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Item 2. Management’s Discussion and Analysis

2022-04-28 compared with 2021-10-28 · 115 added, 172 removed, 154 unchanged (65% 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, 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 March 31, 2022 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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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.

Our key priorities are to drive commercial adoption of Optune and Optune Lua, our commercial TTFields devices, 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.

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, 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 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.

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

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

Optune Lua is approved by the FDA under the Humanitarian Device Exemption ("HDE") pathway to treatment malignant pleural mesothelioma ("MPM") together with standard chemotherapies.

We have also received CE certification in the EU and approval or local registration to market Optune Lua in certain other countries.

We market Optune and Optune Lua in multiple countries around the globe with the majority of our revenues coming from the use of Optune in the U.S., Germany and Japan.

We are actively evaluating opportunities to expand our international footprint.

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

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

In 2021, we completed patient enrollment in our phase 3 pivotal NSCLC and ovarian cancer studies with data anticipated in 2022 and 2023, respectively.

Additionally, we have multiple ongoing phase 2 pilot studies evaluating the use of TTFields.

These studies are in gastric cancer, for which patient enrollment is complete, and stage 3 NSCLC, as well as testing the potential incremental survival benefit of TTFields delivered using high-intensity arrays versus standard arrays.

We are also currently conducting a global phase 4 post-marketing study testing the potential survival benefit of initiating Optune concurrent with radiation therapy versus following radiation therapy in patients with newly diagnosed GBM.

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 March 2022, we announced that an independent data monitoring committee ("DMC") conducted a pre-specified interim analysis for the phase 3 pivotal INNOVATE-3 study for the treatment of platinum-resistant ovarian cancer.

As part of the interim analysis, the DMC reviewed the safety data for all enrolled patients and completed an analysis of overall survival on the first 540 patients randomized in the study.

The interim analysis did not indicate a need to increase the patient sample size and the DMC recommended that the study should continue to final analysis as planned.

The INNOVATE-3 study accrued 540 patients as of October 2021 and data will be reviewed in 2023, following an 18 month follow-up period.

The table below presents the current status of the ongoing clinical studies 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 are designed to optimize TTFields delivery to the target tumor and enhance patient ease of use.

Our intellectual property portfolio contains hundreds of issued patents and numerous patent applications pending worldwide.

We believe we possess 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.

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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, 2021 (the "2021 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.

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.

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.).

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.

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.

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.

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.

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.

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

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.

For the three months ended March 31, 2022, our net revenues were $137.5 million.

Our net loss for the three months ended March 31, 2022 was $4.6 million.

As of March 31, 2022, we had an accumulated deficit of $690.6 million.

Our net loss resulted primarily from net revenue growth which was more than offset by increasing investments in sales and marketing initiatives that support our growing commercial business, geographic expansion and pre-commercial activities associated with potential future indication launches.

Impact of COVID-19

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

In March 2020, the World Health Organization (“WHO”) declared COVID-19 a global pandemic.

Since the pandemic began, we have been following the guidance of the WHO, 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.

The COVID-19 pandemic did not have a material impact on our financial results through the first quarter of 2022.

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, radiation therapy and advanced disease progression in certain regions, which has had some adverse influence on the eligible patient population for Optune.

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 is currently impacting and might continue to impact our business and clinical studies in the future.

For example, outside the U.S., localized lockdowns are causing disruptions in the ability to monitor clinical studies.

In the first quarter of 2022 we were impacted by staff disruptions and turnover internally and at treatment sites, clinical study sites and third-party providers, either directly as a result of illness or indirectly as a result of vaccine mandates and other changes in terms of employment.

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.

We have relied heavily on virtual engagement to manage these educational efforts since the onset of the pandemic, 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.

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

The extent to which the COVID-19 pandemic may impact our business and clinical studies 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 2021 10-K.

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Operating expenses.

Our operating expenses consist of research, development and clinical trials, sales and marketing and general and administrative expenses.

Our operating expenses consist of research, development and clinical studies, sales and marketing and general and administrative expenses.

Personnel costs are a significant component for each category of operating expenses and consist of wages, benefits and bonuses.

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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, 2021 as compared to the three and nine months ended September 30, 2020.

