What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-28 compared with 2021-07-29 · 104 added, 80 removed, 222 unchanged (45% 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 June 30, 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 September 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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over time to study the safety and efficacy of TTFields for additional solid tumor indications and combinations with other cancer treatment modalities.

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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 10-K").

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.

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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.

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 May 2021, the FDA approved our investigational device exemption ("IDE") supplement incorporating the recommended protocol changes and we 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.

As of September 30, 2021 there were five KEYNOTE B36 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.

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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.

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.

In September 2021, we announced that the FDA granted breakthrough designation to the NovoTTF-200T System, a TTFields delivery system intended for use together with atezolizumab and bevacizumab for the first-line treatment of patients with unresectable or metastatic liver cancer.

The designation offers us an opportunity to interact with FDA experts throughout the premarket review phase and allows for prioritized review of regulatory submissions.

Also in September 2021, we entered into a clinical collaboration with Roche to develop TTFields together with Roche’s anti-PD-L1 therapy, atezolizumab, for treatment of patients with metastatic pancreatic ductal adenocarcinoma (mPDAC).

We plan to conduct a phase 2 pilot study to test the safety and efficacy of TTFields together with atezolizumab, gemcitabine and nab-paclitaxel as a first-line treatment for mPDAC.

This clinical

collaboration will study the immune-shielded environment of the pancreas and investigate our ability to improve clinical outcomes for patients with this deadly disease.

We will be the study sponsor and Roche is providing atezolizumab for the trial.

In October 2021, we and Zai announced that the final patient has been enrolled in EF-31, a Novocure-sponsored, phase 2 pilot trial conducted by Zai Lab evaluating the safety and efficacy of TTFields in combination with chemotherapy as a first-line treatment in patients with gastric adenocarcinoma.

Zai has enrolled approximately 30 patients in Greater China.

The protocol is designed to include 25 evaluable patients who receive at least one tumor assessment.

In October, 2021, we announced that the final patient has been enrolled in our phase 3 pivotal INNOVATE-3 trial evaluating the efficacy of TTFields together with paclitaxel for treatment in patients with platinum-resistant ovarian cancer.

The European Network for Gynecological Oncological Trials and The GOG Foundation, Inc.

collaborated with Novocure on the design and facilitation of this trial.

Following the completion of enrollment, the independent Data Monitoring Committee will conduct the pre-specified interim analysis pursuant to the trial protocol.

Final data is anticipated in 2023.

The enrollment timelines for our PANOVA-3 trial are reliant on the ability of our clinical sites to administer the trial in accordance with protocol specifications.

A shortage of nab-paclitaxel, commercially known as Abraxane, has had an impact on the chemotherapy supply at clinical sites.

Furthermore, due to the denial of an importation license for Abraxane by the National Medical Products Administration, we are unable to expand our clinical trial footprint into Greater China at this time.

As such, we now anticipate final data in 2024.

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.

We continue our efforts to optimize array design to improve patient comfort for all torso and abdominal indications, improve skin adhesion and increase degrees-of-motion.

In the third quarter, we discontinued enrollment in a clinical usability study for a new, flexible torso array due to establishing enhanced capabilities for collecting usability feedback.

We will continue to follow enrolled patients in order to gather applicable data.

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 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 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.

For the three and nine months ended September 30, 2021, our net revenues were $133.6 million and $401.8 million, respectively.

Our net loss for the three and nine months ended September 30, 2021, was $13.1 million and $31.9 million, respectively.

As of September 30, 2021, we had an accumulated deficit of $659.5 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 second quarter of 2021.

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

For example, we continue to see fluctuations in the timing of surgeries, radiation therapy and advanced disease progression 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 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.

The COVID-19 pandemic is also having an impact on clinical trial enrollments, study operations, and regulatory responsiveness.

