Q4 2021 Neovasc Inc Earnings Call
[music].
Greetings and welcome to Neovasc fourth quarter, 2021 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
This conference is being recorded.
I would now like to turn the conference over to your host Mr. Mike Cavanaugh. Thank you you may begin.
Thank you good afternoon, everybody and thank you for joining us today.
Earlier today Neovasc incorporate it released financial results for the quarter and year ended December 31 2021.
Release is currently available on the investors section of the company's website at Www Dot <unk> Dot com slash investors.
Fred Colen, President and Chief Executive Officer, and Chris Clark, Chief Financial Officer will host this afternoon's call.
Before we get started I would like to remind everyone that management will be making statements. During this call that include forward looking statements within the meaning of applicable securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and Canadian Securities laws.
Any statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements.
All forward looking statements, including without limitation, our examination of historical operating trends expectations regarding coverage decisions.
Reising in enrollment matters, and our future financial expectations and results are based upon current estimates and various assumptions.
Words, such as expect outlook will should continue strategy potential intend try believe plan and similar words or expressions are meant to identify forward looking statements.
These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements.
For more information on risks and uncertainties related to these forward looking statements. Please refer to the cautionary statement regarding forward looking statements and risk factors section of Neovasc annual information report on form 20-F and the.
And Neil Best MD&A, which are available on Edgar and SEDAR.
The information provided in this conference call speaks only to the live broadcast today March 10th 2022.
Neovasc disclaims any intention or obligation, except as required by law to update or revise any information or forward looking statements, whether because of new information future events or otherwise.
I will now turn the call over to Fred.
Thank you, Mike and good afternoon, everyone.
As always thank you for joining us today.
And as usual I will review our progress since the last earnings call before turning it over to Chris to discuss our financials.
Q4 was a strong quarter operationally for Neovasc.
As we continue to advance our three value creation strategies.
We achieved record revenues for Q4, which Chris will touch on later.
We continue to make great progress on reimbursement initiatives in Europe , which will continue to drive adoption and expedite revenue grows.
And lastly, our financial footing remains strong with a runway expected to last through mid 2024 deep into the coursera to clinical trial.
One of the three pillars of our value creation strategy is expanding the use of reducer outside of the United States.
In November we were thrilled to announce the National Institute for Health and care Excellence all of the United Kingdom Nice provided positive feedback for the Neovasc reducer system.
This was a tremendous milestone for neovasc as it supports the first therapeutic intervention for stable angina patients who have not responded to treatment.
Shortly following the Neovasc reducer system was granted but these are all showers Aussie toile, all packed reimbursements in France by the National Health Authority also known as the horse.
Does that reduce or is the very first therapy to be approved under this newly established French packed process.
We are on our way now to build a ramping direct commercial revenue stream in France.
The half decision builds upon the recent reimbursement expansion in the United Kingdom as well as a positive American Medical Association decision to establish a new category three CPT code for coronary sinus reduction procedures in the United States.
Yeah.
Earlier this month, we announced the German Institute for the Hospital Renovacion system has awarded the Neovasc reducer and you'd be status one designation again for 2022.
The reducer has previously been granted status, one which is the highest priority designation available.
Well 2022 256, German hospitals applied for the Reducer and U B S.
And they can now negotiate full reimbursement coverage for the redo of cell therapy.
Additionally, we recently announced the 500 patient has been treated in Germany, which marks another meaningful step forward towards wider adoption.
We are proud of all of the progress our team has made in securing reimbursement for reducer in the largest markets in Europe .
The reduced with now available for use more widely with patient suffering from severe and you know who have no other treatment options to turn to.
It is gratifying to see the growing acceptance and use of the reducer for the treatment of refractory angina and we believe demand will follow the more this successfully used to tweak this debilitating disease.
Shifting to our efforts towards commercialization domestically in the United States.
