Novocure Ltd (NVCR) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Novocure Q3 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to introduce you to your host for today's conference, Ms. Ashley Cordova, Senior Director of Investor Relations and Treasury. Ma'am, you may begin.

Thank you, operator.

Good afternoon, and thanks for joining us today on Novocure's first quarterly earnings call as a publicly traded company to review third-quarter 2015 performance. I'm joined today by our Executive Chairman, Bill Doyle; our Chief Executive Officer, Asaf Danziger; and our Chief Financial Officer, Wilco Groenhuysen.

Before we start, I'd like to remind you that our discussion during this conference call will include forward-looking statements and actual results could differ materially from those projected in these statements. These statements involve a number of risks and uncertainties, some of which are beyond our control, including those risks and uncertainties described from time to time in our SEC filings. We do not intend to update publicly any forward-looking statements except as required by law.

As we are still in the IPO quiet period, we still will not have a Q&A session at the end of this call but will instead end the call after the prepared remarks. In future quarters, we plan to make prepared remarks and then to open the call up for Q&A.

With that, I'll turn the call now to over to Bill Doyle.

Thank you, Ashley, and thank you all for joining our call this afternoon.

During my remarks, I will briefly recap the highlights of the quarter, provide some context regarding the October FDA approval of Optune in combination with temozolomide for the treatment of adult patients with newly diagnosed glioblastoma, provide some comments on our pipeline, and then move to describe our US launch activities for the newly diagnosed GBM indication.

Starting with the quarter. In Q3, compared to the same period last year, prescription volumes were up 162% and active patients on treatment were up 149%. We believe this growth was driven in part by increased marketing efforts in the United States for recurrent GBM, including a significant increase in the number of centers certified to describe Optune; in part by the presentation of the EF-14 superiority data in November, 2014, which we believe led to more recurrent GBM prescriptions; and in part by an increase in our commercial activities in Germany. The gains in the US were achieved prior to the FDA approval of Optune for newly diagnosed GBM.

In Q3, we continued to see growth in active patients, with 468 patients on therapy as of September 30. We believe that the growth in recurrent GBM prescriptions we experienced following the presentation of our EF-14 newly diagnosed GBM superiority data in November 2014 began to level off in Q3, as Novocure could not promote the EF-14 newly diagnosed GBM superiority results pending the FDA's final approval, which occurred after the end of the third quarter, on October 5. Our initial US indication for the monotherapy treatment of recurrent GBM, based on our EF-11 trial equivalence data, allowed us to establish our commercial infrastructure and develop our clinician and patient support services. We also gained meaningful insight into the real-world patient benefit of Optune therapy as evidenced by the 457 patient commercial registry, known as the PRiDe Registry, that we published in October 2014.

We are proud of the foundation we've built and are grateful for the more than 1,700 commercial patients who have trusted us as a treatment provider through the end of the third quarter 2015. But now the significant opportunity for Optune is in newly diagnosed glioblastoma, based on the EF-14 trial superiority results. So let us shift focus to the FDA approval for newly diagnosed GBM.

On October 5, 2015, the FDA approved Optune in combination with temozolomide for the treatment of adult patients with newly diagnosed glioblastoma. Optune with temozolomide is now indicated for the treatment of adult patients with newly diagnosed supratentorial glioblastoma following maximal debulking surgery and completion of radiation therapy together with concomitant standard of care chemotherapy.

The expanded indication for Optune is based on the results of the EF-14 clinical trial, a large multinational open label randomized Phase III trial comparing Optune in combination with temozolomide to temozolomide alone in 700 patients with newly diagnosed GBM. The trial was powered to test both the primary endpoint of progression-free survival and the secondary endpoint of overall survival.

In November 2014, the trial was stopped due to success based on an assessment by the independent data monitoring committee which concluded that the study met its endpoints at its pre-specified interim analysis, demonstrating superior progression-free and overall survival in patients receiving Optune in combination with temozolomide compared with patients receiving temozolomide alone. Optune is the first FDA approved therapy in more than a decade to demonstrate statistically significant extension of overall survival in newly diagnosed GBM.

