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Edited Transcript of NVCR earnings conference call or presentation 31-Oct-19 12:00pm GMT

Q3 2019 Novocure Ltd Earnings Call

SAINT HELIER Nov 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Novocure Ltd earnings conference call or presentation Thursday, October 31, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Asaf Danziger

NovoCure Limited - President, CEO & Director

* Ashley Cordova

NovoCure Limited - VP of Finance & IR

* Ely Benaim

NovoCure Limited - Chief Medical Officer

* Pritesh Shah

NovoCure Limited - Chief Commercial Officer

* Wilhelmus C. M. Groenhuysen

NovoCure Limited - CFO

* William F. Doyle

NovoCure Limited - Executive Chairman

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Conference Call Participants

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* Cory William Kasimov

JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst

* Difei Yang

Mizuho Securities USA LLC, Research Division - Executive Director of Americas Research

* Esther P. Rajavelu

Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst

* Gregory B. Gilbert

SunTrust Robinson Humphrey, Inc., Research Division - Analyst

* Lei Huang

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Vijay Muniyappa Kumar

Evercore ISI Institutional Equities, Research Division - MD

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the NovoCure's Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference may be recorded.(Operator Instructions)

I would now like to hand the conference over to your speaker today, Ms. Ashley Cordova, Senior Vice President of Finance and Investor Relations. Ma'am, you may begin.

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Ashley Cordova, NovoCure Limited - VP of Finance & IR [2]

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Good morning, everyone, and thank you for joining us to review Novocure's Third quarter 2019 performance. I am joined today by our Executive Chairman, Bill Doyle; our CEO, Asif Danziger; our CFO, Wilco Groenhuysen; our Chief Commercial Officer, Pritesh Shah; and our Chief Medical Officer, Ely Benaim, who will join us for Q&A.

The slides presented today can be viewed on our website, www.novocure.com, by clicking on the link for third quarter 2019 financial results located in the Events section on our Investor Relations page.

Before we start, I would like to remind you that our discussions during this conference call will include forward-looking statements, and actual results could differ materially from those projected in these statements. These statements involve a number of risks and uncertainties, some of which are beyond our control, including those risks and uncertainties described from time to time in our SEC filings. We do not intend to update publicly any forward-looking statements, except as required by law.

Following our prepared remarks today, we will open the line for questions. Financials for the 3 and 9 months ended September 30, 2019, are available on our press release and in our 10-Q, both of which we released earlier this morning.

With that, I will now turn the call over to Bill Doyle.

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William F. Doyle, NovoCure Limited - Executive Chairman [3]

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Thank you, Ashley, and good morning, everyone. Q3 2019 was a remarkable quarter for NovoCure. We made significant progress in developing our commercial business, delivering our first quarter ever of positive net income.

In addition to 42% revenue growth, we reported positive EPS of $0.02 and generated $15 million in cash flow from operations. With multiple levers to deliver continued near-term revenue growth, cash flow from our GBM business provides the financial flexibility and stability to ensure we can make the appropriate investments in our clinical pipeline and technology development to drive significant future value creation.

The Tumor Treating Fields platform is building momentum. We continue to enroll 4 Phase III pivotal trials, creating a significant market expansion opportunity, treating some of the most aggressive forms of cancer. I'll speak to our clinical progress later on this morning's call. But first, I'll ask Asaf to review recent commercial developments. Asaf?

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Asaf Danziger, NovoCure Limited - President, CEO & Director [4]

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Thank you, Bill. Our GBM business delivered another strong quarter of top line growth. Net revenues were a record $92 million, up 42% versus the prior year. Prescriptions for newly diagnosed GBM continue to grow, representing 82% of the third quarter total. We ended the quarter with 2,750 active GBM patients on therapy, our 19th consecutive quarter of active patient growth since the initial presentation of our EF-14 data.

