Earnings Call Transcript - NVCR Q2 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to the NovoCure Second Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to turn the conference to your host today, Ashley Cordova, Senior Vice President of Finance & Investor Relations. Please go ahead.

Ashley Cordova, Senior Vice President of Finance & Investor Relations

Good morning, everyone and thank you for joining us to review Novocure's second quarter 2020 performance. With the management team largely working remotely, we are again conducting today's call virtually. I am joined on the phone by our Executive Chairman, Bill Doyle; our CEO, Asaf Danziger; and our CFO, Wilco Groenhuysen; Pritesh Shah, our Chief Commercial Officer; and Ely Benaim, our Chief Medical Officer are also on the call and available for Q&A. The slides presented today can be viewed on our website www.novocure.com by clicking on the link for second quarter 2020 financial results, located in the Events section on our Investor Relations page. Before we start, I would like to remind you that, our discussions during this conference call will include forward-looking statements and actual results could differ materially from those projected in these statements. These statements involve a number of risks and uncertainties some of which are beyond our control including those risks and uncertainties described from time-to-time in our SEC filings. We do not intend to update publicly any forward-looking statement except as required by law. Following our prepared remarks today, we will open the line for questions. Financials for the three months for the six months ended June 30, 2020 are available in our press release and in our 10-Q, both of which we released earlier this morning. Where appropriate, we will refer to non-GAAP financial measures to evaluate our business. Reconciliations of non-GAAP financial measures to GAAP financial measures are also included in our press release and the appendix of the supplemental slides accompanying this presentation and in our Form 8-K filed with the SEC today. These materials can be accessed from the Investor Relations page of our website, www.novocure.com. With that, I will now turn the call over to Bill Doyle.

