Neovasc Inc (NVCN) 2022 Q2 法說會逐字稿

Greetings, and welcome to the Neovasc Inc. Second Quarter 2022 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mike Cavanaugh, Investor Relations. Please go ahead, sir.

Good afternoon, and thank you for joining us today. Earlier today, Neovasc Inc. released financial results for the quarter ended June 30, 2022. The release is currently available on the Investors section of the company's website at www.neovasc.com/investors. Fred Colen, President and Chief Executive Officer; and Chris Clark, Chief Financial Officer, will host this afternoon's call.

Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of the applicable securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and Canadian securities laws.

Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, our examination of historical operating trends, expectations regarding coverage and approval decisions, pricing and enrollment matters, our value creation strategies, the benefits of our products and our future financial expectations and results are based upon current estimates and various assumptions.

Words such as expect, anticipate, estimate, outlook, will, may, should, continue, strategy, potential, intend, try, believe, plan, and similar words or expressions are meant to identify forward-looking statements. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, we should not place undue reliance on these statements.

For more information on risks and uncertainties related to these forward-looking statements, please refer to the cautionary note regarding forward-looking statements and Risk Factors sections of Neovasc's Annual Report on Form 20-F and the discussion in Neovasc's MD&A, which are both available on EDGAR and SEDAR. The information provided in this conference call speaks only to the live broadcast today, August 11, 2022. Neovasc disclaims any intention or obligation, except as required by law, to update or revise any information or forward-looking statements, whether because of new information, future events or otherwise.

I will now turn the call over to Fred.

Thank you, Mike, and good afternoon, everyone. As always, thank you for joining us today. I'll start today's call with a business update and an overview of the quarter before turning the call over to Chris to discuss our second quarter financials. The second quarter of 2022 was record-breaking, with revenues up 29% year-over-year, coming in at just over USD818,000. This was a record achievement despite lingering COVID issues, particularly in Germany, with observed hospital staffing issues in the quarter and against a strong currency headwind.

As we touched upon in Q1 earnings call, our team's reimbursement efforts domestically and abroad have been tremendous. Domestically, the COSIRA II trial, which is intended to support the Reducer and a full PMA submission to the FDA is ramping up and is also contributing to our revenues already in the second quarter. The devices used in the trial generated about 12% of total revenues. Internationally, we are beginning to see the direct impact of our reimbursement efforts, which we believe will continue to pay off in the back half of the year.

Our team continues to build on all 3 pillars of our value creation strategies, making great progress across the board. The first pillar of our value creation strategy is to expand the use of the Reducer outside of the United States. The reimbursement efforts in Europe and elsewhere have been strong, and we are starting to reap the fruits of our labor. The dedication and hard work from the team has secured reimbursement in major pivotal markets across Europe in prior quarters, and we are on track to continue to make progress in additional European markets.

In November of 2021, we announced that the National Institute for Health and Care Excellence of The United Kingdom, NICE, provide positive guidance for the Neovasc Reducer System. This supports the first therapeutic intervention for stable angina patients who have not responded to treatment. As a result of the positive guidance, we are seeing an increase in utilization in the United Kingdom. As such, last month, we announced the expansion of our direct sales operations in Europe to include the United Kingdom, adding 2 sales employees as the commercial requirements continue to increase.

As part of this expansion, we recorded a one-time distributor transition expense in the second quarter. With our direct U.K. sales team in place, we expect to have higher margins in the U.K. going forward as compared to the prior distributor relationship. We are now poised to provide deeper support with a dedicated full-time team based in the U.K. and intend to continue to invest in clinical research and field personnel to support patients, hospitals, physicians and anticipated continued growth.

Securing reimbursement in the U.K., France and Germany has been an amazing accomplishment. Our team has done great work, but we also believe that this is a direct testament to benefits the Reducer can provide to health systems across the world by providing improved outcomes for patients and result in cost savings to payers. We continue to see a steady increase in the use of the Reducer in those areas of Europe, while we pursue additional markets further abroad, and we are grateful to see the growing acceptance and use of the Reducer for the treatment of refractory angina.

