Good day, and welcome to the NovoCure Q2 2022 Earnings Call. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to turn the call over to Ingrid Goldberg.

Good morning, everyone, and thank you for joining us to review NovoCure's second quarter 2022 performance. I'm joined on the phone by 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, under quarterly report on our Investor Relations page. Before we start, I would like to remind you that 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 to time in our SEC filings. We do not intend to update publicly any forward-looking statement, 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 tax, interest, 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 noncash 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 our 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. Our mission at NovoCure is to extend survival in some of the most aggressive forms of cancer through the development and commercialization of our innovative therapy, Tumor Treating Fields. The second quarter was a period of solid execution and progress. Revenues were up 6% compared with the second quarter of 2021. We released encouraging Phase II data in gastric cancer and announced a second partnership with global oncology leader, Merck. As we approach a series of pivotal milestones in the coming quarters, we feel a hum of excitement at NovoCure as our teams work towards data readouts and develop launch plans. We exited the quarter with 3,454 commercial active patients on TTFields therapy around the globe. Steady patient volumes in the U.S. and increasing adoption in Japan offset a decrease in German active patient numbers as a result of updated coverage criteria. We are pushing a number of avenues intended to increase the adoption of TTFields therapy and reach more patients who may benefit from TTFields. In GBM, our focus is to drive greater adoption in academic institutions where we see a significant share of GBM patient flow. We are employing a multipronged strategy to engage practitioners in the academic setting to ensure they understand and can communicate the broad benefits of TTFields. One of the most effective ways to drive greater adoption is with the ongoing generation of clinical data. Year-to-date, there are over 1,500 PubMed citations of TTFields, pointing to the increasing relevance of TTFields in the scientific community. Also this quarter, 2 key clinical data sets were presented, which we would like to highlight. External research intended to identify genomic factors associated with an increased response to Optune was published in the June volume of neuro-oncology. Retrospective data were collected from…

Thank you, Bill. The second quarter was another period of strong financial performance with gross profits from the core GBM business, funding investments in clinical and product development as we advance the Tumor Treating Fields platform. I know you have seen our press release and 10-Q this morning, so let me provide a few brief highlights regarding the financials. Revenue was strong, up 6% with 3,454 global active patients on therapy as of June 30. Bill spoke to the broader adoption trends earlier on this call, so I will focus now on revenue, and in particular, the dynamics in Germany. As a reminder, in Q4 of last year, we announced that we reached agreement with the largest public German payers on a price for Optune. This year, we formalized the terms with payers that represent approximately 70% of the covered lives in Germany. These contracts will enable price stability and provide a strong pricing foundation as we pursue reimbursement in additional European markets. The negotiations impacted our net revenue as some payers withheld approval for new patients and began to deny approval for many active patients under the coverage criteria established in the DME listing. We expect revenue to grow over time, as more patients are treated under the updated contract term. In the U.S., the exceptional execution of collections processes provided a material tailwind to revenue in the second quarter. Revenue operations is a core competency at NovoCure, and the U.S. benefit business is benefiting both from collections on previously denied and appealed claims and from an increase in the average price realized for current active patient volumes. Strength in the U.S. price was more than sufficient to offset the headwinds from Germany and foreign exchange. Gross margin for the second quarter was 80%. Excluding purchases made by Zai…

Thank you, Ashley. This quarter, we continued to advance our mission of extending survival in some of the most aggressive forms of cancer. Our commercial team is focused on driving adoption of TTFields. We see mounting clinical support for our therapy, both from internal and external researchers. As we approach readouts from several pivotal studies over the next year, we are motivated by the prospect of treating many thousands more patients in the near future. I would like to thank my NovoCure colleagues for their passion and determination in advancing the science and adoption of TTFields. We have made immense strides in recent years but we have only just begun our journey. I know as we move forward, you will all keep our patient-forward mission in your hearts and minds. To close, I would like to share a patient's story. In 2019, DJ Stewart was an average skateboarder who spent his free time surrounded by family and friends. DJ who set to start a new job, had just become engaged and bought a house in Kansas City. In May of 2019, DJ had a seizure and was rushed to University of Kansas Medical Center, where he was diagnosed with GBM and prescribed Optune. DJ's GBM journey is the focus of the documentary RARE ENOUGH. I encourage all of you to watch this short film. RARE ENOUGH takes you through DJ's diagnosis and treatment and includes candid reflections on his GBM journey, which are both heartbreaking and inspirational. DJ recently joined Head for the Cure, a charity focused on inspiring hope in the brain cancer community. It is patients like DJ that drive our company forward every day. With that, I will now turn the call over to the operator for Q&A.

