Neovasc Inc (NVCN) 2018 Q3 法說會逐字稿

Good day, everyone, and welcome to the Neovasc Inc. Third Quarter 2018 Earnings Conference. Today's conference is being recorded. At this time for opening remarks, I'd like to turn things over to Jeremy Feffer. Please go ahead.

Thank you, Cally Anne. (Operator Instructions) I'd like to remind everyone that today's discussion includes forward-looking statements within the meaning of applicable U.S. and Canadian Securities Laws that reflect Neovasc's current views and with respect to future events, including the company's plans and expectations relating to its business, financial results, capital structure, litigation and other matters. Words such as expect, outlook, anticipate, exploring, may, might, will, should, estimate, continue, strategy, potential, intend, going to, believe, plan, opportunity, trend, growing, look forward and similar words or expressions are meant to identify forward-looking statements.

Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. For more information on risks and uncertainties related to these forward-looking statements, please refer to the cautionary statement regarding forward-looking statements in Risk Factors sections of Neovasc's Annual Report on Form 20-F and the discussion in Neovasc's MD&A, which are available on SEDAR and EDGAR.

At this time, I'd like to turn the call over to Fred Colen, President and Chief Executive Officer of Neovasc. Fred?

Thank you, Jeremy. Welcome, everyone. With me this afternoon is Chris Clark, our CFO. I will begin today's call with a quick update on our Tiara and Reducer programs, then provide more general comments on where we are and then turn the call over to Chris for a quick summary of the financials for the third quarter of 2018 and an update on our capital structure. We will then open the call up for your questions.

Let's begin with an update on the Tiara program. We are continuing our efforts to grow awareness around the Tiara through publications and prominent cardiovascular journals, Live Case demonstrations and presentations of clinical results at leading medical conferences. Through these mediums, we hope to further increase interest in this minimally-invasive mitral valve replacement technology and to show the medical community that this product has the potential to be safe, effective and a leading treatment option for individuals who have few, if any, available alternatives.

Recently, an article was published in Cardiovascular Interventions, a peer-reviewed journal, that reported on a series of transcatheter mitral valve replacements using the Tiara valve in patients with previous aortic valve replacement. These patients were considered extremely high risk due to their severe mitral regurgitation and previous surgical aortic valve procedures, but the article describes great short-term outcomes. The procedure had a success rate of 100% with no death or major complications. And immediately following implantation, the patient's mitral regurgitation was eliminated. This publication supports Tiara as a technically feasible and safe option for high-risk patients, with mitral regurgitation is not being treated by other mitral valve replacement.

In addition, the editor of the journal stated in editorial comments that the investors are taking the field of TMVR to the next level, where both prosthetic aortic valves and transcatheter mitral valve prosthesis coexist and should be congratulated for their contribution.

On October 20, the Tiara was featured in a Live Case at the 32nd Annual European Association for Cardio-Thoracic Surgery, EACTS 2018 Meeting in Milan, Italy. The successful procedure was performed by Dr. Lenard Conradi and Dr. Ulrich Schaefer of the University Medical Center Hamburg-Eppendorf in Hamburg, Germany and then broadcasted live to a large audience at the conference. In approximately 14 minutes' time for the delivery system heart interaction, the doctors were able to implant and completely resolve the patient's severe mitral regurgitation without any procedural complications.

We were also excited to present clinical results from Tiara patients at the TCT 2018 Scientific Symposium during September in San Diego as part of a comprehensive scientific mitral valve replacement overview session in a large and overflowing conference arena. We were also pleased to learn about the positive outcomes of the COAPT mitral valve repair trial during TCT, which we consider to be a very positive outcome, not only for the many millions of the functional MR patients, but also for the entire and evolving mitral valve space lifting all boats. We believe both of the Tiara presentations have been very well received among the cardiology community based on the feedback we have received and are expected to assist us in generating even greater awareness and interest in our clinical studies.

