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Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-29 · 132 added, 140 removed, 137 unchanged (67% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations.

We encourage you to read this MD&A in conjunction with our unaudited consolidated financial statements and the notes thereto for the period ended September 30, 2020 included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We encourage you to read this MD&A in conjunction with our unaudited consolidated financial statements and the notes thereto for the period ended March 31, 2021 included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

This discussion contains forward-looking statements that involve risks and uncertainties.

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References to the words “we,” “our,” “us,” and the “Company” in this report refer to NovoCure Limited, including its consolidated subsidiaries.

We are a global oncology company with a proprietary platform technology called Tumor Treating Fields, the use of electric fields tuned to specific frequencies to disrupt solid tumor cancer cell division.

Our key priorities are to drive adoption of Optune and Optune Lua, our commercial Tumor Treating Fields delivery systems (collectively, our “Products”), and to advance clinical and product development programs intended to extend overall survival in some of the most aggressive forms of cancer.

Optune is approved by the United States Food and Drug Administration (“FDA”) under the premarket approval (“PMA”) pathway for the treatment of adult patients with newly diagnosed glioblastoma multiforme (“GBM”) in combination with temozolomide, a chemotherapy drug, and for adult patients with GBM following confirmed recurrence after chemotherapy as monotherapy treatment.

We also have approval to market Optune for the treatment of GBM in the European Union (“EU”), Japan and certain other countries.

Optune Lua is approved by the FDA under the humanitarian device exemption (“HDE”) pathway to treat malignant pleural mesothelioma (“MPM") in combination with standard chemotherapies.

We are currently seeking to obtain CE Certification for Optune Lua in the EU.

We market Optune in the U.S., Austria, Germany, Israel, Japan, Sweden and Switzerland, which we refer to as our “active markets”, and we market Optune Lua in the U.S.

With respect to the treatment of GBM, our sales and marketing efforts are principally focused on driving adoption with both neuro-oncologists and radiation oncologists.

With respect to the treatment of MPM, our commercial efforts are principally focused on generating awareness with radiation oncologists and medical oncologists who treat cancer indications of the torso and on establishing a dialogue with third-party payers around access to Optune Lua.

We are a global oncology company with a proprietary platform technology called Tumor Treating Fields ("TTFields"), which are electric fields tuned to specific frequencies that disrupt cancer cell division.

Our key priorities are to drive commercial adoption of Optune and Optune Lua, our commercial TTFields delivery systems, and to advance clinical and product development programs intended to extend overall survival in some of the most aggressive forms of cancer.

Optune is approved by the U.S.

Food and Drug Administration ("FDA") under the Premarket Approval ("PMA") pathway for the treatment of adult patients with newly diagnosed GBM in combination with temozolomide, a chemotherapy drug, and for adult patients with GBM following confirmed recurrence after chemotherapy as monotherapy treatment.

We also have approval or a CE certificate to market Optune for the treatment of GBM in the European Union ("EU"), Japan and certain other countries.

We market Optune in the U.S., Austria, Germany, Israel, Japan, Sweden and Switzerland, which we refer to as our "active markets." With respect to GBM, our sales and marketing efforts are principally focused on driving adoption with both neuro-oncologists and radiation oncologists.

We are expanding our commercial operations into France with an initial focus on developing key opinion leader relationships in GBM and establishing a path to reimbursement for our Products.

We continue to work with payers to expand access to Optune for patients with GBM.

In January 2020, the State of Israel Ministry of Health added Optune in combination with temozolomide to the Israeli medical services basket, establishing national reimbursement for Optune in newly diagnosed GBM in Israel.

In March 2020, the German Federal Joint Committee (G-BA) updated its directive for Contracted Medical Care to include Tumor Treating Fields, establishing national reimbursement for Optune in newly diagnosed GBM in Germany.

We continue to have productive discussions with the Federal Office of Public Health in Switzerland to establish coverage for Optune and plan to submit a full reimbursement package to establish coverage for Optune to the French Ministry of Health in upcoming quarters.

As of September 30, 2020, the total number of contracted GBM lives was approximately 274 million in the U.S., approximately 111 million in our active EMEA markets and approximately 126 million in Japan.

We believe the mechanism of action behind Tumor Treating Fields therapy may be broadly applicable to solid tumor cancers.

Currently, we are conducting phase 3 pivotal trials evaluating the use of Tumor Treating Fields in brain metastases, non-small cell lung cancer (“NSCLC”), pancreatic cancer and ovarian cancer.

We are also conducting phase 2 pilot trials evaluating the use of Tumor Treating Fields in liver cancer and gastric cancer.

