Medical device company Novocure's (NVCR -4.39%) shareholders have been cheering the company's recent success in its phase 3 clinical trial as the stock responded on the good news from an independent data monitoring company's positive findings. On a Fool Live episode recorded on April 14, Fool contributors Brian Feroldi and Brian Withers discuss the company's recent news and whether the stock is now overvalued.
Brian Feroldi: Okay, let's move on to Novocure or ticker symbol N-V-C-R. This is a company that is focused on cancer, specifically a medical device that admits electric waves that inhibit cell division. Novocure investors had a huge day yesterday. The company basically announced that the company has a phase III trial going on involved in lung cancer. Currently, the devices only approved in brain cancer and mesothelioma. Those are tiny niche markets. The company has several pipeline projects in place, clinical trials to expand this technology into much larger indications. One of them is lung cancer, which is the number one by patient volume. Yesterday, during the middle of the clinical trial, in the middle of a clinical trial, an independent data monitoring committee comes out and reviewed the data.
Novocure was completely blinded to the data, but they said about the independent data monitoring committee said, "It is likely unnecessary and possibly unethical for patients randomized to the control arm to wait to 534 patients 18-month follow-up." They've reduced recommending the sample size of that 276 patients at a 12-month follow-up. Essentially, what they're telling you is this thing is working so well. It's unethical to give people a placebo effect.
We don't have any data to back that up, but holy cow, does that indicate that this is really working in this indication. If you look at the company's results without any of these expanded indications, pretty good. Patient growth of 17 percent, that's globally. In the US and Germany, in Japan, up across the board, revenue of 45 percent, gross margin 80 percent here already, net income was up 15 percent. They are spending like crazy on R&D right now to fund all these trials. The fact that they are profitable at all is there a really good indication.
Over the next couple of years, we have tons of phase II and phase III data readouts coming that could continue to push the stock higher. Phase II data on liver cancer, ovarian cancer, lung cancer, gastric cancer, pancreatic cancer, and brain metastases, all of which could dramatically expand this company's addressable market opportunity.
Brian Withers: Brian, Novocure delivered a nice surprise yesterday and spiffy-popped for a number of our members. But it makes me think, "Is the stock amount overpriced?"
Feroldi: Well, I will go to Tom Engle and say if short-term expensive, long-term cheap, if indeed it can extend it into those additional indications. If the company does not get additional approval and it's just stuck within a brain metastasis, excuse me, brain cancer and mesothelioma. It's definitely overpriced today. There's no doubt about it if the company can continue to expand into those other cancers and boy, was that data we got this week a good indication that it can, then I don't think it's crazy expensive.
