NovoCure Limited (NASDAQ:NVCR) is a ~$7.9 billion market capitalization oncology device company that provides patients with a new cancer treatment based on alternating electric field technology. The company’s lead product is based on the research work of founder Yoram Palti that such electric fields, when applied at specific frequencies, can disrupt cancer cell division and cause cancer cell death. This use of such Tumor Treating Fields (TTFields) represents a completely innovative approach to cancer therapy and is no longer confined to the laboratory or experimental setting, as the company’s revenue topline continues to grow significantly.
NVCR is making remarkable commercial progress and the company continues to generate new revenue streams globally. Investors should consider NVCR as part of their portfolio.
NVCR is a global oncology company working to “extend survival in some of the most aggressive forms of cancer through the development and commercialization of its innovative therapy, Tumor Treating Fields.” The company recently reported strong results in October in its latest quarter, with significant visibility to continued revenue growth. The last quarter was NVCR’s first quarter with positive net income; 42% year-over-year net revenue growth was coupled with positive EPS of $0.02 and nearly $15 million generated in cash flow from operations.
This strong performance was largely a reflection of the company’s 19th consecutive quarter of active patient growth, with 2,750 active glioblastoma patients on therapy. The company was also able to improve its reimbursement rates for these patients, which should bode well for future quarters.
From the financial perspective, the company’s cash flow from operations was up to $14.9 million in Q3 2019, representing a 164% increase over Q3 2018. This growth trajectory should continue as the commercial ramp continues and is a positive signal for future equity value creation at NVCR.
NVCR is expanding commercial operations into France and has an ongoing regulatory review in China as well. Countries in which it operates include the United States, Sweden, Germany, Switzerland, France, Austria, Israel, China, Hong Kong, and Japan.
The company had $313 million in cash on hand as of the end of September 2019, mitigating the risk of equity dilution to fund further commercial expansion in light of the company’s positive (and increasing) cash flow from operations.
In addition, the company continues development of its clinical pipeline. The next two years should be crucial years in terms of value inflection points around data for the company. The company is currently undergoing Phase III pivotal trials in various indications, including brain metastases, non-small cell lung cancer, pancreatic cancer, and ovarian cancer. Data from all of these trials should be released over the coming years:
On the commercial front, I will be closely watching NVCR’s partnership with Zai Lab, the company’s partner in greater China and Hong Kong. There should be some news released regarding the scheduled launch of the partnership’s option in China in the coming weeks.
As with all medical device companies, the risk of increased regulation exists. However, the company has cleared major regulatory hurdles already and given the level of commercial adoption of the lead product, this risk seems to be largely mitigated as of today.
Execution risk has been highlighted by bears, but management has demonstrated an impressive ability to execute on its commercial strategy thus far. The company’s strong balance sheet and strong cash position gives management ample flexibility when it comes to execution as well.
Finally, there could be scientific results that are released that question the efficacy of the TTFields technology in treating glioblastoma or other cancer types. The company is exploring further indications in its late stage pipeline, including those described above, and it is quite possible that the TTFields technology is not efficacious for these indications, which might result in a decrease in market cap depending on the extent to which these indications are already priced into the stock price today.
NVCR represents an innovative oncology device company and the commercial strategy takes a different approach to traditional oncology biotech companies in the marketplace. A market cap below $8 billion represents an interesting opportunity for bullish investors to increase their exposure to the company’s prospects. Good luck.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in NVCR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.