[Operator Instructions]. Our first question comes from Cory Kasimov with JPMorgan.

I had 2 for you. First, on the commercial side, I believe you previously guided to 2% to 5% active patient growth for fiscal year '22. Are you still confident in that number? And if so, what do you expect to be the primary driver of re-acceleration in the second half? And then secondly, on the clinical side, just in terms of next steps for gastric cancer, any comments yet on what a pivotal trial might look like and the breadth of it? Would you be looking to target just HER2-positive patients? Or do you have a broader strategy for this indication in mind?

This is Bill. I was going to just start by saying our team has gathered virtually today from points all over the world. So I'm going to be a little bit of the MC, and I'm going to turn it over to Ashley to take your first question, and then Uri will talk about the gastric trial.

Perfect. Thanks, Cory. So just to keep ex Germany, our active patient growth year-over-year was 3%. Asian and other European markets remain strong. And we're focused, as we've talked about, on a variety of commercial drivers in the U.S. But given the abrupt fluctuation in German active patient volumes, we are not providing forward-looking cover. It's just we don't have a clear enough line of sight as to the pace of recovery in Germany to reiterate that 2% and 5%.

Yes, that's great. And then on the gastric side?

On the gastric side, so yes, 31 was our first study in gastric cancer, which has a high incidence, especially in Asia, of course. But each incidents are anticipated to rise also in the U.S. And the study was designed for patients with unresectable disease who received their first-line therapy concomitantly with TTFields to the abdominal region. And beyond the very strong signal of efficacy, which the study provided, we're always encouraged by the fact that we have another evidence supporting the broad applicability of TTFields in yet another malignancy. So we certainly anticipate the Phase III study in the coming time. And we are considering the design of the study, given the fact that nivolumab has demonstrated efficacy in this malignancy through the CheckMate-649 study, and we are seriously considering having another study incorporating immune checkpoint inhibitors in another malignancy going to be the sixth or seventh study to involve immune checkpoint inhibitors with Tumor Treating Fields.

Our next question comes from Jason Bednar with Piper Sandler.

I wanted to start with the LUNAR update. It really sounds like just entirely wanting to make sure that top line data gets as much attention as possible and isn't it all related to data issues or data collection. But if I can push you a little bit and just to be a little blunt, if this is just top line data, not the full data set comparing all the different arms of the study? Does the timing of the headline data really matter? And maybe you can talk about what changed in your view to drive the shift in timing that's been in place now for several months?

Yes. So thanks for the question. I want to underline what I said in the prepared remarks that this slight shift has nothing to do with any trial issues or operational issues. We heard loud and clear from essentially all of our constituents that any data announcement between Christmas and New Year just was not desirable. And so this is purely for the convenience of our stakeholders to push this into early Q1.

Okay. All right. Understood. I guess I'll squeeze 2 in here and a follow-up. First is just an easy, quick housekeeping item. Ashley, on the revenue side, can you size the previously denied Medicare claims that you referenced? What impact was that in the second quarter? And then maybe a bigger picture on Germany. Maybe expand on what's changed more specifically with respect to the reimbursement dynamics in that market and the coverage dynamics. Is it just newly diagnosed patients that are being treated and covered and it's the recurrent GBM patients that are no longer covered by some payers? Just what shifted in those coverage dynamics that you alluded to? And then for the active patients that are now being denied therapy in care, can those come back into the fold, these treated patients? It doesn't sound like they can just from the way you answered Cory's question. But I guess, really just what's the best way to think of the current active patient figure in Germany with respect to the run rate here going forward?