Bill Doyle, Executive Chairman

Thank you, Ashley and good morning everyone. At Novocure, we remain focused on our mission to extend survival in some of the most aggressive forms of cancer through the development and commercialization of our life-extending therapy, Tumor Treating Fields. Our track record of execution extended into the second quarter of 2020 with sustained commercial momentum, driving strong financial performance despite the challenges of doing business during the COVID-19 pandemic. Our team proves that we can adapt to a rapidly changing environment and we further strengthened our foundation for growth in Q2. We generated a record $116 million in revenue globally, reported positive EPS of $0.02 per share, and we ended the second quarter with $347 million of cash on hand. Our financial strength allowed funding of increased investments in clinical and product innovation, intended to further unlock the potential of the Tumor Treating Fields platform. We believe the Tumor Treating Fields's mechanism of action is broadly applicable to solid tumor cancers. Our fundamental scientific research spans two decades and all of our pre-clinical research to date. Tumor Treating Fields has demonstrated a consistent anti-mitotic product effect. Building upon the solid foundation of compelling pre-clinical evidence, we are executing a strategy to advance Tumor Treating Fields therapy through Phase 2 pilot trials, Phase 3 pivotal trials, and Phase 4 post-marketing studies across multiple solid tumor cancer indications. Investments supporting the advancement of both our science and technology remain core to our long-term value creation strategy, and there have been several recent notable developments that I would like to highlight today. In July, we enrolled the last patient in the HEPANOVA trial, a Phase 2 pilot trial, studying Tumor Treating Fields in combination with sorafenib in patients with advanced liver cancer. Tumor Treating Fields have demonstrated efficacy in vitro and in vivo models of hepatocellular carcinoma and can be delivered to the abdominal region. In pre-clinical studies, Tumor Treating Fields plus sorafenib led to reduced viability and clonogenicity of hepatocellular carcinoma cells as well as increased apoptosis and autophagy in vitro and to a significant reduction in tumor volumes in vivo. Our preclinical data informed the design of the Phase 2 HEPANOVA trial. HEPANOVA was designed to detect an overall response rate of 20% in 25 patients treated with Tumor Treating Fields, compared to a 4.5% overall response rate calculated from historical controls. We expect final data collection six months from the last patient enrollment and look forward to seeing the results in early 2021. Beyond our internal development efforts, Tumor Treating Fields therapy is of increasing interest to the broader scientific and clinical research communities. In July, we announced a clinical trial collaboration agreement with MSD, a trade name of Merck, to develop Tumor Treating Fields together with the anti-PD-1 therapy KEYTRUDA for the treatment of first-line non-small cell lung cancer. Preclinical studies suggest the use of Tumor Treating Fields together with anti PD-1 therapy can augment the immune response resulting in improved tumor control, and we are currently studying the combination of Tumor Treating Fields and anti PD-1 therapies as a second-line treatment for Stage 4 non-small cell lung cancer in our LUNAR trial. In collaboration with Merck, we will expand our research in lung cancer to study the combination of Tumor Treating Fields with KEYTRUDA for first-line treatment of Stage 3 non-small cell lung cancer in a Phase 2 pilot study designed to enroll approximately 66 patients in the United States. Objective response rate is the primary endpoint of the study and secondary endpoints include overall and progression-free survival. Keynote 36 is expected to begin in the second half of 2020. We look forward to generating clinical data from this important combination study in first-line non-small cell lung cancer with a global leader in oncology. These important achievements underscore our unwavering focus on advancing our clinical development strategy both internally and with external collaborators. We remain confident in the potential to significantly expand the addressable market for Tumor Treating Fields with readouts of key data sets from the six indications in our pipeline anticipated over the next three years. Beyond clinical development, we are working to improve our therapy and our therapy delivery systems. We continue to expand our product development programs to deliver technology enhancements intended to improve our therapy's efficacy and our products' ease of use. Our product development organization includes dedicated teams focused on advancements of the Tumor Treating Fields generator, arrays, and software applications intended to improve patient outcomes in the aggressive cancers that we treat. Just over a year ago, an EF-14 post-hoc analysis published in the Red Journal provided a definition of dose for Tumor Treating Fields and demonstrated that higher doses improved survival in newly diagnosed GBM patients. The dose response for Tumor Treating Fields is driven by total energy delivered, which is a function of time on therapy and electric field intensity delivered to the tumor bed. The Red Journal analysis was pivotal in guiding our product development efforts in Tumor Treating Fields dose symmetry and treatment planning. In the second quarter, our software applications team completed initial development of a new treatment planning software package called Max Point, which seeks to optimize the Tumor Treating Fields dose delivered to GBM patients. Max Point will allow physicians to estimate the field intensity delivered to an individual GBM patient's tumor and will provide a tool to customize that patient's treatment plan and transducer array layouts based on algorithms that compute the field's impact on different tissues. Configuration of the transducer arrays has always been an essential factor in determining Tumor Treating Fields intensity delivery. We believe Max Point will be an important product enhancement to help account for each GBM patient's individual characteristics when determining the optimal Tumor Treating Fields preparation for a data for full deployment of Max Point for a select number of radiation oncology partners later this year. Our array development team is undertaking multiple projects to advance our array technologies. The Optune system currently delivers Tumor Treating Fields therapy for the treatment of GBM using four transducer arrays with nine ceramic discs each. To increase field intensity, Novocure designed high intensity arrays with 14 ceramic discs each for use in the EF-33 study. Increasing the surface area of arrays is expected to enable delivery of higher field intensities while maintaining the treatment safety profile. Last week, we launched a Phase 2 pilot study to test the incremental survival benefit of delivering Tumor Treating Fields with high-intensity arrays in 25 patients with recurrent GBM. The EF-33 study is designed to determine if Tumor Treating Fields delivered at 200 kilohertz with high-intensity arrays prolong progression-free survival compared to historic control using standard arrays. EF-33 is intended to measure whether high-intensity arrays can extend median progression-free survival by approximately two months equating to a hazard ratio of 0.6. We expect final data from the study in 2022, at which point we will determine the appropriate regulatory pathway for potential commercial use. In parallel, the array development team is working on several other initiatives intended to further advance our array technology, including a potential non-ceramic array. Our increased focus on product development is central to our mission to extend cancer survivorship, and we are excited to highlight these programs as they progress. We plan to host a Research & Development Day for analysts and investors in November to highlight progress across our development pipeline and introduce areas of internal and external focus in our translational research. We remain optimistic about the role Tumor Treating Fields can play in advancing cancer care across all of our pipeline indications, and we remain optimistic in our ability to continue to improve the patient benefits of Tumor Treating Fields therapy. The fundamental prospects of our business are as strong as ever, and we are determined to advance our priorities to unlock the long-term potential of our proprietary platform. With that, I will turn the call over to Asaf to share his perspective on the second quarter.

