It’s been a few years since I last cast an eye over Novocure (NASDAQ: NVCR). So I was surprised to see how hard this growth stock (once a Nasdaq darling) has fallen. From a high of $221 in the summer of 2021, it’s now trading for just $17.
That’s a wealth-shredding 92% drop over three years!
Is this fallen star now a bargain hiding in plain sight? Or is this one to avoid? Let’s dig into the details.
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What does it do?
Novocure is a medical device company specialising in a unique cancer treatment called Tumour Treating Fields (TTFields). This non-invasive therapy uses electric fields to disrupt cancer cell division, slowing the spread of tumours.
The wearable device primarily targets glioblastoma, a particularly aggressive type of brain cancer. The patches on the scalp deliver electric fields and are connected to a portable device, often carried like a backpack, allowing continuous cancer treatment while maintaining mobility.
At the end of June, there were 3,963 active patients using TTFields therapy, an 11% increase from the previous year.
Mixed results
I was first attracted to the share a few years ago when I heard the firm’s proprietary technology being called the “fourth modality of cancer treatment” (along with surgery, chemotherapy, and radiation).
The hope was that its technology would become a standard treatment for several types of cancer. However, while Novocure has expanded its research to include non-small cell lung cancer, pancreatic cancer, and ovarian cancer, it’s had mixed results so far.
Last year, its phase 3 trial of TTFields in patients with a type of ovarian cancer failed to meet its primary endpoint. On the plus side, it announced earlier this year that its Phase 3 METIS trial, involving patients with lung cancer that had spread to the brain, did meet its primary endpoint. Final results are pending.
Looking forward, a lot will hinge on data due later this year from its phase 3 PANOVA-3 clinical trial in advanced pancreatic cancer. If that is successful, it could open up a significant growth opportunity and be a big catalyst for the stock.
Of course, there’s also a risk these results could disappoint and heap further pressure on the share price.
Sluggish growth and zero profits
The company’s revenue growth has stalled in recent years. And while brokers see a bit of growth in the next couple of years, it isn’t anything to get overly excited about.
| Revenue | |
|---|---|
| 2022 | $538m |
| 2023 | $509m |
| 2024 | $580m (forecast) |
| 2025 | $616m (forecast) |
Meanwhile, the firm reported a net loss of $207m last year. And Wall Street has a $150m loss pencilled in for each of the next two years.
That said, the company isn’t in any danger of going under. At the end of June, its cash and short-term investments totalled $951m. But the losses do add risk to the investment case here.
My move
Novocure appears close to expanding its TTFields technology to several cancer types and this could significantly increase its addressable market.
Plus, the stock is trading on a price-to-sales (P/S) ratio of around 3.5. Not obvious bargain territory perhaps, but a lot cheaper than 2021 when the P/S multiple was 14.5.
This share could be set for a big turnaround at some point. So I’m going to keep it on my watchlist while I wait for the company’s upcoming clinical trial results.
