Neovasc Inc.
Q1 2019 Earnings Call Transcript

Published: 10 May 2019

[Operator:]

Greetings, and welcome to the Neovasc, Inc. First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jeremy Feffer, Investor Relations. Thank you. You may begin.

[Jeremy Feffer:]

Thank you, Michelle. At this time, all participants are in a listen-only mode. I would 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 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 and risk factors sections of Neovasc Annual Report on Form 20-F and the discussion in Neovasc MD&A, which are available on SEDAR and EDGAR. At this time, I would like to turn over the call to Fred Colen, President and Chief Executive Officer of Neovasc. Fred?

[Fred Colen:]

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, before turning the call over to Chris for a summary of the financials for the first quarter of 2019 as well as an update on our capital structure. We’ll then open the call up for questions. Regarding Tiara, to- date we have treated 73 patients overall in the TIARA-I and TIARA-II clinical studies and under compassionate use. The Tiara 1 clinical study is still ongoing with the expectation to complete enrollment with 30 patients by Q3 of this year. We have treated 24 patients to-date. The TIARA-II clinical study, which is an International multi-center, single-arm, prospective, non-randomized safety and performance clinical study continues to enroll patients as well. To-date, we have treated 27 patients in this clinical study. In regards to enrolling sites, we have focused on bringing on more sites over the past several months. We are slated to bring the number of clinical sites in the TIARA-II to study to a maximum of the approved 20 sites overall. To-date we have 18 active centers. We are continuing to explore strategic alternatives as to how to accelerate our European transapical Tiara care program. As I have mentioned previously, the second part of our value creation strategy for Tiara is the development of the trans-femoral, transfacto version Tiara mitral valve. I believe we are in a unique position to deliver the self anchoring Tiara in a less invasive clinical mater and also put this device in the hands of the interventional cardiologists, which as we have seen on the minimally invasive aortic valve for therapies. Our TF/TS development program has two critical deliverables, one reducing the profile of the device and the delivery system to at least 30 French for all three Tiara device sizes and two, to further improving on the already impressive safety profile and improving on the number of severe MR patients, which can be treated with the device by simultaneously incorporating some minor, but very meaningful changes to certain dimensions of the Tiara valve. We continue to make significant progress with the development of the Tiara TF/TS and we are all way to a design freeze by the end of 2019. And we remain on track for a first in man implant in U.S. clinical feasibility study, before the end of 2020. We are developing novel steerable catheter technology for multiple plains or flexible trackability steerable, alignment and orientation, a dual stage deployment sequence from a collapse to a fully expanded valve state. A novel fully retrievable Tiara valve system up to the final point of valve to delivery system attachment and additional implant support features as part of our very, very simple and strong pre procedural planning and navigational approach. At the same time, we already have and intent to continue to file multiple unique patent applications to maintain and broaden our portfolio. Related to valve size optimization opportunities, with the current Tiara device, our analysis suggest that relatively minor overall footprint reduction opportunities in the range of 10% as well as the introduction of a third offer device size may lead to a higher penetration into the treatable MR mitral valve population in the 70% range while we are currently only seeing about 20% penetration. We are looking forward to demonstrating our Tiara TF/TS system to a group of key opinion leaders and medical advisors at the EuroPCR conference in Paris during May, in a closed session to obtain their feedback. Moving onto the Reducer, which is our commercial stage products that we are looking to develop as the standard of care for refractory angina in Europe. In the first quarter, we reported a 72% increase in revenue compared to the first quarter of 2018, a revenue performance of 9% over our Q1 plan and a 75% gross margin. We achieved our highest Reducer revenue quarter ever in this past quarter. We are in the process of implementing a broader commercialization and therapy development approach in Europe and in Germany in particular. Our goal is to keep building on our success to keep accelerating our reduce of sales and to also start going one level deeper to educate the referring physicians and general cardiologists who see the vast majority of these refractory angina patients. We are in the process of adding personnel in Germany by increasing our number of sales reps in Germany from one to four throughout 2019. We are also planning to add three additional distributors throughout 2019 for certain European countries where we were not represented so far. We are seeking to grow Reducer revenue by about 50% in 2019 over actual 2018 revenue which was a strong revenue growth year to begin with. In one of our more high profile events, we sponsored a Reducer Symposium during the April Mannheim Cardiology Conference in Germany which was a huge success attended by over 100 attendees where German physicians presented and discussed their own clinical experience with