In July 2020, we enrolled the last patient in HEPANOVA, a phase 2 pilot trial testing Tumor Treating Fields in combination with sorafenib in advanced liver cancer with final data expected in the first quarter of 2021.

We plan to initiate additional randomized trials in GBM in order to further advance the scientific evidence supporting the use of Optune in GBM

and to gather additional information about Optune's optimal use.

We also anticipate expanding our clinical pipeline over time to study the safety and efficacy of Tumor Treating Fields for additional solid tumor indications.

We have several product development programs underway intended to improve efficacy and usability for patients.

In July 2020, we enrolled the first patient in our EF-33 pilot study to test the potential incremental survival benefit of delivering Tumor Treating Fields through high-intensity arrays.

Additionally, during the third quarter of 2020, we initiated a beta testing program with a select number of radiation oncology partners to test MAXPOINT TM treatment planning software, which we developed to optimize Tumor Treating Fields dosing with the potential to improve the efficacy of our therapy.

The table below presents the current status of the ongoing or completed clinical and product development programs in our pipeline and anticipated timing of final data.

In July 2020, we entered into a clinical trial collaboration with MSD, a trade name of Merck & Co., Inc., through a subsidiary, to develop Tumor Treating Fields together with MSD’s anti-PD-1 therapy KEYTRUDA® (pembrolizumab) for treatment of first-line NSCLC, expanding our research in the lung cancer space.

We plan to conduct a phase 2 pilot study of Tumor Treating Fields concomitant with KEYTRUDA for first-line treatment of intrathoracic advanced or metastatic, PD-L1 positive NSCLC.

The study is now expected to begin in the first half of 2021 due to a modification in the regulatory strategy.

In October 2020, we entered into a strategic alliance with the NYU Grossman School of Medicine’s Department of Radiation Oncology that provides a framework for preclinical and clinical development projects studying Tumor Treating Fields.

The research to be conducted is geared to further the understanding of the interaction between Tumor Treating Fields and radiation therapy, to study Tumor Treating Fields in combination with various pharmacological agents, and to identify new indications for use

In 2018, we entered into a License and Collaboration Agreement (the “Zai Agreement”) between us and Zai Lab (Shanghai) Co., Ltd.

(“Zai”), pursuant to which we granted Zai a license to commercialize Optune in China, Hong Kong, Macau and Taiwan (collectively, “Greater China”).

The Zai Agreement also establishes a development partnership intended to accelerate the development of Tumor Treating Fields in multiple solid tumor indications.

In May 2020, the China National Medical Products Administration approved the Marketing Authorization Application for Optune in combination with temozolomide for the treatment of patients with newly diagnosed GBM, and also as a monotherapy for the treatment of patients with recurrent GBM.

For additional information, see Note 12 to the Consolidated Financial Statements in our 2019 10-K.

We believe we have a robust patent and intellectual property portfolio, with over 180 issued patents and numerous patent applications pending worldwide.

We believe we own global commercialization rights to our Products in oncology and that we are well-positioned to extend those rights into the future as we continue to find innovative ways to improve our Products.

Optune Lua is approved by the FDA under the Humanitarian Device Exemption ("HDE") pathway to treat MPM in combination with standard chemotherapies.

We have received CE certification to market Optune Lua (under the name " NovoTTF-100L ") in the EU and Switzerland.

We currently market Optune Lua in the U.S., and are evaluating plans to expand access to our therapy for MPM patients in other markets.

With respect to MPM, our commercial efforts are principally focused on generating awareness and on establishing a dialogue with third-party payers around access to Optune Lua.

We believe the mechanism of action behind TTFields therapy may be broadly applicable to solid tumor cancers.

Currently, we are conducting phase 3 pivotal trials evaluating the use of TTFields in brain metastases from non-small-cell lung cancer ("brain metastases"), non-small-cell lung cancer ("NSCLC"), ovarian cancer and pancreatic cancer.

In 2020, we enrolled our first patient in our global phase 4 TRIDENT trial to test the potential survival benefit of initiating Optune concurrent with radiation therapy versus following radiation therapy in patients with newly diagnosed GBM.

We recently concluded a phase 2 pilot trial evaluating the use of TTFields in liver cancer and are conducting a phase 2 pilot trial in gastric cancer, as well as testing the potential incremental survival benefit of TTFields delivered using high-intensity arrays versus standard arrays.

We anticipate expanding our clinical pipeline over time to study the safety and efficacy of TTFields for additional solid tumor indications and combinations with other cancer treatment modalities.