Asaf Danziger, CEO

Thank you, Bill. Before I share an update on our commercial progress in the quarter, I want to take a moment to review the impact of COVID-19 as it remains top of mind. As we noted last quarter, the aggressive cancers we treat do not slow with COVID-19. While we have seen some fluctuations in patient volumes in specific regions, the pandemic did not have a material adverse effect on our commercial business, our global supply chain, or our financial results for the second quarter. Based on what we know today, we do not anticipate a material impact going forward. We made adjustments to our business in response to COVID-19. For example, we implemented multiple virtual engagement tools and programs to maintain connections with our patients, healthcare professionals and partners around the world. We respect our institutional restrictions on external visitors and the individual wishes of our patients and caregivers. Where possible, our field-based teams are starting to return to in-person visits in certain regions. With respect to our pipeline, the anticipated timing of final data from our ongoing clinical trials is unchanged from the update provided in Q1. Our teams continue to make progress enrolling patients at existing sites and to treat enrolled clinical trial patients in all of our ongoing clinical trials. We are working closely with institutions, local authorities and contract research organizations to maintain engagement and will continue to adapt our claims as needed to advance our clinical development priorities. We believe the value of the TTFields platform, our direct-to-patient business model and the long-term potential of our business remain intact. This is in large part due to the focus and drive of the entire organization, and I have never been more proud of the team's dedication to our mission. Now, turning to the specifics of our quarterly performance, Q2 was another strong quarter for Novocure. Our GBM business delivered a record $116 million in global net revenues, up 14% versus 2020. We ended the second quarter with nearly 3,300 active patients on therapy, an increase of 183 patients versus the prior quarter, adding to the more than 16,000 patients treated to date globally. We view geographic expansion as one of the keys to drive near-term growth. In May, Optune was approved by the China National Medical Product Administration in combination with temozolomide for the treatment of patients with newly diagnosed GBM, and also as a monotherapy for the treatment of patients with recurrent GBM. This improvement represents the first treatment advance for GBM patients in China in over 15 years, highlighting the differentiation of Optune in treating GBM. The approval also extends the reach of TTFields to the world's largest patient population with more than 45,000 GBM cases diagnosed each year. I would like to recognize the joint efforts of Zai Lab and Novocure teams that supported this achievement. We look forward to continuing to advance the TTFields platform in Greater China through our partnership with Zai. Moving to other expansion opportunities, we are currently seeking to obtain CE certification for Optune Lua in the European Union. With this approval, we can begin to broaden access for patients diagnosed with MPM in our active markets within the EU. In the U.S., there are now over 100 physicians certified to prescribe Optune Lua to MPM patients at more than 50 cancer treatment centers across the country. I want to reiterate how proud I am of our performance this quarter, a testament to the focus and drive of all Novocure colleagues. To those colleagues listening on the call today, thank you for all that you do in support of our patient-forward mission. With that, I will turn the call over to Wilco to discuss our financial results.