Early January we were pleased to announce the enrollment of the very first patient in the coursera to clinical trial towards the target enrollment of approximately 380 patients across as many as 50 investigational sites.
Because there are two clinical trials is pivotal for our efforts to gain approval for the reducer in the United States.
This is a major step forward for patients in the United States suffering from chronic chest pain, and although often debilitating symptoms and for the very first time patients that experienced the debilitating effects of refractory angina will have access to an FDA designated breakthrough met.
<unk> device in our placebo controlled clinical trial.
We remain on track expecting do enrollment all of about 380 patients in up to 50 U S and Canadian sites.
This is a pivotal milestone in our path towards the commercialization of the reducer in the United States.
Last week, the centers for Medicare and Medicaid services, CMS issued a new healthcare common procedure coding system expects C code, specifically for the Corsair well two clinical trial.
This is a significant event for the trial and for the company.
The new code is designed to be used for hospital billing and it allows all of our patients in the trial to be coded the same way.
It is important for two reasons first and most importantly, it will help to ensure that trial suspects will remain blinded to which arm of the trial day all in by avoiding different cohorts of hospital bills.
Plus Neovasc has now established coding and coverage for both inpatient and outpatient procedures during the IEEE clinical trial.
This is a huge accomplishment and it reflects years of work on the part of our team.
Another significant milestone achieved.
It means that we are well in Norway to see U S based revenue coming in already during the clinical trial phase.
As for the third leg of our value creation strategy, we are continuing to pursue the CE Mark designation for our Cherokee a mitral valve replacement device. We continue to work with our notified body in Europe to advance our CE Mark application and we are now anticipating a decision.
Under the new European medical device regulation or MTR rules in late 2023.
The notified bodies in Europe are generally overwhelmed with applications even for products already on the European market today and this has resulted in much longer review cycles at notified bodies in general.
As many of you will recall, we made the difficult decision to suspend the development of the next generation chair Upfronts femoral device, which entailed a significant reduction in head count in mid 2021.
This strategic move allowed us to focus on the reducer and on the chair of Ta, which are both much further along in their development cycles and resulted in significant savings, which helped us to extend our cash runway, which is expected to last into mid 2002.
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I'd also like to take a moment to comment on the class action law suits that had been pending against Neovasc.
Earlier this month, we announced the dismissal of the consolidated amended complaint in the shareholder class action case.
Consolidated amended complaint was dismissed in its entirety with pre justice and with that I'll leave to amend.
Nevertheless, the plaintiffs have appealed the decision of the lower core to the court of Appeals and we will patiently and vigorously defend ourselves once again.
The process to hear the appeal on our motion to dismiss the case may take approximately a year and unfortunately will divert management time and capital away from all focus on our value creation strategies.
Before I turn the call over to Chris I would like to provide an update about the written notification from the NASDAQ in late November .
NASDAQ informed us that it has granted the company an additional 180 calendar day Grace period or until May 23rd 2022, within which to evidence compliance with the $1 minimum bid price requirement.
Despite great operational news our stock price has unfortunately, not moved closer to and above the required $1 bid price.
The company believes it to be in the best interest of our shareholders to stay listed on the NASDAQ and having exhausted all those strategies, including an improved website increased vessel investor relations and social media interactions and utilizing an extension to the <unk>.
Grace period, we have no other choice than to call on our shareholders to approve a reverse stock split.
Neovasc will be holding an annual and special General meeting on April 12, 2022 to vote on a reverse stock split which will mechanically increase the stock price by reducing the number of issued and outstanding shares, but the consolidation will not materially change or.
Dilute the percentage ownership helped by any shareholder.
I would also reiterate as we have announced before that the company does not currently needs to meet the $35 million of many of the market capitalization requirement as it currently needs to two and a half million dollars of shareholders equity requirement instead.
We finished the year 2021 strong and this despite lingering COVID-19 issues in Europe and in Germany in particular.
We accomplished a lot in the fourth quarter and into fiscal year 2021.