On April 13, 2021, we announced that an independent data monitoring committee ("DMC") informed Novocure that the pre-specified interim analysis for the phase 3 pivotal LUNAR trial for the treatment of NSCLC was accelerated given the length of accrual and the number of events observed, to date.

The interim analysis included data from 210 patients accrued through February 2021.

After review of the interim analysis, the DMC concluded that the LUNAR trial should continue with no evidence of increased systemic toxicity.

The DMC went on to comment that the continued accrual to 534 patients as proposed in the original protocol, given the current rate of accrual and the interim data presented, is likely unnecessary and possibly unethical for patients randomized to control.

For this reason, the DMC recommended an adjustment of accrual to approximately 276 patients with a 12-month follow-up following the enrollment of the last patient.

The DMC believes this amended protocol would provide adequate data regarding toxicity and efficacy, providing sufficient overall power, as well as potentially providing important information regarding efficacy within treatment subgroups.

We have since filed an IDE supplement incorporating the recommended protocol adjustments for FDA approval.

In April 2021, the FDA approved our investigational device exemption ("IDE") application to initiate the KEYNOTE B36 phase 2 pilot trial to study TTFields with pembrolizumab in first-line NSCLC through our clinical collaboration with MSD (a tradename of Merck & Co.).

We are currently evaluating clinical trial sites for initiation.

Also in April 2021, we concluded our phase 2 pilot HEPANOVA trial investigating Tumor Treating Fields together with sorafenib, a kinase inhibitor, in 25 patients with advanced liver cancer.

We have submitted an abstract for presentation at an upcoming medical conference in late June and look forward to discussing the full data set with clinicians, investigators and investors in the future.

The table below presents the current status of the ongoing clinical trials in our oncology pipeline and anticipated timing of final data.

Our therapy is delivered through a medical device and we continue to advance our Products with the intention to extend survival and maintain quality of life for patients.

We have several product development programs underway that prioritize impact on both TTFields' dose and patient ease of use.

Our oncology intellectual property portfolio contains over 185 issued patents and numerous patent applications pending worldwide.

We believe we own global commercialization rights to our Products in oncology and are well-positioned to extend those rights into the future as we continue to find innovative ways to improve our Products.

In 2018, we granted Zai Lab (Shanghai) Co., Ltd.

("Zai") a license to commercialize Optune in China, Hong Kong, Macau and Taiwan ("Greater China") under a License and Collaboration Agreement (the "Zai Agreement").

The Zai Agreement also establishes a development partnership intended to accelerate the development of TTFields in multiple solid tumor cancer indications.

For additional information, see Note 12 to the Consolidated Financial Statements in the 2020 10-K.

We view our operations and manage our business in one operating segment.

For the three and nine months ended September 30, 2020, our net revenues were $132.7 million and $350.4 million, respectively.

Our net income for the three and nine months ended September 30, 2020 was $9.3 million and $14.9 million, respectively.

As of September 30, 2020, we had an accumulated deficit of $636.0 million.

Our accumulated deficit primarily resulted from costs incurred in connection with our preclinical and clinical trial programs, costs incurred to commercialize our Products and general and administrative costs necessary to operate as a global oncology business.

For the three months ended March 31, 2021, our net revenues were $134.7 million.

Our net loss for the three months ended March 31, 2021, was $4.1 million.

As of March 31, 2021, we had an accumulated deficit of $631.7 million.

Our net loss resulted primarily from net revenue growth which was more than offset by increasing investments in research and development to advance our pipeline programs and increase acceptance of TTFields across the global oncology community.

Impact of COVID-19

The COVID-19 pandemic did not have a material impact on our financial results through the third quarter of 2020.

During the first three quarters of 2020, our commercial business or global supply chain was not materially affected by the COVID-19 pandemic, and we believe the anticipated timing of final data from our ongoing clinical trials has not been adversely impacted since our Quarterly Report on Form 10-Q filed on April 30, 2020 and amended on Form 10-Q/A filed on October 2, 2020 (“First Quarter 2020 10-Q”).

We believe the prolonged disruption caused by COVID-19 is resulting in increased volatility across global health care systems, such as fluctuations in patient volumes and changes in patterns of care in certain regions, which might materially impact our business and clinical trials in the future.

For example, we have seen some fluctuations in the timing of surgeries and radiation therapy in certain regions, which has had some influence on when patients are prescribed Optune.

Since the pandemic began, we have generally been following the guidance of the World Health Organization, the U.S.

Centers for Disease Control and Prevention, and local health authorities in all of our active markets and we have adjusted the way we conduct business to adapt to the evolving situation.