the Reducer. We are extremely pleased with our simultaneous 1,000 Reducer implant in Bern, Switzerland, Cotignola, Italy and Madrid, Spain with support from high level European key opinion leading cardiologists. Dr. Francesco Gianni, Professor Antonio Colombo, Professor Marco Valgimigli, and Professor Javier Escaned. Professor Colombo summed it up in his quotes saying "with the 1,000 patients treated milestone, I believe it is time we encourage our colleagues and societies to inform their refractory angina patients that there may be a treatment option available to them today." The clinical development of the Reducer therapy including a double-blind randomized sham-controlled clinical trial and hundreds of patients treated post Earmark approval which have been included in several clinical databases and publications was heralded as a leading standard for a new therapy development in the closing remarks by a prominent German physician joined Reducer Symposium in Mannheim. And Professor Escaned stated, published data from real world experience which has now reached over 1,000 patients supports the very solid evidence obtained into a randomized sham controlled COSIRA trial on the value of coronary sinus reduction in patients with refractory angina. This is particularly important for this group of patients with very limited options. Our Reducer 1 post-market observational study continues to enroll patients across Europe at 21 active centers. Enrolment has now reached 199 of 400. Data from this study, the COSIRA study as well as published data from several physician initiated studies continues to reflect this very positive safety profile and improvement in patient's refractory angina, therefore, improving patient’s quality of life following Reducer implantation. In parallel to these activities, we are also expanding on our patent portfolio related to our Reducer technology through multiple filings. Additionally, during the Europe PCR Conference in Paris, we will be gathering key opinion leader feedback in a closed door session related to continued development and new technology for our Reducer platform. We are developing a strategy to once again discuss the path to the U.S. market with FDA together with certain U.S. key opinion leaders and consultants. In the meantime, another FDA Sprint discussion will be taking place during May to discuss our approach towards demonstrating the long-term Reducer fatigue life. Plus we plan to have another FDA Sprint discussion about the clinical strategy towards the end of the second quarter. We believe we have developed a clear value creation strategy for the company's patient’s employees and investors alike. We will push to achieve this value creation through our team’s proven ability to deliver on the well defined critical future milestones, we have established for our two product platforms COSIRA and the Reducer. We look forward to the EuroPCR Conference in Paris later in May, where there will be an overall share our clinical results update presentation in the main arena -- in the main arena by Dr. Conradi from Hamburg Germany, several presentations from independent physicians regarding the Reducer, another Neovasc sponsor reduce a symposium titled, a proven evidence based therapy when angina persists and we will also hold our Annual TIARA II Clinical Study Investigator Meeting. I would like to end my remarks with a couple of patient’s stories, which were recently shared with me by a physician, a TIARA patient, before the TIARA implant, the patient has NYHA Class III. He could not do any physical effort. Now, 90 days after the TIARA implantation, patient has NYHA Class I, plays basketball, works full time and has no physical limitations before they reduce the implant, the patient have angina CCS Class IV, she could not walk 10 meters or approximately 30 feet without angina. Now three months after we the reduce implantation, patient has angina CCS Class I. She walks 50 minutes, 45 kilometers, about three miles without angina. She now stops walking because of muscle pain in the legs. We are indeed very proud to create real value for all patients. Before I turn the call over to Chris to discuss our financial performance and the progress we have made in improving on our capital structure, I would like to spend a minute to state again, how pleased we are with the fact that we have now cleared all previously outstanding active litigation claims. The German appeals court decision which overturned the lower court's decision glanced at me of the full and exclusive patent wide for one of our basic TIARA patents in Europe. This was a big win for us and also left us with a strategic option to close out the U.S. litigation as well. At the same time, given the great news on the litigation side and the big progress made on the development of the two product platforms since I joined, I am disappointed about our stock price and our company’s valuation in the market, especially since the company was valued at about 115 million in November of 2017. Based on the progress made on the litigation side and the underlying two product platforms, the current company valuation and stock price in the market make no sense to me. We will remain focused on the basic performance parameters of the company and hope that the market will indeed reward us. In addition, we will continue to monitor all market value and closing bid price of our common shares and take steps as necessary and available to us, intended to cure the NASDAQ deficiencies within the prescribed grace periods. I will now turn the call over to Chris to describe our financial performance for the first quarter of 2019 and current capital structure.