Our financial footing remains strong with a cash runway expected to last through mid 2024, and we are beginning to see widespread adoption and reimbursement of the reducer, enabling us to plan for a meaningful increase in revenue during 2022.
We look forward to continuing to achieve positive milestones in the weeks months and years to come.
As always we thank our investors our employees and our customers for their continued support of Neovasc and with that I will now turn the call over to Chris for a review of our financial results Chris.
Thank you Fred.
As Fred mentioned briefly in his comments.
Happy to report that.
We recorded record revenues and units sold during the quarter.
Despite the continuing pandemic with restricted access.
Doctors and reduce the number of electric surgical procedures performed.
However, we did see a resumption of some activity.
Out of necessity and after the initial Covid search began to subside.
As a result revenues increased by 30% to 355 million for the year ended December 31st 2021.
Compared to revenues of $1 96 million for the same period in 2020.
For the three months ended December 31st 2021 revenue increased by 48% to $759000.
Revenues of $514000.
The same period in 2020.
The operating losses and comprehensive losses. The year ended December 31, 2021 was $31 1 billion and $25 2 million respectively.
<unk> 47 basic and diluted loss per share.
As compared with $35 $2 million operating losses.
$32 million comprehensive losses, or $1 72, basic and diluted loss per share for the same period in 2020.
The decrease of $4 1 million.
Operating losses can be explained by a $3 6 million decrease in operating expenses on a $600000 increase in revenues.
The $5 million decrease in comprehensive loss incurred for the year ended December 31, 2021 compared to the same periods in 2020.
And be substantially explained by the $4 $1 million decrease in operating losses.
$1.8 million increase in other income related to the accounting treatment of derivative instruments offset by a $600000 decrease in income tax recovery.
The operating losses and comprehensive losses for the three months ended December 31st 2021 and.
$5 1 million and.
$6 $1 million, respectively or <unk>.
<unk> basic and diluted loss per share.
As compared with $9 $3 million operating buses and for $9 million comprehensive losses, or 18 basic and diluted loss per share for the same period in 2020.
The cost of goods sold for the year and some of that.
2021.
$556000 compared to $446000.
Same periods in 2020.
The overall gross margin for the year ended December 31st 2021 was 78%.
277% gross margin for the same periods in 2020.
There's been no significant change in the cost of the reducer and the company continues to focus on Germany, where the company would use a direct.
Margins.
Cost of goods sold for the three months ended December 31st 2021 was $209000.
And back to $97000 for the same periods in 2020.
Gross margin for the three months ended.
Because 2021% to 2% compared to 81% gross margin in the same period in 2020.
Material inventory.
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Total expenses for the year ended December 31st 2021, with $33 1 million compared to $36 $7 million for 2020.
Representing a decrease of $3 $6 million.
The decrease in total expenses for the year ended December 31st 2021 compared to 2020.
Can be substantially explained by a $2 $5 million decrease employee expenses due to the company's reduction in force at the end of 2020 ended June 2021.
A $2.0 million decrease in legal and underwriting fees related to the 2020 finances.
A $600000 decrease in other expenses of the company and definitely pulled all activities related to TR T. S.
Transfer more mitral valve replacement program in June 2021.
Total expenses for the three months ended December 31st 2021, 517 billion compared to $9 6 million for 2020.
Representing a decrease of $3 9 million or 41%.
Selling expenses for the year ended December 31, 2021 with 3.0 million compared to $2 $2 million for 2020, representing an increase of $800000 or 50.
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36%.
Substantially explained by a $360000 increase in cash share based payments and the $405000 increase in other expenses incurred for commercialization activities related to the reducer.
The company increased selling activities from the Covid driven low point in the comparable period.
Selling expenses for the three months ended December 31, 2021 700 $739000.
Compared to $692000 for 2020, representing an increase of $47000 or so.
Yeah.
