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  • Novocure's Optune is already FDA-approved for glioblastoma and mesothelioma.
  • Optune uses specially tuned frequencies to disrupt cancer cell division, improving outcomes.
  • Phase 3 trial data is expected in stage IV non-small cell lung cancer in January.

Data that could significantly expand the use of Novocure’s unique cancer-fighting tool – Optune – is expected early next year. If trial results are positive, Novocure’s addressable patient population could grow 14-fold, driving the company’s revenue substantially higher.

Novocure’s already demonstrated that its tumor-treating fields (TTF) work in glioblastoma, a brain cancer with an unfortunately low survival rate. In clinical trials, Optune, alongside chemotherapy, increased the 5-year survival rate to 13% from 5% on chemotherapy alone.

Additionally, 43% of Optune patients were alive after two years, compared to just 31% of patients who only received chemotherapy. At the highly-influential ASCO conference in June, data showed European’s median survival on Optune was 35 months, significantly higher than the 15 months for patients only receiving chemotherapy.

Unlike chemotherapy and radiation, which expose patients to off-target risks, Optune uses specially designed frequencies to disrupt cancer cell division and replication. Those frequencies are delivered via a custom-designed array targeting each patient’s tumors. As a result, unlike alternatives, few adverse events are associated with TTFs. For instance, skin irritation is the most commonly reported side effect.

So far, Optune has been prescribed to over 20,000 patients, including 3,454 patients currently using it worldwide. The growing use of TTFs in glioblastoma and, to a smaller extent, mesothelioma, another approved indication, resulted in sales totaling $535 million in 2021, up from $83 million in 2016.

A big catalyst looms

Data from a phase 3 trial of TT Fields alongside docetaxel or a PD-1 inhibitor in stage IV second-line non-small cell lung cancer is expected in early 2023.

In April 2021, independent monitors reduced the number of patients to 276 from 534 and the duration of the trial to 12 months from 18 months after reviewing data on 210 patients. In announcing its decision, the group said it’s "likely unnecessary and possibly unethical for patients randomized to the control arm to continue accrual.” 

Novocure completed enrollment in its NSCLC trial last year and began 12-month evaluations in November 2021. Recently, it said it would report its findings in January 2023. The decision by independent monitors doesn’t mean this trial will succeed, but it’s promising nonetheless.

If the trial does meet its endpoint, it could disrupt late-stage lung cancer treatment.

There are over 235,000 newly diagnosed lung cancer cases annually in the United States, and NSCLC accounts for 82% of them. Over 130,000 Americans and nearly 1.8 million people worldwide die yearly from lung cancer. Sadly, the 5-year survival rate for NSCLC is just 26%.

There’s a big need for new lung cancer treatments. However, NSCLC isn’t the only indication Novocure is exploring. It also expects to release data from a pivotal ovarian cancer and a brain metastasis trial next year. An additional trial is underway in pancreatic cancer, and the company hopes to advance into a phase 3 gastric cancer trial soon, following encouraging data earlier this year.

What the charts say

Novocure’s revenue and patient growth in glioblastoma are encouraging. However, where it goes from here will depend on whether the upcoming data is positive or negative. In catalyst-driven plays like this, technical analysis may offer clues if investors are, in the aggregate, optimistic or pessimistic.

In “NovoCure Appears Poised for an Upside Breakout,” Real Money technical analyst Bruce Kamich tilts bullish, concluding, “Traders could go long NVCR at current levels and on strength above $91. The $115 area is our first objective. Risk to $75 for now.”

Kamich considered the daily and weekly charts, on-balance volume, and moving average convergence/divergence. As a reminder, OBV is essentially a running total of up-day volume minus down-day volume. It’s bullish or bearish when the trend rises or falls, respectively.

MACD subtracts the 26-day Exponential Moving Average (EMA) from the 12-day EMA. When that result crosses over or below zero, or a signal line like the 9-day EMA, it’s bullish or bearish.

Back to Kamich: 

“In this daily bar chart of NVCR, below, we can see that prices have traded sideways since December, building what I believe is a very impressive base. Several declines into the $70-$60 area have been bought. Prices have crisscrossed the 50-day moving average line for months, and now NVCR is trading above this now bullish average line. NVCR is also trading above the 200-day line. The trading volume has been active, and the daily On-Balance-Volume (OBV) line has moved sideways with the price action. The Moving Average Convergence Divergence (MACD) oscillator is in a positive alignment above the zero line.”

CHART-Street-Smarts-JS-091222

Kamich’s point-and-figure analysis suggests a $115 price target on the daily and $126 on the weekly charts.

Top Stocks Helene Meisler also gave an encouraging technical outlook for Novocure yesterday. 

Meisler wrote, “NovoCure sure looks like a base. It’s been up four or five days straight, so it is a little overbought short-term, but it really ought to eventually make its way up and over that resistance at $90. Then if it can do that, we have two things at play: a breakout and a move over $90 so that the 90/100 rule comes into effect (90% of the stocks that go over $90 will make it to $100).”

The Smart Play

Investing in companies with near-term catalysts is risky. If Novocure’s NSCLC data is positive, shares could make a big move higher because it would take about 15-days of normal volume for short sellers to cover their position (short interest). However, if data is negative, shares could fall because Novocure’s growth rate is slowing because Optune’s already largely penetrated the smaller glioblastoma market.

Therefore, position sizing is important. You don’t want to bet the ranch on this type of uncertainty, so don’t bet more than you’re willing to lose.

If you’re OK with this type of make-it or break-it risk, then a good argument could be made for owning Novocure. Optune is already proven in two very tough-to-treat indications, and given multiple trials are underway, it has plenty of shots on goal that could spark sales growth.

The company isn’t profitable, but that’s because trials are expensive. Its gross margin is 80%, and it turned a small profit in 2020 before increasing its R&D budget by 52% last year. I suspect we’ll continue to see high levels of R&D spending, and additional costs will be associated with securing FDA approval and launching it if trial data is positive. Therefore, positive data won’t have a light-switch impact on profitability. Nevertheless, the size of these potential new markets suggests the company’s income statement should improve over time, if approved.

Finally, it doesn’t hurt that it appears to be on solid financial ground. Its current ratio – a measure of current assets to current liabilities – is a whopping 8.08, so it shouldn’t have any trouble keeping the lights on next year, regardless of the trial’s outcome.

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