Q2 2022 Neovasc Inc Earnings Call
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and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Mike Cavanaugh, Investor Relations. Please go ahead, sir.
Good afternoon and thank you for joining us today.
Earlier today, Neovask Inc. released financial results for the quarter ended June 30, 2022.
The release is currently available on the investors section of the company's website at www.neovask.com slash investors.
Fred Colon, 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. If you have any questions, please feel free to contact me.
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 and approval decisions, pricing and enrollment matters, our value creation strategies, the benefits of our products, and our future financial expectations and results are based upon current estimates and various assumptions.
Words such as expect, anticipate, estimate, outlook, will, may, 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 a due reliance on these statements.
For more information on risks and uncertainties related to these forward-looking statements, please refer to the Cautionary Notes regarding Forward-Looking Statements and Risk Factors sections of NEOVAC's Annual Report on Form 20F.
and a discussion in NEOBASS and DNA, which are both available on EDGAR and CDER.
The information provided in this conference call speaks only to the live broadcast today, August 11, 2022.
Neovas 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.
I'll start today's call with a business update and an overview of the quarter before turning the call over to Chris to discuss our second quarter financials.
The second quarter of 2022 was record breaking.
with revenues up 29% year-over-year, coming in at just over $818,000.
This was a record achievement.
despite lingering COVID issues, particularly in Germany, with observed hospital staffing issues in the quarter.
and against a strong currency headwind.
As we touched upon in Q1 Ownings Call, our team's reimbursement efforts domestically and abroad have been tremendous.
Domestically, the Coursera 2 trial, which is intended to support the reduce when a full PMA submission to the FDA is ramping up and is also contributing to our revenues already in the second quarter.
The devices used in the trial generated about 12% of total revenues.
Internationally, we are beginning to see the direct impact of our reimbursement efforts, which we believe will continue to pay off in the back half of the year.
Our team continues to build on all three pillars of our valid creation strategies, making great progress across the board.
The first pillar of our value creation strategy is to expand the use of the reducer outside of the United States.
The reimbursement efforts in Europe and elsewhere have been strong and we are starting to reap the fruits of our labor.
The dedication and hard work from the team has secured reimbursement in major pivotal markets across Europe in prior quarters.
We are on track to continue to make progress in additional European markets.
In November of 2021, we announced that the National Institute for Health and Care Excellence of the United Kingdom, NICE, was a national institute for health and care.
Provide positive guidance for the neovac reducer system.
This supports the first therapeutic intervention for stable angina patients who have not responded to treatment. There are an Chandrasekara
As a result of the positive guidance, we are seeing an increase in utilization in the United Kingdom.
As such, last month we announced the expansion of our direct sales operations in Europe to include the United Kingdom
adding two sales employees as the commercial requirements continue to increase.
As part of this expansion, we recorded a one-time distributor transition expense in the second quarter.
With our direct UK sales team in place.
We expect to have higher margins in the UK going forward as compared to the prior distributor relationship
We are now poised to provide deeper support with a dedicated full-time team based in the UK.
and intend to continue to invest in clinical research and field personnel to support patients, hospitals, physicians, and anticipated continued growth.
The current reimbursement in the UK, France and Germany has been an amazing accomplishment.
Our team has done great work, but we also believe that this is a direct testament to benefits the reducer can provide to health systems across the world by providing improved outcomes for patients and resulting cost savings to payers.
We continue to see a steady increase in the use of the reducer in those areas of Europe while we pursue additional markets further abroad and we are grateful to see the growing acceptance and use of the reducer for the treatment of refractory angina.
The second pillar of all value creation strategy is the US market.
The COSERRA2 trial is ramping up.
And we currently have 40 patients enrolled, 21 patients randomized at 10 sites.
As a reminder, the COSERA 2 clinical trial is targeting the randomization of approximately 380 patients across as many as 50 investigational sites, and the trial is pivotal for our efforts to gain approval for the reducer in the US.
And as we recently disclosed, this important study is expanding in scope.
The FDA has approved a protocol supplement to the trial.