The second pillar of our value creation strategy is the U.S. market. The COSIRA II trial is ramping up, and we currently have 40 patients enrolled, 21 patients randomized at 10 sites. As a reminder, the COSIRA II clinical trial is targeting the randomization of approximately 380 patients across as many as 50 investigational sites. And the trial is pivotal for our efforts to gain approval for the Reducer in the U.S. And as we recently disclosed, this important study is expanding in scope. The FDA has approved a protocol supplement to the trial. The supplement more than doubles the number of patients eligible for treatment in the trial and add 2 previously planned imaging sub-studies as part of COSIRA II designed to provide insight into the safety and mechanism of action of the Reducer.

The single-arm registries represent opportunities for us to enroll, treat and study further specific patient populations, not however, must enroll obligations. We are now working with CMS on potential reimbursement for these patients as well, and we will inform you about the outcome in due course. As mentioned in our previous earnings call, patients that experienced the debilitating effects of refractory angina will have access to an FDA-designated breakthrough medical device in our placebo-controlled trial, marking this an important step towards potential commercialization in the United States. Due to the diligent efforts of our team in coordination with CMS, the FDA and our clinical trial sites, the device is reimbursable in the placebo-controlled COSIRA II study without endangering the blinding of the study.

We have, therefore, recorded $105,000 of revenue from the trial alone in the second quarter of 2022. As a reminder, we now have CMS Coding, Coverage and Payment for the Reducer device in the United States, including during the placebo-controlled COSIRA II trial. We are on track to have the first readout from the COSIRA II trial in the second half of 2024, which would potentially put us on track for an FDA decision around mid-2025. As the trial continues to ramp up, we are gratified that patients are able to access the Reducer therapy and are getting closer towards a domestic approval decision.

As for the third pillar of our value creation strategy, we are continuing to work on critical FEA and bench tests for our Tiara TA mitral valve replacement device. We continue to work on these and other new test requirements by the new European MDR, Medical Device Regulations. We anticipate a decision under the new MDR rules in late 2023. The requirements of the new European MDR approval process are daunting, but our team continues to work diligently to determine if we can meet them. There can be no assurance of our ability to ultimately obtain CE Mark approval.

I would also like to highlight an additional third-party publication supporting the Reducer device in the second quarter of 2022. In April, the European Heart Journal published an article entitled Impact of the Coronary Sinus Reducer on Absolute Blood Flow and Microvascular Resistance Case Report. The article offered by Francesco Giannini, Medical Doctor from Maria Cecilia Hospital, Cotignola, Italy, and others describes objective improvements in the amount of oxygenated blood delivered to the heart muscle measured in real time in 2 patients suffering from refractory angina and treated with the Reducer.

I'm thrilled by this scientific research and its demonstration of easy-to-understand objective evidence and awareness of the Reducer as highlighted by this publication. As many of you recall, we received a written notification from the NASDAQ Stock Market in late November 2021, granting an additional 180 calendar day period until the 23rd of May 2022, within which to evidence compliance with the NASDAQ's $1 minimum bid price requirement.

During the quarter, we executed a 1-for-25 share consolidation. And on May 16, 2022, the company received a written notification from the NASDAQ Stock Market, informing the company that it had regained compliance with the minimum bid price rule requirement under NASDAQ Listing Rule 5550(a)(2) pursuant to NASDAQ Listing Rule 5810 from a -- for continued listing on the NASDAQ. As a reminder, as the company has more than $2.5 million in shareholders' equity, there is no $35 million minimum market capitalization requirement for the company at this point in time. The company believes it is currently in compliance with all NASDAQ listing requirements.

Before I turn the call over to Chris to discuss the financials, I would like to thank our investors, employees and customers for the continued support of Neovasc. I am incredibly proud of the team for all of their dedicated hard work manifesting in the momentum we are seeing across our various value creation strategies, reimbursement initiatives and continued adoption of the Reducer.

With that, I will now turn the call over to Chris for a review of our financial results. Chris?

Thanks, Fred. Revenues increased by 29% to $818,000 for the 3 months ended June 30, 2022, compared to revenues of $633,000 for the same period in 2021. As Fred mentioned, this is a quarterly record and reflects the advances we have made with reimbursement, the expansion of our sales effort in Europe, and the increasing enrollment in the COSIRA II trial, which is being reimbursed by CMS. The cost of goods sold for the 3 months ended June 30, 2022, was $158,000 compared to $109,000 for the same period in 2021. The overall gross margin for the 3 months ended June 30, 2022, was 81% compared to 83% gross margin for the same period in 2021 as we wrote down some obsolete inventory.

