novocure(NVCR) - 2020 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements NovoCure Limited's unaudited consolidated financial statements for Q3 and nine months ended September 30, 2020, are presented, covering balance sheets, operations, and cash flows Consolidated Balance Sheets As of September 30, 2020, total assets decreased to $431.0 million, liabilities significantly reduced to $124.0 million due to loan repayment, and shareholders' equity increased to $307.0 million Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Items | Sep 30, 2020 (Unaudited) | Dec 31, 2019 (Audited) | | :--- | :--- | :--- | | Total Current Assets | $383,485 | $439,947 | | Total Long-Term Assets | $47,564 | $39,501 | | TOTAL ASSETS | $431,049 | $479,448 | | Total Current Liabilities | $95,334 | $86,311 | | Total Long-Term Liabilities | $28,678 | $175,347 | | TOTAL LIABILITIES | $124,012 | $261,658 | | TOTAL SHAREHOLDERS' EQUITY | $307,037 | $217,790 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $431,049 | $479,448 | Consolidated Statements of Operations Net revenues for Q3 2020 increased 44% to $132.7 million, yielding a net income of $9.3 million, while nine-month revenues grew 39% to $350.4 million, resulting in a $14.9 million net income from a prior loss Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $132,660 | $92,062 | $350,413 | $252,084 | | Gross Profit | $104,265 | $69,162 | $272,048 | $188,264 | | Operating Income (Loss) | $15,022 | $3,855 | $18,309 | $(1,067) | | Net Income (Loss) | $9,284 | $1,930 | $14,891 | $(11,490) | | Diluted Net Income (Loss) per Share | $0.09 | $0.02 | $0.14 | $(0.12) | Consolidated Statements of Cash Flows For the nine months ended September 30, 2020, operating activities provided $45.7 million, investing activities provided $140.8 million, and financing activities used $130.6 million, leading to a net cash increase of $56.0 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $45,667 | $19,658 | | Net cash provided by (used in) investing activities | $140,791 | $(4,911) | | Net cash (used in) provided by financing activities | $(130,645) | $53,095 | | Net increase in cash, cash equivalents and restricted cash | $55,965 | $67,412 | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policies, cash and inventory composition, equity plans, the $150 million loan repayment, geographic revenue breakdown, and an $11.3 million tax benefit from net operating loss carry-backs - On August 18, 2020, the Company terminated its outstanding term loan, which included a $150 million principal repayment and a $3 million prepayment premium[40] Net Revenues by Geographic Region (in thousands) | Region | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | United States | $92,635 | $61,399 | $243,103 | $166,937 | | Germany | $22,756 | $21,688 | $66,027 | $64,065 | | Other EMEA | $5,468 | $2,794 | $12,069 | $5,442 | | Japan | $7,523 | $4,779 | $21,153 | $12,334 | | Greater China | $4,278 | $1,402 | $8,061 | $3,306 | - The company recorded a net tax benefit of $11.3 million in the first quarter of 2020 resulting from net operating loss carry-backs in the U.S. following changes to the U.S. tax code in response to COVID-19[54][92] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong revenue growth from product adoption, clinical pipeline progress, immaterial COVID-19 impact, increased R&D expenses, $150 million credit facility repayment, and improved operational leverage with positive net income and Adjusted EBITDA - The company's key priorities are driving adoption of its commercial products (Optune and Optune Lua) and advancing its clinical development programs for other solid tumors[56] - The COVID-19 pandemic did not have a material impact on financial results or the global supply chain through Q3 2020, and the anticipated timing of final data from ongoing clinical trials has not been adversely impacted[68] Clinical Development Pipeline Status | Indication | Trial Name | Phase | Anticipated Final Data | | :--- | :--- | :--- | :--- | | Brain Metastases | METIS | Phase 3 | 2022 | | NSCLC | LUNAR | Phase 3 | 2023 | | Pancreatic Cancer | PANOVA-3 | Phase 3 | 2023 | | Ovarian Cancer | INNOVATE-3 | Phase 3 | 2023 | | Liver Cancer | HEPANOVA | Phase 2 | Q1 2021 | | Gastric Cancer | EF-31 | Phase 2 | 2021 | Results of Operations Net revenues for Q3 2020 increased 44% to $132.7 million and 39% to $350.4 million for nine months, driven by patient growth, with gross margin improving to 79% and operating expenses rising 37% due to a 75% increase in R&D Key Performance Indicators | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Active Patients (at period end) | 3,361 | 2,751 | N/A | N/A | | Total Prescriptions Received | 1,371 | 1,319 | 4,202 | 3,991 | - Net revenues increased primarily due to a 22% growth in active patients to 3,361 and a durable improvement in net revenues booked per active patient[81][82] - R&D expenses increased 75% in Q3 2020 year-over-year, primarily due to higher clinical trial and personnel expenses for phase 3 pivotal trials, product development programs, and expanded medical affairs activities[87] - In Q3 2020, the company recognized approximately $8 million in incremental net revenues from the successful appeal of previously denied claims for Medicare fee-for-service beneficiaries[84] Non-GAAP Financial Measures Adjusted EBITDA, a non-GAAP measure, increased 85% to $37.3 million in Q3 2020 and 89% to $80.4 million for the nine-month period, driven by strong revenue growth and expense management Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $9,284 | $1,930 | $14,891 | $(11,490) | | Add: Income tax | $1,755 | $(630) | $(5,614) | $4,258 | | Add: Financial expenses, net | $3,983 | $2,555 | $9,032 | $6,165 | | Add: Depreciation and amortization | $2,188 | $1,932 | $6,677 | $5,993 | | Add: Share-based compensation | $20,121 | $14,338 | $55,448 | $37,719 | | Adjusted EBITDA | $37,331 | $20,125 | $80,434 | $42,645 | Liquidity and Capital Resources As of September 30, 2020, the company held $234.5 million in cash, with a decrease primarily due to a $150 million loan prepayment, and is negotiating a new $150 million revolving credit facility - As of September 30, 2020, the company had $234.5 million in cash, cash equivalents, and short-term investments[98] - On August 18, 2020, the company terminated its 2018 term loan credit facility by repaying the full $150.0 million in principal, plus a $3.0 million prepayment premium[105] - The company is negotiating a new $150.0 million senior secured revolving credit facility, which could be increased to $250.0 million[106] Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in market risk disclosures from the 2019 Annual Report on Form 10-K - There have been no material changes from the information disclosed in the 2019 10-K regarding market risk[109] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2020, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[112] - There has been no change in internal control over financial reporting during the quarter ended September 30, 2020, that has materially affected, or is reasonably likely to materially affect, internal controls[113] PART II—OTHER INFORMATION Legal Proceedings No legal proceedings were reported during the period - None[115] Risk Factors No material changes occurred to previously disclosed risk factors from the 2019 Form 10-K and Q1 2020 Form 10-Q - There have been no material changes to the risk factors disclosed in the 2019 10-K and the Q1 2020 10-Q[116] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the period - None[117] Other Information No other information required for disclosure under this item was reported - None[120] Exhibits This section lists exhibits filed with the Form 10-Q, including certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and various Inline XBRL documents[122]