Novocure will win a paltry 10% of its targeted lung cancer market, an analyst predicted Tuesday as he examined NVCR stock's double-digit drop over seven days.
The company tested a device that uses electrical fields at specific frequencies to interrupt the rampant division of cancer cells in patients with non-small cell lung cancer. Novocure added its treatment to standard drugs. The combination led to a statistically significant improvement in overall survival.
In response, NVCR stock rocketed about 68.5% on Jan. 5. Since then, shares have slumped more than 22.5% as of Tuesday morning. Evercore ISI analyst Vijay Kumar says a debate is raging over whether Novocure will actually snag much of the non-small cell lung cancer market.
"Our case study pointed to penetration of about 10%, which would imply about $5 of value per share," he said in a note to clients. "As against this, the bulls clearly have high expectations, which is hard for us to justify based on what we know."
On today's stock market, NVCR stock dipped 1.8% to close at 92.26.
Many Questions Face NVCR Stock
NVCR stock is in a unique position. The company tested its treatment — dubbed tumor treating fields — in non-small cell lung cancer patients who previously received chemotherapy and worsened. But the standard of care has changed in the U.S.
Instead of chemo, most patients now try immuno-oncology drugs like Merck's Keytruda in the first treatment round. That means there are few to no patients who match the group Novocure tested, Kumar said.
Novocure disagrees. In the first round of treatment, many patients receive a combination of chemo and immuno-oncology drugs, the company said.
"Therefore, by definition, most patients seeking second-line treatment for (non-small cell lung cancer) have failed (chemotherapy)," the company said in an email to Investor's Business Daily. "Any patient taking this regimen in the first-line setting would have been eligible for (the Novocure study called) Lunar."
The combination Novocure tested included its electrical fields technology on top of immuno-oncology drugs or chemotherapy. Immuno-oncology drugs lock onto specific proteins present on tumor cells. This helps the immune system identify and destroy cancer. These drugs tend to work better in patients whose tumors have a high level of those proteins.
But Novocure didn't separate patients based on those protein levels. So, it's hard to know which element of the regimen — the tumor treating fields or the immuno-oncology drug — drove the improvement in overall survival. Novocure says patients were randomly placed in the study based on their protein levels.
Wide Bull Vs. Bear Chasm
Kumar kept his underperform rating and 42 price target on NVCR stock.
He also noted an independent panel of experts recommended Novocure shorten the study and drop patient enrollment by half. There have been questions since then as to what prompted those changes. Kumar said the "bull vs. bear chasm" is currently too wide of a bridge to cross for NVCR stock.
"This battle will be decided by the Food and Drug Administration and its views on (study) changes, and the fact that patients were not randomized based on (protein levels)," he said.
Shares Slip Back Into A Buy Zone
NVCR stock initially broke out of a consolidation with a buy point at 91.08 on Jan. 5, MarketSmith.com shows. Shares first bounded above a profit-taking zone and then slipped back into a buy zone. They're currently floating in the lower half of the 5% chase zone, which runs from 91.08 to 95.63.
Shares have a strong Relative Strength Rating of 92 out of 99. This means NVCR stock ranks in the top 8% of all stocks when it comes to 12-month performance.
But the IBD Digital Composite Rating is low at 52 on the 1-99 scale. This puts Novocure stock in the middle of all stocks in terms of fundamental and technical metrics.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