Wilco Groenhuysen, CFO

Thank you, Asaf. Novocure's sustained commercial momentum delivered strong financial performance in the second quarter, and we remain well-positioned to advance the strategic priorities in 2020. Our GBM business delivered second quarter net revenues of $160 million, representing 34% growth versus the second quarter of 2019. Our year-over-year revenue growth was driven both by a 20% increase in active patients and by a 12% improvement to the average net revenues booked per active patient. The increase in revenue per patient benefited from continuous improvements in U.S. reimbursement rates. Specifically, we've recognized $11 million in second quarter net revenues for Medicare fee-for-service beneficiaries billed under the positive coverage policy established on September 1, 2019. This was our third full quarter of progress from the administrative ramp-up with Medicare, and we have gained a good understanding of how to ensure timely processing of clean claims. Approximately 60% of our Medicare active patients are currently eligible for coverage under the policy if they started therapy after coverage went into effect in September 2019. We continue to gain experience processing claims that require an appeal, and we expect we will gain sufficient experience over the next two quarters to recognize additional revenue from these Medicare beneficiaries. Moving down to the P&L, gross profit in the second quarter was $19 million, reflecting a 78% gross margin. Gross margin continues to benefit from ongoing efficiency initiatives and increasing scale. Our capital allocation priorities are unchanged, and we continue to invest in innovation as part of our long-term value creation strategy. We invested $13 million in R&D to support the continuing advancement of Tumor Treating Fields science and technology in the second quarter, up 54% versus the second quarter of 2019. This was primarily due to an increase in clinical trial and personnel expenses for our Phase 3 and Phase 4 post-marketing trials, as well as an increase in development and personnel expenses to support our product development programs, increased investments in pre-clinical research and the extension of our medical affairs outreach. We expect R&D expenses will continue to increase in future quarters, as we advance our pre-clinical, clinical and product development programs and our efforts to increase acceptance of Tumor Treating Fields across the global scientific community. Our second quarter SG&A expenses were $54 million, up 20% versus the second quarter of 2019, driven primarily by increased personnel costs to support our role in the commercial business and reimbursement efforts, as well as increased marketing expenses related to the launch of Optune Lua. Our net income was $2 million, or $0.02 earnings per share, representing our fourth consecutive quarter of profitability. We also evaluate our operating performance based on adjusted EBITDA, the non-GAAP measurement of earnings before interest taxes, depreciation, amortization and share-based compensation. We believe this is an important metric as it removes the impact of earnings attributable to our capital structure, tax rates, and material non-cash items, specifically share-based compensation, and it best reflects the financial value generated by our business. Adjusted EBITDA increased by 64% to $28 million for the three months ended June 30th, 2020 from $17 million for the same period in 2019. There’s improvement in fundamental financial performance, driven by supply growth and disciplined management of expenses. We ended the quarter with $347 million in cash, cash equivalents, short-term investments, and an additional $15 million from the prior quarter. We believe that our financial strength coupled with our cash on hand provides us with stability and flexibility to fund both near-term and long-term strategic priorities. Before I hand the call over to the operator for Q&A, I would like to thank everyone on the phone for their continued interest in Novocure. Our results in the second quarter highlighted a track record of execution versus sustained commercial momentum that drove another strong financial performance, funding increased investments in clinical and product innovations intended to unlock future value. We believe that the fundamental prospects of our business are strong, and we remain confident in our team, our strategy, and the long-term potential of the Tumor Treating Fields platform to extend survival in some of the most aggressive forms of cancer. Thank you for your time this morning. Now, I will turn the call back over to the operator for questions.

Operator, Operator

Our first question comes from Greg Gilbert with SunTrust. Your line is open.

Greg Gilbert, Analyst

Have a couple, Bill, it’s good to see tangible progress on the higher intensity approach, starting that mean that you've solved the material science challenges that we've discussed in the past that were kind of limiting before? And my second question is on the Merck collaboration, which is good to see, could you provide a little background on how that dialogue has progressed over time with your key piece of data or a development that pushed you in them off the fence in terms of starting? And lastly, can you provide any more color about that study in terms of the types of patients that would and would not be part of it, whether that's cut point for PDL1 positivity, screen or non-screens or any other color you're willing to provide? Thank you.

