Neovasc Inc.
Q3 2018 Earnings Call Transcript

Published: 15 Nov 2018

[Operator:]

Good day everyone and welcome to the Neovasc Incorporated 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.

[Jeremy Feffer:]

Thank you, Karen [ph]. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for your questions. [Operator Instructions]. 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 statement. 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’s annual report on Form 20-F and the discussion in Neovasc’s MD&A, which are available on SEDAR and EDGAR. This time, I’d like to turn the call over to Fred Colen, President and Chief Executive Officer of Neovasc. Fred?

[Fredericus 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, and 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 audio vascular 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 [Indiscernible] 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 replacement 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 prosthesis, 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 patients’ mitral regurgitation was eliminated. This publication supports Tiara as a technically feasible and safe option for these high-risk patients with mitral regurgitation is not being treated by [Indiscernible] mitral valve replacement. In addition, the editor of the Journal stated in editorial comments, that

[Christopher Clark:]

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’ll refer you to our full disclosure filed on SEDAR and EDGAR for a more fulsome review of our third quarter 2018 results Starting with the Reducer commercialization, we reported a 44% increase in revenue for Reducer sales from $481,000 in the three months ended September 30th 2018 compared to $334,000 for the same period last year. This increase which 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 30th 2018 decreased from $1.4 million for the same period last year. Similarly, our total revenue for the nine months ended September 30th 2018 were $1.2 million compared to $4.2 million for the same period last year. Our margins for the three months ended June -- September 30th 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 mental expenses for the three months ended September 30th 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 $1.5 million non-cash charge for stock-based compensation as stock incentive plans were reintroduced, a $1 million charge for collaboration and settlement expenses as we reached collaboration and settlement agreement with the University of Pennsylvania, offset by a $165,000 reduction in cash based employee expenses. It was as we have reduced headcount from approximately 150 to ninety five staff. Our operating loss for the three months ended September 30th 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 ended [ph] -- consulting service revenues at the end of 2017. The overall lost for three months ended September 30th 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 non-cash 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 account charges for the 2017 financing are best explained in the financial statements and did not impact the cash flow expectations in the coming quarters. Our basic and diluted lost 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 spend approximately $5.46 million on operations and spend 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 two quarters at our current burn rate from the end of the third quarter. We will need to raise additional capital in the coming months. For the current capital structure, as described in our risk factors, is a significant obstacle to achieving this? Such circumstances suggest a material uncertain about our ability to continue as a growing concern, however, as we disclosed at previous earnings calls as Fred mentioned earlier, we are actively taking steps to try and address this situation. In terms of our efforts to address the company’s capital structure, on September 21st, we affected a one 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 was converted using the alternate conversion price, is approximately 37.7 million common shares This has also had a positive effect on NASDAQ listing status. On October 9th, we received notice from the NASDAQ Hearings Panel that we regain 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:]

[Operator Instructions]. We’ll hear first today from Danielle Antalffy with Leerink Partners.

[Danielle Antalffy:]

Hey, good afternoon guys. Thanks so much for that comprehensive update. Just following TCT this here. Curious on you know you did enroll, it sounds like you enrolled an incremental five patients really in the last six weeks, first of all in with TIARA. Tell me if that’s correct. First of all, the second one, are you seeing an uplift and enrollment in part also because of just general excitement around mitral now that co-op [Ph] data is out and very positive. Can you talk a little bit about that, and what we should expect it for pace of enrollment now going forward?

[Fredericus Colen:]

Yes, hi Danielle, this is Fred. Great to hear your voice again. So yes, that’s an additional five patients, so that is correct. We are working on all the different aspects of the enrollment and TIARAs are 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 -- you know 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.

[Danielle Antalffy:]

Okay, thanks for that. And then one follow up question, just as you think about eventually moving Tiara into a pivotal. Now with the co-op [ph] 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?.Thanks so much.