The supplement more than doubles the number of patients eligible for treatment in the trial and adds two previously planned imaging sub-studies as part of COSERRA 2, designed to provide insight into the safety and mechanism of action of the reducer.
The single arm registries represent opportunities for us to enroll, treat, and study further specific patient populations not, however, must enroll obligations.
We are now working with CMS on potential reimbursement for these patients as well, and we will inform you about the outcome in due course.
As mentioned in our previous earnings call, patients that experience the debilitating effects of refractory angina will have access to an FDA-designated breakthrough medical device in our placebo-controlled trial, marking this as an important step towards potential commercialization in the United States.
Due to the diligent efforts of our team in coordination with CMS, the FDA and our clinical trial sites.
The device is reimbursable in the placebo-controlled COSR2 study without endangering the blinding of the study.
We have therefore recorded $105,000 of revenue from the trial alone in the second quarter of 2022.
As a reminder, we now have CMS coding, coverage, and payment for the reduced device in the United States, including during the placebo-controlled COSERRA 2 trial.
We are on track to have the first readout from the COSERRA 2 trial in the second half of 2024, which would potentially put us on track for an FDA decision around mid-2025. This is an update from the COSERRA 2 trial in the second half of 2025.
As the trial continues to ramp up, we are gratified that patients are able to access the reducer therapy and are getting closer to what a domestic approval decision.
Ask for the third pillar of all value creation strategy.
We are continuing to work on critical FEA and bench tests for our Terra TA microvalve replacement device.
We continue to work on these and other new test requirements by the new European MDR medical device regulations.
We anticipate a decision under the new NDR rules in late 2023.
The requirements of the new European MDR approval process are daunting.
But our team continues to work diligently to determine if we can meet them.
There can be no assurance of our ability to ultimately obtain CE mark approval.
I would also like to highlight an additional third-party publication.
supporting the user device in the second quarter of 2022.
In April , the European Heart Journal published an article entitled, Impact of the Coronary Sinus Reducer on Absolute Blood Flow and Microvascular Resistance.
Case report.
The article, offered by Francesco Gianini, medical doctor from Maria Cecilia Hospital, rich
describes objective improvements in the amount of oxygenated blood delivered to the heart muscle, measured in real time, in two patients suffering from refractory angina and treated with the reducer.
I'm thrilled by this scientific research and its demonstration of easy to understand, safe evidence and awareness of the reducer as highlighted by this publication.
As many of you recall, we received a written notification from the NASDAQ stock market in late November 2021, granting an additional 180-cal of day period until the 23rd of May 2022, within which to evidence compliance with the NASDAQ's $1 minimum bid price requirement.
During the quarter, we executed a 1 for 25 share consolidation and on May 16, 2022, the company received a written notification from the NASDAQ stock market informing the company that it had regained compliance with the minimum bid price rule requirement under NASDAQ Listing Rule 5550A.2 pursuant to NASDAQ Listing Rule 5810.
for continued listing on the NASDAQ. As a reminder, as the company has more than $2.5 million in shareholder's equity, there is no $35 million minimum market capitalization requirement for the company at this point in time.
The company believes it is currently in compliance with all NASDAQ listing requirements.
Before I turn the call over to Chris to discuss the financials, I would like to thank our investors, employees and customers for the continued support of Neovask.
I am incredibly proud of the team for all of their dedicated hard work manifesting in the momentum we are seeing across our various value creation strategies.
reimbursement initiatives, and continued adoption of the reducer.
With that, I will now turn the call over to Chris for a review of all financial results.
Go ahead.
Thanks, Fred.
Revenues increased by 29%.
to $818,000 for a three month ended June 30th, 2022, compared to revenues of $633,000 for the same period in 2021.
As Fred mentioned, this is a quarterly record and reflects the advances we have made with reimbursement, the expansion of our sales effort in Europe , and the growth of our business.
and the increasing enrollment in the CASIRA II trial.
which is being reimbursed by CMS.
The cost of goods sold for the three months ended June 30th, 2022 was $158,000 compared to $109,000 for the same period in 2021.
