What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-25 compared with 2020-02-27 · 288 added, 268 removed, 780 unchanged (42% of the section changed)

5 unchanged sentences

Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018

Statements of Changes in Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018

1 unchanged sentence

Notes to Consolidated Financial Statements

Table of Conten ts

Report of Independent Registered Public Accounting Firm

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of NovoCure Limited and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019 and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of NovoCure Limited and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders ’ equity and cash flows for each of the three years in the period ended December 31, 2020 and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairl y , in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2020 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue in 2018 due to the adoption of Accounting Standards Update (ASU) No.

2014-09, Revenue from Contracts with Customers (Topic 606), and the related amendments.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the T readway Commission (2013 framework) and our report dated February 25, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

W e believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Table of Conten ts

The critical audit matter s communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters belo w , providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue recognition – Measuring variable consideration

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The implicit discount adjustments to the transaction price are due to concessions, not collectability concerns driven by payer credit risk.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's process to calculate variable consideration, including the underlying assumptions about estimates of expected price concessions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating e f fectiveness of internal controls over the Company's process to calculate variable consideration, including the underlying assumptions about estimates of expected price concessions.

Our audit procedures included, among others, evaluating the methodology used, analyzing the significant assumptions discussed above, and testing the accuracy and completeness of the underlying data used in management's calculation.

This included testing inputs of the calculation by reconciliation of the data between the various information systems performing independent recalculation of the Company's estimate and evaluating the historical accuracy of management's estimates by comparing such estimates to subsequent actual results.

Accounting for the Issuance of Convertible Senior Notes

Description of the Matter As explained in Note 10 to the consolidated financial statements, in November 2020, the Company issued $575 million of 0% coupon rate convertible senior notes due November 2025 (the "Notes").

In accounting for the issuance of the Notes, management allocated the total proceeds into liability and equity components.

The carrying amount of the liability component was calculated by estimating the fair value of the Notes if there were no associated convertible features.

The carrying amount of the equity component, representing the conversion option was determined by deducting the fair value of the liability component from the principal amount of the Notes.

The valuation model used in determining the fair value of the liability component for the Notes includes assumptions subject to management's judgement, including the synthetic credit rating.

Auditing management’s evaluation of the transaction was complex and required a high degree of auditor judgement and audit effort due to the inherent complexity in assessing the accounting for the Notes.

This required an assessment of the valuation of the fair value of the liability component of the Notes, which included evaluation of assumptions subject to management's judgement in determining the borrowing rate.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls in respect of the Company’s Notes transaction, including controls over the initial recognition and measurement of the Notes and recording of the associated liability and equity components.

To test the initial accounting for the Notes transaction, our procedures included, among others, inspection of the underlying agreements and testing management’s evaluation and application of the relevant accounting guidance.

We also involved our valuation specialists to evaluate the Company’s determination of the fair value of the liability component of the Notes.

We tested the appropriateness of the methodology, evaluated the reasonableness of the underlying assumptions used to determine the borrowing rate, such as the Company’s synthetic credit rating, and performed an independent calculation of the carrying amounts attributable to the liability and equity components.

Additionally, we tested the source information underlying the valuation assumptions and inputs used to determine the fair value and the mathematical accuracy of the calculation.

We also evaluated the Company’s disclosures regarding the issuance of the Notes transaction included in Note 10.

KOST FORER GABBAY & KASIERER

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February 25, 2021

Table of Conten ts

Report of Independent Registered Public Accounting Firm

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Opinion on Internal Control over Financial Reporting

We have audited NovoCure Limited and subsidiaries internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the "COSO Criteria").

In our opinion, NovoCure Limited and subsidiaries (the "Company") maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019 and the related notes, and our report dated February 27, 2020 expressed an unqualified opinion thereon.

We have audited NovoCure Limited and subsidiaries internal control over financial reporting as of December 31, 2020,based on criteria established in Internal Control– Integrated Framework issued by the Committee of Sponsoring Organizations of the T readway Commission (2013 framework) (the COSO Criteria).

In our opinion, NovoCure Limited and subsidiaries (the Company) maintained, in all material respects, e f fective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss) changes in shareholders ’ equity and cash flows for each of the three years in the period ended December 31, 20 20 and the related notes, and our report dated February 25, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting.

The Company ’ s management is responsible for maintaining e f fective internal control over financial reporting and for its assessment of the e f fectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company ’ s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

W e are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether e f fective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating e f fectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

W e believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

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(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company ’ s assets that could have a material e f fect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Also, projections of any evaluation of e f fectiveness to future periods are subject to the risk that controls may

become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

KOST FORER GABBAY & KASIERER

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February 25, 2021

Table of Conten ts

NovoCure Limited and subsidiaries

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Field equipment, net 11,230 7,684

Right-of-use assets, net 17,571 —

Right-of-use assets 19,009 17,571

Other long-term assets 10,908 4,904

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

Table of Conten ts

NovoCure Limited and subsidiaries

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Long-term liabilities:

Long-term loan, net of discount and issuance costs 149,424 149,268

Long-term debt, net 429,905 149,424

Deferred revenues 12,139 7,807

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

Table of Conten ts

NovoCure Limited and subsidiaries

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Net income (loss) $ 19,808 $ ( 7,230 ) $ ( 63,559 )

Basic and diluted net income (loss) per ordinary share $ ( 0.07 ) $ ( 0.69 ) $ ( 0.70 )

Basic net income (loss) per ordinary share $ 0.20 $ ( 0.07 ) $ ( 0.69 )

Weighted average number of ordinary shares used in computing

basic and diluted net income (loss) per share

97,237,549 91,828,043 88,546,719

basic net income (loss) per share 100,930,866 97,237,549 91,828,043

Diluted net income (loss) per ordinary share $ 0.18 $ ( 0.07 ) $ ( 0.69 )

Weighted average number of ordinary shares used in computing

diluted net income (loss) per share 108,877,648 97,237,549 91,828,043

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

Table of Conten ts

NovoCure Limited and subsidiaries

Consolidated statements of comprehensive loss

Consolidated statements of comprehensive income (loss)

Year ended December 31,

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

Table of Conten ts

NovoCure Limited and subsidiaries

9 unchanged sentences

Issuance of shares in connection with employee stock purchase plan 87,372 1,835 — — 1,835

Tax benefit from share-based award activity — 670 — ( 670 ) —

Cumulative effect adjustment resulting from ASU 2016-09 adoption — — — 2,162 2,162

Other comprehensive income (loss) net of tax benefit of $ 10

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Share-based compensation to employees — 52,416 — — 52,416

Exercise of options and warrants 3,688,781 18,468 — — 18,468

Exercise of options 6,206,884 59,245 — — 59,245

Issuance of shares in connection with employee stock purchase plan 67,366 2,467 — — 2,467

Cumulative effect adjustment resulting from ASU 2016-09 adoption — — — 2,162 2,162

Other comprehensive income (loss) net of tax expense of $ 145

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Share-based compensation to employees — 75,721 — — 75,721