Bill Doyle, Executive Chairman

Sure. So good morning, thanks as always for your interest. I just want to state before we get started that we are completely dispersed around the world. So I am going to be a little directive when I ask people to suggest in an answer, but let me start with the high intensity. As I mentioned during the prepared remarks, it gets absolutely clear based on our preclinical research and all of our analyses of our clinical work to date. And when I say that recall, when we treat a patient, we know exactly where the arrays are being placed based on the array placement software. And we have high resolution MRIs for all the patients. So, we know the configurations of the tissues in their brain and the locations of their tumors. So we're able to make very specific electrical field maps on a patient-by-patient basis, and what was seen and published in the Red Journal after very painstaking analysis was what makes sense. But, what was proven is that tumors that receive a higher intensity of Tumor Treating Fields have a much better overall survival than tumors that have a lower dose. So, what does that mean practically, and why haven't we turned up the Fields intensity before? The reason is that with our commercial system, which is the first arrays that we developed now, well over a decade ago, as we turn up the intensity we generate heat under the ceramic discs on the scout, and we have to limit the intensity as the temperature goes up. There are a number and our teams are working on a number of engineering solutions for this. The first was to just increase the number of those discs, and that's what we described. So, if you will, this is less of a material science solution, more of an engineering solution to spread that intensity out among 14 discs rather than among nine. And this allows us, this was the fastest path to allow us to enter the clinic with the system. We did mention in the script that we have a number of other approaches that, if you will, are more elegant and will deliver comfort as well as higher intensity that I believe will be in the clinic in the future. But this is I think a great example of how we can translate first of all fundamental science into the clinic in a relatively short period of time. Your second question was on Merck. What I can say here is that the Merck science teams and the Novocure science teams collaborated on the design of this trial. We started by presenting to the highest levels to the Merck science team our work that, both preclinical and early clinical showing the potential benefits of combining Tumor Treating Fields therapy with anti-PD-1 therapy. I would say as is obvious by the fact that we moved forward, they saw the potential of this. They've worked very closely with us to design the trial protocol. Clearly lung cancer is probably the Merck company's most important franchise, and they wanted to put Tumor Treating Fields in lung cancer. So, this was a true collaborative effort and we're really excited to get this trial kicked off.

Greg Gilbert, Analyst

Thanks. And any color on the patient makeup PD-L1 positivity cut points or squamous non-squamous?

Ely Benaim, Chief Medical Officer

Sure. Thank you for the call and the question. The KEYNOTE 36 population is going to cover advanced or metastatic intrathoracic non-small cell lung cancer patients. They have to be PD-L1 tumor proportion scores of 1% or higher.

Operator, Operator

Thank you. Our next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is open.

Larry Biegelsen, Analyst

Good morning guys. Thanks for taking the question. One for Wilco and one for Bill, I'll ask them both up front. Just Wilco on the P&L, any colors on the gross margin, it was quite strong this quarter. Is there still room for improvement in the gross to net? By our math in Q2 is about 55%. Where do you see that going or revenue per patient and talks about it being up at 12%? Where do you see that going? And, for Bill can you talk about trial enrollment and if it's picked up, if you can open new sites yet and just lastly, on clinical trials Bill, on the interim analyses that you expect in 2021, any color at this point on whether those will be in the first or second half or the cadence of those analyses? Thanks for taking the questions guys.

Wilco Groenhuysen, CFO

Let me kick it off. Good morning Larry, Wilco here. Two great questions as always. First of all, gross margin. As you know, we've been committed to improving our efficiency and operating leverage over the last number of quarters and cost of goods sold is one aspect of that. And we're very pleased with the improvement from 76% to 78% in the second quarter. That's something to do with the revenue pickup, of course, but there's a lot to do with our commitment to finding ways to become more efficient in our distribution order fulfillment process, as well as some further improvement in purchasing. I would expect, as we said earlier, to see that gross margin go up a little bit further, unclear right now to what extent the 78 is a comparable platform with some potential upside. With prospective growth, we mentioned during the split that we see continued improvement in our reimbursement anticipation. That's one of the drivers of our revenue increase in the second quarter as well. One of the aspects there is that we now can recognize more and more of their Medicare revenue. You mentioned that claims improvements, and we also believe that for the monthly plans we've developed the process that will enable us to be successful at a significant rate in these particular claims where 55% now with those further improvements in the administrative ramp-up that we talked about in the last few quarters, we expect that to last for another couple of quarters, but then we should see the Medicare come to full fruition.

Bill Doyle, Executive Chairman

So thanks for calling. I'll just pick up the tail end of your question, Larry, and then turn it over to Ely. Regarding timing of trial completion, we haven't changed our estimates of trial completion. We don't further differentiate first quarter, second quarter, third quarter in terms of analysis and Ely, maybe if you have any color on trial opening or site opening to share.