This brings me to the enrollment status of patients in our TIARA-I and the European TIARA-II clinical studies, which continue to generate encouraging clinical results, albeit at a small -- at a slower than expected enrollment rate. To date, 63 patients have been treated with Tiara in the TIARA-I early feasibility clinical study compared to use cases and in our TIARA-II CE Mark clinical study. The 30-day survival rates for the 63 patients treated with the Tiara, i.e., those implanted more than 30 days ago is 53 out of 59 or 90% with 1 patient now over 4 years post implant and 5 patients over 2 years post implant. The Tiara has been successfully implanted in both functional and degenerative mitral regurgitation patients as well as in patients with pre-existing prosthetic aortic valves and mitral surgical annuloplasty rings.

To date, 22 patients have been treated on the compassionate use, 21 patients in the Tiara I clinical study and 20 patients in the TIARA-II clinical study. The 30-day survival rate for patients, who reached the 30-day time point, is 90% overall and is 94% in the TIARA-II study.

We have been and are continuing to carefully review all factors influencing enrollment in our Tiara I and II clinical trials, and we have taken the following actions so far. One, implemented an easy-to-use local prescreening tool for physicians at clinical sites. Two, increase the number of qualified proctoring physicians. We now have 2 fully qualified European physicians as proctors. And three, increase our field clinical engineering support in Europe, most recently by adding 2 Neovasc employed and very experienced field clinical/market development personnel in Germany.

Most importantly, we keep working with our currently qualified clinical sites as well as adding new clinical sites, and we are pleased to see much interest from new potential clinical sites. We currently have 13 active clinical sites, 7 in Germany, 4 in Italy and 2 in the U.K. We are getting close to obtaining all approvals for 2 additional clinical sites. We have 3 more clinical sites in the qualification approval pipeline and are currently reviewing up to 3 additional clinical sites for the initiation of the qualification process in order to bring the amount of clinical sites in the TIARA-II study to a maximum of the approved 20 sites overall. As a result of all of these actions, the company believes it will be able to increase enrollment in the TIARA-II clinical study.

We have been able to use our existing data from patient enrollment and clinical results to further refine the screening criteria, physician training and implementation procedure. Careful patient selection continues to be critical as the company and the clinical community continues to learn more about treating this population of very sick patients.

An additional strategic focus activity for the company in the mitral valve space is the development of the transfemoral-transseptal version of the Tiara Mitral Valve, which I will further talk about in my more general comments.

Moving on to the Reducer. Neovasc has reached several important milestones over the past several months. First and foremost, the U.S. FDA granting the Reducer Breakthrough Device designation for the treatment of refractory angina. We believe that this FDA designation has the potential to help expedite the regulatory process to bring this novel and unique device for the treatment of refractory angina to the U.S. market, and we are obviously working hard to define our U.S. clinical regulatory strategy for discussion with the FDA in the near future.

In July, we also announced the first U.S. patient implanted with the Reducer as a compassionate use case, a procedure which was conducted by Dr. Koenig along with the Dr. Ryan Gindi and colleagues of the Division of Cardiology at the Henry Ford Hospital in Detroit, Michigan. Recently, we were pleased to announce that the patient was no longer experiencing the very debilitating symptoms of severe refractory angina as reported by the physicians at the 12-week follow-up appointment. But the patient was able to walk several miles without any symptoms and has reduced his use of nitroglycerin from 2 to 3x a week to 1 or 2x per month.

The success of the Reducer treatment with this patient reinforces the positive results from our clinical studies and the general European experience with the device.

Also as part of the previously discussed TCT Conference, results from a single-center study were presented showing that reduced implantation was not associated with worsening of diastolic function, but instead suggests a possible improvement.

In Europe, sales of the Reducer are still at modest levels as we implement a broader commercialization strategy. One of the supporting drivers of Reducer sales is the device achieving NUB 1 status in Germany earlier this year as well as the general positive reception for the device in the European market with positive experiences by many physicians from the treatment of their own patients. The commercial progress for the Reducer in the third quarter was encouraging with a 44% increase in revenue compared to the same time period of 2017. The Reducer revenue for the first 3 quarters of 2018 increased with 45% over the same time period of 2017.

More than 20 clinics in Germany have begun and completed the reimbursement negotiations with the German health insurance companies and have now established a satisfactory overall reimbursement amount for the Reducer procedure with others -- while others are still negotiating.

The Reducer therapy requires broader therapy development in the market, and in particular, with referring physicians. The company has launched a couple of pilot programs in Germany with additional support from a professional therapy development organization to learn more about the therapy development challenges and opportunities.

