Neovasc Inc (NVCN) 2021 Q3 法說會逐字稿

Greetings, and welcome to the Neovasc Inc. Third Quarter 2021 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, Managing Director at Westwicke. Please proceed.

Good afternoon, and thank you for joining us today. Earlier today, Neovasc Inc. released financial results for the quarter ended September 30, 2021. 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 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 decisions, pricing and enrollment matters and our future financial expectations and results are based upon current estimates and various assumptions. Words such as expect, outlook, will, 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, you 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 statement regarding forward-looking statements and Risk Factors section of Neovasc's annual information report on Form 40-F and the discussion in Neovasc's MD&A, which are available on EDGAR and SEDAR.

The information provided in this conference call speaks only to the live broadcast today, November 9, 2021. 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 will give an overview of the quarter and a business update before turning the call over to Chris to discuss our financials.

Q3 was a strong quarter operationally for Neovasc as we continued to advance our 3 value creation strategies. We are particularly pleased with our sales results, generating record Reducer revenues. We made great progress in advancing preparations to begin the COSIRA-II U.S.-based trial for Reducer and continue to advance our efforts to secure reimbursement for Reducer in Europe. Importantly, some of the initiatives we executed in the first half of 2021 have solidified our financial footing, and we are -- and are expected to extend our cash runway into mid-2024, which Chris will further discuss.

One of the 3 pillars of our value creation strategy is expanding the use of Reducer in Europe and elsewhere outside of the United States through marketing efforts, expanding into new markets and driving reimbursement coverage. Neovasc has direct salespeople in Europe working hard to market Reducer and additional distributor partnerships throughout Europe, including Switzerland and the United Kingdom, Italy, Spain, the Netherlands and Austria. The benefits of these efforts can be seen in the top line as we recorded record revenues of just over $700,000 during the quarter despite lingering COVID issues in Europe.

It is gratifying to see growing acceptance and use of the Reducer for the treatment of refractory angina as we have seen firsthand how the Reducer can change lives of people with no other traditional options. We are using these tangible success stories to help us continue to pursue reimbursement for the Reducer in multiple countries. We think the value-based benefits Reducer brings to patients and health care systems alike are clear, and we are convinced that this is the foundation for the progress we believe we continue to make towards our reimbursement objectives in the United States, in the United Kingdom, France and Germany. We believe we will have more news in the coming months on further specific outcomes.

Turning to our efforts to promote and gain approval for Reducer in the United States. Our key initiative here is to advance towards the first patient enrollment in our new U.S. IDE clinical study, called the COSIRA-II, in 2021 with the aim of supporting a future PMA submission to the FDA. We achieved an important milestone in September of 2021 when we received approval for the study protocol from the FDA. The protocol is designed to investigate the safety and efficacy of the Reducer for patients suffering from refractory angina. The primary endpoint of the trial will be exercise tolerance after 6 months, and we expect to enroll approximately 380 patients in up to 50 U.S. and Canadian sites with an interim look upon 80% enrollment and the ability to adjust the sample size as needed to increase the likelihood of achieving statistically significant results.

With this important approval secured, we remain on track to enroll the first patients in the trial in Q4 of 2021. In the meantime, we are working on the selection of several best-suited service providers, for example, an appropriate clinical research organization in the United States and the core labs for the trial. And we are qualifying our clinical trial sites, obtaining institutional review board approvals and initiating and reviewing contracts with clinical sites. In addition, we have successfully filed for the registration of COSIRA-II in the clinicaltrials.gov system.

Finally, we are working on finding a path towards U.S. reimbursement for coverage and device payment by CMS during the COSIRA-II clinical trial. This is a complex undertaking, and the outcome is not certain at all, but we have initiated our request. We also continue to see a steady flow of positive data. For example, near the end of the quarter, the results of the REDUCER-I study were published in the journal, EuroIntervention. The data published from this real-world study confirmed a strong safety profile as well as a sustained improvement in angina severity and quality of life out to 2 years.