Exercise of options and warrants 6,206,884 59,245 — — 59,245

Proceeds from issuance of shares 67,366 2,467 — — 2,467

Other comprehensive loss, net of tax expenses of $( 145 )

Exercise of options 2,739,150 28,428 — — 28,428

Issuance of shares in connection with employee stock purchase plan 66,691 3,370 — — 3,370

Conversion feature of convertible note, net — 132,474 — — 132,474

Other comprehensive loss, net of tax expense of $ 0

— — ( 1,065 ) — ( 1,065 )

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

Table of Conten ts

NovoCure Limited and subsidiaries

4 unchanged sentences

Net income (loss) $ 19,808 $ ( 7,230 ) $ ( 63,559 )

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 9,150 8,460 9,006

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

Table of Conten ts

NovoCure Limited and subsidiaries

4 unchanged sentences

Proceeds from issuance of shares, net $ 3,370 $ 2,467 $ 1,835

Proceeds from long-term loan, net — 149,150 19

Repayment of long-term loan ( 31 ) ( 100,084 ) ( 76 )

Proceeds from long-term debt, net 558,439 — 149,150

Repayment of long-term debt ( 150,028 ) ( 31 ) ( 100,084 )

Exercise of options and warrants 28,428 59,245 18,468

Net cash provided by financing activities $ 61,681 $ 69,369 $ 5,168

Net cash provided by (used in) financing activities $ 440,209 $ 61,681 $ 69,369

Effect of exchange rate changes on cash, cash equivalents and restricted cash $ 247 $ 26 $ 27

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Cash paid during the year for:

Income taxes $ 11,241 $ 20,350 $ 10,286

Income taxes paid (refunded), net $ ( 3,261 ) $ 11,241 $ 20,350

Interest $ 8,686 $ 13,699 $ 13,334

Non-cash activities in accordance with ASC-842:

Non-cash activities:

Right-of-use assets obtained in exchange for lease liabilities $ 5,617 $ 22,943 $ —

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dollars in thousands (except share and per share data)

NovoCure Limited (including its consolidated subsidiaries, the "Company") was incorporated in the Bailiwick of Jersey and is principally engaged in the development, manufacture and commercialization of Tumor Treating Fields delivery systems, including Optune and NovoTTF-100L (our "Products"), for the treatment of solid tumor cancers.

The Company has received regulatory approval from the U.S.

Food and Drug Administration ("FDA") under the Premarket Approval pathway and regulatory approvals and clearances in certain other countries for Optune to treat adult patients with glioblastoma.

The Company also has received FDA approval under the Humanitarian Device Exemption pathway to market NovoTTF-100L for unresectable, locally advanced or metastatic malignant pleural mesothelioma in combination with standard chemotherapies.

NovoCure Limited (including its consolidated subsidiaries, the "Company") was incorporated in the Bailiwick of Jersey and is principally engaged in the development, manufacture and commercialization of Tumor Treating Fields ("TTFields") delivery systems, including Optune and Optune Lua (our "Products"), for the treatment of solid tumor cancers.

The Company currently markets Optune in the U.S., Austria, Germany, Israel, Japan, Sweden and Switzerland.

The Company currently markets Optune Lua in the U.S.

The Company also has a License and Collaboration Agreement (the "Zai Agreement") with Zai Lab (Shanghai) Co., Ltd.

("Zai") to market Optune in Greater China.

During the year ended December 31, 2019, the Company implemented changes to its corporate entity operating structure, including transferring certain intellectual property to its Swiss subsidiary, primarily to align corporate entities with the Company’s evolving operations and business model.

Basis of presentation and significant accounting policies

The consolidated financial statements are prepared according to United States generally accepted accounting principles ("U.S.

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S.

Use of estimates:

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GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, deferred taxes, tax liabilities, useful-life of field equipment, right-of-use assets and lease liabilities, pension liabilities, revenue recognition, and share-based compensation costs.

The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, deferred taxes, tax liabilities, useful-life of field equipment, right-of-use assets and lease liabilities, convertible notes, pension liabilities, revenue recognition, and share-based compensation costs.

The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made.

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Such translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in shareholders' equity.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Principles of consolidation:

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Intercompany transactions and balances, including unrealized profits from intercompany sales, have been eliminated upon consolidation.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Cash equivalents:

Cash equivalents are short-term, highly liquid investments that are readily convertible into cash with a maturity of three months or less at the date acquired.

Short-term investments and restricted cash:

Short-term investments:

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Restricted cash

The Company has restricted cash used as security for the use of Company credit cards, presented in short-term assets.

The Company has restricted cash used as security for the use of Company credit cards and cash management, presented in short-term assets.

Additionally, the Company has pledged bank deposits to cover bank guarantees related to facility rental agreements, fleet lease agreements and customs payments presented in other long-term assets (see Note 12).

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Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates:

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Computers and laboratory equipment 15 - 33

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Depreciation is calculated using the straight-line method over the estimated useful life of the field equipment, which was determined to be 18 to 36 months.

Field equipment is equipment being utilized under service agreements, and accounted for in accordance with ASC 842 on a monthly basis as an operating lease (see Note 2(w)).

Field equipment is equipment being utilized under service agreements, and accounted for in accordance with ASC 842 on

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

a monthly basis as an operating lease (see Note 2(x)).

The Company records a write-off provision for any excess, lost or damaged equipment when warranted based on an assessment of the equipment.

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Our Products are comprised of two main components:

(1) an electric field generator and (2) transducer arrays and related accessories.

We retain title to the electric field generator, and the patient is provided replacement transducer arrays and technical support for the device during the term of treatment.

The electric field generator and transducer arrays are always supplied and function together and are not sold on a standalone basis.

(1) an electric field generator and (2) arrays and related accessories.

We retain title to the electric field generator, and the patient is provided replacement arrays and technical support for the device during the term of treatment.

The electric field generator and arrays are always supplied and function together and are not sold on a standalone basis.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-9, Revenue from Contracts with Customers (Topic 606) (ASU 2014-9), an updated standard on revenue recognition and issued subsequent amendments to the initial guidance in March 2016, April 2016, May 2016 and December 2016 within ASU 2016-8, 2016-10, 2016-12 and 2016-20, respectively (collectively, "ASC 606").

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The Company has adopted the standard effective January 1, 2018 using the modified retrospective method for all contracts.

The reported results for 2018 and 2019 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (ASC 605).

The amount of revenue recognized in 2018 and 2019 reflects the consideration to which the Company expects to be entitled to receive in exchange for our Products.

The Company uses the portfolio approach to apply the standard to portfolios of contracts with similar characteristics.

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Identify the contract with a patient.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

substantially all consideration for such Product is probable based on the payer’s intent and ability to pay the promised consideration.

A contract with a patient exists when (i) the Company enters into an enforceable contract with a patient that defines each party’s rights regarding delivery of and payment for a Product, (ii) the contract has commercial substance and (iii) the Company determines that collection of substantially all consideration for such Product is probable based on the payer’s intent and ability to pay the promised consideration.

The evidence of a contract generally consists of a prescription, a patient service agreement and the verification of the assigned payer for the contract and intention to collect.

Identify the performance obligations in the contract.