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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Results of Operations

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 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, 2021 as compared to the three and nine months ended September 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 June 30, Six months ended June 30,

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

2021 2020 2021 2020

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

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

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

2021 2020 2021 2020

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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

Active patients at period end

United States 2,206 2,143

North America (1) 2,223 2,218

Germany 562 533

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Total 3,502 3,361

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

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

2021 2020 2021 2020

Prescriptions received in period

United States 967 968 1,884 1,954

North America (1) 931 955 2,815 2,909

Germany 220 239 705 677

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Total 1,380 1,371 4,232 4,202

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,

(1) North America includes data for the United States and Canada for the third quarter of 2021 and the United States only for all other periods.

There were 13 active MPM patients on therapy as of September 30, 2021 and 15 MPM prescriptions were received in the three months ended September 30, 2021.

Three and nine months ended September 30, 2021 compared to three and nine months ended September 30, 2020

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

2021 2020 % Change 2021 2020 % Change

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Net revenues.

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,

Net revenues increased 1% to $133.6 million for the three-month period ending September 30, 2021 from $132.7 million for the same period in 2020, and increased 15% to $401.8 for the nine-month period ended September 30, 2021 from $350.4 for the same period in 2020.

The increase resulted primarily from an increase of 141 active patients in our currently active markets, representing 4% growth, and the launch of Optune in China.

In the third quarter of 2021, we recorded only de minimus revenue from the successful appeal of previously denied claims for Medicare fee-for-service beneficiaries billed prior to established coverage, versus the $8.0 million that we recorded in the third quarter of 2020.

We continue to actively appeal and pursue previously denied claims for

beneficiaries billed prior to established coverage, but the cadence and amount of these Medicare payments are impossible to predict.

In the third quarter 2021, we recorded $10.6 million and $28.1 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 period ended September 30, 2021, an increase of 9% and 4% from the $9.7 million and $26.9 million recognized in the same period in 2020.

We believe we have completed our administrative ramp-up towards processing Medicare claims and efficiently pursuing appeals.

Approximately 25% of our current Medicare fee-for-service beneficiaries began use of TTFields therapy prior to the effective date of coverage and, as a result, are not contributing revenue at the time of billing.

We expect to realize additional benefit as the mix of Medicare fee-for-service beneficiaries shifts to include a greater percentage of patients who have started therapy under the coverage policy effective September 1, 2019.

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

2021 2020 % Change 2021 2020 % Change

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Cost of revenues.

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.

Our cost of revenues increased by 6%, to $30.2 million for the three months ended September 30, 2021 from $28.4 million for the same period in 2020, and increased by 9% to $85.2 for the nine months ended September 30, 2021 from $78.4 for the same period in 2020.

For the three and nine 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.

Excluding sales to Zai, cost of revenues per active patient per month decreased 6% and 6% to $2,485 and $2,475 for the three and nine months ended September 30, 2021 from $2,630 and $2,622 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 $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.

Product sales to Zai totaled $4.2 million and $8.0 for the three and nine months ended September 30, 2021 compared to $2.2 million and $3.8 million for the three and nine months ended September 30, 2020.

Gross margin was 77% for the three months ended September 30, 2021 compared to 79% for the three months ended September 30, 2020.

Gross margin was 79% for the nine months ended September 30, 2021 and 78% for the nine months ended September 30, 2020.

The moderately lower gross margin in the third quarter 2021 was driven by an increase in Zai Lab purchases in the quarter.

Operating Expenses.

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

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

2021 2020 % Change 2021 2020 % Change

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Research, development and clinical trials expenses.

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.

Research, development and clinical trials expenses increased 47% to $48.1 million for the three-month period ended September 30, 2021 from $32.8 million for the same period in 2020, and increased 64% to $144.4 million for the nine-month period ended September 30, 2021 from $88.0 in the same period in 2020.

For the three and nine month period, the change is primarily due to an increase in clinical trial and personnel expenses for our phase 3 pivotal 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 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.