Our reimbursement rates for GBM also continued to improve. Last quarter, we received FDA approval under the HD pathway for the NovoTTF-100 L system, in combination with standard chemotherapy for treatment of malignant pleural mesothelioma or MPM, our first FDA-approved torso indication. Our initial launch efforts, our focus on certification, training and supporting the required IRB approval process at approximately 40 centers, where we believe a majority of U.S. MPM patients are treated. By the end of the quarter, we certified with the Asian oncologists at 10 high-volume centers and 2 centers successfully completed the IRB approval process.

With the start of our first MPM commercial patient in late September for the first time ever, our third quarter active patient total includes an active patient treated for MPM.

Certifications are ongoing, and we have a dedicated team focused on developing this business. We look forward to providing further updates on future calls.

Often, we have discussed geographical expansion as an additional lever for near-term growth and as a valuable investment in our commercial infrastructure prior to future potential launches in multiple solid tumor indications. I'm pleased to announce that we will enter our second big 5 EU market, expanding our commercial operations into France.

Our initial focus will be developing KOL and patient advocacy relationships in GBM and establishing a path to reimbursement. These are critical first steps to building the foundation to loan GBM and to prepare for the potential significant market expansion opportunity in other indications over the next 5 years.

Zai Lab, our partner in Greater China also continues to make great progress. Zai formally launched option for GBM in Hong Kong in February, and the launch has outperformed their expectations. We've used Zai's initial success in Hong Kong as an encouraging sign of Optune's compelling clinical profile, and the unmet medical need it addresses ahead of the anticipated commercial launch in Mainland China.

The regulatory review of Optune in Mainland China is on track. The Chinese national Medical product administration, designated Optune for GBM, an innovative medical device in August and has accepted the marketing authorization application. Zai is pursuing a clinical trial waiver for the GBM indication in China. And should the trial waiver will be granted, intends to launch option in China before year-end.

With that, I will turn the call over to Wilco to review our financials.

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Wilhelmus C. M. Groenhuysen, NovoCure Limited - CFO [5]

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NovoCure ended the third quarter in a strong financial position. We made significant progress in developing our commercial business, delivering another quarter of record net revenues. I am proud to report that the third quarter also marked the first quarter ever of positive net income. Third quarter net revenues were $92.1 million, growing 42% year-over-year and growing 6% quarter-over-quarter.

In fact, Q3 marked the third consecutive quarter in 2019 of greater than 40% year-over-year revenue growth. Trailing 12-month net revenues now exceed $320 million.

In addition to continued active patient growth, we have seen a sustained improvement in the net revenues booked per active patient. Our revenue per patient benefited from continued improvements in reimbursement rates for both the U.S. and EMEA.

In addition, we recognized the initial benefit from Medicare with $0.5 million in third quarter net revenues from beneficiaries built under the newly defined coverage policy effective September 1, 2019.

Moving into the fourth quarter, our team is focused on working through the typical administrative ramp up to ensure we realize the full revenue benefit from Medicare as soon as possible. Gross profit in the quarter was $69.2 million, reflecting a 75% gross margin. Gross margin continues to benefit from ongoing efficiency initiatives and increasing scale.

We continue to invest in research and development with $18.8 million in R&D expenses in the quarter, up 44% versus the third quarter of 2018. This was primarily driven by an increase in clinical trial and personnel expenses for our Phase III pivotal trials and an increase in costs associated with medical affairs, regulatory and engineering.

Our third quarter SG&A expenses were $46.5 million, up 23% versus the third quarter of 2018, driven primarily by increased marketing expenses and personnel costs to support our growing commercial business. In the third quarter, we recorded an income tax benefit of $1.5 million as a result of R&D credit claims in the United States. Our net income was $1.9 million with $0.02 in earnings per share.

Cash flow from operations was $14.9 million. We ended the third quarter with $312.6 million in cash, cash equivalents and short-term investments, an increase of $28 million from the prior quarter.

Revenue and operating margin for the GBM business continue to fund the investments in our clinical pipeline and technology development. Moving forward, we are committed to balancing improved operating efficiency with investments for sustainable long-term success.