Total expenses for the 3 months ended June 30, 2022, were approximately $8.8 million compared to $9.6 million for 2021, representing a decrease of $742,000 or 8%. The decrease in total expenses can be substantially explained by, one, a $1.5 million decrease in share-based payments; two, a $594,000 decrease in impairment charge to fixed assets that occurred in June 2021; three, a $309,000 decrease in employee termination expenses related to pausing the Tiara TF program in June 2021; and four, a $292,000 decrease in litigation expenses. These were offset by a $923,000 increase in employee expenses related to the accrual (inaudible) in the period that were not accrued, but were incurred in the prior period, and a $343,000 increase in other selling expenses as we initiate activities in new markets.

The operating losses and comprehensive losses for the 3 months ended June 30, 2022, were $8.2 million and $8.9 million, respectively, or $3.29 basic and diluted loss per share as compared with $9.1 million operating losses and $9.3 million comprehensive loss or $3.35 basic and diluted loss per share for the same period in 2021. We ended the quarter with $37.6 million in cash. The company used $6.5 million of cash in the quarter, including a $301,000 one-time U.K. distributor transition expense.

Back to you, Fred.

Thanks, Chris. As you can see, our revenue and gross income is becoming more meaningful by the quarter, while we are keeping our expenses as low as possible.

With that, I would now like to call -- to open up the call for questions.

(Operator Instructions) Our first question is from David Martin of Bloom Burton.

This is Antonia on the line for David. Our first question is, when do you expect to find out if Reducer will get national reimbursement in Germany on this review cycle? And what are generally the criteria to qualify and where does Reducer stand on those criteria? And then I have another question.

Yes. So on Germany, so for several years, I think it's the fourth year now in a row, we actually have reimbursement in place at what we call a hospital level. It's the NUB-1 reimbursement process in Germany. So the Reducer actually is reimbursed in Germany as we speak, have been for several years and is being renewed on an annual basis.

There are several categories for that. NUB-1 means it's the newest and highest important category for new therapy. That means that the individual hospitals can negotiate a price with the insurance companies in Germany. That process has been ongoing, and it's just basically being repeated on an annual basis, whereby we see an annual growth in the amount of hospitals that actually do that and actually do negotiate reimbursement for the Reducer in Germany. So that's already in place.

Now outside of that, we are also working on a, let's say, a countrywide reimbursement process. We -- there's work ongoing on that. We have made several filings with the national authorities for that. And we don't have any update on that. We expect really more news on that towards the end of this year or early next year. But again, it doesn't really impact our business because we already have reimbursement on a hospital-by-hospital level at this point in time, and we really have that in place in several years.

Okay. So you mentioned you don't impact -- you don't anticipate an impact to your business if you were able to get the countrywide reimbursement?

It would -- if that would come at some point in the future, we hope, then that would basically nationalize what's happening on a per hospital basis. And we don't expect there to be any impact in our business, especially since we have a very stable pricing practice in Germany and I would say, across the globe. We -- as you may know, we have no competition. We sell for less price. We don't make any discounts. There's a very stable history of pricing for our device across Germany. So we don't anticipate there to be any issues with that.

Okay. And then the next question is, can you give us some color regarding the impact on physician perception of Reducer of the recent studies exploring the mechanism of the implant?

The mechanism of action you mean?

Yes. And what has been the impact on physician perception of Reducer, those recent studies?

Yes. Right. So there are a lot of what we call third-party independent publications and research that's being done outside of our own data. The data is all extremely positive and very much in line with our own research data. I would nevertheless say that what we see in the marketplace is that the most impactful, impactful actions as it relates to growth is the result that the physicians actually see with their own patients. So once the physicians actually start utilizing the Reducer and see the impact of what it actually does in a positive way through their own patients, that is the biggest stimulant and the biggest growth driver that we actually observe in the market.

We see that -- we have seen that over the years in Germany, where we have been direct for a long time. We are clearly seeing that in France. We are clearly seeing that in the U.K. I can also tell you that that's already also evident in the U.S. with -- even before we did the COSIRA II trial, we had some patients in compassionate use. And the physicians in Detroit and at the Cleveland Clinic, who participated in compassionate use saw the results of what Reducer does in their own patient population.

