Q1 2021 Neovasc Inc Earnings Call
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Good day, everyone and welcome to the Neovasc incorporated first quarter 2021 earnings call.
Today's conference is being recorded.
At this time I'd like to turn the conference over to Mr. Mike Cavanagh imagine managing director at Westlake. Please go ahead Sir.
Good afternoon, and thank you for joining us today.
Earlier today Neovasc released financial results for the quarter ended March 31, 2021 for one.
<unk> is currently available on the investors section of the company's website at Www Dot Neovasc Dot com.
Cash investors.
Fred Colen, President and Chief Executive Officer, and Chris Clark, Chief Financial Officer will host this afternoon's call.
Before we get started I would like to remind everyone that management will be making statements. During this call that include forward looking statements within the meaning of the applicable securities laws, which are made pursuant to the safe Harbor provision.
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 sections of <unk>.
Asks annual information form and the discussion of Neovasc, MD&A, which are available on Edgar and SEDAR.
The information provided on this conference call speaks only to the live broadcast today May six 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.
I will now turn the call over to Fred.
Thank you, Mike and good afternoon, everyone.
It's been a busy quarter for Neovasc.
Overall, we are pleased with the progress we made in the quarter to advance our two key cardiology products, including the promotional ization of the reducer device.
Revenues for the first quarter of 2021 were $452000 compared to five funding of $43000 in the first quarter of 2020.
Although down year over year due to the COVID-19 pandemic driven decline in elective procedures. It was higher than we budgeted as the volume of reducer implants continues to rebound faster than anticipated.
The great majority of these implants occurred in Europe, where our reducer is approved and is gaining traction with cardiologists seeking of treatment for patients with refractory angina and who have run out of traditional treatment options.
We think it is encouraging that our implants were down just 10% compared to the first quarter of 2020, considering the difficult year over year comparisons.
Recall that COVID-19 impacted all of our implants. During the final two weeks of the first quarter of 2020, but in fact that the entire first quarter of 2021.
In Germany, and the larger Doc region, including Austria, and Switzerland all of them.
Revenues in implants were actually flat in comparison to Q1 2020.
Despite the pandemic impact on elective procedures.
We see disparate effects of Lockdowns in elective procedure cancellations across Europe with some markets returning to near normal levels of procedures and all of those with more market impacts.
We anticipate the effects of COVID-19 on procedure volumes to continue into the second quarter of 2021 and likely the third quarter of 2021 in select markets.
Despite the lingering impact of COVID-19 Q2, 2021 is off to a strong start compared to Q2 things other than 'twenty, which was severely impacted by COVID-19.
We believe the recovery and reduce the implants demonstrates the value to patients ex.
Variances in chronic pain and for whom standard treatments have failed.
We Furthermore, just now celebrated the enrollment of our three hundreds of reducer patient in to reduce of one post market clinical study.
We are also pleased with all of our efforts to expand reimbursement for the reduce of worldwide.
As previously announced the company has made significant progress against all of our reimbursement of objectives in the U K, France, Germany, and the United States.
The company has worked with the American Medical Association to establish a new category three CPT or current procedural terminology codes to report the transcatheter implantation of coronary sinus reduction device, which will be of.
<unk> July <unk> 2021.
Additionally, Neovasc has worked with the centers for Medicare and Medicaid services or CMS over the course of the last several months to create a new ICD 10 procedural code for reducer that is effective October 1st 2012.
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And the new ICD 10 diagnosis codes for refractory angina that are currently under review by CMS for potential implementation in 2022.
Last week CMS issued its calendar year 2022, inpatient prospective payment system proposed rule for inpatient procedures.
And recommend the support for a new technology add on payment for reducer of 9750 U S dollars pending FDA approval of the device.
Given the fact that we will not receive FDA approval with all of the Novo <unk> clinical study, we intend to withdraw our application.
However, it is encouraging to note that in its proposed rule CMS stated quote.
We agree with the applicant that the Neovasc reducer system meet the cost of criterion, and therefore proposing to approve the neovasc reducer system for new technology add on payments for calendar year 2022 subject to the technology receiving.