In summary, we are pleased with the sustained revenue growth and the level of investment and profitability in the third quarter. We are confident this momentum will carry us through the remainder of 2019 and into 2020.

With that, I will hand the call back to Bill for an update on our pipeline.

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William F. Doyle, NovoCure Limited - Executive Chairman [6]

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Thank you, Wilco. Tumor Treating Fields is backed by a considerable volume of compelling preclinical and clinical data. There is a growing body of evidence supporting the broad applicability of Tumor Treating Fields across multiple solid tumor cancers in combination with various therapies. I am pleased to report the results from our STELLAR trial we recently published in the Lancet Oncology, one of the world's leading clinical oncology research journals. The STELLAR trial studied the use of tumor treating fields delivered via the NovaTTF-100 L system in combination with pemetrexed plus cisplatin, carboplatin as a first-line treatment for patients with unresectable, locally advanced or metastatic malignant pleural mesothelioma. The STELLAR trial demonstrated an impressive median overall survival of 18.2 months when Tumor Treating Fields was added to standard chemotherapies. Tumor Treating Fields' platform is building momentum with an increasing presence at key oncology congresses globally, including 80 presentations in the third quarter alone.

Highlights include the first presentation of in vitro data, studying Tumor Treating Fields in combination with FOLFOX chemotherapy in gastric cancer. And the presentation of in vitro and in vivo data, studying Tumor Treating Fields in combination with sorafenib in liver cancer.

In both studies, combining Tumor Treating Fields with chemotherapy enhanced treatment efficacy based on cancer cell count, apoptosis induction and overall effect. Also, results were presented by external authors, expanding the preclinical evidence that Tumor Treating Fields activate the innate immune system, providing a strong rationale for studying Tumor Treating Fields in combination with immune checkpoint inhibitors.

These data align with our research to date, showing Tumor Treating Fields to be additive to or synergistic with other anticancer agents without evidence of any dose-limiting cumulative toxicity.

We believe there is a growing appreciation for the potential value of Tumor Treating Fields across the broader oncology landscape. In all tumor cell lines we have tested, Tumor Treating Fields has a consistent effect, and we have not found a tumor cell line that does not respond to Tumor Treating Fields.

In addition to our ongoing preclinical and clinical programs, we have a significant opportunity to improve Optune efficacy and ease of use through product engineering and development. Guided by data published in the Red Journal earlier this year showing that higher doses of Tumor Treating Fields improved survival of newly diagnosed GBM patients, our engineering teams are working to design and develop enhancements to our transducer arrays, and our transducer array layout mapping software intended to increase Tumor Treating Field intensity and thus efficacy. We look forward to providing further updates on future calls.

We are determined to provide Tumor Treating Fields therapy to cancer patients with a variety of solid tumor types, who may benefit from the treatment. Our teams continue to make progress enrolling patients in randomized Phase III pivotal trials in brain metastases, lung cancer, pancreatic cancer and ovarian cancer and in our Phase II pilot study in liver cancer.

If approved, the indications in our late-stage pipeline will create a more than 20-fold increase in the U.S. addressable market alone.

NovoCure is a global commercial oncology company. In the third quarter, commercial execution drove strengthening financial performance and our first-ever quarter of positive net income. Our proprietary Tumor Treating Fields Cancer Therapy platform is building momentum, marked by our third consecutive quarter in 2019 of greater than 40% year-over-year revenue growth.

We see a bright future for NovoCure. And our focus is unwavering on disciplined execution, intended to deliver both sustainable near-term revenue growth from existing indications and significant long-term shareholder value creation through pipeline and product development.

Thank you for your time this morning. With that, I'll turn the call over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Vijay Kumar from Evercore ISI.

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Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [2]

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Congrats on nice revenue from this morning. Maybe I'll start on the revenue front. A quick housekeeping question, Wilco. Based on your comments, it looks like the reimbursement trends we're seeing here, this is sustainable. Is that the right way to read through? And just when you look at the reimbursement per patient in the U.S.?