General and administrative expenses for the year ended December 31, 2021 are $14 7 million.
$14 $1 million for the same period in 2020.
Representing an increase of $575000 or.
4% substantially substantially explained by.
$981000 increase in noncash share based payments.
A $637000 increase in litigation expenses.
$594000 non cash impairment charge of fixed assets as we paused our temperatures onto the tiara TF program.
The $373000 increase in other expenses in part related to an increase in the directors and officers insurance premiums.
And a $211000 charge for employee termination expenses.
These increases were offset by $2 1 million a decrease in legal and underwriting fees related to the 2025 items.
$245000 decrease in non cash charges for accretion on collaboration license and settlement agreement provisions I think I've made the final initial payments on these licenses.
General and administrative expenses for the three months ended December 31 2021.
$1 3 million compared.
Compared to $3 1 million for the same period in 2020.
Representing a decrease of $1 8 million.
58% substantially due to a $1 $7 million decrease in noncash share based payments.
We accounted for in center programs.
Product development and clinical trial expenses for the year ended December 31st 2021 for $15 4 million compared to $24 million for 2020, representing a decrease of 5.0.
A million dollars or 24%.
The decrease in product development and clinical trial expenses.
And at December 31, 2021.
Actually explained by $2.6 million decrease.
<unk> expenses.
The company's reduction in force at the end of 2020 ending June 2021.
At $1.3 million decrease in other product development and clinical trial expenses as the company and definitely paused all activities related to the C. O T S.
In June 2021.
And then $1 million decrease in noncash share based payments.
Product development and clinical trial expenses for the three months ended December 31st 2021 three.
$3 $6 million compared to $5 $8 million for 2020, representing a decrease of $2 $2 million.
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Since that is going to lead to a $1 $5 million decrease in expenses as we paused all activities related to the charge here.
In June 2021.
As of March eight 2022, the company had $67 million 748061 common shares issued and outstanding.
Fully diluted share count as of March eight 2022.
It was 114 million 519437.
As Craig mentioned, we're in a strong position financially and I expect we will continue to build momentum of critical value inflection points before needing more capital in the future.
In the meantime, we believe.
Shareholder vote to approve the proposed reverse.
It's split share consolidation will ensure the company remains on the mass spec and consequently were changed but the access to capital at a lower cost of capital.
Comps.
We strongly recommend that ourselves, but I can say the share consolidation resolution.
But deeper.
Thank you Chris and thank you all for your continued support of Neovasc, Let me start by reiterating what Chris just stated we strongly recommends that our shareholders vote in favor of the share consolidation resolution. We are convinced that staying on NASDAQ is essential and in the best interest of our share.
Holders.
We made great strides in 2021 in particular was advancing reimbursement for reducer in the largest markets in Europe , which we are confident will drive demand for all potentially life changing device.
The more it was a long process the joined 2021 we designed and received approval for the U S. Let's say about two clinical trial in the U S, which is designed to inform a full PMA submission to the FDA.
It was most gratifying to announce the first patient enrollment right at the beginning of the new year.
We continue to advance in the right direction and we are confident that we are making the right moves to ensure neovasc a long term success. Thanks again for joining us today I would like to now open the call for questions.
Rob. Thank you at this time, we'll be conducting a question and answer session.
To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
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Before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Vernon Bernardino with H C. Wainwright. Please proceed with your question.
Hi, Fred Hi, Chris Thanks for taking my question and congrats on getting closer to started with the first patient enrollment.
That's very exciting and congrats also on all the reimbursements that you have.
Put in place that also two it's very exciting I'm sure the idea of.
Revenues are accelerating in 2022.
Something hum.
With all your hard work is now something that will help you.
Plant and better future.
Just had a few questions.
With the reimbursement in France.
Usually it takes a little bit of time for reimbursements like this to show up.
As far as implants are concerned.
Just wondering if that is true.
Whether.
You can say.
You expect.
