Novocure - NVCR

Hey Saul fans,

Given this board’s recent interest in CAR-T I figured that I should throw this company’s name into the mix: Novocure (NASDAQ:NVCR).

They do not do CAR-T (they are not even biotech), but they are growing revenue 100+%, have a virtual monopoly in their field, and have lots of optionality built into the business.

Here’s a recent detailed article that I wrote on them: https://www.fool.com/investing/2017/07/13/the-fastest-growin…

There’s plenty of risks ( the company isn’t yet profitable) but I personally saw enough positives to take a small position.

Cheers! I love this board!

Brian

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Brian,
Thanks. I looked at this a few days ago. (It was on Mad Money). I thought it sounded to Gimmicky but after reading your article I need to take another look.

Andy

Andy,

I was HIGHLY skeptical about the tech when I first read about it. However, I’m comforted by the fact that they now have 5-year data, the product is FDA-approved, and 120+ million lives are covered in the U.S.

I usually shy away from money-losing businesses, especially those based on “promising” healthcare platforms, but everything I’ve seen thus far suggests that Optune and TTFields are the real deal.

But then again, I could be wrong :slight_smile:

Brian

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I’ve been diving into this company over the past several hours. I was preparing to open a small position Monday morning, but the reviews of the company I’ve read on Glass Door are just brutal. Despite having a really cool technology for treating cancer, the corporate culture appears downright toxic. That has tempered my enthusiasm.

4 Likes

tprooney,

Yup, the glass door reviews most definitely go in the negative column against this company, so that’s a risk worth watching.

A few counter-points worth keeping in mind…

+17 reviews in total spread out over 5 years. Only 3 reviews in all of 2017. Sample size could be too small/spread out to draw any real conclusions. For context, they had 460 global employees as of December 31st.

+At least 3 negative reviews mentioned “plunging stock price” as at least part of a reason for the negative review. From IPO to March 17 this stock went basically straight down. It was WAYYY overvalued at IPO in my opinion. The stock has since tripled from its 2017 low after the EF-14 studies came out. If you are working like a dog and your stock options are worth $0 – especially if you joined Novocure from a cushy job with big pharma – I can easily see how that would give you an extremely negative view of the company, espeically if your management team is not listening, which appears to be a common complaint.

+I worked for Insulet (PODD) for 10+ years. I can tell you that lots of my fellow coworkers have negative views of the management team, especially once we hit the public markets. The culture shifted from fun/innovative to must-make-the-numbers/grow-grow-grow hell. Every suggestion we had to make the product/company better was basically ignored. I would have given the management team very low marks, and for good reason. I also was friendly with several people at Dexcom (DXCM) who felt the same way about their company. “too many chiefs, not enough Indians” was a common complaint at both. There was a huge divide between management/workers and everyone felt like they were ignored.

And yet, both DXCM/PODD have thrashed the S&P 500 since IPO…

https://media.ycharts.com/charts/b9b021d2eaa9d559ebe9dcf2d8e…

+Novocure is very spread out. They have offices in Israel, New Hampshire, Jersey Islands, New York, Switzerland, and Pennsylvania. N.H. is the U.S. headquarters and where the bulk of workers live. There’s also a large chunk of the sales force who works in the field and lives remotely. It is possible that corporate culters are very different in each of those locations based on who is in charge locally. We can’t see the location of where all the bad reviews are coming from. It might be a few bad local managers, or it could be a company-wide systemic problem. Tough to say at this point.

Overall, I think it this is certainly a risk worth watching and I’d vastly prefer them to have glowing reviews. However, you can’t forget that this is a high-risk/high-growth company that is still unprofitable. There must be huge pressure on everybody to perform and work like a dog. That type of work environment does not suit everybody and is bound to create friction.

I still think that the product/clinical data/long term opportunity is strong enough to justify a small investment. But the glassdoor reviews certainly add yet another layer of risk that needs to be carefully considered…

Brian

10 Likes

Brian,

A very thoughtful rebuttal/reply. Many thanks!

Same here. They reviews also question the technology. There, I have my doubts. Why is it being used more if it isn’t that good?

Treepak,

Why is it being used more if it isn’t that good?

Not gonna lie…I first read this as “why isn’t it being used more if it is that good?”

Then I wrote a lengthy rebuttal.

Upon further review, I now realize that you are questioning the employees who posted negative reviews of the technology, not the adoption rate of the system sales…

Ooops

O well…since I took the time to write it, here’s what I would have said in response:

This is something that flabbergasted me when I first started selling medical devices 10+ years ago. If my solution was better, why wouldn’t providers flock to it?

That’s when I learned some hard lessons.

First, doctors are very busy people. Getting their attention is damn hard, especially if you are a new company. Imagine walking in and saying “hi, I’m from Novocure”. They’d be like – who? Medtronic? J&J? Bristol Myers? No? Get the hell out.