The overall gross margin for the three months ended June 30th 2022 was 81% compared to 83% of the gross margin for the same period in 2021 as we wrote down some obsolete inventory.
Total expenses for the three months ended June 30th, 2022, were approximately $8.8 million.
compared to $9.6 million for 2021.
representing a decrease of $742,000.
or 8%?
The decrease in total expenses can be substantially explained by 1. 1.5 million dollar decrease in share based payments.
2. A $594,000 decrease in impairment charge to fixed assets.
that occurred in June 2021.
3. A $309,000 decrease in employee termination expenses related to pausing the TRTF program in June 2021.
$9,000 decrease in employee termination expenses related to pausing the TRTF program in June 2021.
a $292,000 decrease in litigation expenses.
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by a $923,000 increase in employee expenses related to the accrual of the annual prison period.
I will not accrue but worry to her in the Pride period.
and a $343,000 increase in other selling expenses.
as we initiate activities in new markets.
The operating losses and comprehensive losses for the three months ended June 30th 2022 for $8.2 million and $8.9 million.
respectively or $3.29 basic and diluted loss per share.
as compared with 9.1 million of operating losses.
and $9.3 million comprehensive loss, or $3.35 basic and diluted loss per share for the same period in 2021.
We ended the quarter with $37.6 million in cash.
The company used $6.5 million of cash in the quarter, including a $301,000 one-time UK distributor transition expense.
Back to you Fred.
Thanks Chris. As you can see, our revenue and gross income is becoming more meaningful by the quarter, while we are keeping our expenses as low as possible.
With that I would now like to call the open up the call for questions.
Thank you. At this time, we will be conducting a question and answer session.
If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation turn will indicate you are live in the question queue.
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One moment please while we poll for questions.
Our first question is from David Norton of Bloomberg. Please go ahead.
Good afternoon, this is Antonia on the line for David. Our first question is when do you expect to find out if Reducer will get national reimbursement in Germany on this review cycle? And what are generally the criteria to qualify and where does Reducer stand on those criteria? And then I have another question.
Yeah, so on Germany, so for several years, I think it's the fourth year now in a row, we actually have reimbursement in place at what we call a hospital level. It's the NUB1 reimbursement process in Germany. So the reducer actually is reimbursed in Germany as we speak, has been for several years, and is being renewed on an annual basis.
There are several categories for that. UB1 means it's the newest and highest important category for a new therapy.
That means that the individual hospitals can negotiate a price with the insurance companies in Germany. That process has been ongoing and it's just basically being repeated on an annual basis whereby we see an annual growth in the amount of hospitals that actually do that and actually do negotiate reimbursement for the reducer in Germany. So that's already in place. Now outside of that,
We are also working on a countrywide reimbursement process. There is work ongoing on that. We have made several filings with the national authorities for that. And we don't have any update on that. We expect really more news on that towards the end of this year, or the next year. But again, it doesn't really impact our business, because we already have reimbursement on that.
what's happening now on a per hospital basis. And we don't expect that to be any impact in our business.
Especially since we have a very stable pricing practice in Germany and I would say across the globe. As you may know we have no competition. We sell for list price. We don't make any discounts. There is a very stable history of pricing for our device across Germany. So we don't anticipate there to be any issues with that.
Okay, thanks. And then the next question is, can you give us some color regarding the impact on physician perception of reduced it of the recent studies exploring the mechanism of the implant?
The mechanism of action you mean?
Yeah, and what has been the impact on physician perception of REDUCE-R, those recent studies?
Right, so there are a lot of what we call third-party independent publications and research that is being done outside of our own data. The data is all extremely positive and very much in line with our own research data. I would nevertheless say that what we see in the marketplace is that the most impactful...
impactful actions as it relates to growth is the results that the physicians actually see with their own patients.