FDA marketing authorization for use in patients with refractory angina of tax tourists. Despite guideline directed medical therapy, who are unsuitable for revascularization by coronary artery bypass grafting or buy for cutaneous coronary intervention by July of <unk> 2000.
21 end of quote.
Additionally.
CMS has established a new ICD 10, Pcs, Yes procedure code for restriction of coronary sinus with reduction device for cutaneous approach New technology group seven to report the reduce of system providers will be able to.
Reported this new code for procedures performed in the hospital in patient site of service effective October one 2021.
CMS also assigned to this procedure to MS. DRG 228, and MS. DRG 229, and we are pleased with those assignments.
These efforts on the U S reimbursement front were all initiated and properly executed to enable successful commercialization of the reducer in the United States in parallel processes with the FDA approval processes.
As we have previously disclosed we will not receive FDA approval this year and intend to initiate an <unk> clinical study the North America to support our U S. FDA regulatory approval process in the form of an amended and upped.
Day debt Coursera, two IDE clinical study, which in its original form was already approved by the FDA before the FDA granted the reducer the breakthrough device designation in 2018.
We are nonetheless gratified to receive the support from the CMS and look forward to continued collaboration with them in the future.
These are significant milestones on the reimbursement front and they bode well for the reduce of therapy, if and when we obtained FDA approval for the reducer device.
Following up on my comments about the assuming this new U S. IDE clinical study for reducer, we receive the App had initial discussions with FDA regarding the initiation of Coursera to a double blind sham controlled randomized controlled trial.
All of the reduce the device versus a sham procedure to be conducted of North America.
We are pleased that Blackstone from Mount Sinai Medical Center, Ken Henry from the Christ Hospital.
Marc Jolicoeur from Montreal Heart Institute and.
And I'll, let Jeremiah from St. Francis Hospital in the Washington, New York has agreed to serve on our executive steering Committee.
We are thrilled to have such an esteemed group of cardiologists support our program.
There is plenty of work to do to initiate the study, but we have set an aggressive in total goal of the end of this year for our first patient enrollment.
Yeah.
Although I've touched on its drilling over the last call I think it is important to discuss the threat the $72 million raise we completed in February of this year.
Because of this offering we now have a financial runway that as anticipated will take us through the next 18 months or so and should allow us to pursue some of the work we have discussed including the Coursera to study.
As I said on our previous earnings call. We believe that this will provide to be a significant transaction in the life of the company.
Soaring up our finances, and providing us the opportunity to allow better decision, making around resource allocation and partnership opportunities.
Turning to our share on mitral valve replacement device.
We did not receive a CE mark decision for the chair of our Ta apical of mitral valve replacement system under the might of all of the medical device directive.
This was not a rejection of our application, but rather a timing issue.
As we were not able to provide additional required information before the may 26 deadline and the transition to the LDR regulations.
We are now in collaborative discussions with the governing body to the.
Determine potential next steps.
The next key initiative to watch will be activity, leading up to a first human implant and related regulatory interactions for the next generation share of T F. The device.
We are still targeting the first in human implants of charity ask towards the end of 2021, although we are also still facing facing COVID-19 related delays and inefficiencies.
This however could also move into next year. It will all depend on the progress we make in developing this complex new system.
The company is encouraged by the positive feedback we have received all of the system, including the enhanced new share of valve.
Most notably many physicians are supportive of the implants low profile control of delivery and unique D shaped design that set it apart from competitive offerings in development.
We continue to believe in the potential of Cherokee ask to expand the size of the market and be more broad the applicable than competitive systems under development and our own Ta tiara system.
We accomplished a great deal in the first quarter, but we are well aware that there is much more to do.
We hope to report on multiple milestones in 2021, as we continue to develop our devices.
I'll now turn the call over to Chris for a review of our financial results clips.
Thank you Ted.
Everyone is like the way.
The restriction of electric procedures, which included the reducer implants was implemented while.
Hospitals health authorities and governments of the substantial portion of all major markets due to COVID-19.
Of course, reducer implantation to significantly slow beginning in March 2020.
That's been the recovery in elective procedures, we're not yet back to pre COVID-19 levels.
As a result revenues decreased by 15% to $452000.