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Wilhelmus C. M. Groenhuysen, NovoCure Limited - CFO [3]

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Yes, we believe it is sustainable. As we said in other calls earlier on, we've made significant improvement in reimbursement per patient. Now with Medicare reimbursement kicking in with the first $0.5 million recognized in the third quarter. And remember, that only related to September billings, and we would improve -- further improvement in billings for active patient.

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Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [4]

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And there was no true-up or catch-up payments in 3Q, correct?

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Wilhelmus C. M. Groenhuysen, NovoCure Limited - CFO [5]

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No material catch-up payments.

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Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [6]

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That's helpful. And then one on script volumes. I know you guys have had the new GBM versus record GBM. Maybe could you parse out what the new GBM script trend was in the Q? Because it overall seems a little lighter.

And I'm just curious when the recurrent GBM dynamic could annualize and given new GPM is 80-plus percent, should we be thinking about next year, these trends wash away, and you should see a clean script volume for next year?

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Wilhelmus C. M. Groenhuysen, NovoCure Limited - CFO [7]

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I think you're tempting us into guiding. We do believe that the trends we've seen in newly diagnosed scripts as a percentage of total and the improvement that we've seen over the last few quarters, resulting in 82% in the third quarter is likely to further improve. To what extent, it is difficult to predict it right now. But it is a consistent trend that we see no signs of discontinuation.

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Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [8]

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And maybe one last one on China before I let others jump on. It looks like it's incremental comments here on Zai Labs getting possibly a trial waiver in China. If they do get a trial waiver, maybe could you size the China opportunity for us? How big is that market? Or how should we be thinking about revenue ramp in China?

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William F. Doyle, NovoCure Limited - Executive Chairman [9]

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Yes. So we continue to be extremely pleased with our partnership with Zai Lab. As we mentioned in the prepared remarks, the launch in Hong Kong has gone extremely well and the work toward approval in Mainland China is also going extremely well. We mentioned that the Chinese and NPA-designated Optune is an innovative medical device in August, that was a key step. And of course, they also accepted the marketing application, which is also a key step. And Zai is preparing for a potential commercial launch as early as the end of Q4.

With that said, we estimate that there are 45,000 people in China that are diagnosed with GBM each year. This is the largest market for GBM. But I think it's too early for us to predict exactly what the uptake would be post-approval there.

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Operator [10]

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Our next question comes from Larry Biegelsen from Wells Fargo.

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Lei Huang, Wells Fargo Securities, LLC, Research Division - Associate Analyst [11]

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It's Lei calling in for Larry. I want to ask one on -- just on mesothelioma. You mentioned the first patient is on therapy and that you've trained 10 centers so far. Can you talk about the ramp to training the 40 centers with bigger targeting kind of what time period you're referring to?

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William F. Doyle, NovoCure Limited - Executive Chairman [12]

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Sure. So thank you for the question. I want to introduce Pritesh Shah to this audience this morning. Pritesh is our Chief Commercial Officer and is the person who's leading the Zai Lab launch as well as the rest of our commercial business, and I'm going to turn it over to Pritesh to make comments.

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Pritesh Shah, NovoCure Limited - Chief Commercial Officer [13]

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Great. Thank you, Bill, and thank you, Lei, for the questions. So we're very pleased with the MPM launch. It's where -- the launch is on track. We're in the first stages of the launch, which, if you recall from our GBM days, the first step is to certify the centers.

I'll focus on the audience that we're certifying because it's really important for mesothelioma as well as our future pipeline that you heard about. We are focusing on the radiation oncologists at these 40 centers where mesothelioma is primarily treated, and our goal here is to ensure that the radiation oncologist becomes the key prescriber for tumor treating fields, NovoTTF-100 L and mesothelioma and also moving forward in our other indications.

The second step of the launch is the IRB process. So as you know, the HDE requires an IRB approval. That step also takes a bit of time and the onus here is on the center. So we were very pleased to see the first 2 centers get IRB approval in quarter 3.

The second step now are the rest of the centers are now in the IRB process.