[Chris Clark:]

Thank you, Fred. Good afternoon everybody. I’ll remind everyone that our financial results are in U.S. dollars and prepared in compliance with IFRS. To keep my comments brief, we'll refer you to a full disclosure both in SEDAR and EDGAR for a more fulsome review of our first quarter 2019 results starting with Reducer commercialization. We reported a 72% increase in revenue from Reducer sales to $586,000 for the quarter ended March 31, 2019 compared to $340,000 for the same period last year. This increase is mostly attributable to the progress we continue to make in penetrating the German market. Our margins for the quarter ended March 31, 2019 were 75% or $442,000 compared to the gross margin of 74% or $253,000 for the same period last year. Our departmental expenses for the quarter ended March 31, 2019 increased $534,000 or 8% from $6.8 million in 2018, $7.3 million in 2019. It should be noted that significant contributing factors to this increase against the same period last year were non-cash charges as follows; $916,000 increase in stock-based compensation charges, $54,000 increase in depreciation and $127,000 charge for accretion on collaboration license and settlement agreements provisions. These were offset by a $576,000 decrease in employment termination expenses as the company completed a reduction staff in the first quarter of 2018. Cash based expenses increased by only $13,000 for the quarter ended March 31, 2019 compared to the same period last year. The company continues to preserve capital when possible while still advancing the commercialization and development of its products, and we believe it has become more efficient in the process. Our operating loss for the quarter ended March 31, 2019 was $6.8 million, compared to $6.5 million for 2018, an increase of $344,000, substantially explained by an increase in non-cash charges of $521,000, offset by an increase in contribution from reduced revenue of $189,000. The loss for the three months ended March 31, 2019 was $8.6 million, compared to $55.9 million in the same period last year. The $47.5 million decrease in the loss incurred for the three months ended March 31, 2019, compared to the same period in 2018 can be substantially explained by $47.7 million decrease in other losses due to the accounting treatment of the 2017 financings. These accounting charges for 2017 financing are best explained in the financial statements do not impact the cash flow expectations in the coming quarters. Our basic and diluted loss per share for the first quarter of 2019 was $0.21 per basic and diluted share, compared to a loss of $0.38 for the same period in 2018. From a cash flow perspective, we spent approximately $5.5 million on operations, pay settlement fees of $750,000 and has balance sheet outflows of approximately $100,000. To offset this expenditure, we received $1.2 million from the exercise of Series C warrants and net proceeds of $8.1 million from the completion of two $5 million underwritten public offerings in February and March of this year. As at March 31, 2019, we reported cash and cash equivalents of $12.1 million. Management will continue to look for opportunities to raise additional capital and extend our runway further into the future. Turning to the capital structure of the company. As of May 9, 2019, the Company had 67,475,883 common shares issued and outstanding. The following securities are convertible into common shares

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Danielle Antalffy with SVB Leerink. Please proceed with your question.

[Dylan Gantley:]

Hi. This is Dylan on for Danielle. I just wanted to say congratulations on taking care of some litigation in Europe there. I have two questions. I was hoping to start with TIARA. I think enrolment was a little lower than what you guys had been targeting previously. I think that was high single-digit. I was curious if you could just give a little bit more color on maybe why that was slower. If it was because you're ramping up some of the site activation there, I think, that would be helpful. And I have one follow-up

[Fred Colen:]

Yes. Hi, Dylan. This is Fred. So actually I would say that the implant rate is pretty much in line with what we've seen historically in the last year and what we were thinking about in terms of our own planning. The issue with it is that it seems to be going in waves. We may have five, six implants within a week or 10 days and then it's quiet again for some time. So, it just depends on how the wave fit into the reporting cycles. I can tell you that we have quite a few patients at the moment in the queue for enrollment. Like, for example, later in May. So I think the number is pretty much in line. Again, it depends on when you hit the enrollment wave compared to the reporting cycle. So I think that's -- there is no surprise there. We are continuing to engage and qualify additional clinical sits. Thus you has -- you noticed we have now 18 active and fully qualified sites. We just recently opened a very prominent clinical site in the Netherlands in Utrecht. They are just now starting to look for patients. We have in the last half year opened up clinical site in Tel Aviv, Israel as well as in Madrid, Spain and several in Germany. So we will continue to look at getting to the max number of 20 clinical sites. We believe that that's very doable and we do see a lot of interest in participating in all clinical trial by the European clinical centers. As I noted in my script, we do suffer from a high rejection rate as does any transapical mitral valve program in an industry. You know, I stated in my script that we currently have about 20% acceptance rate and that's due to a lot of different factors. That doesn't make it easy to get the high enrolment numbers. We are working on substantially improving that in our transformer program. We know it quite well how to do that. It is indeed through minor modifications to the system in particular to what we call the ventricular footprint, which we can and should further reduce by in the range of about 10%. And that has a quite a large impact on how many patients might be treatable outside of the factors that play a role here. So all of those factors play a role in enrolment. We do see a lot of enthusiasm for our product for patients that don't really have a lot of other options. There are quite a few patients out there that are not treatable by general surgery and/or mitral valve repair. And these patients are being looked at to be included in our program and that picture really hasn't changed. I know Dylan always asked about the co-op clinical trial that picture for us really has not changed in the last half year.