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

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,

2021 2020 2021 2020

Unaudited Unaudited

Three months ended March 31,

Net revenues $ 137,547 $ 134,695

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Operating costs and expenses:

Research, development and clinical trials 48,141 32,818 144,372 88,008

Research, development and clinical studies 42,234 45,916

Sales and marketing 37,884 31,357

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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,

2021 2020 2021 2020

Unaudited Unaudited

Three months ended March 31,

Cost of revenues $ 952 $ 733

Research, development and clinical trials 7,761 5,101 21,390 12,275

Research, development and clinical studies 6,801 5,124

Sales and marketing 6,655 4,471

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The number of active patients on therapy is our principal revenue driver.

An "active patient" is a patient who is receiving treatment under a commercial prescription order as of the measurement date, including patients who may be on a temporary break from treatment and who plan to resume treatment in less than 60 days.

An "active patient" is a patient who

is receiving treatment under a commercial prescription order as of the measurement date, including patients who may be on a temporary break from treatment and who plan to resume treatment in less than 60 days.

Prescriptions are a leading indicator of demand.

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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 2022 2021

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Total 3,549 3,454

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

2021 2020 2021 2020

Three months ended March 31,

Prescriptions received in period

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Total 1,384 1,402

(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

(1) North America includes data for the United States and Canada for the first quarter of 2022 and the United States only for all other periods.

There were 10 active MPM patients on therapy as of March 31, 2022 and 9 MPM prescriptions were received in the three months ended March 31, 2022.

Three months ended March 31, 2022 compared to three months ended March 31, 2021

Three months ended March 31,

2022 2021 % Change

Net revenues $ 137,547 $ 134,695 2 %

Net revenues.

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

Net revenues increased 2% to $137.5 million for the three-month period ended March 31, 2022 from $134.7 million for the same period in 2021.

The increase resulted primarily from an increase of 95 active patients in our currently active markets, representing 3% growth.

Additionally, for the quarter ended March 31, 2022, net revenue per active patient per month was positively impacted by increased collections for previously denied and appealed claims in the U.S., offset by a negative impact in Germany following contract negotiations with several large German payers.

We continue to actively appeal and pursue previously denied claims, but the cadence and size of these collections are impossible to predict.

Three months ended March 31,

2022 2021 % Change

Cost of revenues $ 27,727 $ 26,385 5 %

Cost of revenues.

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.

Our cost of revenues increased by 5% to $27.7 million for the three months ended March 31, 2022 from $26.4 million for the same period in 2021.

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.

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.

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.

Gross margin was 80% for the three months ended March 31, 2022 and 80% for the three months ended March 31, 2021.

Excluding sales to Zai, cost of revenues per active patient per month was $2,413 for the three months ended March 31, 2022, virtually unchanged from $2,415 for the same period in 2021, with increasing supply chain efficiencies offsetting the impact of broader economic challenges.

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 $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.

Product sales to Zai totaled $1.9 million for the three months ended March 31, 2022 compared to $1.5 million for the three months ended March 31, 2021.

Operating Expenses.

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

2021 2020 % Change 2021 2020 % Change

Research, development and clinical trials $ 48,141 $ 32,818 47 % $ 144,372 $ 88,008 64 %

Three months ended March 31,

2022 2021 % Change

Research, development and clinical studies $ 42,234 $ 45,916 (8) %

Sales and marketing 37,884 31,357 21 %

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Total operating expenses $ 110,626 $ 108,398 2 %

Research, development and clinical trials expenses.

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.

Research, development and clinical study expenses.

Research, development and clinical study expenses decreased 8% to $42.2 million for the three-month period ended March 31, 2022 from $45.9 million in the same period in 2021, primarily driven by a reduction in direct clinical study costs.

Direct clinical study costs historically represent approximately 30% of total research and development expenses and can fluctuate quarter-to-quarter, dependent on the amount of clinical research organization services delivered and clinical materials procured within a given quarter.

Sales and marketing expenses.

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.

Sales and marketing expenses increased 21% to $37.9 million for the three-month periods ended March 31, 2022 from $31.4 million for the same period in 2021.

For the three month period, the change was primarily due to an increase in market research and strategic planning activities intended to enhance our commercial capabilities in anticipation of potential future approvals in new indications, including NSCLC and ovarian cancer.

Additionally, we are investing in 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 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

General and administrative expenses decreased 2% to $30.5 million for the three months ended March 31, 2022 from $31.1 million for the same period in 2021.

For the three month periods, the change was primarily due to a decrease in personnel costs.

Three months ended March 31,

2022 2021 % Change

Financial expenses (income), net $ 1,709 $ 2,646 (35) %

Financial expenses, net.