So our goal is to continue certifying centers as the first step in making sure that we are able to get access to mesothelioma patients with NovoTTF-100 L, and we will continue to work on that through the end of this year going into next year. So we can ensure those 40 centers are certified and ready to go.

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Lei Huang, Wells Fargo Securities, LLC, Research Division - Associate Analyst [14]

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Great. And then if I can ask a question just on the pipeline front, you -- I think it was on the last call, you talked about a couple of new GBM studies that you're looking at. One, Optune plus radiation and another one Optune plus [PMD] plus other agents. Is there a status update on that?

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William F. Doyle, NovoCure Limited - Executive Chairman [15]

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So I'm going to turn the Q&A over to Ely Benaim. Ely joined us on the last call, for the first time, but he is joining us again today to handle the questions on the pipeline. So I'll turn it over to Ely.

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Ely Benaim, NovoCure Limited - Chief Medical Officer [16]

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Thank you, Bill. There's really no material updates. We're still planning these 2 studies. We -- as you know, we intended to advance the scientific evidence supporting the user Optune in GBM. And really gather additional information about the Optune optimal use.

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Lei Huang, Wells Fargo Securities, LLC, Research Division - Associate Analyst [17]

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Okay. And if I can squeeze in one last one. Any update on the national reimbursement in Germany?

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Ely Benaim, NovoCure Limited - Chief Medical Officer [18]

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It's still -- I just would like to remind everyone that we -- our reimbursement right now in Germany is in very good shape. So -- but we are still working on national reimbursement in Germany. We are -- really during discussion with the regulatory and -- with the regulatory authorities in Germany about reimbursement. And we believe that this discussion will bring some fruit over next year.

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Operator [19]

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And our next question comes from Cory Kasimov from JPMorgan.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [20]

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Wanted to go back to the sequential prescriptions. And obviously, the active patients continues to climb quarter-over-quarter, but you had the slight drop in Rx. So I'm curious, is there a seasonality component to this or some type of other -- some other type of like one-off impact or another dynamic in the marketplace that we should be thinking about when we look at sequential script trends?

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Ely Benaim, NovoCure Limited - Chief Medical Officer [21]

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We are very focused, of course, Corey, on script trends. We don't believe that we've reached any sort of peak or plateau. There are more -- many more patients with GBM in the U.S., in our active markets, who can benefit from the therapy.

It is a brand-new therapy, of course. It's a completely new concept. And so we expect it to grow more slowly over time to peak and, for instance, a new drug or pharmaceutical.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [22]

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Okay. And then a follow-up question on your non-small cell lung cancer study. A couple of things here. I'm curious, can you talk about the accrual rates across geographies? And then I just want to make sure I understand the design or the statistical analysis here. So the primary analysis, if I'm right, is pooled across all patients regardless of background PD-1 use, and then the secondary endpoints will look at subgroups with or without checkpoint inhibitors. Is that right? And if so, are you comfortable that you have enough powering on those secondary endpoints?

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Ely Benaim, NovoCure Limited - Chief Medical Officer [23]

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This is Ely, again. So thank you for your call. And for your second call, the answer is yes. I think we have power for both the primary secondary endpoints. And we think that this study is getting even more interesting in the sense that we now have -- the 2 arms are quite current in combination with PD-1 inhibitors. But we don't require PD-1 diagnosis or pathology to be in this study.

On the recruitment side, as we have mentioned before, we have ongoing 68 sites across North America and Europe, but we don't provide really patient enrollment figures. So we'll -- but we'll press release our last patient enrollment.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [24]

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Okay. I understand that you don't require PD-1, but do you expect that the study will be relatively balanced between groups in terms of background PD-1 use?

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Ely Benaim, NovoCure Limited - Chief Medical Officer [25]

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That's the expectation, yes.

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Operator [26]

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Our next question from Gregg Gilbert from SunTrust.

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Gregory B. Gilbert, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [27]

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I just want to quickly start with a commercial question. You talked about the expansion into France. Can you share some thoughts on where else you plan to expand commercially in the next couple of years before I shift to a couple of R&D questions?