In September, we announced the 100th patient to receive Reducer therapy in Germany. This milestone represents the growing awareness of the Reducer therapy among cardiologists as a successful treatment that provides relief to patients and improves their quality of life. While we only have a very small sales organization in Europe, we are still deriving towards a doubling of Reducer implants in Europe during 2018, which is expected to be mostly driven by an almost tripling of Reducer implants in Germany.

We are also enrolling patients into the REDUCER-I observational study, a multicenter, multicountry 3-arm study, collecting long-term data from European patients implanted with the Reducer. The study is expected to enroll up to 400 patients. Currently, 179 patients have been enrolled across 19 centers that are active in Italy, Germany, Belgium, The Netherlands, United Kingdom and Switzerland.

Stepping back a bit. We are very pleased with our team's hard work in advancing these 2 product platforms and the company as a whole over the last year. When I came on as CEO approximately 9 months ago, we were facing several corporate, financial, legal, research and development, quality system and commercial headwinds. While we still have some remaining challenges to overcome, I believe the company is continually building positive momentum and believe our path forward is much clearer.

Having said all that, our stock price has been and still is under selling pressures, currently almost exclusively due to the exercise of converted debt notes, and I, like you, don't like the situation. I do believe that we are getting there, mainly due to impressive support from our large retail investor base and I appeal to your patience. All of these financial conditions were established in November of last year in the previous financing round, which saved the company at that time. While I have not liked at all what has happened to our stock ever since, please remember that I truly inherited all of this and that I signed up purely to attempt to save these 2 very promising products. It takes time to turn a company like this around and to get through all consequences of last November's financing round.

Today, I believe we are seeing the light at the end of the tunnel, and I'm starting to become more optimistic about being able to get through all this, on the financial side as well. Please do not forget that I passionately appealed to the NASDAQ officials to allow us to stay listed, in particular on behalf of the many small investors, who deserve a chance to participate in a potential upside as well.

From last November's financing, all, but approximately 8,000 future priced C Warrants and the upside participation Series A and E Warrants have been exercised and about 2/3 of the notes being converted have been converted.

In the meantime, we have been talking amongst our large investors to see if there may be a way to buy out the remaining notes that are being converted. We intend to continue to focus on trying to address the remaining challenges created by our capital structure and the overhang of our outstanding warrants and notes.

Management is committed to attempt to maximize the value of our product platform assets. I believe that we have to continue to invest cash, time and energy into the most valuable development activities of both platforms until they reach a convincing maturity level, demanding the price we believe they deserve.

In the meantime and while difficult with all these distractions on the financial side, we have to continue to focus on the execution of the development of both the Reducer and the Tiara product platforms. And we again made quite a bit of progress on both product platforms in the last quarter as laid out above.

I would like to lay out for you now our envisioned value-creation strategy for investors, patients and employees alike for both product platforms. On the Reducer side, there are 2 key components. One, to continue the sales ramp and the therapy development in Europe, whereby we just hired a second sales rep in Germany. We have convinced many interventional cardiologists and cardiology departments and hospitals by now, we now need to go 1 level deeper and educate and convince the referring physicians and general cardiologists, who see the vast majority of these refractory patients. We have also just filed additional Reducer intellectual property.

Two, to finalize the clinical and regulatory strategy for U.S. market entrants, including discussions with our U.S. physician key opinion leaders and then jointly finalize this in discussions with the FDA as part of the Breakthrough Device designation. By the way, as far as I know, the Reducer is the first and only medical device so far in the therapeutic cardiology medical device base.

Once the strategy has been finalized with the FDA, we will announce quickly and start on the execution effort.

Regarding the Tiara, there are again 2 components. One, to continue the enrollment in our Tiara transapical I and II clinical trials. In the meantime, as I mentioned earlier, we have strengthened our support team in Europe, and we are ramping up new sites for the TIARA-II study. We also just filed a summary clinical outcomes report with encouraging clinical data to the healthcare authorities in Germany and in the U.K. for their review before we are expecting to be approved again to continue enrollment in these 2 countries as part of the previously established approval protocols with these authorities.

