Clinicians have leaned on three primary weapons to battle cancer for decades -- surgery, radiation, and pharmacological therapy. Despite making steady progress in all three of these areas, nearly 600,000 deaths are attributable to cancer each year in the U.S. alone. Clearly, these a still a huge unmet need for new and improved therapies.
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Enter Novocure (NASDAQ: NVCR). This small-cap medical device company has created what it believes to be the fourth modality of treatment. The company has spent the past 17 years championing the use of tumor treating fields, or TTFields for short, as a new method to fight cancer.
Like any new idea, the company has faced an uphill battle at converting doubters into believers. However, Novocure recently released some exciting clinical news that should go a long way to winning over the skeptics. What's more, the company's top-line is growing at triple-digit rates now that the vast majority of payers are on board.
I was recently afforded the opportunity to hold an exclusive interview with Bill Doyle, Novocure's Executive Chairman, to learn more about his company. Below are some of the highlights from our conversation. (Some quotes have been edited for clarity.)
I started our conversation by asking Bill to briefly explain how TTFields work:
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In Tumor Treating Field therapy, what we do is create an electric field inside particular cells, in this case, tumor cells. And those electric fields act on proteins that are charged, so-called polar proteins. But, during cell division, polar proteins need to be in exactly the right place at exactly the right time to pull the chromosomes into the daughter cells. This is the so-called microtubule spindle that's formed during mitosis, and when the cell is exposed to electric fields, the protein that make up the tubule spindles, we apply forces to them, they don't form proper spindles, the cells don't divide properly, and instead of one cell becoming two and two becoming four, one cell essentially self-destructs when it can't divide.
In essence, Novocure discovered that surrounding a tumor with TTFields helps to inhibit cancerous cell division. As a result, the tumor has a harder time growing inside the patient.
Wrapping your head around how TTFields work can be a big complex, but Bill gave a wonderful Ted Talk on how TTFields work a few years back that provides a much more detailed explanation of this process in action.
Next, I asked Bill to expand on some of the clinical advantages that TTFields hold over other currently available cancer treatments:
It turns out most polar proteins are perfectly happy to be acted on by an electric field, and as a result, Tumor Treating Fields have no systemic toxicity. That's one of the great advantages of this therapy compared to surgery, radiation, and chemo.
You are likely aware that traditional cancer treatments are infamous for having brutal side effects. Patients who use chemotherapy drugs can experience nausea, constipation, fatigue, anemia, and more. Radiation therapy is far from perfect, too, as it often kills healthy cells alongside cancerous ones, which leads to undesirable clinical outcomes.
The fact that TTFields have no systemic toxicity associated with is a highly desirable clinical advantage.
Novocure used its advanced knowledge of TTFields to create its first product. The company calls the device Optune, and it consists of batteries, electronics, and transducer arrays that are affixed directly to the skin near where the tumor resides. Once Optune is turned on, it surrounds the tumor with an electric field that inhibits its ability to multiply.
Novocure originally wanted to use Optune to fight lung cancer, but regulators instructed the company to start with brain cancer instead. That guidance caused Novocure to target glioblastoma multiforme, or GBM, which is an especially aggressive and deadly form of brain cancer. Roughly 12,500 patients are diagnosed with GBM in the U.S. each year.
As crazy as Optune sounds, it would up winning over regulators. Novocure secured its first FDA approval in 2011 as a treatment for recurrent glioblastoma. A few years later it was awarded an expanded indication to treat newly diagnosed GBM in combination with temozolomide (chemotherapy). Optune has also been given the thumbs up in Europe and Japan, too.
While sales of Optune have grown rapidly since launch, Novocure only recently released long-term data from its EF-14 trial showed that adding Optune to the standard-of-care chemotherapy treatment led to gains in overall survival rates at two, three, four, and five years.
More specifically, patients who used Optune and chemotherapy demonstrated a five-year survival rate of 13%, which was more than double the 5% rate observed in the group that only received chemotherapy.
While Optune is clearly having a positive impact on treating GBM, the company believes that this is just the beginning for TTFields. Here's what Bill had to say about Optune's potential in other cancers.
In the case of the GBM, our data suggest those two therapies (Optune and Temozolomide) are additive, so one plus one equals two. With other chemos, we see profound synergy, meaning one plus one equals three-plus. And we now just presented data on trials in ovarian cancer and pancreatic cancer where we're treating with taxanes, and we see phenomenal results in those cases. In some respects, it's earlier, but the promise is even more dramatic than what we've seen to date in the brain cancer.
Given the company's belief in Optune's long-term potential, Novocure has funded a number of clinical trials in other forms of cancer with the hope of winning label expansions down the road.
These potential label expansion claims represent a truly massive opportunity for Novocure. To put some numbers behind it, nearly 300,000 Americans are diagnosed with lung, ovarian, and pancreatic cancer each year in the U.S. alone. That figure is roughly 24-times larger than the company's U.S. GBM opportunity.
The business model
In addition to pioneering a brand new modality to treat cancer, Novocure is also attempting to blaze a new trail for the medical device business model, too. Rather than charge a big upfront fee for Optune and then bill for the use of each transducer arrays (which are replaced every two to three days), Novocure decided to roll all those costs into one package. Here's Bill's overview of how the company makes money:
We roll it all into one therapeutic charge. We have our own code for that therapy. It's a much better way for patients and payers. If a patient needs to change his arrays every two days, that's not an issue. If they need a huge amount of tech support for whatever reason, if they're having challenges, it's not an issue. So, it's very similar to a drug model, where you pay by the month for the medication that you require for as long as you're taking the medication.
In terms of cost, Optune's list price is $21,000 per month, which is in-line with the price of other cancer treatments. As a result, the key metric for investors to watch is what's called "active patients", which is the number of patients who are using Optune during any given period.
As you'd expect, this number has grown quickly over the last few years.
In spite of this strong growth curve, Novocure believes that there is ample room left for growth in GBM. In just the U.S., Germany, and Japan, the company estimates that its addressable market opportunity is more than 13,000 patients annually. That represents a more than 10x opportunity in just these few markets!
As a result of soaring patient usage, Novocure's revenue has been rising rapidly. Last quarter the company's top-line grew by 167% year-over-year. What's more, the company's operating expenses actually declined by 1% during this same period. That shows that the company has reached enough scale to drive operating leverage.
On the other hand, Novocure is still very early in its growth cycle, which means that the company is still burning through cash. Last quarter the company set fire to $18 million. Thankfully, the company still holds more than $189 million in cash on its books, so liquidity is not an immediate concern.
I asked Bill Doyle to comment on the company's financial position. Here's what he said:
If you're going to be a global oncology company, you have to build a certain infrastructure. And that infrastructure it's about the same whether we have one patient or 1,200. And I'll just state that unequivocally, it's our intention to break even on the cash that we have in the bank. That includes supporting our extensive clinical programs.
In other words, Novocure believes that its growth will be so strong over the next few years that company won't have to hit up shareholders for extra cash. If true, that's great news for investors.
Novocure is a buy
After speaking with Bill and visiting the company's U.S. headquarters, I must admit that I am quite bullish on Novocure's long-term potential. The clinical data that we've seen from Optune thus far clearly indicates that TTFields are the real deal, and the company's opportunity in lung, pancreatic, and ovarian cancer are truly massive.
While I certainly acknowledge that there are risks galore, I personally think that the potential upside is big enough to compensate investors for the risk that they are taking. In case you think those are empty words, you should know that I recently became a shareholder of Novocure myself.
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