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William F. Doyle, NovoCure Limited - Executive Chairman [28]

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Yes. I think -- Gregg, this is Bill. We'll announce new markets as we enter. I think the obvious markets are the rest of the big 5 countries in Europe. And our plan is to take them one at a time. And the next one will be France.

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Gregory B. Gilbert, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [29]

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Okay. Great. On the research side, can you talk about how the mesothelioma approval has affected the momentum of research interest in torso applications? I imagine there's a logistical sort of hurdle there of having an official approval on the torso. But can you talk about any quantification or at least some anecdotal color around additional research interest you're seeing outside of your walls on the torso?

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William F. Doyle, NovoCure Limited - Executive Chairman [30]

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Sure. I'll start and maybe if Ely or Pritesh have some comments and anecdotes, they can jump in. But I think, clearly, the approval in mesothelioma has been very important to NovoCure. It's the first indication outside of the brain, which was substantial evidence that this can -- this therapy can be used for other tumors.

It opens a whole new audience of oncologists, who are now interested in learning about the therapy, who're interested in doing research about the therapy. So I think above and beyond the relatively small indication, which will still be good business in time for NovoCure, it was a real milestone in terms of validating the potential torso application.

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Gregory B. Gilbert, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [31]

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Okay. And then I think Pritesh touched on this a little bit already, but can you speak a little bit about how the preparations for mesothelioma will specifically relate to, say, lung, should you be in a position to launch in a couple of years in the lung setting? How much overlap and sort of centers and other logistical issues are there?

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Pritesh Shah, NovoCure Limited - Chief Commercial Officer [32]

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Sure. Thank you for that question. So it's too early to talk about non-small cell lung cancer. So we're very excited to prepare the market with mesothelioma. I think one of the key elements of our preparation is to focus on one audience, the radiation oncologist. Being successful on this front will allow us to really just have a -- more of a turnkey launch when we get to non-small cell lung cancer.

So what the mesothelioma launch allows us is building experience with the radiation oncologist with the torso application. And then over time, as we get to non-small cell lung cancer market preparation, allow for a more seamless launch and execution on that front.

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Operator [33]

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Our next question comes from Esther Rajavelu from Oppenheimer.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [34]

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Following up on Gregg's question on mesothelioma. Can you maybe share some updated thoughts on how you view the OUS opportunity here? And whether you're likely to pursue something outside the U.S.?

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Pritesh Shah, NovoCure Limited - Chief Commercial Officer [35]

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Sure. Thank you for that question. So right now, our focus is on ensuring a successful launch in the U.S. We're still learning as we're bringing the treatment to the 40 centers that we talked about, and we're in the process of CE Mark in Europe, which would then allow us the opportunity to gain regulatory access in Europe.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [36]

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But you'll need to run a trial in Europe, I assume, separate from the U.S?

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Pritesh Shah, NovoCure Limited - Chief Commercial Officer [37]

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That is not our expectation, understanding at this time.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [38]

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Got you. And then in China, you are booking incremental revenues. Can you help us understand in Hong Kong, how the product is being priced and any read-throughs from Hong Kong to the broader Chinese market?

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Wilhelmus C. M. Groenhuysen, NovoCure Limited - CFO [39]

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Esther, this is Wilco. We do disclose revenue coming from China associated with the Zai partnership. It effectively consists of 2 or 3 components. One is, at this point in time, a relatively modest royalty revenue. The second one is, as you will recall, part of the agreement decides that we would supply them with equipment, both arrays and boxes. So that supply is also in our revenue line. And the third component, that consists of the amortization of the initial sign of fees. So those are the key components.

Upon approval of Zai and let's assume a successful commercial launch, we would expect that royalty stream to pick up. It's very difficult to predict at this point in time, to what extent, and I'll refer back to the comments that Bill made earlier on in the call, that there's a significant opportunity there, but it's too early to call how much of that 45,000 patient base can be captured by Zai. But we do think pricing overall most likely will be more or less in line with immunotherapies in China.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [40]

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Okay. And then my last question, you had talked about potentially using Optune in earlier lines of therapy, concurrent with radiation. When do you anticipate initiating that trial? And what are the implications if that use becomes a reality?

