What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-29 compared with 2021-04-29 · 116 added, 83 removed, 186 unchanged (52% 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 March 31, 2021 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 June 30, 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.

Critical Accounting Policies and Estimates

In accordance with U.S.

generally accepted accounting principles (“GAAP”), in preparing our financial statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of net revenues and expenses during the reporting period.

We develop and periodically change these estimates and assumptions based on historical experience and on various other factors that we believe are reasonable under the circumstances.

Actual results may differ from these estimates.

The critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements can be found in our 2020 10-K.

For additional information, see Note 1 to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

There were no other material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our 2020 10-K.

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.

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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.

With respect to MPM, our commercial efforts are principally focused on generating awareness, educating thoracic oncologists about the benefits of TTFields, and 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.

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

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.

In April 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.

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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.

In May 2021, the FDA approved our investigational device exemption ("IDE") supplement incorporating the recommended protocol changes and we now expect final data in 2022.

In April 2021, the FDA approved our 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.).

KEYNOTE B36 currently has five clinical trial sites actively evaluating patients for enrollment.

In May 2021, we entered into a clinical trial collaboration with GT Medical Technologies, Inc., to develop TTFields together with GT Medical Technologies’ GammaTile Surgically Targeted Radiation Therapy for the treatment of recurrent GBM, expanding our research in the treatment of GBM.

We plan to conduct a phase 2 pilot study to test the effectiveness and safety of neo-adjuvant TTFields followed by resection, GammaTile Therapy, and adjuvant TTFields for recurrent GBM.

This clinical trial collaboration presents an important opportunity to study the radio-sensitizing effect of TTFields.

In July 2021, we announced the final results of our phase 2 pilot HEPANOVA trial investigating TTFields together with sorafenib, a kinase inhibitor, in 27 patients with advanced liver cancer.

Historical control data showed an objective response rate of 4.5% and disease control rate of 43% for patients treated with sorafenib alone.

In 21 evaluable patients, HEPANOVA showed a 9.5% objective response rate and 76% disease control rate, as well as 5.8 months of progression free survival.

These results are even more encouraging when considering the poor prognosis of the study population.

Over half of the patients in HEPANOVA were categorized as Child-Pugh Class B, compared to 5% in the historical control, indicating significant liver functional compromise.

Research conducted to date has shown that TTFields anti-mitotic effect requires extended exposure to the therapy for maximum impact and this was a challenge for HEPANOVA with a median treatment duration of only 10 weeks.

Of the patients who received at least 12 weeks of therapy, the disease control rate reached 91% with an objective response rate of 18%.

These data demonstrate that TTFields have the potential to extend survival in advanced liver cancer.

Our team, along with trial investigators, are actively designing a phase 3 pivotal trial that contemplates TTFields therapy together with the current standard of care, including immunotherapy, and have engaged the FDA regarding the use of TTFields in advanced liver cancer.

The enrollment timelines for our METIS trial are reliant on clinical site expansion in regions that continue to be materially delayed as clinical sites devote significant resources to the COVID-19 global pandemic.

Our clinical affairs teams are focused on accelerating enrollment at existing clinical sites, but our efforts are challenged by a heavy reliance on virtual engagement and, as a result, we now anticipate a two quarter delay in last patient enrollment for METIS, with final data in 2023.

It is estimated that between 20% and 40% of patients with non-small-cell lung cancer develop brain metastases and, together with LUNAR, the METIS data represents an important opportunity to demonstrate the efficacy of TTFields at multiple stages of lung cancer.

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

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

In June 2021, we announced the initiation of a clinical usability study for a new, flexible torso array.

This array was designed to improve patient comfort for all torso and abdominal indications.

The flexible design is intended to improve skin adhesion, to increase degrees-of-motion, and potentially to reduce skin irritation.

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

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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.

For additional information, see Note 12 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 10-K").

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

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.

For the three and six months ended June 30, 2021, our net revenues were $133.5 million and $268.2 million, respectively.

Our net loss for the three and six months ended June 30, 2021, was $14.6 million and $18.8 million, respectively.

As of June 30, 2021, we had an accumulated deficit of $646.3 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 first quarter of 2021.

The COVID-19 pandemic did not have a material impact on our financial results through the second 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.

We believe the prolonged disruption caused by the COVID-19 pandemic is resulting in persisting volatility across global health care systems, such as fluctuations in patient volumes and changes in patterns of care in certain regions, including in areas where the pandemic eased during the quarter.

For example, 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.

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

The COVID-19 pandemic is also having an impact on

clinical trial enrollments, study operations, and regulatory responsiveness, such as described above with respect to our METIS trial.

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

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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

In accordance with U.S.

We develop and periodically change these estimates and assumptions based on historical experience and on various other factors that we believe are reasonable under the circumstances.

