's a solid cash balance for a company with a market capitalization of just $1.4 billion.
New approvals could be on the way
One of Novocure's goals is to earn more indications for its innovative TTF approach to treating cancer. The company is currently running several clinical trials to that end. It recently reported positive phase 3 results in evaluating TTF to treat metastatic non-small cell lung cancer (NSCLC). But the company is also awaiting top-line data for two other late-stage clinical trials.
The first is a phase 3 study evaluating TTFs in targeting brain metastases resulting from NSCLC, the results of which should be available in the first quarter of 2024. Then, Novocure's late-stage study for TTFs to treat pancreatic cancer should produce top-line data by the second half of 2024. Novocure's clinical trials won't always be successful. In fact, it announced that it failed to meet its primary endpoint in one such study in August.
However, the company's TTF therapy is clearly showing promise.
What should investors do?
No one would likely question Novocure's ability to innovate. And given that the company hasn't performed well lately -- its shares are down by 81% over the past year -- some might think the price is right, and at these levels, the company is worth investing in.
However, it's essential to consider the risks. Novocure's stock has significantly lagged the market lately because of declining revenue, consistent net losses, and the usual risks involved with healthcare companies seeking to develop new therapies. If Novocure's late-stage clinical trials pan out, the stock could soar. But if they fail to show positive results, the opposite will happen.
True, Novocure is running various early-stage studies that could eventually lead to new approvals. But the company's late-stage pipeline will drive its stock performance in the next couple of years and tell us quite a bit about Novocure's longer-term prospects. In my view, the stock looks too risky for most investors to bother with right now although that could change, depending on whether it delivers solid clinical progress.
Investors with an appetite for risk, though, can consider opening up a small position in the stock.