Ely Benaim, Chief Medical Officer

Thank you, Bill. I would say that we have seen what we call a clinical trial environment stabilization. We have already started seeing early signs of clinical trial reopening in certain geographies. We successfully launched the high-intensity arrays. We believe that this transition to stable clinical trial will be regional and trial-specific factors. We continue to have strong engagement with the institution and local authorities, as well as CROs with clinical trial environment reopening in different geographies. So, I think we have sort of taken over the issues that COVID presented to us and we are pushing forward. And like Asaf mentioned, I’m extremely proud of what the teams have done. We have pushed through, and we're seeing the benefits in our enrollment and opening new sites.

Operator, Operator

Thank you. Our next question comes from the line of Vijay Kumar with Evercore. Your line is now open.

Vijay Kumar, Analyst

Congrats and nice quarter. Maybe on the new non-small lung cancer trials as a first line therapy, I'm curious Asaf, given the details from HEPANOVA on your analysis showing an objective response rate of 20% versus a baseline of 4.5%. Is there a similar metric here for the first-line trial on the non-small lung cancer site that we should be expecting?

Asaf Danziger, CEO

So, good morning Vijay and it's good to hear from you. Thanks for your question. So, our collaboration with Merck expands Tumor Treating Fields research and first-line treatment of Stage 2 non-small cell lung cancer versus a second-line treatment for Stage 4 non-small cell lung cancer in our LUNAR trial. So it really, and I think if you think of this in combination with our work in, really points to our development of a franchise in this area. The trial is designed to enroll 66 patients. We expect to start soon. The overall response rate is a well-established surrogate endpoint and overall survival in PFS in Phase 2 studies. So, we think it's appropriate. I will say that there's no relationship between HEPANOVA and EF-33. We look at the data in each indication in order to develop the statistics for each individual trial. And again, this one was designed with Merck Sciences. This was not designed by ourselves, and we have not yet disclosed the further statistical considerations in this trial.

Vijay Kumar, Analyst

Understood. And then on the financial side; on the revenue beat, the main drivers there seem like U.S. reimbursement and revenue per patient per month that stepped up and clearly actual patients that continue to grow plus 20%. So on the U.S. reimbursement, are you seeing any step up in commercial reimbursement rates or personally flights of covered? I'm curious what's driving that. On that active patient side, as the compliance rates improve, should we now just be looking at strong double-digit actual patients for the foreseeable future? Thank you.

Wilco Groenhuysen, CFO

Wilco, maybe you can start or take this whole question. Good morning, Vijay. Wilco here, let's start with the reimbursement question. I think our revenue beat was largely driven by anticipation, as you noted. We commented on the improvement in reimbursement rates, and Medicare was a strong example of that. You've also seen some increased success rates in other areas, such as the approval rates for our commercial business in the United States. We see some improvement there as well, not necessarily on the preparation collection, but successfully cleaning and having a higher success rate in the proof to pledge. So overall, we're satisfied with how it's developing and the impact of course it has on our top line and in our margins. With respect to the continued growth in patients, you've seen over the last number of quarters that patient growth is one of the stable factors in our business. The second quarter showed a little bit stronger patient growth. So it's not completely managed, but we do expect to continue to grow incrementally.

Bill Doyle, Executive Chairman

So Larry, I just want to underscore that there’s going to be a major shift from current GBM to newly diagnosed GBM, that we saw in prior years, which could ultimately drive further patient growth and treatable instate, and the significant populations of unreached patients who could benefit from our treatment. We believe our efforts are right on track for our long-term strategy.

Operator, Operator

Thank you. Our next question comes from the line of Jason Bednar with Piper Sandler. Your line is open.

Jason Bednar, Analyst

Good morning, everyone, thank you for the questions and congrats on a really nice quarter here. Bill, I want to start with you. I don't want to get too far ahead of ourselves here, but the way you described the value in the commercial path for the high-intensity approach after completing the phase two study, can you expand on what the paths that are possible that you see as you sit here today?