Yes. Thanks, Jason. I appreciate the question because it is important for everybody to understand these puts and takes. So I'll start with the U.S. strength, which is a bit of an easier story, right? So we anchored everybody, I'll remind you, to the Q4 2021 price as a stable and durable price. So if we look at the tailwinds versus that price in the U.S. in the second quarter, I would put about 2/3 of it to aged and previously denied claims and about 1/3 to the strength in the fundamental business. So that's how I put it out relative to Q4 of last year, which is a good baseline. So then if we shift over to Germany, let me -- I'll spend a bit more time on this question because I know it's new this quarter and important for everybody to understand. If we take a step back, I'll just remind everybody that we've been working purposefully towards coverage and pricing in Germany, be an established reimbursement pathway for years now. This is important because having coverage and contracts with major payers in Germany will enable price stability and a strong pricing foundation as we pursue reimbursement in other European markets and in Germany and other indications. Similar to Medicare, this is a significant milestone as we are the first life-saving -- life-extending oncologic therapy to seek a DME listing in Germany. So if we look at the milestones along the way, in March 2020, the GBA issued a directive mandating coverage for Optune in line with the EF-14 protocol. In Q4 of last year, we announced that we had reached agreement on a price for Optune with the largest German payers. And then importantly, earlier this year, we now have official DME listing. And as of the…

Our next question comes from Greg Fraser with Truist.

Ashley, can you talk about what's driving the higher prices in the U.S.? And how should we think about net revenue per month in the U.S. going forward? I think your comments that you made were on a global basis, but if you could provide some color on the U.S., that would be helpful?

Yes. Again, thanks for the question, Greg. So if we look at the U.S. strength in price, it comes from 2 primary buckets. One is success on previously denied in NPL claims. This is about 2/3 of the strength in that U.S. price, if you look versus the Q4 2021 baseline, which is our anchor price. And about the remaining 1/3 comes from fundamental improvements in expanding coverage policies at the margin and just price negotiations with additional contract players over time. So I would say 1/3 of it is durable and really related to just ongoing market access work and 2/3 is really the performance of our U.S. revenue operations teams as we continue to go after those aged claims that we have in the pipeline. I will remind everybody that the predictability of those aged claims is not high. And so I wouldn't -- when we look ahead, I would think on the enduring improvements and not the aged claims.

Understood. On Japan, prescriptions declined, although you added patient number group. Can you talk about demand trends that you're seeing there? And are [indiscernible] headwinds to prescribe you in Japan?

Go ahead, Pritesh.

Thank you, Bill. Greg, thanks for the question. So the short answer is we're not seeing any new headwinds. I would say that's just the cyclical nature of how we see within a rare disease like GBM prescriptions flow through. So we would expect just based on the historical performance in Japan, the strength of our data and our ongoing efforts there, the business will continue to be stable in Japan.

Our next question comes from Emily Bodnar with H.C. Wainwright.

I just have one on your next-generation arrays that you plan to launch later this year in Europe. I guess, what are you looking to see with the initial launch to kind of determine if you want to take that out more broadly? And what would you want to see in order to potentially implement that into the label for Optune?

Yes. Again, taking a step back with device delivery therapies, the first incarnation of the device is almost never the final incarnation. Improvements can be made through engineering to optimize the usability and the therapeutic benefit. You can think of almost any medical technology, and we can see the progression. We believe we're in the earlier innings in terms of the form factor and the ability of our device to help patients. And the next major step forward is with the new arrays that we anticipate to launch in Europe later this year. What we're looking for really is to test all of our systems. This is a major change in form factor. So we have to update all of our manufacturing capability so that we can serve all of our markets. We are going to look to patient user factors to make sure that we have the right instructions for use and that our people are well trained to bring this new therapy to patients. And we always look for surprises. We don't anticipate any, but that's the nature of the word surprise. They're not anticipated. And if we do see something that's surprising, we can take whatever steps are needed in instructions for use or in manufacturing to overcome whatever the surprise may be. So I can't overstate how excited I am about this development. And as soon as we get the experience from the initial launch, we'll incorporate that into our regulatory plans throughout the world.

Our next question comes from Jason Wittes with Loop Capital.

Maybe just first a clarification on the U.S. strength and the denied claims. Was that all Medicare? Was that a mix of Medicare and private? Or could you give some indication of where those denied claims that were permitted came from?