For example, our field-based patient support teams continue to conduct in-person patient visits when possible and leverage technology to virtually conduct new patient starts and provide ongoing patient support visits.

We are respecting any restrictions on external visitors at the cancer centers, hospitals and research institutions we serve and have implemented web-based technologies to engage healthcare professionals and enable information sharing.

Many of the medical conferences where we present have been moved to virtual formats, and we have been able to present our findings and speak with thought leaders remotely.

The COVID-19 pandemic did not have a material impact on our financial results through the first quarter of 2021.

The pandemic has had and is having an impact on our day-to-day operations, which varies by region based on factors such as geographical spread, stage of containment and recurrence of the pandemic in each region.

We believe the prolonged disruption caused by the COVID-19 pandemic is resulting in increased volatility across global health care systems, such as fluctuations in patient volumes and changes in patterns of care in certain regions, which is currently impacting and might continue to impact our business and clinical trials in the future.

we continue to see fluctuations in the timing of surgeries and radiation therapy in certain regions, which has had some adverse influence on the eligible patient population for Optune.

TTFields is an emerging modality in cancer care and requires significant educational effort to drive awareness and acceptance of our therapy.

We have relied heavily on virtual engagement to manage these educational efforts for nearly a year, which poses challenges to our ability to effectively communicate and engage with our customers and partners around the world.

Given the aggressive nature of the cancers that we treat, we believe that the fundamental value proposition of the TTFields platform remains unchanged.

We continue to evaluate and plan for the potential effects of the COVID-19 pandemic on our business moving forward.

The extent to which the COVID-19 pandemic may impact our business and clinical trials in the future will depend on further developments, which are highly uncertain and cannot be predicted with confidence.

The COVID-19 pandemic may also have the effect of heightening many of the other risks described in our risk factors disclosed in our 2019 10-K and our First Quarter 2020 10-Q.

The COVID-19 pandemic may also have the effect of heightening many of the other risks described in our risk factors disclosed in our 2020 10-K.

Critical Accounting Policies and Estimates

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Our cost of revenues is primarily comprised of the following:

• disposable transducer arrays;

• disposable arrays;

• depreciation expense for the field equipment, including the electric field generator used by patients;

• personnel, warranty and overhead costs such as facilities, freight and depreciation of property, plant and equipment associated with managing our inventory, warehousing and order fulfillment functions.

• personnel and overhead costs such as facilities, freight and depreciation of property, plant and equipment associated with managing our inventory, warehousing and order fulfillment functions.

Operating expenses.

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Results of Operations

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019.

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The tables contained in this section report U.S.

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The following table sets forth our consolidated statements of operations data:

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Unaudited Unaudited

Three months ended March 31,

Net revenues $ 134,695 $ 101,828

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The following table details the share-based compensation expense included in costs and expenses:

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Unaudited Unaudited

Three months ended March 31,

Cost of revenues $ 733 $ 590

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The following table includes certain commercial operating statistics for and as of the end of the periods presented.

September 30,

Operating statistics 2021 2020

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Total 3,454 3,095

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Prescriptions received in period

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Other EMEA 134 122

Japan 86 84 265 213

Total 1,402 1,409

In the U.S., there were 13 active MPM patients on therapy as of September 30, 2020 and 13 MPM prescriptions were received in the three months ended September 30, 2020.

Three and nine months ended September 30, 2020 compared to three and nine months ended September 30, 2019

Three months ended September 30, Nine months ended September 30,

2020 2019 % Change 2020 2019 % Change

In the U.S., there were 17 active MPM patients on therapy as of March 31, 2021 and 11 MPM prescriptions were received in the three months ended March 31, 2021.

Three months ended March 31, 2021 compared to three months ended March 31, 2020

Three months ended March 31,

2021 2020 % Change

Net revenues $ 134,695 $ 101,828 32 %

Net revenues.

Net revenues increased 44% to $132.7 million for the three month period ending September 30, 2020 from $92.1 million for the same period in 2019, and increased 39% to $350.4 million for the nine month period ended September 30, 2020 from $252.1 million for the same period in 2019.

The increase in both the three and nine month periods resulted primarily from an increase of 610 active patients in our currently active markets, representing 22% growth, and a durable improvement in the net revenues booked per active patient, as well as an increase in collaboration revenues from our partnership with Zai Lab.

We recorded $10 million and $27 million in revenues from Medicare fee-for-service beneficiaries billed under the coverage policy effective on September 1, 2019 for the three and nine month periods ended September 30, 2020, respectively.

We have gained a good understanding of how to ensure timely processing of Medicare claims and have sufficient experience to recognize approximately two-thirds of the expected contribution from Medicare beneficiaries.

