The stock of the biomed company fell, but the CEO is optimistic

The Israeli company Novocure announced last week that it had received FDA (American Food and Drug Administration) approval for marketing in the US for its product for the treatment of lung cancer. This approval is dramatic for the company and takes it out of the brain cancer niche, on which most of its revenues are based today, and opens one of the largest markets to it onMore in the field of cancer.

With the announcement of receiving the approval, the stock jumped Novocure on the Nasdaq by dozens of percent, but the increases moderated at the end of the day to about 16%, putting the company’s value at $1.8 billion. This is a 23% lower value than what the stock reflected when it was issued in 2015, and a 93% decrease from the peak value recorded in June 2021 , which made Novocure at the moment the largest Israeli company on Wall Street, and not only in the field of biomed.

At that time, the value of the cancer treatment company was about 23 billion dollars – more than double the value at which Teva traded at that time (11 billion dollars). However, shortly after reaching the peak, the stock started free divingA. As of today, it is trading at less than a tenth of the value of the recovering Teva.

The resounding drop in Novocure shares represents not only the general decline in the biomed market since the end of the Corona epidemic in 2021, but also the gap between the hope that the company’s success in the brain cancer market can be easily replicated in any cancer market, and the reality that in each of the indications it is necessary to move forward step by step Not all of the company’s experiments were successful (and when this happened the stock was hit hard), but even when they are successful – the market it enters is competitive, and the burden of proof is on the company, not only in receiving the approval but also in the field.

The analyst’s claim: the experiment was conducted in relation to an outdated standard

Novocure received FDA approval following a trial whose results were published in June 2023, which compared the treatment using its product in combination with the standard treatment – chemotherapy or immunotherapy (treatment using the immune system), against standard treatment alone. This is as a “second-line” treatment in patients whose cancer continued to progress after chemotherapy treatment (“platinum”), given as first-line.

After one year, 53% of Novocure trial patients were still alive, compared to 42% of control group patients. These are significant results.

As mentioned, the results of the experiment were sufficient to obtain approval for the product, but the market is still skeptical about how it will be possible to realize this for revenue. An analyst named Jonathan Chang from the investment house Leerink Partners, claimed that the company experimentally compared the product to an outdated standard that is no longer relevant.

“I have no intention of arguing with the analysts’ arguments, they are meaningless,” says Novokure CEO Assaf Danziger, who is expected to retire at the end of the year after 22 years, harshly. “These are people with an interest. Even in the field of brain cancer, there were those who said that we would not succeed, so they said. The question is whether you want to be nice to the market – or bring to the world a new product for cancer treatment.”

But it seems that the market actually listens to the analysts – since the publication of the results of the experiment, the company’s stock has fallen by 79%.

Chang’s claim is that most patients today do not receive chemotherapy alone as a first line, but together with immunotherapy, and that the trial should have been conducted for patients who had already been exposed to immunotherapy. Danziger replies that “Doctors, patients, and here’s even the FDA, think like us – that there is a place for treatment, a lot of place. The markets for our field are very fragmented, some patients receive immunotherapy together with platinum as part of their first line, some save it for the end. It depends In the country, it depends on the patient.”

Novocure is planning two more trials, in one of which its product will be tested as a second line of treatment after immunotherapy and in the second it will be tested as a first line along with immunotherapy, and the results are expected in the coming years. In this way, Novocure hopes to reproduce its success in the field of brain cancer, where its product has gradually progressed and become a first line of treatment. This is a huge opportunity, but as mentioned depends on further experiments. The question is whether the current approval will already allow the company to grow dramatically.

When asked how these experiments will be financed, Danziger claims that “we have no capital problem”.

“Burned” a billion dollars and fired 200 employees

The company does not lack money. Its coffers are approximately $950 million as of the end of the second quarter of 2024. In 2020, Novocure raised $575 million, its first fundraising since its initial public offering. Nevertheless, at the end of 2023, the company carried out a reorganization, as part of which it focused on some of the products in its pipeline, and laid off 200 employees who made up about 13% of the workforce (which today stands at about 1,400 employees, most of them in the US). The company’s development center is in Israel, and employs hundreds of workers.

Novocure’s reports show that it has accumulated losses of approximately one billion dollars to date, with a loss of approximately $72 million in the first half of 2024, after the loss in all of 2023 amounted to approximately $207 million.

Will entering a new and larger market allow you to become a profitable company?
Danziger: “We choose whether to be profitable. Our brain cancer business is extremely profitable, about 80% gross profitability. The loss is due to investment in our product pipeline, amounting to hundreds of millions of dollars a year. What will entering the new market do to profitability? We do not give such forecasts” .

Danziger points out that the existing production and marketing setup is also ready and suitable to sell the new product: “They were just waiting for this moment.” So that significant synergies between the activities are expected.

Does the market reaction frustrate you?
“It’s not my job to be frustrated, but to launch a product to treat cancer. The one who is frustrated by the market’s reaction is the one who doesn’t believe in his product.”

Can you say something about your expected retirement at the end of the year, or plans for the future?
“No. I’m the CEO of Novocure now. I will talk about retirement when I retire.”

Danziger will be replaced by the American Ashley Cordova, who currently serves as the company’s CFO.

Novocure, founded in 2000, has been managed by Danziger since its early days. The company has developed a device to treat cancer with a completely new technology invented by Prof. Yoram Pelati of the Technion. It focuses electric waves on the tumor, thus succeeding in interfering with the process of cell division.

In 2015, the company’s product received marketing approval in the US for the treatment of brain cancer of the glioblastoma type, and in 2019 it was approved for a type of lung cancer related to exposure to asbestos. It is not a treatment that cures cancer in most cases, but it is similar in its effectiveness in slowing the development of the disease to other treatments approved for these indications , and can be added to them. As of the end of 2021, about 3,600 patients were treated with the company’s product.

“Go explain the economic conduct in Israel”

The company’s brain cancer product is a kind of cap full of electrodes that patients wear almost all day long to control their cancer. The product for lung cancer is worn on top of the chest, and works according to the same principle. The company has plans to expand its activities to the pancreatic cancer market as well, to treat brain metastases in patients whose cancer originates in the lungs, and it is testing its technology in combination with a variety of other types of treatments. To this end, it is conducting over ten experiments today, each of which can expand its activities.

What reactions do you get in the market for being a company with roots, a development and production center in Israel?
“Today it is difficult to explain the Israeli economy to the world. Sometimes things that are said here make people in the US turn their heads in panic, so that they can make sure that they really heard what was said correctly. It’s hard to explain how a finance minister can say such… unusual things? The reports that are published about the Israeli economy are written in English and there are many people who know English and the things are written very clearly. I am not talking about the war, which was imposed on us, but about the economic conduct of the country.

“As for Novocure, it is a successful company and we are not affected by all of this, to my delight. Nevertheless, Israel has human capital that is not found anywhere else. We are rooted in Israel, and we have no intention of changing that.”