Our contracts include the lease of the device, the supply obligation of disposable transducer arrays and technical support for the term of treatment.

Our contracts include the lease of the device, the supply obligation of disposable arrays and technical support for the term of treatment.

To the extent a contract includes multiple promised products and/or services, the Company must apply judgment to determine whether those products and/or services are capable of being distinct in the context of the contract.

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In the Company’s case, the device, support, and disposables are provided as one inseparable package of monthly treatment for a single monthly fee.

For more information, see Note 2(w).

For more information, see Note 2(x).

Determine the transaction price.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for providing a Product to the patient.

To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

the most likely amount method depending on the nature of the variable consideration.

Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

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As this criterion is met, the revenues will be recognized over the monthly term.

For more information, see Note 2(w).

At adoption of ASC 606 on January 1, 2018, trade receivables increased by $ 2,807 , deferred revenues increased by $ 645 and the Company recorded a cumulative impact to its accumulated deficit of $ 2,162 in 2018.

Total deferred revenues balances at December 31, 2019 and 2018 were $ 19,580 and $ 18,769 , respectively, presented as short-term and long-term liabilities.

Unbilled revenues include revenues recognized for therapy provided and not invoiced in the reported period, and are presented as part of accounts receivable.

For more information, see Note 2(x).

Revenues are presented net of indirect taxes.

Net revenues in 2019 and 2018 also include amounts recognized pursuant to the Zai Agreement.

Net revenues in the years ended December 31, 2020, 2019 and 2018 also include amounts recognized pursuant to the Zai Agreement.

For additional information, see Note 12.

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Because the Company does not pursue collection of amounts determined to qualify as charity, they are not reported as revenue.

The Company's costs of care provided under charitable care were $ 2,847 , $ 2,762 and $ 1,483 for the

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

years ended December 31, 2019, 2018 and 2017, respectively.

The Company's costs of care provided under charitable care were $ 3,653 , $ 2,847 and $ 2,762 for the years ended December 31, 2020, 2019 and 2018, respectively.

These amounts were determined by applying charitable care as a percentage of gross billings to total cost of goods sold.

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The computation of expected volatility is based on actual historical share price volatility of comparable companies when there is not sufficient historical information for the Company.

Expected term of options granted is calculated using the average between the vesting period and the contractual term to the expected term of the options in effect at the time of grant.

Expected term of options granted is calculated

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

using the average between the vesting period and the contractual term to the expected term of the options in effect at the time of grant.

The Company has historically not paid dividends and has no foreseeable plans to pay dividends and, therefore, uses an expected dividend yield of zero in the option pricing model.

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The carrying amounts of cash and cash equivalents, short-term investments, restricted cash, receivables and prepaid expenses, trade receivables, trade payables and other accounts payable and accrued expenses approximate their fair value due to the short-term maturity of such instruments.

Based upon the borrowing terms and conditions currently available to the Company, the carrying values of the long-term loans approximate fair value.

The Company accounts for certain assets and liabilities at fair value under ASC 820, "Fair Value Measurements and Disclosures." Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

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Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

or similar assets or liabilities in markets with insufficient volume or infrequent transactions, or other inputs that are observable (model-derived valuations in which significant inputs are observable), or can be derived principally from or corroborated by observable market data;

Level 2 - Includes other inputs that are directly or indirectly observable in the marketplace, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with insufficient volume or infrequent transactions, or other inputs that are observable (model-derived valuations in which significant inputs are observable), or can be derived principally from or corroborated by observable market data;

Level 3 - Unobservable inputs which are supported by little or no market activity.

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Diluted net income per share is computed based on the weighted average number of ordinary shares outstanding during the period, plus potential dilutive shares considered outstanding during the period, in accordance with ASC 260-10, as determined under the treasury stock method.

As the inclusion of all potential dilutive shares (deriving from options, RSUs and the ESPP) outstanding would be anti-dilutive, basic and diluted net loss per ordinary share was the same for each full year presented.

See Note 19 for additional information regarding the three month periods ended September 30, 2019 and December 31, 2019.

Income taxes:

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Cash, cash equivalents and short-term investments are invested at top tier financial institutions globally.

As such, these investments may be in excess of insured limitations or not insured in certain jurisdictions.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

such, these investments may be in excess of insured limitations or not insured in certain jurisdictions.

Generally, these investments may be redeemed upon demand and therefore, bear minimal risk.

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Currently, the Company provides a matching contribution of 50 % of the employee's contributions, up to a maximum of three percent ( 3 %) of the employee's annual salary.

The Company began making matching contributions as of January 1, 2019 and, as of December 31, 2019, the Company had made matching contributions in the amount of $ 978 pursuant to the plan.

The Company began making matching contributions as of January 1, 2019.

For the years ended December 31, 2020 and 2019, the Company had made matching contributions in the amount of $ 1,589 and $ 978 , respectively, pursuant to the plan.

The Company sponsors a defined benefit plan (the "Swiss Plan") for all its employees in Switzerland for retirement benefits, as well as benefits on death or long-term disability, whereby the employee and the Company contribute a portion of the employee's compensation to the plan.

The Swiss Plan is part of a collective pension fund managed by a top tier insurance company.

The Company’s exposure under the Swiss Plan is insured.

The Company has financial exposure under the Swiss Plan only in the event that the insurance company does not meet its obligations.

The Company accounts for this potential counterparty risk in accordance with ASC 715, "Compensation –

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Retirement Benefits" (see Note 9).

The Swiss Plan is part of a collective pension foundation “Asga Pensionskasse.” Asga is an autonomous pension foundation, meaning that the underlying investment risk and all biometrical risks (disability, death, longevity) are born by the pension foundation itself.

Notwithstanding, the Company and its employees bear the risk of having to pay recovery contributions in a financial distress situation.

The Company accounts for this risk in accordance with ASC 715, "Compensation – Retirement Benefits" (see Note 9).

The pension expense for the years ended December 31, 2020, 2019 and 2018 was $ 1,588 , $ 984 and $ 882 , respectively.

15 unchanged sentences

The Company determines if an arrangement is a lease and the classification of that lease at inception based on:

(1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset.

(1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset.

The Company elected to not recognize a lease liability or right-of-use ("ROU") asset for leases with a term of twelve months or less.

11 unchanged sentences

Lessor accounting - Operating leases:

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

ASC 842 provides lessors with an optional practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (ASC 606) and both of the following criteria are met:

1 unchanged sentence

The lease component would be classified as an operating lease if it were accounted for separately.

The Company's product supply agreements include the right to use the device (lease component), the supply obligation of disposable transducer arrays and technical support for the term of treatment (non-lease component).

The Company's product supply agreements include the right to use the device (lease component), the supply obligation of disposable arrays and technical support for the term of treatment (non-lease component).

If the lease component is the predominant component, the Company accounts for all revenues under such lease as a single component in accordance with the new lease accounting standard.

2 unchanged sentences

Therefore, The Company accounts for all revenues from its operating leases in accordance with the revenue recognition accounting standard.

Convertible note:

The Company accounts for its convertible senior notes in accordance with ASC 470-20 "Debt with Conversion and Other Options".

Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the convertible senior notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument.