The two-year survival rate among patients treated with Optune in combination with temozolomide was 50% greater than in patients treated with temozolomide alone. No significant additive systemic toxicity was observed and patients in the trial generally maintained stable quality-of-life, cognitive function and activities of daily living while using Optune.

The median duration of Optune therapy in the EF-14 trial was nine months; two months more than the median seven months of progression-free survival. This is due to the trial design, where patients remained on Optune therapy post progression. Given the lack of systemic toxicity observed, Optune is an ideal therapy to continue from the newly diagnosed setting through the recurrent setting. Our FDA label is consistent with this course of therapy.

We are very pleased with the newly approved Optune label and we thank the FDA for their expedited review. The label positions Optune in combination with temozolomide as a superior therapy to the current standard of care protocol.

Next, I want to spend a few moments talking about our clinical pipeline and other key milestones of the quarter. Novocure has four active and recruiting Phase II clinical trials, in pancreatic cancer, ovarian cancer, mesothelioma and brain metastases. The first 20 patient cohort of our open label Phase II PANOVA trial, evaluating Tumor Treating Fields together with gemcitabine in 20 patients with newly diagnosed advanced pancreatic adenocarcinoma completed enrollment in the first quarter of 2015. Given the six months of follow-up per protocol, we anticipate presenting the results from this cohort in 2016.

We remain on track to complete enrollment in 2016 of the second cohort of the PANOVA trial evaluating Tumor Treating Fields together with the emerging standard of care for newly diagnosed pancreatic cancer, gemcitabine and nab-paclitaxel. We are very excited about the potential of this second cohort as it combines TTFields with both gemcitabine and a taxane.

While we have not successively performed pre-clinical studies regarding the combination of TTFields with nab-paclitaxel, pre-clinical studies using TTFields have suggested synergistic benefits when using an combination with taxane-based chemotherapies. The presence of TTFields was shown in these pre-clinical studies to increase cancer cell sensitivity to taxane-based chemotherapies by more than 1,250 times.

We believe we remain on track to meet our next clinical milestones across our clinical pipeline, including a 2016 first patient in for both our Phase III METIS trial in brain metastases and our Phase III LUNAR trial in first line non-small cell lung cancer.

Novocure continues to have an active presence at a variety of key conferences around the world. We had four oral presentations on Tumor Treating Fields at conferences in Q3, including our first-ever presentation of data at IEEE, the international conference of the Institute of Electrical and Electronic Engineers. We are pleased to see the continuing expansion of interest from the broader scientific community in the potential of Tumor Treating Fields.

We also continued to execute a robust publication plan. Five original research papers on Tumor Treating Fields were published in the third quarter. The results of the EF-14 clinical trial have been submitted for publication to a top-tier peer-reviewed journal. We will provide updates on the EF-14 publication as soon as we are able.

In early October, we announced that the CE Mark was placed on the newly designed, second-generation Optune system. The second-generation system is less than half the weight and half the size of the first-generation Optune system and is evidence of our ongoing commitment to improve the ease of use and convenience of Optune therapy.

In Germany, the first commercial patients have already begun to use the second-generation Optune system. The commercial launch of the second-generation Optune system in the US requires FDA approval. We will provide updates on this submission as we are able.

I am pleased with the operating results of the quarter and the growth we were able to drive in recurrent GBM, but I'm now looking forward to the future. The FDA approval for newly diagnosed GBM starts a new chapter in Novocure's history as we work to transform the standard of care and provide hope to patients with newly diagnosed GBM.

Finally, before Wilco moves into the financial details of the quarter, I want to provide some color on our launch activities and how we plan to drive awareness and growth in newly diagnosed GBM. As we have noted in the past, the newly diagnosed GBM indication provides an opportunity for growth on multiple dimensions.