For the three months ended March 31, 2021 compared to revenues of $533000 for the same period in 2020.
However, as Greg mentioned reducer implant volumes and revenues of both higher than expected, indicating.
Indicating a faster recovery the reducer of procedures than we had anticipated.
Cost of goods sold to the three months of the March 31st 2021.
The $72000 compared to $125000 for the same period in 2020.
The overall gross margin for the three months ended March 30, <unk> 2021, it was 84% compared to 77% gross margin for the same period from 2020 of the company sold more products in countries, where we sell direct bar range sales force for higher margins.
Total expenses for the three months ended March 30, <unk> 2021 were $10 $6 million compared to $7 $6 million for 2020.
Representing an increase of $3 million for.
39%.
The increase in total expenses for three months ended March 31 2021.
Back to 2020 can substantially be explained.
The one time $1 6 million.
Increase in legal expenses and MPLX fees related to the February 2021 financing.
And the $1 $3 million increase in non cash share based expenses as we've gone to Daniela rules.
The operating losses and comprehensive losses for the three months ended March 31st 2021.
For the $10 $2 million and $2 9 million respectively for for.
Basic and diluted loss per share.
As compared with $10 2 million operating losses, and $2 $7 million comprehensive loss of <unk> 38, basic and diluted loss per share for the same period in the country.
Thanks for the reasons could be increasing operating losses I've already explained in Miami for months.
I'll also note that we were expecting the immune to day from the appears for the Munich on October one of patent disputes of Academy of cute.
This is being delayed by the call like two weeks to make 'twenty or 'twenty one.
As Fred mentioned, we are in a much stronger financial position and expect the new reach critical value creation of events the for meeting more capital with us.
The complex patients that we expected by positive updates for the balance of 2021 and beyond.
Thank you Craig.
Thank you Chris and thank you all for listening to all of our opening remarks Neovasc is finally on a new foundational footing with a clean cap table and balance sheet and a reasonable amount of funding for the development of our two key products.
This allows us to focus completely on advancing the strategies, which we believe will uncover the vast potential of reducer and tiara and ultimately help millions of patients around the world. Thank you all for your continued support.
I would now like to open the call up for questions.
Thank you if you would like to ask the question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question and we'll pause for just the moment to allow everyone an opportunity the signal.
And our first question will come from Danielle and Toffee with SBB Leerink.
Thanks, so much for for taking the question.
Fred.
The question on how you think about when the realistically.
Could start to contribute from revenue here given the price.
Given now that the fact that the.
Yeah, Ricky with their product probably isn't going to come to the U S for a little bit of time. So just any color you could give on the on.
Eric would actually become of revenue contributor and I appreciate that the Ta product is not likely to be.
The products that come from here for the U S.
Yeah. Thanks, Danielle So first of all let me put this in perspective, we never really counted on the share of T. A in Europe as a big revenue provider.
As you know it is not a product in the U S market is one that we are targeting for the European side and secondly, as you also know it is really for a relative small patient population.
That is a true for a lot of these programs on the mitral valve side at the moment.
And certainly also for our <unk> device.
As you know and as we have disclosed in the past from all patients that we screen, we see you know, 20% or less patients being eligible for this particular device due to all kinds of.
The inclusion exclusion criteria. So it is at if anything only a small revenue.
Generating opportunity.
As it is.
That said, we I can't really give you a concrete answer yet because we are talking about what the transition from MD lead the MTR means in terms of the submission and what we have accomplished with the notified body. So far we have been able to close out.
The clothes are quite a substantial number of modules, but not all of them.
But even on those there will be some transition aerie work to be done from NPD. The MTR. So we are in the process of understanding all of these things.
And once we understand them.
We'll have a much better idea about the timeline.
As to how we might be able to move forward with that so at the moment I really don't have an answer we need to understand the transition the requirements for our notified body and with that will come.
And the understanding of the work and the scope and the timelines for it that.
That will hopefully become clearer in the next few months, but I really don't have that perspective, yet at this point in time.
Okay. That's fair thanks for that price and then maybe let's talk about everything for gist.
Congratulations on the progress smoothed out with Chris here of two after what was the growth of appointing the outcome from the FDA panel I got the what what are the biggest risks here.