It's a mix, but it's largely Medicare. That's where our largest opportunity is, in the backlog.

Great. That's fair. And on the Merck trial for GBM with checkpoint inhibitors, as you mentioned, checkpoint inhibitors have not been effective for GBM. I take it there's evidence that they do pass the blood-brain barrier and they are present around the tumor. Is that the right assumption?

Uri, do you want to just give a little background on our work with checkpoint inhibitors in the brain?

Yes, of course. So as you remember, there is a growing level of evidence demonstrating that concomitant use of tumor treating cells and immune checkpoint inhibitors actually leads to greater inflammatory antitumor reaction against the tumor. And this has been demonstrated throughout the work of our own in-house lab, but also through the work of other external collaborators, one of which is Dr. David Tran from the University of Florida and this publication that JCI really showed how you could potentially achieve to make immune response with later adaptive immune response with the generation of memory response against the cancer. So that's on the scientific preclinical side. But at the same time, there is more and more evidence that on the clinical side, we see that effect and one such preliminary evidence is coming from the 2-THE-TOP study where the concomitant use of KEYTRUDA, pembrolizumab with TTFields led to a significant increase in median overall survival. This was a single -- this is a single-arm study, but concomitant matched control comparison already showed that while the 2-THE-TOP study population achieved a median overall survival of 25.2 months, on EF-14 matched controls, it was about 10 months less so than incorporation of new checkpoint inhibitors to Optune in the intended use or a good indication led to a significant improvement. So it's true that immune checkpoint inhibitors have unfortunately failed to demonstrate the efficacy in newly diagnosed and recurrent GBM, but it seems that there are potential penetration across the blood-brain barrier, be it lower or decreased, still results in a very significant immune response and leads to a clear clinical benefit coming from this study. And that is the basis for the planned KEYNOTE D58, our second clinical collaboration with Merck with MSD. The first was in non-small cell lung cancer. And we are looking forward to conducting this Phase III pivotal study.

Great. That was very helpful. And also, I think I heard correctly that you mentioned for the gastric trial that you did look at genetic differences. Is that something that may lead to future screening for potential patients for TTF? Or could you expand upon kind of what the indications were when you looked at that criteria?

So the EF-31 gastric study was a small single-arm study for about 25 patients. And we did not take the opportunity to look into genetic variations in this patient population because of the preliminary nature of the study design and the number of patients included in the study. And despite the fact that we see this especially in GBM to date, of course, that TTFields is effective in really broad patient population. And as you recall, in EF-14, we broke it down to different subpopulations, whether it's MGMT promoter, methylated or unmethylated, older patient population, younger patient population. At the same time, we always try to see if there are subpopulations that could benefit more from TTFields, and we are planning to do this on the immune response front, collecting more data and trying to characterize the immune response and see how it could potentially increase it. And also when it comes to genetic variations and alterations at the level of the tumor itself. And one key project came actually from the post-approval setting and was published in Advances in Neuro-oncology recently demonstrating by independent investigators in the U.S. in several different centers that certain genetic alterations correlate very well with improved outcome in newly diagnosed GBM. So again, this -- the treatment itself is effective in the broader population, but we are always trying to find biomarkers and other findings that will support the identification of patient population that could generate and even improve the outcome from applying TTFields.

Our next question comes from Vijay Kumar with Evercore.

Vijay, I don't think we can hear you. Operator, perhaps we go back to the queue. All right. Michelle, we can go back to the queue.

There are no further questions. I'd like to turn the call back over to Bill Doyle for any further remarks.

Thanks, Michelle. I'd like to thank everyone on the line for joining us this morning. I'd also like to join Asaf and extend my thanks to the NovoCure employees who have dialed in. I know I speak for myself, Asaf and for the entire management team when I say we appreciate the hard work and dedication. We're very pleased with the progress this quarter. We continue to take deliberate action to strengthen the fundamentals of our business and prepare for the future. The science behind Tumor Treating Fields continues to grow. And in the coming quarters, we will have pivotal data from a number of our late-stage trials. This is an exciting time at NovoCure, and we look forward to updating you on progress in the coming months. Thanks again.

This concludes the program. You may now disconnect. Everyone, have a great day.