Two, the second component of our value-creation strategy on the Tiara side is not to start a large, very expensive and lengthy transapical Tiara clinical study in the U.S., for which we lack infrastructure and funding, but instead to develop the [transapical total] Tiara version and to drive towards a first human clinical feasibility study. We are in a unique position to deliver the self-anchoring Tiara in an even less invasive clinical manner and to also put this device in the hands of the interventional cardiologists, which as we have seen on a minimally invasive aortic valve side, made a huge difference in the acceleration and acceptance of the therapy.

Our current transfemoral-transseptal development program has 2 clinical deliverables, reducing the profile of the device and the delivery system to under [30 French] for all Tiara device sizes, and at the same time, to take into account all learnings from our current clinical experience, aiming at further improvement of the safety profile and most importantly, to incorporate some minor, but very meaningful changes to certain dimensions of the Tiara device, therefore, directly improving the amount of patients that can be treated with the device.

These further optimized Tiara devices will also be made available in a backwards compatible manner to our transapical Tiara program.

Given all concept development work done to date, including engineering evaluations of new iterations of the Tiara metal frame, detailed reviews and analysis of our clinical database and ongoing calibration of that database with other clinical databases at clinical institutions, engineering evaluations of a new -- of a few iterations of the new transfemoral-transseptal delivery system, development of clinical strategic vendor partnerships and concurrent filing of new intellectual property, we are excited about the very promising potential of this new transapical Tiara system. Further acute animal studies are scheduled for the end of November and for mid-December.

On both of these 2 clinical deliverables, we have made great progress, and we are planning to complete the concept development phase of this program during Q1 of 2019, where after the formal development phase will start.

With that update, let me now turn the call over to Chris to discuss our financial highlights. Chris?

Thank you, Fred. Good afternoon, everybody. I remind everyone that our financial results are in U.S. dollars and prepared in compliance with IFRS. To keep my comments brief, we will refer you to our full disclosure filed on SEDAR and EDGAR for a more fulsome review of our third quarter 2018 results.

Starting with Reducer commercialization. We reported a 44% increase in revenue for Reducer sales from $481,000 in the 3 months ended September 30, 2018, compared to $334,000 for the same period last year. This increase is most attributable to the progress we continue to make in penetrating the German market. As a reminder, we ceased operations for our consulting services and contract manufacturing in 2017. So total revenue for the quarter ended September 30, 2018, decreased from $1.4 million for the same period last year.

Similarly, our total revenue for the 9 months ended September 30, 2018, were $1.2 million compared to $4.2 million for the same period last year.

Our margins for the 3 months ended September 30, 2018, reflect and are expected to reflect going forward the margins on the Reducer only, which were 80% or $384,000 compared to the blended gross margin rate for all revenue segments of 52% or $715,000 for the same period in 2017.

Our departmental expenses for the 3 months ended September 30, 2018, increased by $2.1 million to $8.7 million from $6.5 million for the same period in 2017. Contributing to this increase were a $1.5 million noncash charge for stock-based compensation as staff incentive plans were reintroduced, a $1 million charge for collaboration and settlement expenses as we reached the collaboration and settlement agreement with the University of Pennsylvania, offset by a $165,000 reduction in cash-based employee expenses as we've reduced headcount from approximately 150 to 95 staff.

Our operating loss for the 3 months ended September 30, 2018, was $8.3 million compared to $5.8 million for the same period in 2017, an increase of $2.5 million, substantially explained by an increase in expenses as previously discussed and a reduction in gross margin as we're altering our consulting service revenues at the end of 2017. The overall loss for the 3 months ended September 30, 2018, was $13.3 million compared to $4.7 million for the same period in 2017, an increase of $8.6 million. The further losses from other expenses include a $5 million in noncash charges to recognize the accounting treatment of the 2017 financing and $1.5 million decrease in the gain on foreign exchange compared to the prior period. These accounting charges for the 2017 financing are best explained in the financial statements and do not impact the cash flow expectations in the coming quarters.

Our basic and diluted loss per share for the third quarter of 2018 was $0.70 per share compared to $5.95 per share for the same period in 2017.