I got that one a lot.

This problem is 3X harder now that the Sunshine Act is in full effect. The old way was to take a doctor lunch/dinner/golfing to grab their attention. A lot of that is now MUCH HARDER to do, which isn’t such a huge problem for companies with established relationships and dominate market share, but it is a terrible development for new companies with innovative technology that want a providers attention.

Second, even if you can grab their attention, this is a medical device, not just a pill. When something is so totally different there are legitimate concerns about everything. How do I order it? Who trains the patient? What if they call my staff for questions? What if it doesn’t work? Let alone trying to understand/believe how TTFields work in the first place. That’s a big leap for some people to make, especially for doctors who are treating patients that are expected to live only a couple of months.

Third, reimbursement wasn’t there in the beginning. Last year was a big year on that front as they signed up a lot more insurers. Medicare/Medicaid is still not on board, though Novocure is providing these products with the product for “free” (they are billing medicare but not collecting…they hope to collect eventually, but they cannot guarantee it).

Fourth, there’s something magical about 5-year clinical data. Novocure didn’t have that in their hands until April of this year (https://www.fool.com/investing/2017/04/03/heres-why-novocure…). That data could go a long way at converting the skeptics.

Despite all of that, the number of active patients on Optune grew 59% year-over-year last quarter. That’s pretty good in my view. However, the company still has a looooooooooong way to go to convert the nonbelievers.

FWIW, the medical device that I use to sell – OmniPod by Insulet (PODD) – has been on the market for 13 years. Its market share in the U.S. today?4%

You could easily ask why more providers are not using it today. The answers lie above. Despite that, PODD’s revenue has grown every year and the stock is up 212% since IPO. Not bad, eh?

Brian

6 Likes

bump!

Wow Brian, a triple since you first posted! Nice discussion on industry focus too!

Have to look at this again. $250m in sales in the last 4 quarters, no longer losing cash, and almost 4b valuation right now.

have to have another looksie.

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Thanks for the props Fuma! Yes, Novocure has been a total winner.

Growth should be muted over the next year or two. It is all about TAM expansion if the clinical trials are a success.

I’m still a shareholder, and I look forward to watching this company progress.

Brian

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Thanks! I am a shareholder as well.

On March 6 they have a public meeting with Medicare advisory committee to present evidence that it should be reimbursed by Medicare. Right now they are giving away to Medicare patients I think. If we start getting Medicare revenue, that could be a nice bump in earnings. However I have heard medicare will not want to pay the 20K/month cost, and then private insurance will want a break too.

I don’t know if they broke out how many patients are Medicare but maybe can be estimated with back of envelope:

According to last press release they have 2300+ active patients, but $69 million revenue in quarter.

If 2300 patients paid 60K (20K/month X 3) , revenue would have been $138 million.

So maybe 1/2 of patients are currently medicare free riders and potential to double revenues with current patient count but probably will be well under double revenue.

Don’t trust my math, I haven’t dug into their accounting, whether they defer revenue etc. But it is a big potential catalyst.

https://med.noridianmedicare.com/web/jadme/policies/dmd-arti…

When I spoke with management a year or so ago they said that it was about 30% of their total business. I agree that pricing could change, but I think that a 20% or so immediate bump in their revenue would be reasonable if/when Medicare reimbursement comes through.

Brian

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Thanks TMFTypeoh!

I found a writeup of their 2018 Q1 earnings call which is closer to your much 30% than my 50%. So much for my envelope.

NovoCure still does not recognize sales for Medicare patients but it does provide access to these patients. Medicare represents roughly 20-25% of the U.S. market and would provide a big boost to Optune’s sales once reimbursement is established.

https://seekingalpha.com/article/4167537-novocure-2018-stron…

Still, estimating 20% * 70 million or $14 million/quarter is nothing to sneeze at and would be huge positive step for this company and catalyst for stock.

Thanks again – do you know if there is any chance that a portion of prior delivery of Optune may become reimbursable? Do you have a feel for how that normally would go with changes to local coverage determination – e.g. retroactive payment of claims for last 1 year?

It’s always possible, but I have no idea how that would work.

Either way, it would be significant news for the company/stock.

Brian

Medicare Coverage was granted effective Sep 1 2019.

I am hearing monthly reimbursement rate is $13K. It is supposed to be on CMS website at link on this press release if anyone wants to dig and confirm for themselves

https://www.novocure.com/cms-establishes-2019-monthly-fee-sc…

$13K seems like a good rate, I suspect that is comparable to private insurance reimbursement rate.

The stock has been on fire lately, so it remains to be seen if this news is already priced in.

I think Q2 earnings are released next week July 25.

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