In the third quarter of 2020, we also recognized approximately $8 million in incremental net revenues

compared to the first two quarters of 2020 resulting from the successful appeal of previously denied claims for Medicare fee-for-service beneficiaries billed prior to established coverage.

Three months ended September 30, Nine months ended September 30,

2020 2019 % Change 2020 2019 % Change

Net revenues increased 32% to $134.7 million for the three month period ending March 31, 2021 from $101.8 million for the same period in 2020.

The increase resulted primarily from an increase of 359 active patients in our currently active markets, representing 12% growth, and a durable improvement in the net revenues booked per active patient.

We recorded $9.4 million in revenues from Medicare fee-for-service beneficiaries billed under the coverage policy effective on September 1, 2019 for the three month period ended March 31, 2021, an increase of 32% from the $7.1 million recognized in the same period in 2020.

We have gained a good understanding of how to ensure timely processing of Medicare claims and we believe that we have sufficient experience to recognize approximately two-thirds of the expected contribution from Medicare beneficiaries.

In the first quarter of 2021, incremental net revenues resulting from the successful appeal of previously denied claims for Medicare fee-for-service beneficiaries billed prior to established coverage reverted to normalized levels from the first half of 2020.

Three months ended March 31,

2021 2020 % Change

Cost of revenues $ 26,385 $ 24,496 8 %

Cost of revenues.

Our cost of revenues increased by 24%, to $28.4 million for the three months ended September 30, 2020 from $22.9 million for the same period in 2019, and increased by 23% to $78.4 million for the nine months ended September 30, 2020 from $63.8 million for the same period in 2019.

For both the three and nine month periods, the increase in cost of revenues was primarily due to the cost of shipping transducer arrays to a higher volume of commercial patients and increasing shipments of equipment to Zai Lab, partially offset by benefits of ongoing efficiency initiatives and scale.

Gross margin was 79% for the three months ended September 30, 2020 compared to 75% for the three months ended September 30, 2019.

Gross margin was 78% for the nine months ended September 30, 2020 compared to 75% for the nine months ended September 30, 2019.

Our cost of revenues increased by 8%, to $26.4 million for the three months ended March 31, 2021 from $24.5 million for the same period in 2020.

For the three month period, the increase in cost of revenues was primarily due to the cost of shipping transducer arrays to a higher volume of commercial patients and increasing shipments of equipment to Zai Lab.

Excluding sales to Zai, cost of revenues per active patient per month decreased 9% to $2,415 for the three months ended March 31, 2021 from $2,641 for the same period in 2020 due to on-going efficiency initiatives and scale.

Cost of revenues per active patient is calculated by dividing the cost of revenues for the quarter less equipment sales to Zai for the quarter by the average of the active patients at the end of the prior quarter and the ending active patients in the current quarter.

This quarterly figure is then divided by three to estimate the monthly cost of revenues per active patient.

Sales to Zai are deducted because they are sold at cost and in anticipation of future royalties from Zai, and Zai patient counts are not included in our active patient population.

Product sales to Zai totaled $1.5 million for the quarter ended March 31, 2021 compared to $0.7 million for the quarter ended March 31, 2020.

Gross margin was 80% for the three months ended March 31, 2021 compared to 76% for the three months ended March 31, 2020.

Operating Expenses.

Three months ended September 30, Nine months ended September 30,

2020 2019 % Change 2020 2019 % Change

Three months ended March 31,

2021 2020 % Change

Research, development and clinical trials $ 45,916 $ 25,271 82 %

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Research, development and clinical trials expenses.

Research, development and clinical trials expenses increased 75% to $32.8 million for the three month period ended September 30, 2020 from $18.8 million for the same period in 2019, and increased 59% to $88.0 million for the nine month period ended September 30, 2020 from $55.3 million for the same period in 2019.

For both the three and nine month periods, the change is primarily due to an increase in clinical trial and personnel expenses for our phase 3 pivotal and post-marketing trials, an increase in development and personnel expenses to support our product development programs, increased investments in preclinical research and the expansion of our medical affairs activities.

We continue to invest in the advancement of Tumor Treating Fields' science and technology as part of our long-term value creation strategy.

We anticipate that R&D expenses will continue to increase in future quarters as we advance our preclinical, clinical and product development programs and continue our efforts to increase acceptance of Tumor Treating Fields across the global scientific community.

Research, development and clinical trials expenses increased 82% to $45.9 million for the three month period ended March 31, 2021 from $25.3 million for the same period in 2020.