Bill Doyle, Executive Chairman

So Jason, this is an area where we don't want to get too far ahead. And we're really focused on, number one is completing this first trial, EF-33. We are also very focused and I'm personally very optimistic about some of the designs that we have in the pipeline. And again, I think we showed you that we can get something from the design table into the clinic pretty deliberately here. I think that has a lot to do with our inherent safety profile. And so we're enthusiastic about the high-intensity prospects, but we're a little too early to give you the pathway into commercial use. Okay, understood and that’s helpful. Maybe then just a couple of international items, just wondering if you can offer any insight into how inventory may be managed at Zai Lab, so I’ll have an idea of maybe the revenue contribution from royalties versus product sales. And then, how should we think about Novocure plans to move beyond the pending France entry and other European markets over the next couple of years? Thanks. So there's a lot there and I'm going to maybe ask Wilco and Pritesh to contribute, but I'll make the first comment that Zai Lab is our partner in China. We have found the partnership to have lived up to all of our expectations and more. It's been a terrifically professional organization with which to work. That said, they're responsible for the commercial execution in China and they will report the details. But, Wilco, I don't know if you have any comments on inventory which might be helpful and then Pritesh you can talk about Europe expansion.

Wilco Groenhuysen, CFO

Thank you, Bill. Let's start with the three components of revenue for Zai and we expect those components could increase in the future, of course, with the approval in China. One component is the sale of equipment to Zai and the other important component is royalties. There are also some milestone payments that we amortize over time. So that's a relatively stable amount, but the sale of equipment to royalties is perhaps something I’d like to elaborate on. The sale of equipment is essentially at cost. So back to a question that was asked a little while ago, while we feel very good about the gross margin developing out of our GBM and our own managed commercial business, there will be some impact on the sale of equipment where margin could go in going forward because it’s a zero margin. It’s offset somewhat later by royalties at a 100% margin. We expect of course the net benefits coming from that, but it may have a bit of an impact on our costs. I don't think it's material. But if it is material in the short run, it will be assigned with great success in the commercial launch in China. So, we feel good about that opportunity and the success that Zai has obtained from the approval. But you will have a minor impact on inventory. Of course, we need to make sure that we can supply Zai with inventory, but we've been successful in managing inventory successfully and at acceptable levels over the years, and I don't think Zai will be an exception to that.

Pritesh Shah, Chief Commercial Officer

Great. And thank you Wilco. I'll pick up on the international question. So, as we shared before, one of our levers for growth is geographical expansion, and we're continuing on this path forward. The benefit we have right now is, we can use the GBM franchise and expand beyond where we are today in other European geographies. As you heard from Asaf's opening remarks, with the pending CE mark for Optune Lua, that offers up another opportunity for expansion in the European markets. And we've shared our work in France; that's where we’re focusing right now. It's one of the big EU 5 countries and we're making progress on that front. Thanks. I will wrap up this topic, and I missed mentioning: so much happened in this quarter, and we've been so busy managing in this environment that we've received approval for newly diagnosed and recurrent GBM in Greater China, the largest market in terms of patient population, on the strength of our international data. So again, I think everyone who's really a China student knows that international therapies coming into China almost always require a Chinese bridging study, and that can add as much as a decade to the time of availability. So, I want to thank our team and the Zai team for this extraordinary achievement.

Ashley Cordova, Senior Vice President of Finance & Investor Relations

Operator, do you want to queue up the next question?

Operator, Operator

Thank you. Our next question comes from the line of Difei Yang with Mizuho. Your line is open.

Difei Yang, Analyst

Hi. Good morning and thanks for taking my questions. Congratulations on the great quarter. Just a couple of questions: first of all, on the KEYTRUDA trial, how should we think about the trial in relation to the LUNAR trial? And it seems like the KEYTRUDA trial may read out earlier than the LUNAR. How should we think about the path forward from there?