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

Financial expenses decreased 35% to $1.7 for the three months ended March 31, 2022 from $2.6 for the same period in 2021.

For the three month periods, the decrease was primarily due to increased interest income and foreign exchange rate fluctuations.

Three months ended March 31,

2022 2021 % Change

Income taxes $ 2,132 $ 1,394 53 %

Income taxes.

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 our active jurisdictions.

Income taxes increased by $0.7 million, or 53% to $2.1 million for the three months ended March 31, 2022 compared to a tax expense of $1.4 million for the same period in 2021.

For the three months ended March 31, 2022 the increase reflects a change in the mix of applicable statutory tax rates in 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,

2021 2020 % Change 2021 2020 % Change

Three months ended March 31,

2022 2021 % Change

Net income (loss) $ (4,647) $ (4,128) 13 %

Income tax 2,132 1,394 53 %

Financial income (expenses), net 1,981 3,983 (50) % 5,567 9,032 (38) %

Financial expenses (income), net 1,709 2,646 (35) %

Depreciation and amortization 2,610 2,370 10 %

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Adjusted EBITDA $ 26,849 $ 21,145 27 %

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.

Adjusted EBITDA for the three months ended March 31, 2022 was $26.8 million.

Net income was roughly flat compared to the same period in 2021, which reflects an increase in net revenue generated in the period, offset by investments in research and development, sales and marketing, and other operational activities intended to maximize future growth opportunities.

Adjusted EBITDA increased by 27% from $21.1 million for the same period in 2021, which was primarily driven by a change in the mix of cash and non-cash based expenses in the form of share-based compensation.

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

As of March 31, 2022, we had an accumulated deficit of $690.6 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, 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 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.

At March 31, 2022, we had $932.3 million in cash, cash equivalents and short-term investments, a decrease of $5.4 million compared to $937.7 million at December 31, 2021.

We believe our cash, cash equivalents and short-term investments as of March 31, 2022 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 study 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.

As a result, we may need to raise additional capital to fund our operations.

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,

2022 2021 Change % Change

Net cash provided by operating activities $ 68,352 $ 45,667 $ 22,685 50 %

Net cash provided by (used in) operating activities $ (3,687) $ 17,780 $ (21,467) (121) %

Net cash provided by (used in) investing activities (17,410) 54,171 (71,581) (132) %

Net cash provided by (used in) financing activities 22,050 (130,645) 152,695 (117) %

Net cash provided by financing activities 3,141 7,955 (4,814) (61) %

Effect of exchange rate changes on cash and cash equivalents (25) (102) 77 (75) %

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Operating activities.

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.

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.

Net cash used in or provided by operating activities represents our net income (loss) for the periods presented, share-based compensation and depreciation and amortization.

Operating cash flows are also impacted by changes in working capital.

Net cash provided by operating activities decreased by $21.5 million from $17.8 million net cash provided by operating activities for the three months ended March 31, 2021 to $3.7 million net cash used in operating activities for the three months ended March 31, 2022.

This decrease was a result of net income being roughly flat compared to the same period in 2021, with a $27.8 million increase in working capital, including a $12.2 million decrease in accounts payables and accrued expenses, $12.1 million increase in accounts receivables and $3.5 million increase in inventories, partially offset by a $6.2 million change in the mix from cash to non-cash based expenses.

Investing activities.

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.

Net cash used in investing activities was $17.4 million for the three months ended March 31, 2022, compared to $54.2 million provided by investing activities for the three months ended March 31, 2021.

The net cash used in investing activities for the three months ended March 31, 2022 was primarily attributable to $12.3 million of net purchase of short-term investments, and the purchase of $5.1 million of property and equipment.

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.

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 $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.

Net cash provided by financing activities was $3.1 million for the three months ended March 31, 2022, as compared to $8.0 million provided by financing activities for the three months ended March 31, 2021.

The net cash provided by financing activities for the three months ended March 31, 2022 and March 31, 2021 included proceeds from the exercise of options under the Company's stock option plan.

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, 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.

The Notes are 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.

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.

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 10a.

to the Consolidated Financial Statements in the 2021 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.

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.

Outstanding loans bear interest per annum at a sliding scale based on the our secured leverage ratio from 2.75% to 3.25% above the applicable interbank borrowing reference rate for the currency in which the loan is denominated.

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 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.

As of March 31, 2022, we were in compliance with such covenants.

As of March 31, 2022, 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