[Fredericus Colen:]

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 on the debate in the medical community and 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 prioritize 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 it in the hands of the interventional cardiologists for which I think a small feasibility clinical trial, which we will be a very 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.

[Operator:]

Anything more from Danielle? We’ll hear next from Jason Mills with Canaccord Genuity.

[Cecilia Furlong:]

Hi, Fred and Chris. 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 you’re thinking about balancing your focus on driving this program forward versus placing resources toward TIARA?

[Fredericus Colen:]

So that’s a very good question Cecilia. And I appreciate it. Obviously, Neovasc has the very strategic advantage of having two products in our pipeline. We’re not a one product company. We actually have two very promising products. And I think historically the Reducer has been undervalued in its potential. I think that we have been able to plays a much more balanced approach on the development of both product platforms in the last three quarters of a 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 the TIARA, we are obviously clearly in the clinical evaluation stage and for the transseptal TIARA we are working on the development of it. So really there isn’t a conflict in terms of the types of personnel that is being involved in both. And there’s really not a lot of trade-off in terms of resources between these two groups. 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 got 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 regulatory strategy that we are going to be discussing with the FDA. And I think, the path to the market for the U.S. market will become a lot clearer at that point in time. So I think that’s how I can best answer your question. Does that doesn’t answer it well enough, Cecilia?

[Cecilia Furlong:]

Yes. That’s really helpful. Thank you very much. And if I could just ask also just in the TIARA II study, you had mentioned, you brought five additional sites online I believe in July. Just how those sites are ramping, and how you view your current sites in the activation process ramping behind them.

[Fredericus Colen:]

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 a database and look at potential patients that they might have had in the past so that we get a sense for, do you really see the 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, I would say the summer of this year, so the new clinical sites that are coming on board in the next month or two are expected to also be able to use -- patients in a rather quick manner, because of this practice. So we have like I said, five more in the pipeline, two with I would say, imminent approval that means, within a month or six weeks from now and another three still in the broader qualification process. And again, we have been contacted by three more clinical sites that have expressed an interest and we are looking at to see are these suitable centers as well -- as well and if they would be, we would then start a qualification process on those.

[Cecilia Furlong:]

Great. Thank you very much for taking our questions.

[Operator:]

[Operator Instructions] We’ll hear next from Jeffrey Cohen with Ladenburg Thalmann

[Jeffrey Cohen:]

Hi, Fred and Chris how are you?

[Fredericus Colen:]

Very good. Jeff, how are you?

[Jeffrey Cohen:]

Good. So two questions, I want to get to. So firstly on TIARA, could you give us a broad indication whether you grant such centers and some enrollment that you’re approximately halfway there? How might the back half enrollment look, do you expect acceleration whereby that cash should be at roughly twice the pace of the front half?

[Fredericus Colen:]

Well there 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 two or three patients that that seem to be suitable as well. So I do think you are going to see quite a bit of an increase in patient enrolment once we get these new and additional clinical sites qualified.

[Jeffrey Cohen:]

Got it. And then secondly on Reducer, could you talk about is there an actual timeframe set for an FDA meeting, and kind of walk us through what you would expect as far as end point size or trial number of sites etcetera?

[Fredericus Colen:]

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. entrance. And 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 and the medical community, Dr. Greg Stone being one of them. And so we are working with them really on our proposal for the clinical strategy in the West. And we are also talking specifically about what would the preapproval and what would the post approval clinical study look like, and the different tradeoffs between those two. I am hopeful that once we are ready with that, we can have a discussion with the FDA rather 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’ll see if we can talk to the FDA yet in December or 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 it’s -- like I said, the whole process should be prioritized because of the status now for a Reducer.

[Jeffrey Cohen:]

Okay. Perfect. Thanks for taking the questions.

[Fredericus Colen:]

Thanks, Jeff.

[Operator:]

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

[Fredericus Colen:]

Thank you, then. 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.

[Operator:]

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