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William F. Doyle, NovoCure Limited - Executive Chairman [41]

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So maybe I'll take the last question first and then turn it over to Ely. So there -- we talked about a little bit today about the preclinical evidence, both in vitro and in vivo. We don't always talk about this on the calls, but we have a significant internal R&D engine, and now there's significant external academic R&D being done in Tumor Treating Fields.

One aspect of that R&D is the combination of Tumor Treating Fields with radiation. So our approval today is for use in GBM after radiotherapy. The preclinical evidence supports use with radiation. We see that it enhances the efficacy of the radiation. So this is something that we intend to study in a Phase III trial.

The implications for the business are that, one, the patients would start earlier. That's approximately 2 additional months of therapy. And again, our -- the reason we're conducting the trial would be to prove that it would give them extended survival benefit, which could potentially extend the benefit in the long term. So those are some of the potential benefits, should this prove out in human population.

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Operator [42]

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Our next question comes from Difei Yang from Mizuho.

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Difei Yang, Mizuho Securities USA LLC, Research Division - Executive Director of Americas Research [43]

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So just a couple of quick ones. With regards to -- could you talk about the CMS reimbursement pathway and potential timelines on mesothelioma? And then maybe perhaps helps us to understand the business opportunity outside of the United States, let's say, in Europe, primarily for mesothelioma?

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Wilhelmus C. M. Groenhuysen, NovoCure Limited - CFO [44]

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Just one question, if I, right? This is Wilco. Let's start with the first part of your question, and that's the Medicare revenue recognition. We're actually very pleased that we're able to recognize revenue in the third quarter for patient treatment as of September 1. The achievement of the Medicare reimbursement and establishing that was a great accomplishment in the second quarter. It takes a lot of work to be able to figure out and design and implement a process that will allow us to recognize fully the benefit of the Medicare billings. We recognized $0.5 million in September. We're making significant improvements in those processes and expect the next few quarters to come to full realization of medicare revenues.

The second part of your question related to -- exactly what it was...

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Difei Yang, Mizuho Securities USA LLC, Research Division - Executive Director of Americas Research [45]

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Europe.

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Wilhelmus C. M. Groenhuysen, NovoCure Limited - CFO [46]

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Europe.

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William F. Doyle, NovoCure Limited - Executive Chairman [47]

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Yes. I think we continue to -- and I think we touched upon a few of those topics earlier on. And I think Asaf mentioned it as well. So we are making significant progress, again, in securing national reimbursement in Germany. Asaf alluded to that we still think that in 2020, even in March or in October, more likely than not in the second part of the year, we would expect to have national reimbursement in Germany. We don't think it's material. And we talked about in the past as well to overall revenue. As we are very successful in filing claims on a case-by-case basis and realizing substantial revenue from that. So it will help us in in efficiency and processing of claims. It will probably have a very modest, if any, impact on our net revenue.

We're working on getting secured reimbursement in Switzerland and Israel. It's too early to give any indication on when that might become a reality, but I think the quality of the data, the support that we have in the physician and patient community, give us hope that also those discussions will be concluded positively.

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Difei Yang, Mizuho Securities USA LLC, Research Division - Executive Director of Americas Research [48]

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And then can you subject to mesothelioma the -- is ex U.S. -- does ex U.S. have a bigger opportunity than the opportunity in the U.S.?

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Pritesh Shah, NovoCure Limited - Chief Commercial Officer [49]

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I'll answer that question. This is Pritesh, again. So thank you for your question. As we mentioned, related to the opportunity in -- outside of the United States, our focus is to ensure that we are successful in bringing the treatment of patients in the U.S. And we're in the process of the CE Mark. And in terms of the opportunity, it will depend on which country we go in, and we have not made that determination just yet.