For the three month period, the change is primarily due to an increase in clinical trial and personnel expenses for our phase 3 pivotal and post-marketing trials, an increase in development and personnel expenses to support our product development programs, increased investments in preclinical research and the expansion of our medical affairs activities.

Sales and marketing expenses.

Sales and marketing expenses increased 23% to $29.4 million for the three months ended September 30, 2020 from $23.8 million for the same period in 2019, and increased 24% to $86.7 million for the nine months ended September 30, 2020 from $69.9 million for the same period in 2019.

For both the three and nine month periods, the change was primarily due to an increase in personnel and professional services costs to support our growing commercial business and reimbursement efforts and an increase in marketing expenses related to the launch of Optune Lua for MPM.

Sales and marketing expenses increased 9% to $31.4 million for the three months ended March 31, 2021 from $28.8 million for the same period in 2020.

For the three month period, the change was primarily due to an increase in personnel and professional services costs to support our growing commercial business and reimbursement efforts.

General and administrative expenses.

General and administrative expenses increased 19% to $27.1 million for the three months ended September 30, 2020 from $22.7 million for the same period in 2019, and increased 23% to $79.1 million for the nine months ended September 30, 2020 from $64.2 million for the same period in 2019.

For both the three and nine month periods, the change was primarily due to an increase in personnel costs, insurance premiums and professional services.

Three months ended September 30, Nine months ended September 30,

2020 2019 % Change 2020 2019 % Change

General and administrative expenses increased 17% to $31.1 million for the three months ended March 31, 2021 from $26.6 million for the same period in 2020.

For the three month period, the change was primarily due to an increase in personnel costs and professional services.

Three months ended March 31,

2021 2020 % Change

Financial expenses (income), net $ 2,646 $ 2,432 9 %

Financial expenses, net.

Financial expenses increased 56% to $4.0 million for the three months ended September 30, 2020 from $2.6 million for the same period in 2019, and increased 47% to $9.0 million for the nine months ended September 30, 2020 from $6.2 million for the same period in 2019.

For both the three and nine month periods, the change was primarily due to a prepayment premium related to the 2018 credit facility.

Three months ended September 30, Nine months ended September 30,

2020 2019 % Change 2020 2019 % Change

Financial expenses increased 9% to $2.6 million for the three months ended March 31, 2021 from $2.4 million for the same period in 2020.

For the three month period, the increase was primarily due to foreign currency translation expenses, partially offset by the absence of interest payments as a result of the loan repayment in August 2020.

Three months ended March 31,

2021 2020 % Change

Income taxes $ 1,394 $ (9,765) (114) %

Income taxes.

Income taxes increased 378% to $1.8 million for the three months ended September 30, 2020 from $(0.6) million for the same period in 2019, and decreased 232% to a benefit of $5.6 million for the nine months ended September 30, 2020 from $4.3 million for the same period in 2019.

For the three months ended September 30, 2020, the increase is primarily due to a change in amortization of intellectual property rights and a change in the mix of applicable statutory tax rates in certain active jurisdictions.

For the nine months ended September 30, 2020 the decrease is primarily due to net operating loss carry-backs and a change in the mix of applicable statutory tax rates in certain active jurisdictions The Company recorded a net tax benefit of $11.3 million in the first quarter of 2020 resulting from net operating loss carry-backs in the U.S.

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.

Income taxes increased $11.2 million or 114% to an expense of $1.4 million for the three months ended March 31, 2021 from a benefit of $9.8 million for the same period in 2020.

In the first quarter of 2020, a net one-time tax benefit of $11.3 million was recorded in response to the changes in the U.S.

tax code related to the economic impacts of the COVID-19 pandemic.

The variance also reflects a change in the mix of applicable statutory tax rates in certain active jurisdictions.

Non-GAAP financial measures

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The following table reconciles net income (loss), which is the most directly comparable GAAP operating performance measure, to Adjusted EBITDA.

Three months ended September 30, Nine months ended September 30,

2020 2019 % Change 2020 2019 % Change

Net income (loss) $ 9,284 $ 1,930 381 % $ 14,891 $ (11,490) (230) %

Income tax 1,755 (630) (379) % (5,614) 4,258 (232) %

Financial income (expenses), net 3,983 2,555 56 % 9,032 6,165 47 %

Depreciation and amortization 2,188 1,932 13 % 6,677 5,993 11 %

EBITDA $ 17,210 $ 5,787 197 % $ 24,986 $ 4,926 407 %

Share-based compensation 20,121 14,338 40 % 55,448 37,719 47 %

Adjusted EBITDA $ 37,331 $ 20,125 85 % $ 80,434 $ 42,645 89 %

Adjusted EBITDA increased by 85% to $37.3 million for the three months ended September 30, 2020 from $20.1 million for the same period in 2019, and increased by 89% to $80.4 million for the nine months ended September 30, 2020 from $42.6 million for the same period in 2019.