For timely progression of the clinical trial, because I feel like that is the sort of net promoter catalysts right of getting the trial underway.
At and what are the milestones to be looking for in the investor in basketball.
For Neovasc the perfect. Thanks for months.
Yes, so I would agree that the and.
And the use of theirs.
Several of value drivers on the reduce of side.
In the next several months that I think are going to be interesting.
A few of them have to do with real outcome.
The from reimbursement work in Europe, So what will we see in markets in Europe as it relates to reimbursement decisions for the reducer I think thats one potential value driver in the next few months.
And then as you saw already in the script, we have already made a lot of progress on.
Reimbursement decisions in the U S, which was based on our hope that we were able to get an earlier FDA approval, which obviously were shattered.
But I think the reimbursement in general is going to be an important value driver no matter what.
I think increased our revenue numbers out of Europe, I think will also be a quite a value driver because once we are finally getting through COVID-19 and as you. All know Europe is going through at the even slower than in the U S and that's really where all revenue lies at the moment.
So once we get through the COVID-19 scenarios in those European countries and the recovery of elective procedures. There. We do anticipate it pick up again of the of dramatic growth on the reducer side of Europe, So that should be another one but outside of those I agree with you that the U S picture is going to.
<unk> contributes quite a bit to.
And does he has them as it relates to moving forward with the reducer and.
And I think thats it.
I think the risks to start the study of one of our small and my perspective, my personal view on this and that's mostly because of the fact that you need to remember and I stated in the script as well that the FDA prior to declaring the device the breakthrough device in 2018 had already approved.
A U S. IV study for the video resource it was called the cross sell of through study.
In that for example, all of the animal study results were already debated and discussed back in force.
And all of the study design was already discussed back in force and in the end of the FDA and the.
Before 2018 already approved the study I just wanted to clarify this because of the very big confusion about this in the public domain, where people just don't understand this.
And I hear lots of a criticism of bulk animal study results well those were all discussing the beta was after the NDA actually approve the IDE study before they gave the device the breaks the device.
So because of the breakthrough device and the.
Guidelines at the FDA put out we believe we had of fear shot at using the data we had including the reduce of one data post market study data to get the device approved without doing an additional IV study, which is what we did.
Now that we noted that the novo we're going back to doing this study now in the meantime, a few years later, we have all loan the lot we as the company the physician community. The FDA has learned a lot and so we believe that a few minor changes in the.
Amendments to the original protocol of the study that was approved.
All I need it and so we have had our first initial discussions with the FDA, we're gearing up to a life meeting with FDA hopefully later this month.
The 10th of how we see this danielle.
Hello does it does look like Danielle disconnected.
Okay. Okay. The.
That's great I think I explained it to the audience too bad, but I know Danielle is gonna be the she had so many of these other schools to cover so that's the only watch at the jumbo the overcall and she doesn't reflect at about let's take care of them.
That's the day, Sir Thank you so much and so let's move on them.
Absolutely. Our next question will come from Vernon Bernardino with H D Wainwright.
I credit and Chris and Bill for their congrats on the progress and the challenging environment definitely.
A a mark of of a success considering the the the restrictions the all over the place, especially in the key markets.
Some of my okay of questions, whereas but the one or two then there for some housekeeping type of things I saw the unrealized gain of warranty probably alluded to some of them already Chris in your remarks, but I think the rather large I'm sure it's related to the financing just wondering it.
Could provide any growing granny lack merit a larry the what the drove the amount of and then also as in taking what is the card. So of course, you did mention the margins. The couch was 60 per cent for the 23 per cent in for.
Corner of the last year I was one of <unk> provide granularity on the Brooklyn, They're also thank you.
So I'll take the the the.
The last part first.
Really the improvement in and colleagues was related to.
Our sales mix and the fact that we increased.
Sales and geographies, where we had.
Hey, direct sales force in there for the mix changed from skewed towards our higher margin Geography's that explains the increase in our margin.
And then on the.
The accounting for the.
The decided derivative liabilities.
The.
Asset that was created on a balance sheet related to the February.
Financing.
And was related to the fact that the.