Upon FDA approval, we believe our estimated eligible US patient population increased from around 5,400 recurrent patients to around 9,300 newly diagnosed patients. For this expanded group of patients, our sales and marketing teams are now able to communicate clear superiority data versus the existing standard of care. We have proof of extended overall and progression-free survivals in GBM. This is in contrast to our previous recurrent GBM label that specified equivalents to standard chemotherapies.

A few days after the FDA approval, we held a national meeting in Atlanta to train our sales team on the FDA approved label for newly diagnosed GBM, the marketing plan in newly diagnosed GBM and the plan to communicate the new indications to medical professionals in the United States. On the back of this training, our team was able to hit the ground running just one week after FDA approval.

The newly diagnosed GBM indication also expands the target prescriber base for Optune in the United States. We believe that the majority of recurrent GBM cases are treated and managed by approximately 150 to 200 neuro-oncologists in large academic centers. Therefore, prior to our new FDA approval, our sales team focused their efforts on these neuro-oncologists.

Newly diagnosed GBM patients are primarily treated in non-academic community practices where the radiation oncologist and medical oncologist, in addition to, or sometimes in place of, the neural oncologist, can play a key role in treatment decisions. As of September 30, 2015, we certified 215 centers in the United States and estimate that approximately 30% of these centers are community-based practices.

At the end of the third quarter, we had 30 full-time employees in our worldwide sales force, including 27 in the US, 1 in Europe and 2 in Japan. We are scaling our field force as appropriate so we can effectively service an expanded prescriber based with the newly diagnosed GBM indication. We will continue to expand our sales footprint both in the US and in Germany over the next 6 to 12 months as needed to optimize reach and (technical difficulty) frequency with our key customer groups.

In closing, we are excited by the opportunities in front of us and our mindful of our responsibilities to our patients and shareholders to succeed. Everything we do must start with the patient's well-being. Our data indicates that we significantly extend patient survival and our commercial teams are aware of their responsibility to provide the survival benefit to as many patients as possible.

I'll now turn it over to Wilco to take you through the operating and financial performance of the quarter.

Thank you, Bill, and good afternoon, everyone.

Before I delve into the financial results I'm going to spend a few minutes on our key operating statistics. As reminder, our Q3 results reflect achievements prior to the FDA approval of Optune promoting diagnosed GBM.

We received 354 prescriptions in the third quarter, reflecting 149% year-over-year growth. We defined prescriptions as the first prescription received for our new patients and renewals are not counted. Our average fill rate year to date was 72%.

We had 468 active patients on Optune at quarter end, reflecting 162% year-over-year growth. 408 of the active patients were in the United States, with 60 active patients outside United States, primarily in Europe. Active patient growth was positively impacted by an increase in treatment duration, a trend we believe will continue as we start to promote Optune for newly diagnosed GBM.

For reference, the medium treatment duration of 457 commercial recurrent GBM patients in the prior data set was 4.1 months. The median treatment duration for newly diagnosed patients in the EF-14 trials was nine months.

In the US, total cash payments of $19.7 million, net of indirect taxes, were received during the nine months ended September 30, 2015. These cash payments represent an average of approximately $14,500 per month of use, net of indirect taxes. These cash payments reflect a slight increase from the average of approximately $14,100 received for the six months ended June 30, 2015.

This metric does not include our experience with patients covered by the Medicare fee-for-service program, as we have not received material payments from that program and the invoices remain open as we appeal the coverage denials.

We know that many of you focus on reimbursement and want to spend a few minutes on our reimbursement plans (inaudible) here.

In the United States, we provide the Optune system directly to our patients on receipt of a prescription order from a treating physician. We then bill the patient's healthcare payer for each month of treatments received. We have a team of 20 full-time professionals in our reimbursement and revenue cycle operations teams.

Our reimbursement teams first and foremost can secure dedicated coverage policies and contracted rates Optune therapy. Prior to achieving that, we pursue a coverage and payment on an individual patient level, including appealing claims and negotiating payment rates.