[Dylan Gantley:]

Great. That's very helpful. Glad to hear things are still on track there for hopefully completion of enrolment later this year. Switching over to reducer, it's good to hear you guys are ramping up the sales force and focusing on some more patent applications there. Has that relates to cash burn? I mean, do you think you still go forward run rate is still going to be about $5 million that you've been at given those activities and if not how do you think that will impact -- ramping those reduced activities will impact that cash burn. Thank you.

[Fred Colen:]

Yes, Dylan. Very good question. So we are committed to staying within our cash burn that we currently have. So there was no -- there was no plan to increase that. That will remain the same. Now we are actually as you can see able to take on more activities even with the same cash burn and that is primarily due to the fact that we are indeed becoming a more efficient organization compared to what we used to be. We have increased our efficiency dramatically in the last year and we will continue to make further strides in becoming more efficient. We’ve also gone through a lot of work in the past and that we took up a lot of manpower and expense in upgrading our quality system, in becoming more efficient and dealing with documentation changes for example, and monitoring our products from an overall complaint standpoint. We are fully up to speed and all compliance with the latest regulations on that. We have done it a lot of work within our quality system and within organizations worldwide to get up to that standard. So that is work that we have completed for the most part. We see a lot of productivity improvement because of that. And it actually frees up resources and money to actually spend and even more productive manner on the transfemoral trans-septal program, which we are also developing within that same amount of cash burn per quarter as well as an additional improvements for the developments on the reduced product and additional patent applications. So, I feel very good about the fact that we are able to do this indeed through the efficiency gains that we are creating internally and not through additional cash burn. Great. That's good news. Really appreciate the additional information there Fred. Congratulations again on the progress that you've made.

[Fred Colen:]

Great. Thank you so much. Much appreciated.

[Operator:]

Thank you. Our next question comes from the line of David Rescott with Canaccord Genuity. Please proceed with your question.

[David Rescott:]

It’s David on for Jason Mills. Can you hear me?

[Fred Colen:]

Yes, I can hear you David. Hello how are you.

[David Rescott:]

Good. So first I want to talk about is you mentioned the commentary kind of about reducing the footprint around 10%, and increasing the number of size of the device to expand the market to around 20% I believe you said. Can you kind of break that down versus how you see that sort of expanding the market and how you really think that you can leverage this to increase perhaps enrollment with that device.

[Fred Colen:]

So this is -- what I'm talking about they doesn't help us with our transapical Chair. We have made a strategic decision not to change device nor the delivery system, so that we have a unique and constant product system that we are clinically evaluating. The problem with making minor modifications is that you're basically starting over with your clinical trials. So why would this painful to have to reject a few patients on the basis of certain dimensions. It is still the best we should do, because of the fact that we continue to enroll in clinical trials and we don't have to do a restart. Now that situation is completely different. If we look at the transfemoral trans-septal program whereby we are able to really learn from our clinical experience to date, not only from a delivery system perspective but also from an overall implant perspective, and we can utilize those learnings to actually improve on the device further and so that is where we are. We have evaluated our own database, and I can't stress enough the valve of our own clinical database as well as the valve of other clinical databases that we have access to, to calibrate how to best design the chair a system from an awful dimensional standpoint and overall valve perspective. That combined with our learnings so far gives us the opportunity to continue to improve our product. And it's in that context that we have seen that if we actually decrease the footprint of the chair of valve by about 10% that we can indeed treat quite a few more patients. But we've also seen that we should really introduce with the transfemoral trans-septal program a third chair up device size, which we currently don't have. We currently only have two sizes. So, when you look at that overall complete analysis, it gets you to a potential, penetration rate of about 7 or in the range of what 70% of patients with severe mitral that could be treated with that to further improved share our device in the TF/TS program. So, it's in that context and I mentioned this. So, we are not looking to change our current Transapical Tiara valve program, because we don't want to invalidate the clinical data that we have. We want to continue to use those. And therefore, we want to get to the finish line with those products the way they are. And don't make any changes on that on that program line.