The Company allocated the proceeds from issuance between the liability component and the embedded conversion option, or equity component.

The liability component at issuance is recognized at fair value, based on the fair value of a similar instrument of similar credit rating and maturity that does not have a conversion feature.

The equity component is based on the excess of the principal amount of the convertible senior notes over the fair value of the liability component and is recorded in additional paid-in capital.

The equity component, net of issuance costs is presented within additional paid-in-capital and is not remeasured as long as it continues to meet the conditions for equity classification.

The Company allocated the total issuance costs incurred to the liability and equity components of the convertible senior notes based on the same proportions as the proceeds from the notes.

Recently adopted accounting pronouncements:

In 2016, the FASB issued ASU No.

2016-02, "Leases (Topic 842)", which amends the existing standards for lease accounting, requiring lessees to recognize most leases on their balance sheets.

The new standard establishes a right-of-use model that requires a lessee to recognize a right-of-use asset and lease liability on the balance sheet for all leases.

Leases will be classified as finance or operating.

The standard is effective for interim and annual reporting periods beginning after December 15, 2018.

The provisions of ASU 2016-02 are to be applied using a modified retrospective approach.

In July 2018, the FASB issued ASU No.

2018-11, "Targeted Improvements - Leases (Topic 842)" (together with ASU 2016-02, "ASC 842").

This update provides an additional (and optional) transition method to adopt the new leases standard.

Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

Consequently, the prior comparative period’s financials will remain the same as those previously presented.

The Company adopted the new standard as of January 1, 2019 and it has also elected to adopt the package of practical expedients permitted in ASC 842.

Upon implementation of ASC 842, effective January 1, 2019, the Company recorded an increase in right-of-use assets obtained in exchange for lease liabilities of $ 15,733 on its opening balance sheet.

The standard did not have a material impact to the Company's consolidated statements of comprehensive income.

The consolidated financial statements for the year ended December 31, 2019 are presented under the new standard, while comparative years presented are not adjusted and continue to be reported in accordance with Topic 840, Leases.

Recently issued accounting pronouncements:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses.

ASU 2016-13 also applies to employee benefit plan accounting, with an effective date of the first quarter of fiscal 2020.

The amendments in this update are effective for fiscal years beginning after December 31, 2019, including interim periods within those fiscal years.

We have adopted the new standard effective January 1, 2020 and do not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements.

NovoCure Limited and subsidiaries

1 unchanged sentence

dollars in thousands (except share and per share data)

(“ASU 2016-13”).

ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses, with an effective date for the first quarter of fiscal year 2020.

The Company adopted the standard effective as of January 1, 2020 and the adoption of this standard did not have an impact on the Company's consolidated financial statements.

In August 2018, FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

2 unchanged sentences

The implementation costs incurred in a hosting arrangement that is a service contract should be presented as a prepaid asset in the balance sheet and expensed over the term of the hosting arrangement to the same line item in the statement of income as the costs related to the hosting fees.

The guidance in this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted including adoption in any interim period.

The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after adoption.

The Company is currently evaluating the impact that the standard will have, if any, on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-14—Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20):

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.

ASU 2018-14 improves disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

This standard is effective for fiscal years ending after December 15, 2020, for public business entities.

Early adoption is permitted.

An entity should apply the amendments in this ASU on a retrospective basis to all periods presented.

The Company is currently evaluating the impact that the standard will have, if any, on its consolidated financial statements and related disclosures.

The Company adopted the standard effective as of January 1, 2020 and the adoption of this standard did not have an impact on the Company's consolidated financial statements.

Recently issued accounting pronouncements:

In August 2020, the FASB issued ASU No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt.

Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument.

Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium.

Among other potential impacts, this change is expected to reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes.

Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS), which is consistent with the Company’s accounting treatment under the current standard.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a fully retrospective or modified retrospective basis.

The Company early adopted ASU 2020-06, effective January 1, 2021.

See Note 20 for the impact of this adoption.

In December 2019, the FASB issued Accounting Standard Update No.

2 unchanged sentences

This guidance will be effective for the Company in the first quarter of 2021 on a prospective basis, and early adoption is permitted.

The Company is currently evaluating the impact of the new guidance on the Company's consolidated financial statements.

As of December 31, 2020 the Company had not early adopted ASU 2019-12.

The Company is evaluating the potential effect of the new guidance and believes there will be no material impact to the consolidated financial statements.

Cash and Cash equivalents and Short-term investments

4 unchanged sentences

Total cash and cash equivalents $ 234,674 $ 177,321

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Short-term investments

4 unchanged sentences

Quoted market prices were applied to determine the fair value of cash equivalents and short-term investments, therefore they are categorized as Level 1 in accordance with ASC 820, "Fair Value Measurements and Disclosures." The estimated fair value of our short-term investments as of December 31, 2020 and 2019 was $ 607,905 and $ 148,738 , respectively.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Receivables and prepaid expenses

5 unchanged sentences

$ 21,245 $ 29,202

Inventories are stated at the lower of cost or net realizable value.

The weighted average methodology is applied to determine cost.

The following table sets forth the Company’s inventories:

3 unchanged sentences

$ 27,422 $ 23,701

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Property and equipment, net

10 unchanged sentences

Depreciation expense was $ 2,635 , $ 2,080 and $ 1,967 for the years ended December 31, 2020, 2019 and 2018, respectively.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Field equipment, net

8 unchanged sentences

Employees and payroll accruals $ 30,316 $ 20,904

Taxes payable and others 12,011 12,263

Government authorities 5,340 12,011

Deferred revenues 17,765 11,773

2 unchanged sentences

Employee benefit obligations

The Company's liability in respect of the Swiss Plan (see Note 2(t)) is the projected benefit obligation calculated using the projected unit credit method.

The projected benefit obligation as of December 31, 2019 represents the actuarial present value of the estimated future payments required to settle the obligation that is attributable to employee service rendered before that date.

The Company's liability in respect of the Swiss Plan (see Note 2(u)) is the projected benefit obligation calculated using the projected unit credit method.

The projected benefit obligation as of December 31, 2020 represents the

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

actuarial present value of the estimated future payments required to settle the obligation that is attributable to employee service rendered before that date.

Swiss Plan assets are recorded at fair value.

11 unchanged sentences

Equity Securities 35 %

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

The following table sets forth the Swiss Plan’s funded status and amounts recognized in the consolidated financial statements for the year ended December 31, 2020 and 2019:

23 unchanged sentences

Accrued benefit liability at end of year $ ( 4,671 ) $ ( 3,329 )

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Non-current plan assets $ 18,083 $ 12,357

10 unchanged sentences

The level of inputs used to measure fair value was Level 2.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Net Periodic Benefit Cost

12 unchanged sentences

(*) Mortality data used for actuarial calculation.

Long-term loan, net of discount and issuance costs

On February 7, 2018, the Company and certain of its subsidiaries entered into a Loan and Security Agreement ("2018 Loan Agreement") with BioPharma Credit PLC pursuant to which such lender made a term loan to the Company in the principal amount of $ 150 million (the "2018 Credit Facility").