Actual results may differ from these estimates.

For additional information, see Note 1 to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

There were no other material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our 2020 10-K.

Commentary on Results of Operations

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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 months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 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 March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Unaudited Unaudited

Net revenues $ 133,517 $ 115,925 $ 268,212 $ 217,753

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

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Unaudited Unaudited

Cost of revenues $ 827 $ 559 $ 1,560 $ 1,149

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Total 3,487 3,278

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Prescriptions received in period

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Other EMEA 138 138 272 260

Japan 108 85 211 179

Total 1,450 1,422 2,852 2,831

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

In the U.S., there were 15 active MPM patients on therapy as of June 30, 2021 and 11 MPM prescriptions were received in the three months ended June 30, 2021.

Three and six months ended June 30, 2021 compared to three and six months ended June 30, 2020

Three months ended June 30, Six months ended June 30,

2021 2020 % Change 2021 2020 % Change

Net revenues $ 133,517 $ 115,925 15 % $ 268,212 $ 217,753 23 %

Net revenues.

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

Net revenues increased 15% to $133.5 million for the three-month period ending June 30, 2021 from $115.9 million for the same period in 2020, and increased 23% to $268.2 for the six-month period ended June 30, 2021 from $217.8 for the same period in 2020.

The increase resulted primarily from an increase of 209 active patients in our currently active markets, representing 6% growth, a sustained improvement in the net revenues booked per active patient, and the launch of Optune in China.

We recorded $8.2 million and $17.5 million in revenues from Medicare fee-for-service beneficiaries billed under the coverage policy effective on September 1, 2019 for the three and six month period ended June 30, 2021, a decrease of 24% and 7% from the $10.8 million and $18.9 million recognized in the same period in 2020.

The decrease in revenue from Medicare does not reflect a reduction in active Medicare patients or a decrease in the contribution we ultimately expect from Medicare beneficiaries, but instead reflects the impact of an extended appeal timeline for certain claims.

In the second quarter of 2021, we did not record a material amount of incremental net revenues resulting from the successful appeal of previously denied claims for Medicare fee-for-service beneficiaries billed prior to established coverage.

Three months ended June 30, Six months ended June 30,

2021 2020 % Change 2021 2020 % Change

Cost of revenues $ 28,599 $ 25,474 12 % $ 54,984 $ 49,970 10 %

Cost of revenues.

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.

Our cost of revenues increased by 12%, to $28.6 million for the three months ended June 30, 2021 from $25.5 million for the same period in 2020, and increased by 10% to $55.0 for the six months ended June 30, 2021 from $50.0 for the same period in 2020.

For the three and six 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.

We continue to focus on opportunities to increase efficiencies and scale within our supply chain.

This includes evaluating new materials, manufacturers, and processes that could lead to lower costs.

One example of this is by reducing the current cost-per array.

Year-over-year, we have seen a 7% improvement in cost-per-array.

Excluding sales to Zai, cost of revenues per active patient per month decreased 2% and 5% to $2,520 and $2,468 for the three and six months ended June 30, 2021 from $2,578 and $2,608 for the same period in 2020.

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.

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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.

Product sales to Zai totaled $2.4 million and $3.9 for the three and six months ended June 30, 2021 compared to $0.8 million and $1.6 million for the three and six months ended June 30, 2020.

Gross margin was 79% for the three months ended June 30, 2021 compared to 78% for the three months ended June 30, 2020.

Gross margin was 79% for the six months ended June 30, 2021 and 77% for the six months ended June 30, 2020.

Operating Expenses.

Three months ended March 31,

2021 2020 % Change

Three months ended June 30, Six months ended June 30,

2021 2020 % Change 2021 2020 % Change

Research, development and clinical trials $ 50,315 $ 29,918 68 % $ 96,231 $ 55,190 74 %

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Research, development and clinical trials expenses.

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.

Research, development and clinical trials expenses increased 68% to $50.3 million for the three-month period ended June 30, 2021 from $29.9 million for the same period in 2020, and increased 74% to $96.2 million for the six-month period ended June 30, 2021 from $55.2 in the same period in 2020.

For the three and six month period, the change is primarily due to an increase in clinical trial and personnel expenses for our phase 3 pivotal, post-marketing, and label-expansion 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 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.

Sales and marketing expenses increased 20% to $34.1 million for the three months ended June 30, 2021 from $28.5 million for the same period in 2020, and increased 14% to $65.5 million for the six-month period ended June 30, 2021 from $57.3 million for the same period in 2020.

For the three and six month period, the change was primarily due to an increase in personnel and professional services costs as we continue to enhance our commercial capabilities in anticipation of potential future approvals in new indications.