We've had many notable successes on the reimbursement front. For commercial payers, we have secured positive coverage for approximately 99% of patients, including those cases where we received coverage on appeal. Additionally, we have secured positive coverage policies from seven payers, including Aetna and Health Net, and estimate that 42 million people are covered by these policies.

As a reminder, we have achieved these successes to date on the basis of our EF-11 data for recurrent glioblastoma. We look forward to working with our payers to educate them on the EF-14 superiority data and recent FDA approval.

For our Medicare patients, our claims are all currently on appeal. Unrelated to Novocure, Medicare has significant delays at the Medicare Office of Hearings and Appeals for administrative law judge hearing. Medicare's currently operating outside the 90 days statutory window for appeals of Medicare medical claim hearings. As with commercial payers, our progress and status to date with Medicare is based on our EF-11 data and efforts to secure coverage and payments for recurrent glioblastoma patients. We look forward to working with CMS and Medicare now that Optune is FDA approved for newly diagnosed GBM.

As reminder, per US GAAP, we recognize revenue when cash is collected. Cost of revenues reflect cost incurred for patients on Optune therapy in the period. Gross margins as a percentage of revenues is negatively affected by timing of revenue recognition based on cash collections, which often results in cost being incurred in one period that relate to revenues recognized in the later period.

Net revenues for the third quarter were $9 million, an increase of 105% versus the prior-year quarter. The increase was primarily driven by a 60% increase in the number of US certified centers as of September 30, 2014, versus September 30, 2015, from 135 to [215] (company corrected after the call), respectively, and increased US sales and marketing efforts in recurrent GBM.

Net revenues include $400,000 in cash collections during the quarter from European business. Total cash collections from the European business for the third quarter year to date were approximately $1 million.

Cost of revenues for the third quarter where [$5.7] million (company corrected after the call), an increase of 119% versus the prior-year quarter. The increase was due to the increased volume of Optune shipments to commercial payers -- patients. Again, gross margin as a percentage of revenues is affected by timing of revenue recognition based on cash collections.

Research, development and clinical trial expenses for the third quarter were $10.2 million, an increase of 10% versus the prior-year quarter, driven primarily by increase in clinical trial expenses and development of the second generation Optune system.

Sales and marketing expense for the third quarter were $8.9 million, an increase of 66% versus the prior-year quarter, primarily driven by an increase in advertising and other marketing expenses and increased headcount to support marketing activities.

General and administrative expenses for the third quarter were $8.4 million, an increase of 67% prior year -- versus the prior-year quarter, driven amongst others by an increase in personal expenses and costs associated to prepare the Company for its initial public offering.

Novocure ended the quarter with $110.3 million cash and cash equivalents and short-term investments of $27 million.

As you all know, on October 7, 2015, we completed our IPO. We received net proceeds from the IPO of approximately $150.5 million, net of underwriting discounts and commissions and its estimated expenses. On October 19, 2015, following the partial exercise by the underwriters of their overallotment option, we received additional net proceeds of approximately $7.7 million net of underwriting discounts and commissions.

Moving on to key take-aways, Novocure delivered a strong quarter of year-over-year growth both in operating statistics and in net revenue. This growth was within the approved recurrent GBM indications and does not include any promotional (inaudible) in the newly diagnosed indications based upon EF-14 data as we received FDA approval after the end of the quarter. FDA approval of Optune, in combination with temozolomide for the treatment of newly diagnosed GBM, was the first of four key growth catalysts in our glioblastoma business. We believe revenue growth will also depend on the peer-reviewed publication of EF-14 data, updates to applicable clinical guidelines to reflect the EF-14 superiority data and commercial expansion in Germany and Japan.

As a final note, we are not preparing -- we are not providing any guidance giving the uncertainly around the pace of adoption for this novel therapy. We do look forward to providing an update on actual performance for the fourth quarter and full year of our next earnings call.

With that, I would like to thank everyone for their time this evening and for their interest in Novocure.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.