From a cash flow perspective, in the third quarter of 2018, we spent approximately $5.46 million on operations and spent approximately $130,000 on capital expenditures. Our total net cash expenditure for the quarter was $5.6 million. We finished the third quarter of 2018 with $14.5 million in cash. We believe this is sufficient to last the company at least 2 quarters at the current burn rate from the end of the third quarter. We will need to raise additional capital in the coming months. But the current capital structure as described in our Risk Factors is a significant obstacle to achieving this. Such circumstances suggest a material uncertainty about our ability to continue as a going concern. However, as we disclosed at our previous earnings calls and as Fred mentioned earlier, we're actively taking steps to try and address the situation.

In terms of our efforts to address the company's capital structure, on September 21, we effected a 1 for 100 share consolidation of our common shares. The consolidation reduced the number of common shares issued and outstanding from approximately 1.9 billion to 19 million common shares. As of today, our issued and outstanding share capital is approximately 24.1 million common shares and our fully diluted share capital, assuming all the remaining warrants were exercised using the cashless alternative net number, if applicable and all the debt is converted using the alternative conversion price, is approximately 37.7 million common shares. This has also had a positive effect on our NASDAQ listing status. On October 9, we received notice from the NASDAQ Hearing's Panel that we regained compliance with the minimum bid price requirement for the company's continued listing on the NASDAQ Capital Market. Accordingly, Neovasc is in compliance with all applicable NASDAQ listing standards, and we consider this matter closed. We will continue to update you as we continue to execute on our strategy to drive future growth opportunities for Tiara and Reducer.

With that, we will be happy to answer questions. Operator, please open the call to questions.

(Operator Instructions) We will hear first today from Danielle Antalffy with Leerink Partners.

Just following TCT this year, curious on -- you did enroll -- if sounds like you enrolled an incremental 5 patients really in the last 6 weeks, first of all in -- with Tiara. Tell if that's correct, first of all? Then second of all, are you seeing an uplift in enrollment in part also because of just general excitement around mitral now that COAPT data is out and very positive. Can you talk a little bit about that? And what we should expect for pace of enrollment now going forward?

Danielle, this is Fred. Great to hear your voice, again. So yes, that's an additional 5 patients, so that is correct. We all are working on all the different aspects of the enrollment in Tiara as I laid out in my presentation. We do see again a lot of enthusiasm in the marketplace. As I said, we have quite a few clinical sites that have actually contacted us to become part of our trial. That as well as continued excitement at the currently qualified sites and the fact that the sites that have been under qualification so far, all are waiting anxiously to get approved to get started. So yes, I would say that we do see quite a bit of enthusiasm in the market for continued enrollment. I think, with the increased amount of clinical sites that we are aiming at and we're getting -- going on, I do agree (technical difficulty) a further increase in enrollment numbers as I stated before. So yes, I think all of that is certainly positive and certainly pointing in the right direction.

Okay. And then 1 follow-up question. Just as you think about eventually moving Tiara into a pivotal. Now with the COAPT data, what do you think these trials are going to have to look like? I guess, it's a broader question, but if you want to talk specifically, about Tiara. And if you've given that any thought?

Yes, Danielle. Obviously, that is an important question moving forward. I think it's unclear yet at this point in time if any mitral valve clinical trial in the U.S. will have to be randomized against a mitral replacement device or not. I think that's still under debate in the medical community and then with the FDA as well. We actually view our best value-creation strategy to continue to work towards CE Mark approval in Europe, but at the same time to work on our trans-septal device. I prioritized that over a U.S. clinical study because I think we can create more value in the shorter term for the company if we can demonstrate that we can actually safely and effectively implant the Tiara in a trans-septal manner and putting in the hands of intervention cardiologists, for which I think a small feasibility clinical trial, which will be very important. So we think that, that is the better value driver for the company in the short term. And as such, we are not really thinking yet about a pivotal clinical trial for the transapical Tiara.

We'll hear next from Jason Mills with Canaccord Genuity.

This is actually Cecilia on for Jason. And I just wanted to ask about all the positive Reducer developments recently. And just how you're thinking about the value of the business today and the potential impact on the overall firm and how are you thinking about balancing your focus on driving this program forward versus placing resources toward Tiara?