[David Rescott:]

Okay. Thanks. That clears some things up. And second question on Reducer, maybe from a higher level. Could you help us to understand you know what the Reducer device could really look like? Or what you think kind of under an optimal, kind of strategic opportunity you could see, the Reducer device growing in the future, and maybe secondly, just quickly on Euro PCR? Could you kind of outline for us some things that you specifically looking to gain from the CardiAQ Valve? Thanks.

[Fred Colen:]

Yeah. So, as relates to the opportunity with Reducer in general, so, there are several things that are still in the pipeline that are going to be important for the therapy development and overall Reducer success in particular in Europe. And they mostly have to do with reimbursement in the European countries. As you know, we have, and you'll be one reimbursement status in Germany, which is helping us a lot and is driving sales growth in Germany a quite dramatically. We are also looking at how to obtain reimbursement in some other countries. We are going about it in a prioritized manner. So we have listed the countries where we believe, we can make the quickest progress towards General reimbursement of the Reducer device in those countries. So, this is one part of the value creation strategy for Reducer to gain further reimbursement in the European countries and therefore for the penetration of the therapy. That's one aspect. The other one is, we as you probably know, there are European guidelines for the treatment of all kinds of different diseases. And we know that the there is a group of physicians in Europe, that is looking at the treatment of refractory angina. And they are currently evaluating all the different treatment options to be mentioned in the European guideline. So, maybe, on that side, there might be some that could help us, in terms of guideline provisions. That's another aspect. That's most in the handoff of European physicians not so much driven by us. On top of that, it is really important that we continue to work on what I call, therapy development which is basically educating the referred physicians, that although there was no therapy available to these patients all sort of medication, all sort of drugs, that now there is indeed a therapy available that could potentially help these refractory angina patients. So, the educational process, the penetration one level of down into the referring physician base is extremely important for us to gather a continued momentum and drive sales performance. So that is something we are actually starting to do. And we have started to in Germany in particular. And we are obviously educating all distributors in Europe towards the same program. And then last, but not least, I think a big, a big part of the value creations for Reducer has to do with the United States. Unfortunately, in the U.S. of the well over 1,000 patients treated globally. Only two patients have been treated to date. And that is under compassionate use. I think that situation needs to be changed and should be changed for the benefit of the patients in the United States, which is why we are very much focused on continue to work on a strategy together with the FDA to clarify the path to market in the United States. That path to market still is not quite clear. We have the benefit of the breakthrough device technology designation by the FDA, basically saying, well, we agree with you that FDA is saying we agree with you that these patients we don't have a lot of good options at the moment. So the FDA is sensitive to this. So we will continue to work with them and clarify the path to markets in the United States. Those are some key values drivers for Reducer. On top of that, there are also opportunities on the product side where we could even make some minor modifications to the device that could even further enhance and improve the performance of the device. And we are looking at those as well and also as an opportunity to continue to expand our patent portfolio. So a lot of activity here on this Reducer platform that I believe can indeed create a lot of value for the patients and the company and investors alike.

[David Rescott:]

Okay. Thanks. And then just on the second one about maybe what specifically you're looking to kind of gain from EuroPCR? Thanks.

[Fred Colen:]

Yes. So, on the – yes, so we have several sessions scheduled with key opinion leaders at EuroPCR Conference later in May in Paris. There are some sessions focused on showing them and demonstrating them with real devices all of trans-septal Tiara system and discussing with them the steerability, the trackability basically the implant procedure and get feedback from them. A big portion of that is around, is indeed better for the procedure to do an atrial first or ventricular first deployment of the device and the micro [Indiscernible]. That's one aspect. The other one is that we want to show them how we are going to enable full retrieval ability of Tiara valve which we today don't have by the way. Full retrieval ability of the Tiara as long as the device is attached to delivery system. So we want to show them that concept as well and understand how they think about that. So it's basically showing them the system the TF/TS system and trying to understand from their own experience what kind of feedback they have on that. In a separate session, but very similarly from a conceptual point of view, we want to show them also the product improvements of what I would like to actually call the next generation Reducer device that we also have come up as a new concept and gain their feedback and their thoughts on those product improvements and next generation Reducer products to see how well we are thinking about it, if we are well aligned and calibrated with their thoughts and help us prioritize features over other features. So I think it's going to be very valuable for us to show them these new products. I think it's also going to be valuable for them, because they are seeing that we're actually developing both product platforms. And I think it's going to create some additional excitement for them to indeed see that both product platforms are working well that can indeed be further improved upon and create even more excitement. David, are you still there?

[Operator:]

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the call back over to Mr. Colen for any closing remarks.

[Fred Colen:]

Okay. Thank you. So 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. Thank you very much for your attention and goodbye.

[Operator:]

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