Accordingly, we are investing heavily in our market access capabilities in order to evaluate opportunities, identify optimal access pathways, and successfully gain reimbursement in new geographies.

General and administrative expenses.

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

General and administrative expenses increased 29% to $32.8 million for the three months ended June 30, 2021 from $25.4 million for the same period in 2020, and increased 23% to $63.9 million for the six months ended June 30, 2021 from $52.0 million for the same period in 2020.

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

Three months ended June 30, Six months ended June 30,

2021 2020 % Change 2021 2020 % Change

Financial expenses (income), net $ 940 $ 2,617 (64) % $ 3,586 $ 5,049 (29) %

Financial expenses, net.

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

Financial expenses decreased 64% to $0.9 million for the three months ended June 30, 2021 from $2.6 million for the same period in 2020, and decreased 29% to $3.6 for the six months ended June 30, 2021 from $5.0 for the same period in 2020.

For the three and six month period, the decrease was primarily due to the absence of interest payments as a result of the loan repayment in August 2020.

Three months ended June 30, Six months ended June 30,

2021 2020 % Change 2021 2020 % Change

Income taxes $ 1,406 $ 2,396 (41) % $ 2,800 $ (7,369) (138) %

Income taxes.

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.

Income taxes decreased 41% to $1.4 million for the three months ended June 30, 2021 from $2.4 million for the same period in 2020, and increased 138% to $2.8 million for the six months ended June 30, 2021 from a benefit of $7.4 million for the same period in 2020.

For the three months ended June 30, 2021 the decrease reflects a change in the mix of applicable statutory tax rates in certain jurisdictions.

For the six months ended June 30, 2021, the increase was primarily due to a net one-time tax benefit of $11.3 million which was recorded in the first quarter of 2020 in response to the changes in the U.S.

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

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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 March 31,

2021 2020 % Change

Three months ended June 30, Six months ended June 30,

2021 2020 % Change 2021 2020 % Change

Net income (loss) $ (14,641) $ 1,655 (985) % $ (18,769) $ 5,607 (435) %

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Adjusted EBITDA $ 18,066 $ 28,039 (36) % $ 39,211 $ 43,103 (9) %

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.

Adjusted EBITDA decreased by 36% to $18.1 million for the three months ended June 30, 2021 from $28.0 million for the same period in 2020, and decreased by 9% to $39.2 for the six months ended June 30, 2021 from $43.1 for the same period in 2020.

The decrease was driven by investments in research and development, sales and marketing, and other operational activities to maximize future growth opportunities.

We believe these focused investments are critical to our efforts to realize the long-term potential of the TTFields platform.

Liquidity and Capital Resources

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

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

As of June 30, 2021, we had an accumulated deficit of $646.3 million.

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

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.

At June 30, 2021, we had $899.0 million in cash, cash equivalents and short-term investments, an increase of $56.5 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 believe our cash, cash equivalents and short-term investments as of June 30, 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:

Three months ended March 31,

Six months ended June 30,

2021 2020 Change % Change

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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.

Net cash provided by operating activities was $44.0 million for the six months ended June 30, 2021, as compared to $14.7 million provided by operating activities for the six months ended June 30, 2020.

Gross profit increased by $45.4 million for the six months ended June 30, 2021 versus the six months ended June 30, 2020, funding incremental investments of $41.0 million in research and development and $20.1 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.

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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 $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.

Net cash provided by investing activities was $51.6 million for the six months ended June 30, 2021, compared to $6.4 million used in investing activities for the six months ended June 30, 2020.

The net cash provided by investing activities for the six months ended June 30, 2021 was primarily attributable to $58.2 million of net proceeds from maturity of short-term investments, partially offset by the purchase of $6.6 million of property and equipment.

The net cash used in investing activities for the six months ended June 30, 2020 was primarily attributable to the purchase of $6.4 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 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.

Net cash provided by financing activities was $19.0 million for the six months ended June 30, 2021, as compared to $9.8 million provided by financing activities for the six months ended June 30, 2020.

The net cash provided by financing activities for the six months ended June 30, 2021 and June 30, 2020 included proceeds from the exercise of options and purchase of shares under the Company's stock option plan and employee share purchase plan ("ESPP").

Convertible Notes

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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.

Prior to the close of business on July 31, 2025, a holder of Notes may convert their Notes at any time during any calendar quarter (and only during such calendar quarter), if the last reported sale price of ordinary shares for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, is greater than or equal to $218.712.

The Notes are also convertible at the option of the holders upon the satisfaction of certain other 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.

8 unchanged sentences

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.

As of June 30, 2021, we were in compliance with such covenants.

As of June 30, 2021, we had no outstanding balance borrowed under the 2020 Credit Facility.

Contractual Obligations and Commitments

6 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis