Good day, and thank you for standing by. Welcome to the NovoCure Q2 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ingrid Goldberg. Please go ahead.

Good morning, everyone. Thank you for joining us to review NovoCure's second quarter 2023 performance. I'm on the phone this morning with our Executive Chairman, Bill Doyle; our CEO, Asaf Danziger; and our CFO, Ashley Cordova. Other members of our executive leadership team are also on the call and available for Q&A. For your reference slides accompanying this earnings release can be found on our website www. novocure.com on our Investor Relations page under Quarterly Reports. 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 and are described from time-time in our SEC filings. We do not intend to update publicly any forward-looking statements, except as required by law. Where appropriate, we will refer to non-GAAP financial measures to evaluate our business, specifically adjusted EBITDA, a measure of earnings before interest, taxes, depreciation, amortization and share-based compensation. We believe adjusted EBITDA is an important metric as it removes the impact of earnings attributable to our capital structure, tax rate and material non-cash items; and best reflects the financial value generated by our business. Reconciliations of non-GAAP to GAAP financial measures are included in our press release, earnings slides and in our Form 8-K filed with the SEC today. These materials can also be accessed from the Investor Relations page of our website. Following our prepared remarks today, we will open the line for your questions. I will now turn the call over to our Executive Chairman, Bill Doyle.

Thank you. Ingrid and good morning. At NovoCure our mission is to extend survival in some of the most aggressive forms of cancer, through the development and commercialization of Tumor Treating Fields. Since our founding, our commercial efforts have focused on treating patients with glioblastoma. The second quarter marked the beginning of a transformational period for NovoCure as we moved beyond the brain with the presentation of data from our first randomized Phase 3 trial [indiscernible]. On today's call, we will begin with a discussion of the LUNAR trial and other upcoming clinical catalysts followed by a review of our commercial and financial performance in the quarter. In June, we took a meaningful step towards bringing Tumor Treating Fields therapy to patients with high unmet need in lung cancer. At the American Society of Clinical Oncology Annual Meeting, Dr. Ticiana Leal of Emory University presented the results of the Phase 3 LUNAR clinical trial. The LUNAR trial studied the use of TTFields therapy together with standard-of-care therapies for the treatment of Stage 4 metastatic non-small cell lung cancer following platinum failure. The LUNAR trial met its primary endpoint exhibiting a statistically significant improvement in overall survival from 9.9 months to 13.2 months for patients treated with TTFields and standard-of-care therapy compared to treatment with standard-of-care therapy alone. The clinically meaningful three months survival improvement was achieved without increased systemic toxicity. In addition to meeting its primary survival endpoint, LUNAR also met the key secondary endpoint demonstrating 18.5 months median overall survival for patients treated with TTFields and immune checkpoint inhibitors. This compares to a 10.8 month overall survival for patients treated with immune checkpoint inhibitors alone. I want to highlight and directly address the most frequent questions we've received from investors regarding the LUNAR trial results. Globally, TPS data was…

Thank you, Bill. I would like to underline Bill's enthusiasm and confidence in the LUNAR trial results. The LUNAR data are the culmination of nearly a decade of effort from patients' investigators and the NovoCure team. The overall survival data presented at ASCO, have the potential to impact thousands of lives. We are eager to do everything in our power to reach those patients who can benefit. As a reminder, LUNAR is the first of 4 Phase 3 trials that are fully enrolled and we'll read out over the next 18 months. Later this summer, we expect to release top line results from the Phase 3 INNOVATE-3 trial exploring the use of TTFields with weekly paclitaxel and platinum resistant ovarian cancer. The INNOVATE-3 of client will be followed by presentation of the full INNOVATE-3 data later this year. In the first quarter of 2024, we expect to release the top line results from the Phase 3 METIS trial treating brain metastases from non-small cell lung cancer. And as we announced last week, the Phase 3 PANOVA-3 trial treating locally advanced pancreatic cancer has successfully cleared its interim analysis with no safety or futility concerns and we'll continue to follow patients to completion. We anticipate top line results from PANOVA-3 in the second half of 2024. Each of these trials is designed to evaluate TTFields therapy in cancers with substantial unmet needs. We look forward to sharing the results from these trials in the coming quarters. As we design and launch our next wave of clinical trials, it has never been more important for our commercial business to execute on its potential. Our GBM business provides the financial strength to invest aggressively in our continued research and development efforts. This quarter was another period of solid execution across our key global…