Bill Doyle, Executive Chairman

Sure. So good morning. It's good to hear from you. I think there are a number of things to take away from the launch or the announcement of the EF-33. First and foremost, I think it's an indication of the broad applicability of Tumor Treating Fields therapy. As we've said, our therapy does not depend on a specific gene marker or a specific stage. We believe that we can treat all solid tumor cancers, which can deliver the fields, essentially all the lung cancers. So LUNAR is a trial in second-line Stage 4 non-small cell lung cancer, and EF-33 is in the first line. You're right. It may very well read out sooner than we expect, but this is how we will build out a global non-small cell lung cancer franchise across lines, across indications.

Difei Yang, Analyst

Okay. Thank you. Then a separate question on the link program; it was launched in early June. I'm curious if there's any early clearance or early data points that you could share with us.

Pritesh Shah, Chief Commercial Officer

Sure. Thank you for that question. As we shared, MyLink is a device that we have launched to help patients keep track of their usage. Before the introduction of the device, usage was tracked either through tracking the usage of the device or we have to swap out the equipment, and with MyLink, patients are now empowered to do that so we can keep better track of usage. So we launched an initial pilot in the U.S.; we have about 80 units out and the early pilot results are allowing us to understand, first of all, that patients are able to do this successfully. With that confidence, we will continue on with the rollout pathway in the U.S. and also look to bring forward MyLink into other geographies.

Operator, Operator

Thank you. Our next question comes from the line of Cory Kasimov with JPMorgan. Your line is open.

Cory Kasimov, Analyst

Thank you. Hey, thank you for taking my question. This is Turner for Corey. I was just hoping if you could provide some additional color or details on the terms of your collaboration with Merck for the combo study, just anything from the financial terms to either who's going to be leading the trial would be helpful. Thanks.

Bill Doyle, Executive Chairman

Sure. We have not disclosed the financial terms, but what I can tell you is that the development of the trial protocol was a collaborative activity. We worked very closely with them. We will execute the trial and then we will share the data and determine the next steps forward. We are really excited to work with the team. It’s probably the best oncology team in the world, that's clear in collaborating with them. They are also the leader in non-small cell lung cancer. So, we look at this as a tremendous opportunity for Tumor Treating Fields.

Cory Kasimov, Analyst

Got it. And just on scripts, you posted negative quarter growth in the U.S. and Japan. But I'm curious what you're seeing in EMEA that's driving growth. Are there any differences in underlying physician script patterns between different geographies?

Bill Doyle, Executive Chairman

I'll turn this over to Pritesh. But the one thing I would say is, because I've been getting this kind of question now since we launched in 2015. The scripts in GBM, and because it's a relatively infrequent disease, the number of patients that go into one hospital one quarter and another hospital in another quarter do vary. We have seen those ebbs and flows. A couple of quarters ago, you'll remember Germany had gone in the wrong direction. At the same time, the U.S. flowed in a positive direction. So we focus on patients on therapy and, of course, trying to drive the revenue for therapy. We think there are many more patients in all of our geographies who can benefit than are currently on the therapy. I'll go back to the fact that we're not limited by a particular genetic marker or a particular phenotype. We are limited by education, and sometimes we're limited by the patients who walk in the doors. But Pritesh, maybe you can give a little more color on the quarter.

Pritesh Shah, Chief Commercial Officer

Sure. Thank you Bill and thank you for the question. So, I will start off with the sustained commercial momentum that we experienced this quarter despite the COVID impact and what we experienced here, are our typical ebbs and flow in our patient volume. Despite that, what we're proud of are the 3,300 active patients in Q2 and the growth that we see there. We will continue to focus on generating demand, because that is one of our key indicators that we focus on that predicates success on the number of active patients and subsequent revenue.

Bill Doyle, Executive Chairman

Thank you. I want to pick up on the same scene that Asaf mentioned during the prepared remarks. These are clearly unprecedented times. They're unprecedented for all of us, but I have to commend the Novocure organization and team for their performance during these times. I think it's an absolute testament to their dedication to serving our patients and ensuring they have their therapy, serving our clinical trial patients and preparing to treat more patients with additional cancers in the future or in our research and development organizations. It's very difficult. Many of our offices are closed, and people are working from home. That's not always easy. And so, I just have to express my personal, profound thanks and appreciation for our team. Also, thank everyone on the call for their interest in Novocure, and now we’ll get back to work. Thank you.

Operator, Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.