And we're extremely positive and excited about it, which is why they signed up to participate in the COSIRA II trial and have been a big supporter of us in getting the study going and in enrollment in that study. So I believe that the experience of the Reducer device with their own patient population and basically the real-world real clinical experience is the biggest factor for success and actually drive the growth and continuously drives the growth in all the markets we're in.

Our next question is from Vernon Bernardino of H.C. Wainwright.

Fred, and Chris, congrats on the record quarter.

Thanks, Vernon. Good to hear you.

So you talked a bit about the U.K., and it sounds like something where it really is an opportunity where a lot of acceleration could occur as far as direct sales for the Reducer. Just wondering if you could characterize a little bit better what you expect to see now with this, [especially] sales force that you have there?

Yes. So we basically had an excellent distributor in the U.K. and really a good distributor relationship. But obviously, the distributor has its own gross margins and profit margins in mind and own expenses. And obviously, so when we sell a device to the distributor, that is at a different price than selling it in the market itself. So that is already a big difference. That's number one.

Number two, we clearly see additional enthusiasm in the U.K. for the device, not only based on the experience physicians have with their patients there, but also because of the national reimbursement that we have in place there as well as the recommendations from NICE. For the first time ever, there is now an official recommendation to treat these patients with a device. The prior recommendation was for these patients to visit a psychologist to be able to deal with the pain that they endure. So you can see what a big shift that is in terms of what is being recommended for these patients.

So we were able to in very amicable and good negotiations with the distributor to basically even start early. Our distributor agreement was running out at the end of this year. And we negotiated with the distributor actually already start direct sales as of the 1st of July, for which obviously, we have to pay the distributor a certain fee for his lost profit in the market for the second half of the year, which we have done.

But we have already several people in the U.K. engaged in the process. We are in the process of actually hiring an additional person as we speak in the U.K. And we really believe that the U.K., along with France, we shouldn't forget France, are great growth opportunities for us, basically really new markets for us to really strive and build additional big business growth in Europe. So that is a very positive for us, Vernon. Now I say that against the backdrop of -- and in my remarks, I said we had strong currency headwinds, I mean, don't forget the euro was extremely weak in the quarter. At times, the euro was 20% down compared to the U.S. dollar.

And so when you talk about revenues achieved in European currency, that has a big impact, we nevertheless had a record quarter. So hopefully, the European currencies are also coming back to what we are used to in a more normal scenario, and that will help us again also with future quarters. But outside of that, we really see big growth opportunities in all the European markets, but in particular, in France and in the U.K.

And I'm sorry if I missed it, what is the update as far as the efforts in France?

Yes. So in France, so we have full national reimbursement in place. We already have several sales reps that we have in France. We hired them. They are on the ground and working. And we had a substantial contribution in these numbers from France as well in terms of revenue coming from France. And that's obviously on top of everything else because last year, we did not have any revenue from France. So again, because of the fact that we see big growth in the U.K. and (inaudible) as well as the fact that in France, we are now generating revenue, and last year, we didn't, those are big growth drivers for us.

And then you add to that the reimbursement in the U.S. for the devices used in the COSIRA II randomized trial, that's another additional growth driver. So outside of just penetration growth, you see big opportunities for us to really expand the revenue. And that's why we are quite optimistic about continued big growth for the next couple of quarters.

Terrific. Yes. I'm looking forward to seeing the progress in France. And congrats again on the record quarter and taking my questions.

Great. Thanks so much, Vernon. I really appreciate it.

Ladies and gentlemen, we have reached the end of the question-and-answer session. Now I'd like to turn the call back to Fred Colen for closing remarks.

Thank you, Irene. So let me just summarize and just say that I believe we have made some great strides in the second quarter of 2022 with record-breaking revenues and continued momentum across the board in our business. We are confident that we are marching towards long-term success. I look forward to the days to come and to the earnings call discussing our accomplishments from the back half of this year. And we are very grateful for your participation in today's call. With that, thank you all very much for joining today, and goodbye.

That concludes today's conference. Thank you for joining us. You may now disconnect your lines.