This improvement in fundamental financial performance in both the three and nine month periods was driven by net revenue growth coupled with an ongoing commitment to disciplined management of expenses.

Three months ended September 30, Nine months ended September 30,

2019 2018 % Change 2019 2018 % Change

Three months ended March 31,

2021 2020 % Change

Net income (loss) $ (4,128) $ 3,952 (204) %

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Adjusted EBITDA $ 21,145 $ 15,064 40 %

Adjusted EBITDA increased by 40% to $21.1 million for the three months ended March 31, 2021 from $15.1 million for the same period in 2020.

This improvement in fundamental financial performance was driven by net revenue growth partially offset by research and development investments to advance our pipeline programs and increase acceptance of TTFields across the global oncology community.

Liquidity and Capital Resources

We have incurred significant losses and cumulative negative cash flows from operations since our founding in 2000.

As of September 30, 2020, we had an accumulated deficit of $636.0 million.

As of March 31, 2021, we had an accumulated deficit of $631.7 million.

To date, we have primarily financed our operations through the issuance and sale of equity and the proceeds from long-term loans.

At September 30, 2020, we had $234.5 million in cash, cash equivalents and short-term investments, a decrease of $91.6 million compared to $326.1 million at December 31, 2019.

The decrease in our cash, cash equivalents and short-term investments was primarily due to the prepayment of the 2018 credit facility in the amount of $150 million, partially offset by the cash flow from operations and the exercise of options and proceeds from the issuance of shares.

We believe our cash, cash equivalents and short-term investments as of September 30, 2020 are sufficient for our operations for at least the next 12 months based on our existing business plan and our ability to control the timing of significant expense commitments.

At March 31, 2021, we had $864.4 million in cash, cash equivalents and short-term investments, an increase of $21.8 million compared to $842.6 million at December 31, 2020.

The increase in our cash, cash equivalents and short-term investments was primarily due to the cash flow from operations and the exercise of options.

We believe our cash, cash equivalents and short-term investments as of March 31, 2021 are sufficient for our operations for at least the next 12 months based on our existing business plan and our ability to control the timing of significant expense commitments.

We expect that our research, development and clinical trials expenses, sales and marketing expenses and general and administrative expenses will continue to increase over the next several years and may outpace our gross profit.

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The following summary of our cash flows for the periods indicated has been derived from our unaudited consolidated financial statements, which are included elsewhere in this Quarterly Report:

Nine months ended September 30,

Three months ended March 31,

2021 2020 Change % Change

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Net cash provided by operating activities primarily represents our net income (loss) for the periods presented.

Adjustments to net income (loss) for non-cash items include share-based compensation, depreciation and amortization, and asset write-downs and impairment of field equipment.

Operating cash flows are also impacted by changes in working capital, principally trade receivables, trade payables and accrued expenses, inventories, and other long-term assets.

Net cash provided by operating activities was $45.7 million for the nine months ended September 30, 2020, as compared to $19.7 million used in operating activities for the nine months ended September 30, 2019.

Gross profit increased by $83.8 million for the nine months ended September 30, 2020 versus the nine months ended September 30, 2019, fully funding incremental investments of $32.7 million in research and development and $31.7 million in sales, marketing, general and administrative expenses.

The increase in positive cash flow from operations

was primarily driven by an increase in net profit and an increase in the amount of non-cash share-based compensation included in the reported net income (loss) partially offset by an increase in working capital.

Adjustments to net income (loss) for non-cash items include share-based compensation, depreciation and amortization, and asset write-downs.

Operating cash flows are also impacted by changes in operating assets and liabilities, principally trade payables, deferred revenues, other payables, prepaid expenses, inventory and trade receivables.

Net cash provided by operating activities was $17.8 million for the three months ended March 31, 2021, as compared to $2.0 million provided by operating activities for the three months ended March 31, 2020.

Gross profit increased by $31.0 million for the three months ended March 31, 2021 versus the three months ended March 31, 2020, fully funding incremental investments of $20.6 million in research and development and $7.0 million in sales, marketing, general and administrative expenses.

The increase in positive cash flow from operations was primarily driven by higher cash earnings, lower interest payments, the receipt of income tax refunds, as well as the timing of receipts and payments in the ordinary course of business.

Investing activities.