The term loan, which was drawn in full upon execution of the 2018 Loan Agreement, bears interest at 9.0 % per annum, payable quarterly in arrears.

The Company used a portion of the proceeds of the 2018 Credit Facility to repay in full the Company’s obligations under its then-existing term loan credit facility and is using the remaining proceeds to fund general corporate purposes.

The 2018 Credit Facility will mature on February 7, 2023, at which time any unpaid principal and accrued unpaid interest in respect of the term loan will be due and payable.

The Company may prepay the term loan, in full, at any time.

The Company must prepay the term loan (i) in full or in part upon the entry into certain licensing arrangements and (ii) in full in the event of a change of control.

In each case, any prepayment (whether permitted or mandatory) is subject to a prepayment premium and/or make-whole payment.

The prepayment fee if the Company prepays outstanding loan amounts prior to February 7, 2021 is 2.0 % and is 1.0 % if made after the February 7, 2021 but prior to February 7, 2022.If the Company prepays outstanding loan amounts prior to August 7, 2020, it must pay a make-whole amount equal to the amount of interest that would have accrued on the amount of all principal that is prepaid from the date of such prepayment through February 7, 2021.

All obligations under the 2018 Credit Facility are guaranteed by the Company’s current and future direct and indirect subsidiaries.

In addition, the obligations under the 2018 Credit Facility are secured by a first-priority security interest in substantially all of the property and assets of, as well as the equity interests owned by, the Company and certain of the other guarantors.

The 2018 Credit Facility contains other customary covenants.

Total net issuance costs of the 2018 Credit Facility, which were $ 576 as of December 31, 2019, are presented net of the 2018 Credit Facility proceeds and are amortized to interest expense over the five year term of the loan using the effective interest method.

On February 7, 2018, the Company’s 2015 term loan credit facility was terminated upon the Company’s repayment in full of the term loan issued thereunder.

The unamortized discount in the amount of $ 1,160 and issuance costs in the amount of $ 1,399 were fully amortized and included in the Company’s finance expenses in the first quarter of 2018.

NovoCure Limited and subsidiaries

1 unchanged sentence

dollars in thousands (except share and per share data)

Long-term debt, net

The following table sets forth the Company’s long-term debt, net:

0 % Convertible Senior Notes (a)

$ 429,905 $ —

Credit facility (b)

$ 429,905 $ 149,424

Convertible note

On November 5, 2020, the Company issued $ 575,000 aggregate principal amount of 0 % Convertible Senior Notes due 2025 (the “Notes”).

The net proceeds from the offering were approximately $ 558,400 .

The Notes are senior unsecured obligations of the Company.

The Notes do not bear regular interest, and the principal amount of the Notes will not accrete.

Special interest, if any, payable in accordance with the terms of the Notes will be payable in cash semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2021.

The Notes mature on November 1, 2025, unless earlier repurchased, redeemed or converted.

The Notes are convertible into cash, the Company’s ordinary shares or a combination of cash and the Company’s ordinary shares at the Company’s election at an initial conversion rate of 5.9439 ordinary shares per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $ 168.24 per ordinary share.

For additional information see note 20.

The Notes are not redeemable prior to November 6, 2023, except in the event of certain tax law changes.

The Company may redeem for cash all or any portion of the Notes, at the Company’s option, on or after November 6, 2023 if the last reported sale price of the Company’s ordinary shares has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date.

No sinking fund is provided for the Notes.

Prior to the close of business on the business day immediately preceding August 1, 2025, the Notes are convertible at the option of the holders only upon the satisfaction of certain conditions and during certain periods as described below and if the Company exercises its right to redeem the Notes as permitted or required by the Indenture as described below.

On or after August 1, 2025 until the close of the business on the business day immediately preceding the maturity date, holders may convert all or any portion of their Notes at the conversion rate at any time irrespective of the foregoing conditions.

If holders of at least $ 3,000 aggregate principal amount of the Notes provide the Company with reasonable evidence that the trading price per $1,000 principal amount of Notes (the “Note Trading Price”) on any trading day would be less than 98 % of the product of the last reported sale price of the Ordinary Shares on such trading day and the conversion rate on such trading day (the “Trigger Note Price”), the Company shall follow the process for obtaining the Note Trading Price as provided in the Indenture on a daily basis until the Note Trading Price exceeds the Trigger Notice Price.

During this time, if during any five consecutive trading day period (the “Measurement Period”) the Note Trading Price is less than 98 % of the Trigger Notice Price, the Company must notify the holders and the trustee of such an event and the holders may convert their Notes into Ordinary Shares at any time during the five business day period immediately after.

If the Company intends to (i) issue warrants/rights/options to existing shareholders with an exercise price less than the ten -day trailing last trading price average or (ii) distribute to shareholders assets, securities or rights with a value per share greater than 10 % of the last reported trading price, then the Company must give holders of the Notes thirty-five ( 35 ) trading days’ notice of such event, at which time a holder may convert their Notes during such 35 trading day period (or until the Company revokes its decision to issue/distribute the securities, whichever comes sooner).

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

In addition, upon the occurrence of a fundamental change (as defined in the indenture), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date.

In addition, following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or notice of redemption, as the case may be.

During the year ended December 31, 2020, the conditions allowing holders of the Notes to convert were not met.

The Notes are therefore not convertible as of December 31, 2020 and are classified as long-term liability.

The net carrying amount of the liability and equity components of the Convertible Notes as of December 31, 2020 is as follows:

Liability component, net:

Principal amount $ 575,000

Unamortized discount ( 132,797 )

Unamortized issuance costs ( 12,298 )

Net carrying amount of liability component (1) $ 429,905

Equity component, net:

Conversion feature $ 136,401

Issuance costs

Net carrying amount of equity component $ 132,473

(1) An effective interest rate determines the fair value of the Notes, therefore they are categorized as Level 3 in accordance with ASC 820, "Fair Value Measurements and Disclosures." The estimated fair value of the Net carrying amount of liability component of the Notes as of December 31, 2020 was $ 450,437 .

Finance expense related to the Convertible Notes was as follows:

Year ended December 31,

Amortization of debt discount

Amortization of debt issuance costs

Total finance expense recognized

Loan and Security Agreement

The term loan, which was drawn in full upon execution of the 2018 Loan Agreement, bore interest at 9.0 % per annum, payable quarterly in arrears.

On August 18, 2020, the Company terminated the 2018 Credit Facility.

The prepayment included $ 150,000 in principal repayment and $ 3,000 in prepayment premium, plus accrued and unpaid interest and expenses payable through the payoff date.

The un-amortized issuance costs in the amount of $ 478 that were fully amortized upon the repayment and the prepayment premium were reported in the Company’s finance expenses.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Other long-term liabilities

2 unchanged sentences

Unrecognized tax benefits (Note 13(e)) 297 116

Deferred tax liability — 124

$ 222 $ 1,094

Commitments and contingent liabilities

3 unchanged sentences

The Company also leases motor vehicles under various operating leases, which expire on various dates, the latest of which is in 2024.

Under ASC 842, all leases with durations greater than 12 months, including non-cancelable operating leases, are now recognized on the balance sheet.