Yes. So it's a very good question, Cecilia, and I appreciate it. Obviously, Neovasc has the very strategic advantage of having 2 products in our pipeline. We're not a 1 product company, we actually have 2 very promising products. And I think historically the Reducer has been undervalued in its potential. I think that we have been able to place a much more balanced approach on the development of both product platforms in the last 3 quarters of year. And I think it's showing. The good news as it relates to resources is that they are in different phases. So the Reducer is a lot further advanced, has already CE Mark in Europe, really is an early commercialization of therapy development stages, whereas on Tiara we're obviously clearly in the clinical evaluation stage and for the trans-septal Tiara, we're working on the development of it. So we had recently a conflict in terms of the types of personnel that has been involved in both and there was really not a lot of trade-off in terms of resources between these 2 products. They have their own focus and their own strategic objectives as I went through with my value-creation strategy and certainly, are financeable within the overall financial structure as we have outlined in terms of cash burn per year as we have communicated in the past. So that's kind of like how I view that situation. I think that on the Reducer side, we still have a lot of interesting milestones to go through. I think, in the next several months, we hope to be able to communicate the clinical and regulatory strategy that we are going to be discussing with the FDA. And I think the pass to the market for the U.S. market will become a lot clearer at that point of time. So I think that's how I can best answer your question. Does that answer it well enough, Cecilia?

Yes. That's really helpful. And if I could just ask also, just in the TIARA-II study, you had mentioned you got 5 additional sites online, I believe, in July, just how those sites are ramping? And how you view your current sites in activation process ramping behind them?

Yes. So the new strategy that we have employed for activating qualification process for new sites is that we basically ask them to go back into database and look at potential patients that they might have had in the past, so that we get a sense of do you really see right kind of patients and are we really going to see a contribution to our enrollment from your clinical site. That has been -- we have started to do that as of, I would say, the summer of this year. And so the new clinical sites that are coming onboard in the next month or 2, are expected to also be able to contribute patients in a rather quick manner, because of this practice. And so we have, like I said, 5 more in the pipeline, 2 with, I would say imminent approval, that means within a month to 6 weeks from now and another 3 still in the broader qualification process. And again, we have been contacted by 3 more clinical sites that have expressed an interest, and we are looking at to see, are these suitable centers as well, and if they would be, we would then start the qualification process on those.

(Operator Instructions) We'll hear next from Jeffrey Cohen with Ladenburg Thalmann.

So 2 questions I want to get to. So firstly, on Tiara. Could you give us a broad indication whether you've ramped up centers and some enrollment, being that you're approximately halfway there? How might the back half enrollment look? Do you expect acceleration, whereby back half should be roughly twice the pace than the front half?

Yes. It certainly is a ramping of patients, and we have several more patients in the pipeline, as we speak. I also know that one new clinical site that we hope to qualify yet hopefully in December has 2 or 3 patients that seem to be suitable as well. So I do think you are going to see quite a bit of an increase in patient enrollment once we get these new and additional clinical sites qualified.

Got it. And then secondly, on Reducer, can you talk about, is there an actual time frame set for an FDA meeting and kind of walk us through what you'd expect as far as endpoint size or trial number of sites, et cetera?

Yes. So Jeff, that's the million-dollar question in terms of what are we able to obtain in these discussions with the FDA as it relates to the clinical strategy for U.S. entrants. As such, we are going through an extensive preparation phase, and what we want to do is, we don't want to go just ourselves to the FDA, we want to go to the FDA together with our key opinion leaders that are working with us in the medical community, [Dr. Gladstone] being one of them. And so we are working with them really on our proposal for the clinical strategy in U.S. And we're also talking specifically about what would the preapproval and what would the postapproval clinical study look like and the different trade-offs between those 2. And I'm hopeful that once we are ready with that, we can have a discussion with the FDA very soon. That should be the case because of the Breakthrough Technology designation. We have the highest priority at the FDA for their attention. I think we're going to be able to finalize our strategy sometime in December, and we will see if we can talk to the FDA yet in December or in early January. That's kind of like, how that looks like. I don't really know how long the FDA will need after that to finalize their thoughts and to get back to us about what they think is reasonable or not. But like I said, the whole process should be prioritized because of our status now for the Reducer.

And with no other questions, I'd like to turn things back to you all for closing remarks.

Thank you. And in closing, we wish to thank you all for your participation, and we look forward to updating you again in the future regarding our progress. Goodbye.

And that does conclude today's conference. Thank you all for joining us.