So once the physicians actually start utilizing the reducer and see the impact of what it actually does in a positive way to their own patients, that is the biggest stimulant and the biggest growth driver that we actually observe in the market. We have seen that over the years in Germany where we have been direct for a long time. We are clearly seeing that in France, we are clearly seeing that in the UK. I can also tell you that that's already also evident in the US.
even before we did the COSERO2 trial, we had some patients in compassionate use and the physicians in Detroit and at the Cleveland Clinic who participated in compassionate use saw the results of what Reducer does in their own patient population and were extremely positive and excited about it, which is why they signed up to participate in the COSERO2 trial and have been...
big supports of us in getting the study going and in enrollment in that study. So, you know, I believe that the experience of the reducer device with their own patient population and basically the real world, real clinical experience is the biggest factor for success and actually drives the growth. And from things it's advised the growth in all the markets we're in.
Thank you for taking our questions.
Thank you.
My next question is from Vernon Bernardino of HC Wainwright. Please go ahead.
Hey, Fred, Chris, thanks for taking my questions and congrats on the record quarter.
Thanks, Roland. Good to hear you.
So, you talked a bit about the UK, and it sounds like a lot of people are saying that
something where it really is an opportunity where a lot of acceleration could occur as far as direct sales for.
Just wondering if you could characterize a little bit better what you expect to see now with this, you know, sales force that you have there.
Yes, so we basically had an excellent distributor in the UK and really a good distributor relationship but obviously the distributor has its own gross margins and profit margins in mind and their own expenses and obviously so when we sell a device to the distributor that is at a different price than selling it in the market itself.
So that is already a big difference. That's number one. Number two, we clearly see additional enthusiasm in the UK for the device, not only based on the experience physicians have with their patients there, but also because of the national reimbursement that we have in place there as well as the recommendations from NICE. For the first time ever.
there is now an official recommendation to treat these patients with a device. The prior recommendation was for these patients to visit a psychologist to be able to deal with the pain that they endured. So you can see what a big shift that is in terms of what is being recommended for these patients.
So we were able to in very amicable and good negotiations with the distributor To basically even start early our distributor agreement Was running out at the end of this year and we negotiated with the distributor actually already start Direct sales as of the 1st of July For which obviously, you know, we we have to pay the distributor a certain fee
for his last profit in the market for the second half of the year, which we have done. But we have already several people in the UK engaged in the process. We are in the process of actually hiring an additional person as we speak in the UK. And we really believe that the UK along with France, we shouldn't forget France, are great growth opportunities for us. Basically, really new markets for us to...
when you talk about revenues achieved in European currency, that has a big impact. We nevertheless had a record quarter. So hopefully, the European currencies are also coming back to what we are used to in a more normal scenario, and that will help us again also with future quarters. But outside of that, we really see big growth opportunities in all the European markets, but in particular in France and in the UK.
I'm sorry if I missed it. What is the update as far as the efforts in France?
Yeah so in France, so we have full national reimbursement in place. We already have several sales reps that we have in France. We hired them. They are on the ground and working and we had a substantial contribution in these numbers from France as well in terms of revenue coming from France. And that's obviously on top of everything else because last year we did not have any revenue from France.
So again, because of the fact that we see big growth in the UK and redirect, as well as the fact that in France we are now generating revenue, and last year we didn't, those are big growth drivers for us. And then you add to that the reimbursement in the US for the devices used in the Coursera to randomize trial, that's another additional growth driver. So outside of just penetration growth, you see big opportunities for us to really expand the revenue.
And that's why we are quite optimistic about continued big growth for the next couple of quarters.
I'm looking forward to seeing the progress in France. Congrats again on the record and taking my questions.
Great, thanks so much, Rona, I really appreciate it.
Ladies and gentlemen, we have reached the end of the question and answer session. Now I'd like to turn the call back to Fred Colin for closing remarks.
Thank you, Irene. So let me just summarize and just say that I believe we have made some great strides in the second quarter of 2022 with record-breaking revenues and continued momentum across the board in our business.
We are confident that we are marching towards long-term success.
I look forward to the days to come and to the earnings call discussing our accomplishments from the back half of this year and we are very grateful for your participation in today's call. With that, thank you all very much for joining today and goodbye.
That concludes today's conference. Thank you for joining us. You may now disconnect your lines.
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