Thank you, Asaf. Many of the themes from the first quarter have remained consistent through June. We continue to see early positive indications of growth in our GBM business, our clinical trials are progressing, our pipeline is expanding and we are working to solidify our infrastructure ahead of multiple potential future launches in new indications. We generated $126 million in net revenues in the quarter and ended the period with 3,571 active patients on therapy. Q2 continued the positive momentum we saw in the first quarter of the year, with another quarter of year-over-year prescription growth. We did take two notable net revenue headwinds in the quarter in the U.S. compared to Q2 of 2022, as last year, we benefited from $13 million in collections from previously denied or appealed claims as well as a $6 million catch of benefit due to variations in approval rates. In Germany, we continue to see the expected recovery and active patients and reimbursement rate. We ended the quarter with 499 active patients on therapy, a high watermark and payer negotiations were finalized last year and we expect this recovery to continue through year-end. The second quarter did include a catch-up revenue benefit of $5 million in Germany due to variations of approval rates as more patients are meeting coverage criteria in the market. As mentioned earlier, we are off to a strong start in France. We are very encouraged by the launch, especially the prescription flow from Paris. We believe the investments made and pre-launch commercial infrastructure including market access and pre-commercial physician and patient engagement function, provide a strong blueprint for future launches in new markets. Given the reimbursement process and collection cycle timing we expect spreads to contribute to revenue beginning in the second half of this year. As a reminder,…

Thank you. [Operator Instructions] And our first question comes from Jason Bednar of Piper Sandler. Please proceed.

Hi. Good morning. Thanks for taking the questions here. Wanted to start with maybe a multi-partner on LUNAR-2 really large study longer patient follow-up can be seen from NovoCure in the past with your other Phase 3 trials. Can you talk about how you're thinking about maybe the pace of enrollment number of recruiting sites here? And I don't mean to be insensitive at all, but one of the challenge that we ran into with LUNAR was just that it was a competitive market for lung cancer trials never reached the original enrollment target and even after several years so, why is LUNAR-2 different. And then as a follow-up there. Can you address whether there is an interim analysis at any point in the study. During or after enrollment and then again [indiscernible] but is this using your new high intensity arrays in this study?

Great. Jason, thank you for that question. This is Pritesh, I would like to remind everybody, about the LUNAR-2 studies. So this is our next randomized global study that will explore Tumor Treating Fields concomitantly with pembrolizumab in the first-line setting first-line metastatic non-small cell lung cancer setting. And this is an important study, because we have now shown that Tumor Treating Fields work along with an immune checkpoint inhibitor in the second line setting. So, as typical development would go we would look to bring the therapy earlier in the treatment algorithm, to be able to have a broader impact on patients. And as you heard in the prepared remarks, this study is designed to enroll 734 patients over 21-month follow-up period. And one of the things that we learned in the lung cancer setting today is that the most commonly used immune checkpoint inhibitor is pembrolizumab that is the standard of care today and we're looking to add on to that standard of care to extend survival and help these patients. So, we will help – we'll help you understand as the trial opens up. We're looking at sites right now in the hopes to get our first site up and running and enrolling. The first patient and we will keep you on - updated on how the study progresses there on forward.

Okay. Sorry, just to maybe some of those. Can you say whether there is an interim analysis at any point in the study, and also whether it's using your new high intensity arrays?

Yes, thank you for reminding me about that. So on the interim analysis. There is not an interim analysis plan. And on the new arrays. I'll remind you that the new arrays today are for patients with GBM. And we're working on other array innovation for the torso and abdomen patients.

Okay, understood. And then maybe Ashley. I'm trying to reconcile if I could. The gross margin in the quarter it was below our model and I guess, I think you mentioned maybe the new arrays that you have might be lower margin than the older generation. I guess that I hear that right. And then are there other factors that may be influencing gross margin like you're treating patients in France or Canada or other markets. But you're not yet getting paid yet for those patients.

Yes Jason, thank you for the question. The short answer is yes to everything that you ran down, but if we look at this a little bit more in detail. Our gross margin is not steady. I would say and at a stable rate, if you look at the actual cost per unit COGS per active patient. If you look at what most impacted the margin year-over-year, you have to look at the net revenues. So as we took the benefit of the aged claims out of the top line, you saw that flow through to the margin number. And then additionally, you saw the impact of some increased investments in patient support that we made at the beginning of this year to ensure we were ready for new geographies and for potential future indications. So I would expect that that investment has now stabilized, we're at where we need to be, but it did affect margins both in the quarter and year-over-year. As we look ahead, we are signaling that you may have some slight downward pressure on margin, as we introduce the new arrays as with any new product enhancement there is a period of kind of manufacturing efficiencies and scale. It takes a little bit of time to get there and we are committed to getting these arrays rolled out as quickly as possible, while we optimize the supply chain. But I would say that is just slight pressure and we will certainly be working to optimize that over time.

