Edgar Filing: Novocure Ltd

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Accelerated filer

Non-accelerated filer

☐ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

nvcr-10q_20170930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-37565

NovoCure Limited

(Exact Name of Registrant as Specified in Its Charter)

Jersey		98-1057807
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

Le Masurier House

La Rue Le Masurier

St. Helier, Jersey JE2 4YE

(Address of principal executive offices)

+44 (0) 15 3475 6700

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class		Outstanding as of October 19, 2017
Ordinary shares, no par value		89,363,835 Shares

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical facts or statements of current condition, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements contained in this report are based on our current plans, expectations, hopes, beliefs, intentions or strategies concerning future developments and their impact on us. Forward-looking statements contained in this report constitute our expectations or forecasts of future events as of the date this report was filed with the Securities and Exchange Commission and are not statements of historical fact. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as “anticipate,” “will,” “estimate,” “expect,” “project,” “intend,” “should,” “plan,” “believe,” “hope,” and other words and terms of similar meaning in connection with any discussion of, among other things, future operating or financial performance, strategic initiatives and business strategies, regulatory or competitive environments, our intellectual property and delivery system research and development. In particular, these forward-looking statements include, among others, statements about:

•

our research and development, clinical trial and commercialization activities and projected expenditures;

•

the further commercialization of Optune®, our first Tumor Treating Fields (“TTFields”) delivery system, and our other TTFields delivery system candidates;

•

our business strategies and the expansion of our sales and marketing efforts in the United States and in other countries;

•

the market acceptance of Optune and our other TTFields delivery systems by patients, physicians, third-party payers and others in the healthcare and scientific community;

•

our plans to pursue the use of TTFields for the treatment of other solid tumor cancers;

•

our estimates regarding revenues, expenses, capital requirements and needs for additional financing;

•

our ability to obtain regulatory approvals for additional indications and any future TTFields delivery systems;

•

our ability to acquire the supplies needed to manufacture our TTFields delivery systems from third-party suppliers;

•

our ability to manufacture adequate supply;

•

our ability to secure adequate coverage from third-party payers to reimburse us for Optune or future TTFields delivery systems;

•

our ability to maintain and develop our intellectual property position;

•

our cash needs;

•

our ongoing legal proceedings and tax audits; and

•

our prospects, financial condition and results of operations.

These forward-looking statements involve a number of risks and uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-look ing statements. Factors which may cause such differences to occur include those risks and uncertainties set forth under Part I, Item 1A., “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as well as other risks and uncertainties set forth from time to time in the reports we file with the U.S. Securities and Exchange Commission. We do not intend to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

TRADEMARKS

This Quarterly Report on Form 10-Q includes trademarks of NovoCure Limited and other persons. All trademarks or trade names referred to herein are the property of their respective owners.

NovoCure Limited

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

			Page
Cautionary Note Regarding Forward Looking Statements			ii
Trademarks			ii

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements		2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		20
Item 4.	Controls and Procedures		20

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings		21
Item 1A.	Risk Factors		21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3.	Defaults Upon Senior Securities		21
Item 4.	Mine Safety Disclosures		21
Item 5.	Other Information		21
Item 6.	Exhibits		22

	Signatures	23

- 1 -

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

NOVOCURE LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

	September 30,		December 31,
	2017		2016
	Unaudited		Audited
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	82,104	$	99,780
Short-term investments		104,453		119,854
Restricted cash		2,129		267
Trade receivables		23,000		6,339
Receivables and prepaid expenses		5,559		10,084
Inventories		24,642		25,549
Total current assets		241,887		261,873

LONG-TERM ASSETS:
Property and equipment, net		9,361		9,812
Field equipment, net		8,948		8,808
Severance pay fund		104		88
Other long-term assets		1,978		1,500
Total long-term assets		20,391		20,208

TOTAL ASSETS	$	262,278	$	282,081

The accompanying notes are an integral part of these unaudited consolidated financial statements.