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Difei Yang, Mizuho Securities USA LLC, Research Division - Executive Director of Americas Research [50]

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Okay. So that leads to my final question on the gastric cancer that Zai Lab is running or planning to run trials on. And do you see a significant opportunity -- assuming that trial is positive, do you see significant opportunity in the U.S. or rest of the world outside of China?

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William F. Doyle, NovoCure Limited - Executive Chairman [51]

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Yes. So the trial that's being -- that is designed, and we're in the stages of implementation is a Phase II trial. So it's consistent with our other Phase II trials. We'll focus on safety, of course, where we don't expect to see an issue and then on hints of efficacy. From there, we would expect to perform a Phase III trial.

The largest opportunity in gastric cancer is Asia. It's why we're doing the trial in Asia. There are opportunities that are smaller in the U.S. and, of course, we would exploit those as well.

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Operator [52]

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And we do have a follow-up from Vijay Kumar from Evercore ISI.

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Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [53]

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Just a couple of housekeeping or follow-up questions, if you will. On the new GBM, can you clarify that GBM scripts were growing because I think they've been growing double digits in the teens range? Did those trends change at all in the Q?

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Wilhelmus C. M. Groenhuysen, NovoCure Limited - CFO [54]

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No. We saw a 2% increase -- sorry, Vijay, this is Wilco. So a 2% increase Q3 over Q2. We had 1,076 newly diagnosed scripts, which is, as we said earlier on, about 82% of total scripts.

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Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [55]

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That's helpful. On the non-small cell lung cancer, I know the trial got 4 arms in combination with chemo, combination with the KEYTRUDA, and now that these I-O drugs, they have been -- they're -- they have the first-line status. But the trial itself is you're looking at second-line patients. I'm just curious that whether because the combination is in the I-Os, they've been given the first-line status, would that change the opportunity for you guys? Or could you get a first-line indication based on this trial? Or would that have to be a separate trial?

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Ely Benaim, NovoCure Limited - Chief Medical Officer [56]

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Yes. So this is Ely. The -- we don't think that with this trial we'll get a first-line indication. But certainly, all right, as we have mentioned before, we know that the combination of Tumor Treating Fields with any cancer, but it will be potential beneficial. So we think that this -- there is still space in the non-small cell lung cancer area for a second-line treatment with combination -- with the immuno checkpoint inhibitors or also with -- in combination with docetaxel. So there's always going to be -- unfortunately, checkpoint inhibitors does not cure non-small cell lung cancer. So all these patients that have entered would receive potentially docetaxel. And so we also will have that covered in the combination.

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Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [57]

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That's helpful. And maybe one last one. Free cash flow positive. The cash is building up on the balance sheet. I'm just curious on thoughts on capital deployment because that really is ballooning every quarter, right? And it looks like for your trial needs expenses, your ongoing operations is enough to sustain. Any thoughts on cap deployment?

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Wilhelmus C. M. Groenhuysen, NovoCure Limited - CFO [58]

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Yes. So I think, first and foremost, we'd like to emphasize that the revenue and profits now from the GBM business provide us great flexibility to do everything that we need to do to build long-term value with our Tumor Treating Fields platform. And that includes the full -- paying for the full clinical program, and it also includes paying for technology development because we see a significant opportunity as a device to continue to develop the technology, both to improve efficacy further and to improve patient comfort. So that's our focus right now. But it's clear that we do have this cushion and flexibility to undertake everything that we need to undertake to build long-term value.

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Operator [59]

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And I am showing no further questions from our phone lines. And I'd like to turn the conference back over to Bill Doyle for any closing remarks.

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William F. Doyle, NovoCure Limited - Executive Chairman [60]

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Yes. So I'd just like to, once again, thank you all for your interest in NovoCure. This was another milestone quarter for us, our first quarter of profitability. For those of us who have been involved in this project now for 18-plus years, like Asaf has just crossed his 18-year milestone with the company, this is really a tremendous affirmation of years and years of hard work. So, thank you.

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Operator [61]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.