More recently, in October, the Reducer was featured in an article in the Polish Heart Journal. The study evaluated in the article demonstrated a statistically significant improvement in the Canadian Cardiovascular Society Angina score, a measure of chest pain severity in patients with right-sided ischemia. Early Reducer trials have been primarily conducted in patients with left-sided ischemia. We continue to be very pleased with the flow of data that supports the safety and efficacy of Reducer.

Recently, 2 European physicians demonstrated a very meaningful improvement in the absolute coronary blood flow into the heart muscle upon implantation of the Reducer in 2 consecutive patients. This is the very first time this could be demonstrated in humans using the most advanced diagnostic tools and leading science. The physicians, both world-renowned experts in coronary physiology, were emphatic about the positive results. For the first time, the physicians were able to demonstrate in real time that implantation of the coronary sinus Reducer resulted in an immediate increase in blood flow to the heart muscle. This is important because it points to the potential mechanism of action of the Reducer. Patients experience angina when the heart muscle doesn't get enough oxygenated blood. Increasing the oxygenated blood flow to the muscle is critical to relieve the chest pain associated with angina. More work is still to be done here, but this is potentially a key development and may signify the beginning of a new era in interventional cardiology for the optimal treatment of occluded blood vessels of the heart.

Moving on to our efforts to advance our Tiara technology. As many of you are aware, we paused work on the Tiara transfemoral device to focus on the Tiara transapical device, which is more advanced in its development stage than the transfemoral program. We continue to work with our notified body in Europe to advance our CE Mark application for the Tiara transapical, and we are targeting a decision under the new European medical device regulation, or MDR rules, in late 2022.

I will also revisit some of the actions we took during the first half of the year and the resultant effect on our balance sheet. As many of you will recall, we made some difficult decisions during the first half of the year, largely centered on the suspension of our development of the Tiara transfemoral system, which included a significant corporate head count reduction. These decisions did, in fact, result in a significant reduction of our cash burn, and we believe that we now have a cash runway extending at least into mid-2024, which allows us to, among other things, focus on and execute the new COSIRA-II IDE clinical trial for Reducer.

Overall, we are pleased with the progress we made in the quarter to position Neovasc going forward.

And before I turn the call over to Chris, I would like to take this opportunity to comment on our current strategy to regain compliance with the NASDAQ listing rules. As you are likely aware, we are currently in breach of the NASDAQ $1 minimum bid price rule, and we have been granted an initial grace period to cure this breach. We can still cure this breach by closing 10 consecutive trading days above $1 before November 22, 2021. It may be unlikely though that we can achieve this in the remaining short period of time. However, we do believe that according to the NASDAQ rules and guidelines, we could be eligible for a second 180-day grace period until May 21, 2022, giving us additional time to cure this breach. We will make an application for a second grace period in the coming weeks, but NASDAQ will only be able to decide on our eligibility for this additional grace period on or after the last day of the initial grace period on November 22, 2021.

I would also like to point out that while our shareholders' equity remains greater than $2.5 million, satisfying the shareholders' equity requirement, the $35 million market capitalization requirement is not applicable for Neovasc.

Overall, we are glad to see that the $72 million financing in February this year has placed us in a stronger position also to meet the NASDAQ listing requirements. And we believe that there is a potential pathway to being granted a second 180-day grace period in which to cure the remaining breach of the NASDAQ rules. We also believe we have a strong operational plan over the next 6 months.

We accomplished a great deal during the third quarter, advancing our goals to expand adoption and reimbursement of the Reducer, and we are beginning to see the financial benefits of some wise but difficult decisions we made in the first half of the year. However, we understand there is more to be done on all fronts, and we hope to report more positive milestones during the balance of 2021 and beyond.

As always, we want to thank our investors, our employees and our customers for their continued support of Neovasc.

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

Thank you, Fred. As Fred mentioned briefly in his comments, we're happy to report that we recorded record revenues and units sold during the quarter. Revenues increased by 12% to $703,000 for the 3 months ended September 30, 2021, compared to revenues of $626,000 for the same period in 2020. It is particularly gratifying that this occurred during the latest COVID-19 Delta variant surge over the summer.