- 2 -

NOVOCURE LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share data)

	September 30,			December 31,
	2017			2016
	Unaudited			Audited
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade payables	$	14,143		$	18,356
Other payables and accrued expenses		26,842			18,526
Total current liabilities		40,985			36,882

LONG-TERM LIABILITIES:
Long-term loan, net of discount and issuance costs		97,049			96,231
Employee benefit liabilities		2,489			2,590
Other long-term liabilities		5,070			4,033
Total long-term liabilities		104,608			102,854

TOTAL LIABILITIES		145,593			139,736

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Share capital -		-			-
Ordinary shares no par value, unlimited shares authorized; issued and outstanding: 89,355,679 shares and 87,066,446 shares at September 30, 2017 (unaudited) and December 31, 2016, respectively
Additional paid-in capital		689,460			664,154
Accumulated other comprehensive loss		(1,462	)		(1,883	)
Accumulated deficit		(571,313	)		(519,926	)
Total shareholders' equity		116,685			142,345

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	262,278		$	282,081

The accompanying notes are an integral part of these unaudited consolidated financial statements.

- 3 -

NOVOCURE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands (except share and per share data)

	Three months ended September 30,						Nine months ended September 30,						Year ended December 31,
	2017			2016			2017			2016			2016
	Unaudited						Unaudited						Audited
Net revenues	$	50,109		$	21,674		$	123,365		$	52,646		$	82,888
Cost of revenues		15,153			11,118			39,969			28,897			39,870
Impairment of field equipment		-			-			-			6,412			6,412

Gross profit		34,956			10,556			83,396			17,337			36,606

Operating costs and expenses:
Research, development and clinical trials		9,273			10,233			28,055			32,996			41,467
Sales and marketing		16,387			15,865			47,503			43,771			59,449
General and administrative		15,215			12,723			42,660			38,010			51,007

Total operating costs and expenses		40,875			38,821			118,218			114,777			151,923

Operating loss		(5,919	)		(28,265	)		(34,822	)		(97,440	)		(115,317	)
Financial expenses, net		2,156			2,189			6,785			3,293			6,147

Loss before income tax expense		(8,075	)		(30,454	)		(41,607	)		(100,733	)		(121,464	)
Income tax expense		3,423			3,174			9,110			8,944			10,381

Net loss	$	(11,498	)	$	(33,628	)	$	(50,717	)	$	(109,677	)	$	(131,845	)

Basic and diluted net loss per ordinary share	$	(0.13	)	$	(0.39	)	$	(0.57	)	$	(1.29	)	$	(1.54	)

Weighted average number of ordinary shares used in computing basic and diluted net loss per share		89,125,646			85,774,874			88,265,835			85,153,644			85,558,448

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

U.S. dollars in thousands

	Three months ended September 30,						Nine months ended September 30,						Year ended December 31,
	2017			2016			2017			2016			2016
	Unaudited						Unaudited						Audited
Net loss	$	(11,498	)	$	(33,628	)	$	(50,717	)	$	(109,677	)	$	(131,845	)
Other comprehensive income (loss), net of tax :
Change in foreign currency translation adjustments		(2	)		8			8			64			10
Pension benefit plan		279			(409	)		413			(644	)		(388	)
Total comprehensive loss	$	(11,221	)	$	(34,029	)	$	(50,296	)		(110,257	)	$	(132,223	)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

- 4 -

NOVOCURE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

U.S. dollars in thousands (except share data)

	Ordinary shares		Additional paid-in		Accumulated other comprehensive			Accumulated			Total shareholders'
	Shares		capital		loss			deficit			equity

Balance as of December 31, 2015 (audited)		83,778,581	$	640,406	$	(1,505	)	$	(388,081	)	$	250,820
Share-based compensation to employees		-		21,441		-			-			21,441
Exercise of options and warrants		3,195,477		993		-			-			993
Issuance of shares in connection with employee stock purchase plan		92,388		616		-			-			616
Tax benefit from share-based award activity		-		698		-			-			698
Other comprehensive loss, net of tax benefit of $38		-		-		(378	)		-			(378	)
Net loss		-		-		-			(131,845	)		(131,845	)
Balance as of December 31, 2016 (audited)		87,066,446	$	664,154	$	(1,883	)	$	(519,926	)	$	142,345

