Q3 2022 Neovasc Inc Earnings Call
Yeah.
Good day and welcome to the Neovasc incorporated third quarter earnings call. At this time I will turn the call over to Mark <unk>. Please go ahead.
Good afternoon, I'd like to thank everyone for joining us today earlier today Neovasc incorporated issued a press release announcing our financial results for the quarter ended September 32022, and describing the company's recent business highlights.
You can access a copy of the announcement on the company's website at Www Dot Neovasc dot com slash investors.
With me on the call today are Fred Colen, President and Chief Executive Officer, and Chris Clark Chief Financial Officer.
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.
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 Willem Nee 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 note regarding forward looking statements and risk factors section of Neovasc annual report.
On form 20-F, and the discussion that you have asks and DNA.
Which are available on Edgar and SEDAR.
The information provided in this conference call speaks only to the live broadcast today November 10 2022.
<unk> 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.
We will begin today with some opening remarks and recent business highlights from Fred followed by Chris who will review the financial results.
Now I'll turn the call over to Fred Colen deal of asks President and Chief Executive Officer Fred.
Fred.
Thank you, Mike and good afternoon everybody.
Reporting our third quarter of 2022, I am proud of the results. Our team has been able to deliver as we continue to expand patient access to reduce our water treatment refractory angina in Europe as well as in the U S.
The team has worked hard to advance the pivotal Coursera two clinical trial in North America, including several sub studies to support the use of the reducer here and has continued to expand reimbursement coverage for this potentially life changing device in the European Union.
Wherever it has already been in use for some time now.
We also took steps joined our quarters to strengthen our financial position, most notably by indefinitely suspending all the development efforts of our tier trans apical device.
The third quarter of 2022 was another record breaking quarter.
With revenues up 31% year over year coming in at 923000 U S dollars.
This is a great achievement for Neovasc.
Five challenges negatively affecting the European markets, particularly a strong currency headwind with the weakening of the British pound and the euro.
Additionally, our revenues were negatively impacted by lingering COVID-19 in a hospital staffing issues, which resulted in fewer implants as elective procedures were postponed in some regions.
Germany was particularly impacted by Covid surge that led to stricter rules reduced staff and procedural cancellations.
That said, we expect a recovery and procedure levels in the coming months.
I am incredibly proud of my team for the progress made during the quarter. Despite the macroeconomic challenges facing the medical device companies in general.
As mentioned in Neovasc the previous calls the first pillar of our value creation strategy is to expand the use of the reducer in Europe .
The team continues to make strides in reimbursement efforts and those efforts are beginning to pay off as evidenced by our accelerating revenue growth in the quarter.
Earlier this year, we received reimbursement coverage for the reducer in the U K.
And we are seeing accelerating adoption of the reducer in the region.
We are placing significant focus on this market and as previously reported we now have a direct sales force on the ground in the United Kingdom, which is designed to steadily increase utilization and result in higher margins via the direct sales force compared to the.
Prior distributor model.
Another effect of expanded reimbursement it is a more diversified revenue base.
As we previously were heavily concentrated in the dark market, especially Germany.
In the third quarter, approximately 80% of revenues were generated outside of the Doctor countries, which are Germany, Austria and Switzerland.
This exemplifies the great strides we have made towards our expansion goals.
France is now our largest volume market and.
Anecdotally, we are seeing strong societal support and acceptance of the reducer across the entirety of the European Union and the United Kingdom.
The second pillar of our value creation strategy is advancing acceptance and use doctor with user in the key U S market.
Of course, there are two clinical trial has been progressing following initial enrollment at the beginning of 2022.
We currently have 48 patients enrolled and 25 randomized at 16 sites of the targeted 380 patients across 50 sites.
As a reminder, the Coursera two trial is pivotal to our airports for a full PMA submission to the FDA, what do we do resource potential clearance in the United States.
The reducer has coding coverage and payment status from the centers for Medicare and Medicaid services CMS.
And is it reimbursable in the study, which is contributing to our topline.
Revenues from trial devices comprised 6% of total revenues in the quarter.
Revenue creation in a placebo controlled U S. Clinical study is really accomplished and neurovascular not only achieved it. We also pioneered a novel way to accomplish it without putting the blinding of the study at risk.