The cost of goods sold for the 3 months ended September 30, 2021, was $165,000 compared to $151,000 for the same period in 2020. The overall gross margin for the 3 months ended September 30, 2021, was 77% compared to 76% gross margin for the same period in 2020. The company continues to focus on Germany, where the company sells Reducer direct to higher margins.

Total expenses for the 3 months ended September 30, 2021, were $7.3 million compared to $10.6 million for 2020, representing a decrease of $3.4 million or 32%. The decrease in total expenses during the quarter can be substantially explained by a $2.1 million decrease in legal and underwriting fees related to the August 2020 financing, a $1 million decrease in employment expenses due to the company's reduction in force at the end of 2020 and further in June 2021 and an $849,000 decrease in other product development and clinical trial expenses as the company indefinitely paused all activities related to the Tiara TF transfemoral valve replacement program in June 2021, all offset by a $430,000 increase in noncash share-based payments.

Selling expenses for the 3 months ended September 30, 2021, were $786,000 compared to $499,000 for 2020, representing an increase of $287,000 or 58%. The year-over-year increase in selling expenses can be substantially explained by a $219,000 increase in other expenses incurred for commercialization activities related to the Reducer as the company increased its selling activities from the COVID-19-driven low point in the comparable period.

General and administrative expenses for the 3 months ended September 30, 2021, were $3.0 million compared to $4.6 million for the same period in 2020, representing a decrease of $1.6 million or 35%. The decrease can be substantially explained by a $2.1 million decrease in legal and underwriting fees related to the August 2020 financing, offset by $545,000 increase in noncash share-based payments.

Product development and clinical trial expenses for the 3 months ended September 30, 2021, were $3.5 million compared to $5.5 million for 2020, representing a decrease of $2 million or 37%. The decrease in product development and clinical trial expenses can be substantially explained by $924,000 decrease in employment expenses due to the company's reduction in force at the end 2020 and further in June 2021, and an $849,000 decrease in other product development and clinical trial expenses as the company indefinitely paused all activities related to Tiara TF transfemoral mitral valve replacement program in June 2021.

The operating losses and comprehensive losses for the 3 months ended September 30, 2021, were $6.7 million and $6.9 million, respectively, or $0.11 basic and diluted loss per share as compared with $10.2 million operating losses and $10.4 million comprehensive loss or $0.51 basic and diluted loss per share for the same period of 2020. The decrease of $3.4 million in operating losses can substantially be explained by a $3.4 million decrease in operating expenses as described earlier.

Our shares issued and outstanding increased by 2,667 shares during the quarter to 67,587,079 shares at the quarter end. Our fully diluted share count, including the exercise of all out-of-the-money warrants and equity incentives, and the conversion of all outstanding debt at a conversion price higher than the current share price was approximately 113.6 million shares.

We ended the third quarter of 2021 with cash and cash equivalents of $55.8 million. During the quarter, we spent $7.5 million. $4.4 million was spent on ongoing operating activities and leases, of which $3.7 million was spent on sales and product development. And $3.1 million was injected into the balance sheet, principally in onetime transactions. Notably, we made our final payment on our settlement collaboration agreements of $1.25 million, and settled older accounts payable of $1.1 million. Bringing our operating burn rate below $5 million for the quarter was important to allow [room] for expenses to increase as we initiate our COSIRA-II study while still aiming to maintain a long cash runway.

As Fred mentioned, we're in a strong position financially, and I hope we will reach critical valuation creation events before needing more capital. This is a complex process, but we hope to provide positive updates in the future. Fred?

Thank you, Chris, and thank you all for listening to our opening remarks. We have sharpened our focus on advancing the 3 value creation strategies, and we have begun to realize the benefits of a cleaner balance sheet and lower expense base. We continue to believe in the value potential of our devices, and we are gratified to see a steady flow of data supporting the efficacy and safety of Reducer.

Once again, thank you all for your continued support. I would now like to open up the call for questions.

(Operator Instructions) At this time, I would like to turn the call back over to Mr. Fred Colen for closing comments.

Okay. Well, it looks like there were no further questions. Thank you all very much for your participation. It's very much appreciated, and we'll talk to you again after the next quarter. We look forward to it. Thank you all. Bye-bye.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation, and have a great day.