Share-based compensation to employees		-		20,760		-			-			20,760
Exercise of options and warrants		2,172,266		3,095		-			-			3,095
Cumulative effect adjustment resulting from ASU 2016-09 adoption (see Note 1)		-		670		-			(670	)		-
Issuance of shares in connection with employee stock purchase plan		116,967		781		-			-			781
Other comprehensive income, net of tax benefit of $57		-		-		421			-			421
Net loss		-		-		-			(50,717	)		(50,717	)
Balance as of September 30, 2017 (unaudited)		89,355,679	$	689,460	$	(1,462	)	$	(571,313	)	$	116,685

The accompanying notes are an integral part of these unaudited consolidated financial statements.

- 5 -

NOVOCURE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Three months ended September 30,						Nine months ended September 30,						Year ended December 31,
	2017			2016			2017			2016			2016
	Unaudited						Unaudited						Audited
Cash flows from operating activities:
Net loss	$	(11,498	)	$	(33,628	)	$	(50,717	)	$	(109,677	)	$	(131,845	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		2,053			1,553			5,524			4,063			5,652
Asset write-downs and impairment of field equipment		72			10			206			6,440			6,446
Increase in accrued interest expense		-			222			-			222			-
Share-based compensation to employees		8,629			5,626			20,760			16,719			22,139
Excess tax benefits from share-based award activity		-			-			-			-			(698	)
Increase in trade receivables		(9,112	)		-			(16,661	)		-			(6,339	)
Amortization of discount		17			81			226			25			155
Decrease (increase) in receivables and prepaid expenses		5,986			694			4,525			(1,514	)		243
Decrease (increase) in inventories		504			(2,757	)		907			(10,378	)		(11,955	)
Increase in other long-term assets		(238	)		(526	)		(532	)		(804	)		(692	)
Increase (decrease) in trade payables		983			(6,765	)		(4,213	)		(2,621	)		1,601
Increase in other payables and accrued expenses		4,830			1,651			8,308			2,407			6,647
Increase in employee benefit liabilities, net		113			80			352			350			97
Increase in other long-term liabilities		208			263			1,079			901			957
Net cash provided by (used in) operating activities	$	2,547		$	(33,496	)	$	(30,236	)	$	(93,867	)	$	(107,592	)

Cash flows from investing activities:
Purchase of property and equipment	$	(544	)	$	(1,715	)	$	(1,951	)	$	(5,055	)	$	(5,674	)
Purchase of field equipment		(1,208	)		(3,113	)		(3,469	)		(9,213	)		(11,990	)
Decrease (increase) in restricted cash		(592	)		27			(1,861	)		15			(180	)
Proceeds from maturity of short-term investments		-			120,000			120,000			270,000			270,000
Purchase of short-term investments		-			(119,613	)		(104,006	)		(239,341	)		(239,341	)
Net cash provided by (used in) investing activities	$	(2,344	)	$	(4,414	)	$	8,713		$	16,406		$	12,815

Cash flows from financing activities:
Proceeds from issuance of shares, net	$	-		$	-		$	781		$	-		$	616
Proceeds from long-term loan, net		-			72,870			19			72,887			72,887
Excess tax benefits from share-based award activity		-			-			-			-			698
Repayment of other long-term loan		(19	)		(17	)		(56	)		(52	)		(70	)
Exercise of options and warrants		1,732			-			3,095			961			993
Net cash provided by financing activities	$	1,713		$	72,853		$	3,839		$	73,796		$	75,124

Effect of exchange rate changes on cash and cash equivalents	$	(2	)	$	8		$	8		$	64		$	10

Increase (decrease) in cash and cash equivalents		1,914			34,951			(17,676	)		(3,601	)		(19,643	)
Cash and cash equivalents at the beginning of the period		80,190			80,871			99,780			119,423			119,423