The CNS, who we closely work with regarding this topic recently published new guidance.
Potential reimbursement and randomized placebo controlled clinical trials and also reference the coronary sinus reduction device and an IDE study in their guidance.
In July 2022, we announced that the Coursera two trial received approval to expand in scope as the.
FDA had approved the protocol supplement to the trial. The supplement importantly allows for us to say.
For us to study patients with non obstructive coronary artery disease or I know Pal.
And includes the addition of two previously planned imaging sub studies as part of the trial designed to provide insights into the safety and mechanism of action of the reducer.
Site activation of the Corsair well two trial is proceeding although at a slightly slower pace than we had initially hoped due to the administrative burden and personnel shortages presence throughout many large organizations in the United States.
We expect enrollment to be complete in the first half of 2024 and expect an initial data readout from coursera too in the second half of 2024.
In September 2022, the CMS published new codes for the diagnosis and tracking of refractory angina.
The new coach will be utilized in the current tenants revision of the international Statistical classification of diseases and related health problems clinical modification the so-called ICD 10-C M report.
This was an important step for both patients suffering with in China as well.
Well as clinicians.
Prior to the snow codes, there was no way to differentiate patients with the most enduring and costly form of chronic stable chest pain condition, we call refractory angina.
No clinicians having mechanism to define and measure all the treatment costs, which is an important step forward in treating the disease.
Finally, we recently announced outpatient reimbursement in the U S by the CMS for the Reducer therapy effective January one 2023.
We are very excited about our great progress on the reimbursement front.
<unk> is in a unique position to already now have adequate coding coverage and payment in place.
<unk> be endorsement for the reducer in the U S. CMS population for both inpatient and outpatient procedures.
During the course here about two clinical trial and upon potential commercialization in the United States.
In addition to the concern about two trial, we have made great strides to generate additional clinical data supporting the reducer.
In September 2022, we attended the Transcatheter cardiovascular Therapeutics conference hosted by the Cardiovascular Research Foundation in Boston.
At the event, we presented preliminary data in a patient population suffering from an OCA.
This is a different patient cohort from the randomized arm of the <unk> two trial, which focuses on obstructed patients.
This was the first time the company highlighted data on the impact of the reducer on the objective measurement of coronary flow Reserve C. F. R E.
A measure of the hot <unk> ability to provide more oxygenated blood to the heart muscle during exercise or activity in patients that have angina chest pain without blocked coronary arteries.
The outcomes here in this initial study were positive.
<unk> indicates that an even a larger pool of potential patients might benefit from the reducer therapy.
There is another important investigational device exemption or IDE E clinical study ongoing at the U S Mayo clinic <unk>.
<unk> the impact of the reducer in patients with a no call.
This study is also tracking objective evidence of blood flow improvement measured by coronary flow reserve or CFR in OCA patients following reducer implantation.
We look forward to seeing the results of this study sometime in 2023.
We expect this study to provide important insights into the mechanism of action and the utility of the reducer in a knockout patients.
The third and final pillar of our value creation strategy focuses on the development and expansion of the tariff <unk> mitral valve replacement device.
We remain committed to the follow up and monitoring of patients in the tiara clinical trials, but we have otherwise paused all of our chiara activities, while we focus our efforts on the first two pillars of our value creation strategy.
Mastic and international expansion of the utilization of the reducer device.
I will now turn the call over to Chris to discuss the financials Chris.
Thanks, Brad.
The operating losses and comprehensive losses for the three months ended September 32022.
$6 7 million and $8 $2 million, respectively or <unk>.
$3 basic and diluted loss per share.
As compared with $6 $7 million operating losses, and $6 $9 million comprehensive losses.
Or $2 79 basic and diluted loss per share for the same period in 2021.
The increase in operating losses of $16000 can be explained by a $181000 increase in operating expenses offset by a 165000 dollar increase.
The increase in gross profit.
The $1 3 million increase in the comprehensive loss incurred for the three months ended September 32022, compared to the same period in 2021.
Can be substantially explained by a $403000 decrease in other income primarily related to the Canadian emergency wage subsidy received in September 2021, or.
Not in the current period.