Sales and marketing expenses increased 11% to $32.6 million for the three months ended September 30, 2021 from $29.4 million for the same period in 2020, and increased 13% to $98.1 million for the nine-month periods ended September 30, 2021 from $86.7 million for the same period in 2020.

For the three and nine 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 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,

General and administrative expenses increased 15% to $31.2 million for the three months ended September 30, 2021 from $27.1 million for the same period in 2020, and increased 20% to $95.1 million for the nine months ended September 30, 2021 from $79.1 million for the same period in 2020.

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

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

2021 2020 % Change 2021 2020 % Change

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Financial expenses, net.

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,

Financial expenses decreased 50% to $2.0 million for the three months ended September 30, 2021 from $4.0 million for the same period in 2020, and decreased 38% to $5.6 for the nine months ended September 30, 2021 from $9.0 for the same period in 2020.

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

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

2021 2020 % Change 2021 2020 % Change

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Income taxes.

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.

Income taxes increased 48% to $2.6 million for the three months ended September 30, 2021 from $1.8 million for the same period in 2020, and increased 196% to $5.4 million for the nine months ended September 30, 2021 from a benefit of $5.6 million for the same period in 2020.

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

For the nine months ended September 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.

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

The variance also reflects a change in the mix of applicable statutory tax rates in our 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 June 30, Six months ended June 30,

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

2021 2020 % Change 2021 2020 % Change

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Adjusted EBITDA $ 19,940 $ 37,331 (47) % $ 59,151 $ 80,434 (26) %

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.

Adjusted EBITDA decreased by 47% to $19.9 million for the three months ended September 30, 2021 from $37.3 million for the same period in 2020, and decreased by 26% to $59.2 for the nine months ended September 30, 2021 from $80.4 for the same period in 2020.

The decrease was driven by increased investments in research and development activities intended to further our exploration of TTFields therapy, and in sales and marketing readiness initiatives in anticipation of future potential launches in new indications.

Adjusted EBITDA as a percentage of net revenues was 15% in the third quarter, due to research and development investment reaching 36% of third quarter net revenues.

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

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

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

As of September 30, 2021, we had an accumulated deficit of $659.5 million.

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

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.

At September 30, 2021, we had $933.8 million in cash, cash equivalents and short-term investments, an increase of $91.2 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 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 believe our cash, cash equivalents and short-term investments as of September 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:

Six months ended June 30,

Nine months ended September 30,

2021 2020 Change % Change

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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 $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.

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 $68.4 million for the nine months ended September 30, 2021, as compared to $45.7 million provided by operating activities for the nine months ended September 30, 2020.

Gross profit increased by $44.6 million for the nine months ended September 30, 2021 versus the nine months ended September 30, 2020, partially funding incremental investments of $56.4 million in research and development and $27.5 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 $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.

Our investing activities consist primarily of investments in and redemptions of our short-term investments as well as investments in property and equipment.

Net cash provided by investing activities was $354.3 million for the nine months ended September 30, 2021, compared to $140.8 million provided by investing activities for the nine months ended September 30, 2020.

The net cash provided by investing activities for the nine months ended September 30, 2021 was primarily attributable to $364.2 million of net proceeds from maturity of short-term investments, partially offset by the purchase of $9.9 million of property and equipment.

The net cash provided by investing activities for the nine months ended September 30, 2020 was primarily attributable to the to the net proceeds generated from the sale of investments for cash needed to prepay the 2018 credit facility.

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 $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").

Net cash provided by financing activities was $22.1 million for the nine months ended September 30, 2021, as compared to $130.6 million used in financing activities for the nine months ended September 30, 2020.

The net cash provided by financing activities for the nine months ended September 30, 2021 and September 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").

The cash used in financing activities for the nine months ended September 30, 2020 was primarily related to the prepayment of the 2018 credit facility.

Convertible Notes

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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.

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.

3 unchanged sentences

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.

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.

2 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 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.

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

As of September 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