Under ASC 842, all leases with durations greater than 12 months, including non-cancelable operating leases, are recognized on the balance sheet.

The aggregated present value of lease agreements, net of deferred rent, is recorded as a long-term asset titled right-of-use assets.

19 unchanged sentences

As of December 31, 2020 and 2019 the Company pledged bank deposits of $ 1,438 and $ 1,390 , respectively, to cover bank guarantees in respect of its leases of operating facilities and obtained guarantees by the bank for the fulfillment of the Company’s lease commitments of $ 1,687 and $ 1,557 , respectively.

Technion Settlement Agreement

In the first quarter of 2018, the Company made the final milestone payment of $ 5.5 million (the "Milestone Payment") to the Technion Research and Development Foundation ("Technion") pursuant to the settlement agreement dated February 10, 2015 (the "Settlement Agreement").

Pursuant to the Settlement Agreement, and in exchange for a release of potential disputes regarding intellectual property developed by our founder and previously assigned to us, the Company was obligated to pay the Milestone Payment to Technion in the quarter following the quarter in which the Company achieved $ 250.0 million of cumulative net sales (as defined in the Settlement Agreement) (the "Net Sales Milestone").

The Company met the Net Sales Milestone in the fourth quarter of 2017.

Senior secured revolving credit facility

On November 6, 2020, the Company entered into a new three-year $ 150,000 senior secured revolving credit facility with a syndicate of relationship banks.

The Company may, subject to certain conditions and limitations, increase the revolving credit commitments outstanding under the revolving credit facility or incur new incremental term loans in an aggregate principal amount not to exceed an additional $ 100,000 .

The commitments under the revolving credit facility are guaranteed by certain of the Company's subsidiaries and secured by a first lien on the Company's and certain of the Company's subsidiaries’ assets.

Outstanding loans will bear interest at a sliding scale based on the Company's secured leverage ratio from LIBOR plus 2.75 % to LIBOR plus 3.25 % per annum.

Additionally, the facility contains a fee for the unused revolving credit commitments at a sliding scale based on the Company's secured leverage ratio from 0.35 % to 0.45 %.

The facility contains financial covenants requiring maintenance of a minimum fixed charge coverage ratio and specifying a maximum senior secured net leverage ratio, as well as customary events of default which include a change of control.

As of December 31, 2020, the Company had no outstanding balance borrowed under the facility.

Zai License and Collaboration Agreement

On September 10, 2018, the Company entered into a License and Collaboration Agreement (the "Zai Agreement") with Zai Lab (Shanghai) Co., Ltd.

On September 10, 2018, the Company entered into the Zai Agreement.

Under the Zai Agreement, the Company granted Zai exclusive rights to commercialize Optune in the field of oncology in China, Hong Kong, Macau and Taiwan ("Greater China").

The Zai Agreement also established a development partnership for Optune in multiple solid tumor indications.

In partial consideration for the license grant to Zai for Greater China, the Company was entitled to a non-refundable, up-front license fee in the amount of $ 15 million (the "License Fee").

The Zai Agreement also provides for certain development, regulatory and commercial milestone payments totaling up to $ 78 million.

In partial consideration for the license grant to Zai for Greater China, the Company was entitled to a non-refundable, up-front license fee in the amount of $ 15,000 (the "License Fee").

The Zai Agreement also provides for certain development, regulatory and commercial milestone payments totaling up to $ 78,000 .

Furthermore, pursuant to the Zai Agreement, Zai will pay the Company tiered royalties at percentage rates from 10 up to the mid-teens on the net sales of the licensed products in Greater China.

Zai is purchasing licensed products for commercial use exclusively from the Company at the Company’s fully burdened manufacturing cost.

Zai paid the License Fee in the fourth quarter of 2018.

Net of withholding taxes, the Company received $ 12.7 million.

The Company recognizes revenue pursuant to the License Agreement with Zai in accordance with ASC 606, "Revenue Recognition from Customers." The License Fee, net of withholding taxes, is deferred and recognized over related six year performance period commencing September 10, 2018 ("Zai Performance Period").

The License Fee will be recognized on a straight-line basis, resulting in revenue of $ 2,115 and $ 767 for the years ended December 31, 2019 and 2018, respectively.

Revenue from any future commercial milestone payments will be recognized upon the achievement of such milestones and clinical or regulatory milestone payments will be recognized in a straight line over the applicable performance period, in accordance with ASC 606.

The Company recognizes revenue pursuant to the License Agreement with Zai in accordance with ASC 606, "Revenue Recognition from Customers." The License Fee is deferred and recognized over related six year performance period commencing September 10, 2018 ("Zai Performance Period").

Revenue from commercial milestone payments will be recognized upon the achievement of such milestones and future clinical or regulatory milestone payments will be recognized in a straight line over the applicable performance period, in accordance with ASC 606.

Revenue from royalty payments are recognized in accordance with ASC 606 in the period accrued.

Paz Litigation

In February 2019, a civil claim was filed in the District Court in Haifa, Israel (the "Court"), by Ofir Paz ("Paz"), a former member of the Company's Board of Directors, and EES Investments Ltd., a company wholly owned by Paz (together with Paz, "Plaintiff") against the Company and Prof.

Yoram Palti ("Respondents").

Based on Plaintiff's recent motions described below, Plaintiff claims that he is entitled to approximately 1,200,000 ordinary shares (as adjusted for share capital splits since 2003).

In May 2019, the Company filed a motion to dismiss the claim that is still pending.

Plaintiff has also filed motions in September and December 2019 to add Asaf Danziger as a Respondent and change the basis of his claims from breach of contract to wrongful deregistration.

These motions are pending.

The Company believes that the complaint is without merit and plans to defend against this claim vigorously.

The Company has not accrued any amounts in respect of these claims, as it believes liability is not probable and the amount of any potential liability cannot be reasonably estimated.

Revenues from sales of product or rendering services are recognized upon shipping the products or rendering the services and satisfying the performance obligation.

During the year ended December 31, 2020, the Company triggered an aggregate $ 10,000 of milestone payments, which, with the License Fee, are deferred and recognized over the remainder of the Zai Performance Period ending in September 2024 on a straight-line basis, resulting in revenue of $ 3,981 $ 2,115 and $ 767 for the years ended December 31, 2020, 2019 and 2018, respectively.

NovoCure Limited and subsidiaries

2 unchanged sentences

Tax provision :

The provision (benefit) for income taxes from continuing operations is comprised of:

Income (loss) before income taxes:

Income (loss) before income taxes is as follows:

Year ended December 31,

4 unchanged sentences

$ 18,102 $ ( 8,824 ) $ ( 45,942 )

The provision (benefit) for income taxes from continuing operations is comprised of:

Year ended December 31,

3 unchanged sentences

Total current $ ( 1,706 ) $ ( 1,738 ) $ 17,269

$ — — $ ( 3 )

144 348 ( 351 )

Total deferred — 144 348

Total income tax provision $ ( 1,706 ) $ ( 1,594 ) $ 17,617

(1) This change was driven primarily by research and development credits claimed in the U.S.

and deductions associated with share-based compensation.

(2) This change primarily resulted from amortization of intellectual property rights.