Stock declined substantially following the financing, which created a loss and actually see the price fluctuated we will.
We value.
Liabilities on the quarterly basis.
That on.
From our statements Uhm.
Without any real significant.
Passion, but.
Right, it's a non cash and just to follow up on the the Cogs and from it.
The state your card.
Oh Uhm set all around 15 per cent going forward.
I expected actually to to normalize a little bit back to like.
The the norm.
While we did have a a strong quarter in the dark region.
Mm mm.
A week of quarter in other regions.
Set that to normalize and and other countries to come on line.
Uhm so.
So that we we normalized.
Closer to the 75 day 80 per cent Robinson.
88 Senators were stolen in the first quarter for gross Martin.
Yeah and burnt on the.
Good good to hear you. This is for I'd just to add on for that so.
Yeah, Hi, Vernon. So so we really expect the gross margin to be like Miss that somewhere between 75 and 80 per cent.
Really depends on the mix in the countries, obviously, we achieve higher prices in Germany, where we had the lack of we have rain other countries on line wherever you of distributors you know that has a somewhat negative effect on the gross margin, but then on the other half. We're also working hard and friends and if and when that is going to be successful.
We would like to start building up of direct sales for some friends and that will again, you know help lift up the the gross margin so of it all depends on the different countries in a different of fluctuations, but to point out to the the gross margin from this quarter Q1, and it being exceptionally high really.
Yeah, it's because of enormous good performance in in Germany in particular, and if you look at the implants in Germany. In Q1 of 21 compare took you one of 20 day were essentially flat. So about the same in the first for the 21 compared to the fourth quarter of two.
2020, and when you know the situation, Germany as relates to COVID-19, you know that in the essentially all of Q1 21 and the country wasn't the lockdown scenario for this in 20, we basically only solvency impact of the COVID-19 in the last two weeks of the first quarter.
So it is actually very remarkable to see you know in the amount of implant of the reducer in Germany, where the country essentially in lockdown in the first of all of 21 at about the same level as in 2020.
And we contribute that to the strong underlying demand in a difficult market in terms of electric procedures being pushed out there is enough push from the patients and the referring physicians to get these patients treat it with the reducer and that.
Wouldn't happen if this device would work this device force. It provides real relief for the majority of patients we have lots of day the to prove that and I think the underlying commercial success is as much a proof of that as well. So I just wanted to add those common steward for now.
One more of a follow up then is is one way to look at this is and depending on how restrictions are lifted. Besides the Germany is one way we could look at you know for casting sales for the rest of the year.
Well, we have a plan in place that you know of had a subdued Q1, we actually did slightly better in queue wanted N O of subdued plan the cause of the virus.
We still have a a a slower queue to then on the normal circumstances, because we still in fact, we still see in fact of the virus, although queue too and of one until planning of somebody quite a bit swollen and Q1 and then we see you know of real acceleration in terms of revenue growth starting in.
Select markets in Q3, and really kicking in in queue for so all of the queue for plan certainly does have quite a bit of growth in it for internal planning purposes on both implant the revenue side, because we do believe that the way it's continued to be strong acceleration of revenue.
Basically we have been kept when you look at the number of in the Big picture of perspective, we haven't basically kept at of roughly 2 million dollar revenue range 40 year in 1920, and 21 will be shaping up the same way and that's all because of COVID-19 if.
COVID-19 goes away, we are convinced and we do believe that revenue will continue to accelerate again and we will stop back to go in the growth phase. So cool with the US basically has kept us add in there about $2 million of Avenue number and went for would finally will go.
Way as we hold we will actually go back to strong revenue growth again, that's kind of like how we see the the picture of the the follow up for the revenue of of time.
Terrific I appreciate it there. So it's cause if you just ran with slightly more than half a million dollars per quarter of that somebody about 2 million. Thank you for I'd appreciate that.
Yep.
And we have no further questions at the time, they'll turn things back over to France for any closing remarks.
Yeah. Thank you very much Sarah for a great the call with this I'd just like to say thank you all for your attention and goodbye until the we're talking to the next level take care Bye bye.
And that does conclude today's conference thanks, everyone for joining us.
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