$394000 increase in interest expense primarily related to the 2022 notes.
The $401000 increase in other loss in other comprehensive loss relating to the accounting treatment of the 2019 notes.
2020 notes on the derivative liability words.
Revenues increased by 31%.
$923000 for the three months ended September 32022.
Compared to revenues of $703000 for the same period in 2021.
The lingering impact of Covid is still probably can Germany.
In addition revenues in France, and Germany are denominated in euros.
And our revenues in the U K in British pounds.
During the third quarter the year on the British pound fell against the U S dollar.
Cost of goods sold for three months ended September 32022.
$220000 compared to $165000 for the same period in 2021.
The overall gross margin for the three months ended September 32022.
76% compared to 77% gross margin for the same period in 2021.
The company will focus on Germany, France, and the United Kingdom, The company sells directly to customers for higher margins.
Total expenses for the three months ended September 32020 to $7 4 million compared to $7 3 million for the same period in 2021, representing.
An increase of $181000 or 2%.
The increase in total expenses for the three months ended September 32022.
Prior periods can be substantially explained by an $844000 increase in employee expenses, primarily related to the accrual of bonuses.
That were accrued in the prior period.
And a 624000 dollar increase in other operating expenses related.
The <unk> two study offset.
$862000 decrease in noncash share based payments as you expected lots of the share appreciation plan was adjusted from one year to four years.
The $241000 decrease of director and Officer insurance.
$190000 decrease in litigation expenses.
Selling expenses for the three months ended September 32020 to the $1 1 billion.
Compared to $786000.
For the same period in 2021.
Representing an increase of $276000 or.
35%.
The increase in selling expenses for the three months ended September 32022.
Prior to 2021.
Can be substantially explained by a $148000 increase in employee expenses due to an increase in the head count in Germany, France, and the U K too.
$221000 increase in other expenses incurred for the commercialized.
<unk> activities.
Related to the reduce it.
As the company increased selling activities and expanded its markets.
Offset by a $94000 decrease in noncash share based payments as.
As the expected life of the share appreciation plan was adjusted from one year for years.
General and administrative expenses for the three months ended September 32022.
$2 $3 million compared to $3 million for the same period in 2021.
Representing a decrease of $662000 or 22%.
Decrease in general and administrative expenses for the three months ended September 30th 2022 compared to 2021.
Can be substantially explained by a $677000 decrease in.
Noncash share based payments.
The expected life of the share appreciation plan was adjusted from one year to four years the.
245, $241000 decrease in director enough reinsurance premiums.
Premiums begin to normalize in 2022.
And a $190000 decrease in litigation expenses related to a decrease in defense called School class action litigation.
All offset by a $251000 increase in employee expenses due to the accrued bonuses that were not accrued in the prior period.
$196000 increase in other expenses.
Product development and clinical trial expenses for the three months ended September 32022.
The $4 $1 million compared to $3 $5 million.
Same period in 2021, representing an increase of $567000 or 16%.
Greece in product development and clinical trial expenses for the three months ended September 32022 can be explained.
$444000 increase in employee expenses due to the accrued bonuses that were not accrued in the prior period.
$207000 increase in other product development and clinical trial expenses.
Offset by a $91000 decrease.
Noncash share based payments is expected lots of the share appreciation plan was adjusted.
The product development and clinical trial expenses.
A transition from the development of the tiara TF on Ta programs, which were definitely paused at the end of June 2021.
September 2022, respectively.
<unk> clinical study.
As of September 32022, the company had $31 $3 million in cash and cash equivalents.
And as of November eight subsequent to the effects of the share consolidations the company had.
$2 million 746625, common shares issued and outstanding.
I'll conclude my remarks, with an update on our cash runway, which we now expect to last into the first half of 2024.
Change in outlook is due primarily to administrative expenses related to the <unk> two trial on.
Slightly higher than expected everyday operating expenses.
I will now turn the call back over to Fred.
Thanks, so much Chris.
Operator, I would like now to open the call up for questions.
Operator.
Are you there.
Yes, I apologize.
If you would like to ask a question. Please signal by pressing star one if you have a telephone keypad.
And using a speaker phone. Please make sure mute function is turned off to allow your signal to reach the equipment again, Please press star one.