Okay. And those patient support investments you mentioned those hit gross margin. They don't. will fall into SG&A?

They do. Much of our patient support flows into our COGS.

Okay, great. I'll go back in queue. Thank you.

Thank you. One moment for our next question. And our next question comes from Emily Bodnar of H.C. Wainwright. Please proceed.

Hi, good morning. Thanks for taking the questions. I am curious on the LUNAR - the new LUNAR study that you're planning to evaluate in the second-line setting with TTFields with checkpoint inhibitors post-chemo-IO. Do you see any risk with the FDA potentially wanting to wait to see results from that study prior to approval in that setting. And can you also discuss any timelines for the other LUNAR studies that you are planning to initiate and design plans for those. Thank you.

So, this is Bill. Good morning, Emily. Thanks for the question. I will start with the regulatory question, then I will turn it back to Pritesh to talk about the other trials. But the simple answer is no. We don't expect any issues like the issue you described with the FDA. Again LUNAR hit its primary endpoint, it was a large randomized trial. We have stated that the cohorts were all well balanced and we hit the ITT. And we will be seeking a label that is consistent with that primary endpoint. And so, we don't expect any requirement for waiting for additional trials as you described.

Yes, thank you, Bill. And what I would close with regards to the next set of trials is that this is a really important opportunity for us to expand on the label that we expect to get with LUNAR and continuing to build the evidence in non-small cell lung cancer setting. So with that, we already talked about LUNAR 2, which is again a first-line metastatic non-small cell lung cancer trial exploring Tumor Treating Fields with pembrolizumab. The second we're looking to initiate, is a Tumor Treating Fields with immune checkpoint inhibitor following chemo-radiation in the first-line locally advanced metastatic non-small cell lung cancer setting. Again, our strategy here is to ensure that the data that we see with Tumor Treating Fields and IO in the second-line setting, to move the therapy in the earlier settings, so that we can have an even bigger benefit for patients and really impact those patients with non-small cell lung cancer.

And I'll just add, this is consistent with the way progress is typically made in these cancers? I would remind everyone that this is where pembrolizumab started in the distant lines and then over time conducted additional studies and moved to the earlier lines. So we're following the same strategic pathway that is typical in the industry.

All right. Just want to confirm, are these all plans to initiate this year?

Yes. So I would say as soon as possible because we are looking forward to getting these trials up and running and enrolling patients, and getting to the data readouts.

Yes, there's always a regulatory step here, and we're always hesitant to predict when the FDA will provide the IDE. We were very pleased in this quarter to announce the IDE for LUNAR 2. So that's a very important step for us that may not have been emphasized.

Okay. Thank you.

Thank you. One moment for our next question. And our next question comes from Vijay Kumar of Evercore ISI. Please proceed.

Hi, this is Kevin on for Vijay. Just one on prescriptions and active patients on treatment in other markets. Can you talk to the performance this quarter. Was France a key driver, or did the reclassification of Canada into other markets have anything to do with the performance this quarter? Any factors you can call it would be helpful. Thanks.

Kevin, this is Ashley, and I can take that question. As noted, we were pleased with the continued positive momentum that we saw in GBM. It was a solid quarter. I would say around the globe, with maintained momentum in the U.S., a steady recovery in Germany, and then, as you noted, a very strong launch in France. So France was a key driver of the growth in our international markets. You can see in our 10-Q, which we did publish this morning. The breakout of those prescriptions by region, but we did see a significant early strong physician interest in Tumor Treating Fields in France. It is not yet contributing to revenue. I will note that we would expect France to begin to contribute to revenue in the second half of this year given the timeline to reimbursement and collection cycle. I think that answered your question because you asked about the other markets, but I would like to highlight again the maintained momentum in the U.S. The U.S. is our largest and our most important market and again I would say we were very pleased to be able to see the continued strength from the back of our transition to a franchise model last year there.

And have you sized Canada at all from an active patients of prescriptions perspective?

Yes, of course as we make those investments we're doing all the associated analysis on the market, but I will say that is not a material driver of what you're seeing yet, because we are still pending reimbursement in Canada.

Thank you.

Thank you. I would now like to turn the conference back to Bill Doyle for closing remarks.

So, thank you everyone on the phone for your continued interest and support in NovoCure. We have entered a period of transformation and expansion that kicked off earlier this year with the presentation of the successful LUNAR Phase 3 trial data. Over the next 18 months, we will have data readouts from three more Phase 3 trials, making a total of six Phase 3 trials for which we will have data readouts all in difficult to treat cancers with great unmet need. The possibility of treating thousands of additional patients is becoming a reality and we look forward to updating you on our progress throughout the year. Thanks again.

This concludes today's conference call. Thank you for participating and you may now disconnect.