In accordance with the changes to the U.S.

tax code enacted in response to the economic impacts of COVID-19 signed into legislation on March 27, 2020, the Company recorded a new tax benefit of $ 11,269 in the first quarter of 2020.

The benefit results from net operating loss carry-backs in the U.S.

Theoretical tax

1 unchanged sentence

For purposes of comparability, the Company used the notional U.S.

federal income tax rate of 21% for the 2019 and 2018 tax year and 35% for the 2017 tax year when presenting the Company's reconciliation of the income tax provision.

federal income tax rate of 21% for the 2020, 2019 and 2018 tax years when presenting the Company's reconciliation of the income tax provision.

A reconciliation of the provision for income taxes compared with the amounts at the notional federal statutory rate was:

4 unchanged sentences

2020 2019 2018

Loss before income taxes $ ( 8,824 ) $ ( 45,942 ) $ ( 48,497 )

U.S statutory income tax rate 21.0 % 21.0 % 35.0 %

Income (loss) before income taxes $ 18,102 $ ( 8,824 ) $ ( 45,942 )

statutory income tax rate 21.0 % 21.0 % 21.0 %

Notional U.S.

7 unchanged sentences

Research and Development Credits ( 5,243 ) ( 2,333 ) ( 465 )

Withholding Taxes 2,366 384 118

2020 Cares Act ( 8,694 ) — —

Other 542 ( 5,660 ) ( 2 )

Unrecognized tax expense (benefit) 13 ( 141 ) 427

Income tax $ ( 1,706 ) $ ( 1,594 ) $ 17,617

Effective tax rate ( 9.4 ) % 18.1 % ( 38.3 ) %

In 2017, the Tax Cuts and Jobs Act ("TCJA") was signed into law in the U.S.

Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017.

In accordance with ASC 740, the Company recorded $ 34.8 million of deferred tax expense in connection with the remeasurement of certain deferred tax assets and liabilities.

This was fully offset by a valuation allowance.

Accordingly, there was no net impact on the Company’s income tax expense for the year ended December 31, 2017.

The Company’s subsidiary in the United States does not have any foreign subsidiaries and, therefore, the remaining provisions of the TCJA have no material impact on the Company's results of operations.

December 22, 2018 marked the end of the measurement period for purposes of ASU 2018-05, and the Company concluded that no change was required to its initial assessment.

The table below reflects the 2017 net impact of the TCJA:

December 31, 2017

U.S statutory income taxes rate 35.0 % — % 35.0 %

Non-deductible expenses ( 6.8 ) — ( 6.8 )

Foreign taxes rate differential 15.1 — 15.1

Change in valuation allowance ( 83.4 ) 71.5 ( 11.9 )

State income taxes 12.8 5.9 18.7

Share based compensation 2.0 ( 6.5 ) ( 4.5 )

Change in unrecognized taxes expense ( 0.9 ) 0.1 ( 0.8 )

Other ( 0.9 ) ( 71.0 ) ( 71.9 )

Effective taxes rate ( 27.1 ) % — % ( 27.1 ) %

Deferred income tax

1 unchanged sentence

Significant components of the Company’s deferred tax assets and liabilities are as follows:

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Deferred tax assets:

Implicit discounts recognized under ASC 606 (see Note 2) $ 128,149 $ 124,255

Net operating loss carryforwards (see Note 13(d)) 35,267 843

Net operating loss carryforwards 40,314 35,267

Share based compensation 17,595 12,253

2 unchanged sentences

Unamortized intangible assets 157,930 176,783

Other temporary differences 2,359 1,384

Research and development 9,186 800

Other assets 3,828 1,559

Total gross deferred tax assets $ 367,223 $ 357,395

5 unchanged sentences

Total gross deferred tax liabilities $ 3,141 $ 383

Net deferred taxes assets $ — $ 285

(1) The Company recorded a deferred tax asset of $ 189,410 related to unamortized intangible assets.

Amortization of this intangible asset will be straight-line through 2029.

As of December 31, 2019, the balance of this deferred tax asset was $ 176,783 , offset by a valuation allowance of the same amount.

Net deferred taxes assets (liability) $ — $ —

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Carryforward loss:

4 unchanged sentences

state NOLs carry forward indefinitely, with the remainder expiring from 2023 through 2040.

In addition, the Company had $ 38,603 of non-U.S NOLs as of December 31, 2019.

Approximately $ 618 of the non-U.S.

NOLs carry forward indefinitely, with the remainder expiring between 2026 and 2036.

In addition, the Company had $ 131,614 of non-U.S NOLs as of December 31, 2020, which expire between 2027 and 2037.

Uncertain tax benefits:

14 unchanged sentences

state and municipal jurisdictions, as well as foreign jurisdictions.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Share capital

5 unchanged sentences

The Company accounted for these warrants as equity instruments based on the guidance of ASC 815, "Derivatives and Hedging," ASC 480-10, "Distinguishing Liabilities from Equity," its related FASB staff positions, ASC 815-40 "Contracts in Entity’s Own Stock" and the AICPA Technical Practice Aid for accounting for preferred shares and warrants, including the roadmap for accounting for freestanding financial instruments indexed to, and potentially settled in, a company’s own stock.

In the years ended December 31, 2018 and 2017, warrants to purchase 504,225 and 1,418,711 ordinary shares, respectively, were cashlessly exercised, resulting in the issuance of 437,081 and 803,138 ordinary shares, respectively.

Also, in the year ended December 31, 2018 and 2017 warrants to purchase 3,879 and 6,498 ordinary shares, respectively, with an exercise price of $ 3.59 per share were exercised for cash.

In the year ended December 31, 2018, warrants to purchase 504,225 ordinary shares were cashlessly exercised, resulting in the issuance of 437,081 ordinary shares.

Also, in the year ended December 31, 2018, warrants to purchase 3,879 ordinary shares, with an exercise price of $ 3.59 per share were exercised for cash.

No warrants were outstanding as of December 31, 2020 and 2019.

2 unchanged sentences

The 2003 Plan and the 2013 Plan terminated as of the IPO as to future awards, but they continue to govern option awards previously granted thereunder.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

In September 2015, the Company adopted the 2015 Omnibus Incentive Plan (the "2015 Plan").

The Company’s shareholders approved the 2015 Plan in September 2015.

Under the 2015 Plan, the Company can issue various types of equity compensation awards such as restricted shares, performance shares, restricted stock units ("RSUs"), performance units, long-term cash award and other share-based awards.

Under the 2015 Plan, the Company can issue various types of equity compensation awards such as restricted shares, performance shares, restricted stock units ("RSUs"), performance units ("PSUs"), long-term cash award and other share-based awards.

Options granted under the 2015 Plan generally have a four-year vesting period and expire ten years after the date of grant.

7 unchanged sentences

The Company began its offerings under the ESPP on August 1, 2016.

The Company issued 414,559 ordinary shares for the plan periods ended through December 31, 2019.

The Company issued 66,691 ordinary shares for the plan period from January 1, 2020 through December 31, 2020.

On December 31, 2020, in accordance with the terms of the ESPP, the number of shares available for purchase by eligible employees who participate in the ESPP automatically increased by 1 % of the Company’s outstanding ordinary shares outstanding on December 30, 2020.

