The Valuation on NovoCure Stock Is a Tough Pill to Swallow, Says Analyst

Biotech stocks tend to really put the foot on the gas when positive news hits the stands. Case in point: NovoCure (NVCR) shares surged 46% this week after the market reacted positively to an update from the late-stage study of its experimental lung cancer treatment.

The company announced that following a review of interim data, an independent data monitoring committee (DMC) had concluded that Novocure could accelerate the study after no evidence of increased systemic toxicity was displayed in the data from 210 patients.

The committee informed Novocure it will not need to reach 534 patients with 18 months of follow-up. It is now just required to evaluate 276 patients with a follow-up time of 12 months.

Novocure’s tumor-treating field (TTFields) technology comes in the form of a body-worn device which uses electrical fields and disrupts cancer cell division – cancer grows via this process – without affecting healthy cells. The testing is being done combining TTFields with cancer drugs known as checkpoint inhibitors. If proved a success, it could be highly lucrative in the treatment of lung cancer – in the U.S. alone, around 93,000 people are diagnosed with non-small cell lung cancer (NSCLC) every year.

J.P. Morgan’s Cory Kasimov was taken aback by the news.

“Novocure’s update came as a major surprise and clearly appears favorable for the ultimate probability of success for the Phase 3 LUNAR study in lung cancer,” Kasimov noted. “That said, the press release lacks sufficient details to suggest that success is a foregone conclusion.”

While Kasimov understands the optimism and increases the treatment’s POS (possibility of success) in NSCLC from 45% to 70%, the analyst recommends investors proceed with caution.

“Overall, we see this as a favorable development but maintain our Neutral (i.e., Hold) rating based on the several nuances associated with the trial design and limited details in the press release…but mostly because of the prevailing valuation,” the 5-star analyst summed up.

Kasimov remains on the sidelines with a $103 price target, implying shares will retreat by 47% over the next 12 months. (To watch Kasimov’s track record, click here)

Turning now to the rest of the Street, other analysts expect shares to remain range-bound for the foreseeable future as indicated by the $190.14 average price target. (See NVCR stock analysis on TipRanks)

To find good ideas for biotech stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.