A Cancer Play Off the Beaten Path

How can you surprise the world? More often than not, a revolutionary solution comes from an unconventional idea that initially gets mocked for its ridiculousness.

Over time though, this very same idea gains traction and the masses gradually see its value.

In the biotechnology world, this came in the form of a physicist searching for a novel approach to battle cancer.

This is how Novocure (NVCR) came to life.

When we look at cancer and how it’s treated, we think about the traditional pharmaceutical companies and their treatments, including radiation, drugs, and surgery.

Novocure has been forging its own unique track in the field of oncology.

The company’s technique is groundbreaking, presenting a different approach from the various forms of chemotherapy proposed.

It’s not even close to the trend of coming with new lines of drugs like Merck (MRK) with Keytruda.

Novocure uses a device, which it calls Optune.

This is worn over a cancer patient’s head. The device then generates an electric field that can help beat cancer. Sounds like a science fiction idea, doesn’t it?

While some call it absurd, Novocure’s idea is actually remarkable.

In layman’s terms, the premise is that cells are held together through an electric charge.

The goal is to blast solid cell tumor cancers using a specific currency to disrupt the charge, thereby inhibiting the tumor’s capability to stay together.

Basically, Novocure uses electro-fields to break up the cell division process that leads to the growth and spread of cancer.

By not letting the tumor replicate, Novocure’s device is dramatically boosting the patient’s capacity to battle the disease.

This therapy is called “Tumor Treating Fields” (TTFields).

While TTFields are definitely promising, these cannot replace traditional therapies. Rather, these are expected to be used alongside or in combination with other treatments, particularly chemotherapies and other direct targeted medications.

Founded in 2000, Novocure received its first FDA approval in 2011.

At the time, the New Jersey-based company developed TTFields for glioblastoma, which is an extremely aggressive type of cancer that originates in the brain and has a very low survival rate.

Since then, the company has been working to expand its regulatory footprint.

Recently, Novocure received FDA approvals for the expanded use of TTFields to cover more cases of glioblastoma.

It also has the green light for mesothelioma, which is typically caused by asbestos and affects the lining of the lungs and chest wall.

Novocure also has late-stage trials for therapies geared towards non-small cell lung cancer, pancreatic cancer, brain metastasis, and ovarian cancer.

Aside from inhibiting tumor cells from replicating, TTFields can also stop DNA damage, induce cell regeneration or autophagy, decrease cell migration, and trigger immune responses.

In terms of collaborators, Novocure has attracted the attention of Merck. While not much is known about their partnership, the two companies have been linked in some projects, including abdominal cancer therapies. 

Reviewing the company’s pipeline and track record, it’s reasonable to say that Novocure is a growth stock.

However, its fundamentals are much stronger compared to other companies that are in the early stages.

Novocure’s revenues have steadily increased annually, driven by a series of growth levers.

One of them is its increased market share, with more and more patients using the therapy.

Another is the growing number of use cases for TTFields, with the company expanding to apply the treatment to other cancers. Lastly, there are new geographies to be tapped.

Since 2016, the company’s revenues have grown from only $82.9 million annually to an impressive $494 million in 2020.

In fact, 2020 was a good year for Novocure, showing off a 41% revenue growth since 2019. For 2021, the company is estimated to record at least a 21% increase in its profits.

Two factors could play key roles in achieving this goal.

The first is that the company has finally reached the point of profitability. While its R&D expenses rose due to the new case approvals, Novocure still managed to rake in a positive net income last year. Plus, the company has been rapidly boosting its operating cash flow.

The second is that Novocure has been conscientious in ensuring that its balance sheet remains fairly clean.

In an effort to raise funds, the company has decided to issue equity. While it does have roughly $430 million in gross debt, Novocure investors should see more cash flow thanks to the accelerated stamp of approval the company received for its TTFields therapy. 

While growth investors are used to seeing this kind of movement, the objective is to turn the corner and earn a profit eventually.

Hence, it’s promising to see Novocure moving in that direction earlier than anticipated.

At this point, Novocure is the only company offering this treatment. This means it has no direct competitor in the market.

Needless to say, every use case of TTFields that earns approval amplifies Novocure’s total addressable market.

In terms of growth trajectory, the most similar company I can compare Novocure to is Intuitive Surgical (ISRG).

In 2010, ISG’s share price was in the $90 range. By 2021, the company has been trading at roughly $750 per share.

Based on its performance so far, Novocure flashes a similar potential just in a different vertical. In fact, Novocure is estimated to trade at roughly $600 per share or higher by 2025.