As of December 31, 2020, 5,006,367 ordinary shares are available for offering under the ESPP.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

The fair value of share-based awards was estimated using the Black-Scholes model for all equity grants.

16 unchanged sentences

A summary of the status of the Company’s options to purchase ordinary shares as of December 31, 2020 and changes during the year ended on that date is presented below:

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Year ended December 31, 2020

7 unchanged sentences

Year ended December 31, 2020

RSUs/PSUs Weighted

Unvested at beginning of year 1,474,395 $ 30.26

3 unchanged sentences

Unvested at end of year (1) 4,466,151 $ 54.06 $ 772,822

(1) Includes PSUs that have a mix of service, market and other milestone performance vesting conditions which are vested upon achievements of market performance which are not probable, as of December 31, 2020, in accordance with ASC 718 as follows:

December 31, 2020

PSUs Fair value at grant date per PSU Total fair value at grant date

2,703,852 $ 48.16 $ 130,218

108,113 69.37 7,500

17,712 84.68 1,500

2,829,677 $ 139,217

These PSUs will be expensed over the performance period when the vesting conditions become probable in accordance with ASC 718.

The total equity-based compensation expense related to all of the Company’s equity-based awards recognized for the years ended December 31, 2020, 2019 and 2018, was comprised as follows:

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Year ended December 31,

6 unchanged sentences

As of December 31, 2020, unamortized share-based compensation costs amounted to $ 96,346 and are expected to be recognized over a weighted average period of approximately 2.92 years.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

The weighted average grant date exercise price of the Company’s options granted during the years ended December 31, 2020, 2019 and 2018 were $ 71.87 , $ 50.45 and $ 23.73 per share, respectively.

20 unchanged sentences

9,220,326 7.28 4,434,360 5.94

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Financial expenses, net

4 unchanged sentences

Interest expense $ ( 13,147 ) $ ( 13,718 ) $ ( 13,491 )

Amortization of credit facility costs ( 156 ) ( 2,777 ) ( 1,111 )

Amortization of discount and issuance costs ( 4,514 ) ( 156 ) ( 2,777 )

Foreign currency transaction losses — ( 431 ) ( 398 )

7 unchanged sentences

Total financial expenses, net $ ( 12,299 ) $ ( 7,910 ) $ ( 12,270 )

Basic and diluted net loss per share

Basic and diluted net income (loss) per share

Basic net income (loss) per share is computed based on the weighted average number of ordinary shares outstanding during each period.

Diluted net income per share is computed based on the weighted average number

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

of ordinary shares outstanding during the period, plus potential dilutive shares (deriving from options, RSUs, PSUs, convertible notes and the ESPP) considered outstanding during the period, in accordance with ASC 260-10, as determined under the treasury stock method.

The following table sets forth the computation of the Company’s basic and diluted net loss per ordinary share:

2 unchanged sentences

Net income (loss) attributable to ordinary shares as reported $ 19,808 $ ( 7,230 ) $ ( 63,559 )

Shares used in computing net income (loss) per ordinary share, basic and diluted 97,237,549 91,828,043 88,546,719

Net income (loss) per ordinary share, basic and diluted $ ( 0.07 ) $ ( 0.69 ) $ ( 0.70 )

For the full years ended December 31, 2019, 2018 and 2017, all outstanding options, restricted share units and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive.

The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income (loss) per share:

Year ended December 31,

2019 2018 2017

Net income (loss) used in computing basic net income (loss) per share $ 19,808 $ ( 7,230 ) $ ( 63,559 )

Adjustment needed in calculating diluted net income (loss) per share — — —

Net income (loss) used in computing diluted net income (loss) per share $ 19,808 $ ( 7,230 ) $ ( 63,559 )

Weighted average number of ordinary shares used in computing basic net income (loss) per share 100,930,866 97,237,549 91,828,043

Potentially dilutive shares that were excluded from the computation of basic net income (loss) per share:

Options 6,967,554 — —

Restricted share units 945,612 — —

Warrants — — 384,774

Total potential anti-dilutive shares 9,193,339 8,983,178 5,221,894

ESPP 33,616 — —

Weighted average number of ordinary shares used in computing diluted net income (loss) per share 108,877,648 97,237,549 91,828,043

Weighted anti-dilutive shares outstanding which were not included in the diluted calculation 1,307,762 10,230,982 9,341,735

Basic net income (loss) per ordinary share $ 0.20 $ ( 0.07 ) $ ( 0.69 )

Diluted net income (loss) per ordinary share $ 0.18 $ ( 0.07 ) $ ( 0.69 )

Subcontractor

8 unchanged sentences

Israel 4,370 2,753 2,236

Japan 1,230 999 632

Germany 1,075 729 1,054

10 unchanged sentences

Total net revenues $ 494,366 $ 351,318 $ 248,069

(1) Reflects revenue recognized in accordance with the Zai Agreement, pursuant to which Zai is commercializing Optune in China, Hong Kong, Macau and Taiwan (referred to in this table as "Greater China").

(1) For additional information, see Note 12.

17 unchanged sentences

Net income (loss) 4,260 1,930 ( 1,270 ) ( 12,150 )

Basic and diluted net income (loss) per ordinary share $ ( 0.17 ) $ ( 0.13 ) $ ( 0.17 ) $ ( 0.23 )

Weighted average number of ordinary shares used in computing basic and diluted net income (loss) per share 93,083,298 92,911,375 91,331,862 89,985,612

Basic net income (loss) per ordinary share $ 0.04 $ 0.02 $ ( 0.01 ) $ ( 0.13 )

Weighted average number of ordinary shares used in computing basic net income (loss) per share 99,226,445 98,485,519 96,356,317 94,811,282

Diluted net income (loss) per ordinary share $ 0.04 $ 0.02 $ ( 0.01 ) $ ( 0.13 )

Weighted average number of ordinary shares used in computing diluted net income (loss) per share 107,911,519 107,604,578 96,356,317 94,811,282

Three months ended

6 unchanged sentences

Weighted average number of ordinary shares used in computing basic and diluted net income (loss) per share 93,083,298 92,911,375 91,331,862 89,985,612

Subsequent event

In January 2021, the Company irrevocably elected to settle all conversions of Notes by a combination of cash and the Company's ordinary shares and that the cash portion per $1,000 principal amount of Notes for all conversion settlements shall be $ 1,000 .

Accordingly, from and after the date of the election, upon conversion of any Notes, holders of Notes will receive, with respect to each $1,000 principal amount of Notes converted, cash in an amount up to $ 1,000 and the balance of the conversion value, if any, in ordinary shares.

As a result of the early adoption of ASU 2020-06 on January 1, 2021, using the modified retrospective method, and the irrevocable election of the settlement method, the Company will eliminate the bifurcation of the debt and equity components of the Notes and the Notes will be presented, in their entirety, as a liability in long-term debt.

The cumulative effect of reversing the discount amortization will be recognized as an adjustment to the opening balance of retained earnings and the convertible debt will not be included in the denominator when calculating diluted earnings per share.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data