Reimbursement in France for example, too.
Continue.
Or would it start in the second half this year are expected to start in the second quarter and then within Germany.
And there'd be a status one is there a continuation there or.
Does that.
Is that seamless or is there some.
I'm kind of delay also there.
Yes, Hi, Vernon this is Brett. Thank you very much for your comments and for your questions.
A very very tiny very good.
So yeah. So in all in all you know very very good progress in general So first of all it is not that typical that a company is able to get a essentially reimbursed during its clinical trial a wedding in the United States.
There are all kinds of different rules for that you have to have what they call a category b designation by the SBA as well as approval from CMS in order to be able to do that.
And we have received that class B categorization form F D. A.
Now is this special code that we got 40 Coursera two clinical trial.
We are in and we are going to be able to.
To basically start generating revenue already in the United States from our Coursera to clinical trial without jeopardizing the blind the study.
And this was quite a challenging task you can imagine because normally a hospital would charge for the services that they have provided a you know in this case.
And plan to reduce or not but that information on the billing side would potentially harm to blind the study and could lead to potential on blinding, which you know we have to avoid bye bye bye all costs are all you know anything we can do we have to avoid that from happening. So the we got the best possible.
Pro chair in coordination and very well interactions with CMS over a lengthy period of time and in several meetings. We now were able to actually obtained a separate code.
Ford equals <unk> two trial in itself, which is different from the code we already have four outpatient our commercial.
Commercial reimbursement of the reducer in the U S. Once we get to that point, but this now as a separate code just for to go to trial and the basically what is the how it's done is that CMS basically knows the way. The trial is designed and that you know have the patients do go through the procedure, but do not get to reducer and the other half.
To go through the procedure and they do get the reducer. They they know what the costs are for both sides and then they basically add those two weapon divided by two so the code is basically an average.
Reimbursement for the cost of any patient in the trial and so with this special quota and this was just done last week.
The special code.
The hospitals can use that code, which.
Which basically only says that the patient has been included in the Corsair well through trial.
And then.
The hospital get this average reimbursement.
Which also means that for the reducer based patient we can actually charge for the device. So with that is a very positive development and it absolutely ensures that the blinding will not be risk at all.
That is still going to take some time going back to your question on friends about how long does it take that's still going to take a little bit of time to get implemented.
Best case scenario that will be implanted implemented on April 1st.
And just coming up April closed, but theres still a few moving parts that we have to get through to get that finalized and once that finalized with certainly also now.
Once that so so all of that could fall in place as soon as early as of April 1st which is would be great news for the clinical trial and for these patients that are treated in an outpatient setting. So that's that's one bucket of additional revenue for us that we believe we can start creating in 2022. It actually comes from the U S.
Yes.
Part of the casino to trial. The next one is the ones you talked about for a friend so until now we were not able to sell anything in France, you basically can't sell in France, unless you have reimbursement and so now with this new process. This process. We were the very first company going through this process and actually were granted.
A a a reimbursement under that process. It wasn't medtronic it wasn't Edwards, Boston scientific or Abbott It was neovasc.
Actually it was the very first to go through this process and got our product we endorsed and approved in France that has that decision and that reimbursement code for the reducer has in the meantime already been communicated.
N D official friends Journal, it's called the drill not obvious yelp, so that has already been communicated.
It will be implemented and will be usable in France as early as March 23, So that's only like less than two weeks away.
There are the hospitals can start using that so that's a wobble quick implementation.
We will fully prepare for this we have already hired one sales rep. That's already in place in France, because as you know we're going to go and sell this product direct in France.
Just like in Germany, and France, we will have a direct sales force.
And we are in the process of hiring a second wrap wherever you have identified that wrap and on the process of finalizing the employment agreement with that person so that person should be on board, while as soon as well.
In parallel we already have worked with clinics in France, and we already have a list of patients in several hospitals in France that were kind of like waiting for this reimbursement to fall in place. So to your question. We actually believe we're going to be able to already achieve some revenue from France, even at the very end of the first quarter.