Our investing activities consist primarily of capital expenditures to purchase property and equipment and field equipment, as well as investments in and redemptions of our short-term investments.

Net cash provided by investing activities was $140.8 million for the nine months ended September 30, 2020, compared to $4.9 million used in investing activities for the nine months ended September 30, 2019.

The increase in net cash provided by investing activities was primarily attributable to the net proceeds generated from the sale of investments for cash needs to prepay the 2018 credit facility.

Net cash provided by investing activities was $54.2 million for the three months ended March 31, 2021, compared to $3.1 million used in investing activities for the three months ended March 31, 2020.

The net cash provided by investing activities for the three months ended March 31, 2021 was primarily attributable to $58.2 million of net proceeds from maturity of short-term investments, partially offset by the purchase of $4.0 million of property and equipment.

The net cash used in investing activities for the three months ended March 31, 2020 was primarily attributable to the purchase of $3.1 million of property and equipment.

Financing activities.

To date, our primary financing activities have been the sale of equity and the proceeds from long-term loans.

Net cash used in financing activities was $130.6 million for the nine months ended September 30, 2020, as compared to $53.1 million provided by financing activities for the nine months ended September 30, 2019.

The year-over-year decrease in cash provided by financing activities was primarily related to the prepayment of the 2018 credit facility and a decrease in proceeds from the exercise of options.

On August 18, 2020, we terminated our 2018 term loan credit facility (the “2018 Credit Facility”) by repaying in full the term loan issued thereunder.

The repayment included $150.0 million in principal repayment and $3.0 million 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 included in our third quarter finance expenses.

The 2018 Credit Facility consisted of the term loan, originally maturing on February 7, 2023, with interest on the outstanding loan of 9% annually, payable quarterly in arrears.

Obligations under the 2018 Credit Facility were guaranteed by certain of our domestic direct and indirect subsidiaries and were secured by a first-priority security interest in substantially all of the property and assets of, as well as the equity interests owned by, us and the other guarantors, all of which have been released.

We are in the process of negotiating a new $150.0 million senior secured revolving credit facility with a syndicate of relationship banks.

If completed, the facility would provide, subject to certain conditions and limitations, for an increase in the revolving credit commitments to an aggregate principal amount not to exceed $250.0 million.

The indicative interest rate for the loans is a sliding scale between LIBOR plus 2.75% and LIBOR plus 3.25% per annum.

The commitments under the revolving credit facility would be guaranteed by certain of our subsidiaries and secured by a first-lien of our and certain subsidiary assets.

While we expect to enter into this facility, there can be no assurances that closing will occur or will close on these terms.

Net cash provided by financing activities was $8.0 million for the three months ended March 31, 2021, as compared to $4.5 million provided by financing activities for the three months ended March 31, 2020.

The net cash provided by financing activities for the three months ended March 31, 2021 was due to $8.0 million of

proceeds from the exercise of options.

The net cash provided by financing activities for the three months ended March 31, 2020 was due to $4.5 million of proceeds from the exercise of options.

Convertible Notes

On November 5, 2020, we issued $575.0 million aggregate principal amount of 0% Convertible Senior Notes due 2025 (the “Notes”).

The Notes are senior unsecured obligations.

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

The Notes are convertible 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.

Prior to the close of business on July 31, 2025, the Notes are convertible at the option of the holders only upon the satisfaction of certain conditions and during certain periods and if the Company exercises its right to redeem the Notes as permitted or required by the indenture.

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.

In January 2021, we irrevocably elected to settle all conversions of Notes by a combination of cash and our 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 our ordinary shares

For more information, see Note 10(a) to the Consolidated Financial Statements in the 2020 10-K.

Term loan credit facility

On November 6, 2020, we entered into a new three-year $150.0 million senior secured revolving credit facility with a syndicate of relationship banks (the "2020 Credit Facility").

We may, subject to certain conditions and limitations, increase the revolving credit commitments outstanding under the 2020 Credit Facility or incur new incremental term loans in an aggregate principal amount not to exceed an additional $100.0 million.

The commitments under the 2020 Credit Facility are guaranteed by certain of our subsidiaries and secured by a first lien on our and certain of our subsidiaries’ assets.

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

Additionally, the 2020 Credit Facility contains a fee for the unused revolving credit commitments at a sliding scale based on our secured leverage ratio from 0.35% to 0.45%.

The 2020 Credit 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 March 31, 2021, we were in compliance with such covenants.

As of March 31, 2021, we had no outstanding balance borrowed under the 2020 Credit Facility.

Contractual Obligations and Commitments

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What changed 10-Q

Item 2. Management’s Discussion and Analysis