And our first question is going to David Martin from Bloom Burton.
Yes. Good evening. My first question is you mentioned, you've got 48 patients enrolled 25 randomized.
What's the typical time between enrollment and randomization and what percent of the patients that you enrolled.
You typically get randomized.
Yes, Hi, David This is Fred.
It's a good question and typically it's a matter of several weeks.
Once you get enrolled you still have to go through a lot of.
Pre screening tests in particular, the treadmill testing.
And we could lose some patients there.
I really can't give you a fixed percentage for how many patients we would lose.
Because it really depends on the learning curve in there.
Beginning with with new clinical sites.
It may be too optimistic and enrolled to many patients and then they lose some more than they should.
They go to randomization, but that's really also a learning curve and we see that being corrected over time.
So the ones that have been doing this now for a while had been much more experience you have much better rate of actual randomization versus enrollment than the newer sites. So it's a it's a complicated analysis.
Thats why its a good question not as easy to answer.
The other thing that I can say is that we are very very active on several fronts in the coursera, which while one is to.
To continue to activate clinical sites, because we have a way to go.
And it is a very extensive administrative process.
And we have taken longer in some cases than expected.
Mostly.
Because of the time it takes for the clinics.
To be able to work through their part of all the.
Administrative work to get to close out all the different parts that need to be closed out. So that's one one fact that that is playing a role.
The one that we are focused on is.
Engaging our entire organization, including the U S P. A a clinical organization.
In working with the clinics on identifying patients. We've also ramped that up quite a bit after the summer break.
So we do believe that we will continue to see an acceleration.
Also in enrollments.
We are also and finally on that side are working hard on some Canadian sites.
And we hope to be able to get.
Maybe a one or two patients.
Role before the end of the year in Canada, as well with one or two sites opened there. So there is still a huge amount of activity going on as it relates to activation, but also as it relates to <unk>.
Assisting clinics and coordinators at the clinics to finding the right kind of patients.
Did you say you've got 16 sites of 50 planned opened at this point.
Yes, 16, yet.
<unk> 50, so don't be surprised at that because because obviously, we will continue to open clinical sites, even even a few months before we get to the completion of enrollment.
In clinical sites is a continuous activity through the entire for the entire time period.
And whats the split between the U S and rest of world on the 16.
Are you going to focus on North America now going forward.
So so far all the sites that we have activated or in the United States.
Let's say about two trial is a clinical study is being executed primarily in the U S with some additional sites in Canada.
We have made a commitment that the vast majority of the patients will come from the U S with the FDA, but we can have also some additional sites and patients coming in from Canada.
Okay. Okay and then my last question is.
You are waiting to hear from Germany on potentially getting full reimbursement for reducer is that still expected sometime this month.
So we have we have heard back from the German authorities.
It's a complicated process as it isn't every country for reimbursement.
So far so good on that process, but it doesn't mean that everything is done yet at the first initial response that we were waiting for we have received and that was positive.
But we have many more steps to go through and we are not really expecting a definitive answer for Germany until much later in 2023.
Meantime, we have had reimbursement in Germany on the <unk> scale for three or four years in a row and we are actively working on getting that again in place for 2023 as well.
So Germany is a continuous work in process.
And we are on plan as it relates to dates and timing for the full reimbursement.
In the meantime, we also have reimbursement O&M and UV basis, and we are working on getting that again in place for next year too.
Okay.
That's it for me thanks.
Okay.
And once again, if you'd like to ask a question. Please press star one.
And I'll hand, it back over to Fred Cohen for closing remarks.
Okay. Thank you Jenny I appreciate it.
So let me finalize the call was a closing statement.
I would just like to say that we have really made great progress in the third quarter of 2022 with record breaking revenues. Despite some from some great and very strong headwinds.
And we have built strong momentum behind the reducer with excellent reimbursement work generating additional data in particular for the <unk> patient population and ramping up the pivotal coursera to trial.
We are steadily making strides towards long term success.
We look forward to the days months and years to come we are grateful for your participation in today's call and thank you all for joining us today.
Thank you until next quarter Goodbye.
Okay.
And this concludes today's call you may now disconnect.
Okay.
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