But really obviously starting to kick in strongly as of the second quarter and then it will be a ramp up throughout the year.
And and really starting to generate a nice revenue stream from France that that portion of the next one is the U K.
<unk> is in a much stronger position to because of not only the nice recommendation for do we do so but also the fact that we already have reimbursement in place as well before I do we do with sort of in the U K. So so.
So we are seeing an uptick in.
Sales in the U K and we expect that to continue through the rest of this year as it relates to Germany and U B process is the regular process for a new therapy in Germany.
Typically companies do that several years in a row and we have been doing that several years in a row. I think this is the third or fourth year in a row that we actually getting and you'll be one one is the highest status you can get.
And the amount of clinics that actually apply for this has been increasing every year. This year was 256 clinics in Germany that on their own not the company not me have asked that the clinics 256 of them actually applied for this and you'll be one status, which puts them in a position to then negotiate.
Endorsement with the local insurance companies.
We are working on the next step in Germany, which is a that's going to call that a country wide generic reimbursement process that is also in the works and we believe that that's going to take a little bit more time to get implemented but.
In the meantime, the product is reimbursed as it is on a hospital basis in Germany, and then last but not least as it relates to other other expansion opportunities. We are already starting to work was Australia.
We believe that also in this year, we should see some revenue coming in some starting revenue coming in through a distributor in Australia are we.
We are in the process of filing there are four approval.
And we are also working on the Brazil market, we have some highly capable interested distributors in Brazil that would like to work with us and.
We are preparing for the submission in Brazil, that's a more lengthy process. We don't think we're going to see a revenue coming in from Brazil. Yet. This year is probably more of a event sometime next year.
But anyhow. So as you can see there's a lot of positive momentum as it relates to reimbursement and therefore, a potential for revenue growth.
And I'm really very very excited about all these opportunities in Europe in particular.
But also and very importantly, also as it relates to the U S. Because we are going to actually see some revenue coming in from the U S. Just because of the fact that we're doing the clinical trial, which is which is I believe just absolutely awesome. So that's kind of like where we are on that point on.
Thank you for the very comprehensive answer and.
Bill is there congrats bill I'm sure that was.
The the separate code was probably a result of the work that was directly from his experienced until congrats and.
You've got a good man there. Thanks again for taking my question.
Yeah, absolutely, yes, certainly bill was very engaged in that and still is in that entire process and as it relates to the Corsair I tried I can tell you that we do see a lot of enthusiasm from all the key and large and well known U S clinics.
Everybody wants to be in on this trial.
Every win one interventional cardiologist is interested in this this is not just an easy and quick device.
Related clinical trial, it's it's a bit more involved and complicated we have to make sure. The patient is really a last resort patient we have to make sure that the medication has been stabilized.
So you know it takes some time to get all of that organized in these clinics, but I can tell you the clinics are.
Extremely enthusiastic about our being participating in this trial and they all have patients lined up to Wanna be participating in the trial. So we're we're very enthusiastic about all of that and Bill is a big part of all of that together with Sara and our new leader on the clinical side and we saw a new regulatory.
Expert on the engine side so.
We have a strong team in place and I think you see that we also have that in place on the commercial side with Mark in Europe , and with Andreas and Germany will each Germany, Austria, and Switzerland, we have a good commercial team in place as well so I couldn't be prouder of the team and.
And so thank you for recognizing bill and that's certainly very true and it goes for a lot of people in my organization, we're very proud of them.
Terrific I'm looking for more to come.
Thanks, Robin and thanks.
That's all the time, we have now for our Q&A session. At this time I'd like to turn the call back over to Fred Colen for closing comments.
Yes.
I guess, all I have to say at the very end of this thank you all very very much for participating in this live conference call I Hope it was informative and we'll talk again soon take care Bye bye.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Yes.