I Believe The Reducer And Tiara Both Work, But Neovasc Is Still A Zero

| About: Neovasc Inc. (NVCN)
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Great ideas by a guilty management leads to a zero stock price.

I personally think the Reducer and Tiara both work perfectly.

But even assuming they do work, it will be too late, and won't matter.

Neovasc is worthless.

I have been following Neovasc (NASDAQ:NVCN) for about 7 years. I was told that it was a company that was consulting and providing tissue to heart valve development companies and a company that also had two very early stage heart valves.

Over the years the company raised money and used the cash coming in from their core business to fund the R&D of the two valves. Both valves continually had great results, keeping them on the path towards success. Neovasc started transitioning away from their core business in order to focus on their two valves that would have huge values if they worked.

Neovasc, at some point, filed their work towards getting their Tiara patent, and this is when CardiAQ founders noticed and claimed it was their idea, which was not just stolen, but done so while under an NDA or other legal agreement.

I was petrified, as were many other shareholders, and thought of running for the hills, but I was unlucky enough to get in touch with the banker that had raised Neovasc about $60 million. The top two investors were Capital Group and Fidelity Investments.

I'll never forget the banker telling me that I didn't have to worry any longer because the top funds of the world invested, and they did their due diligence and they are certainly a lot smarter than I am. In this case it really hurts to have to look back and say that I was actually correct. I wish I wasn't — and I wished this all along until the day the judge raised the fine by $21 million. I was a believer until this happened, which I am now saying was the end.

After being a loyal shareholder for many years, it is time to jump ship. If I recall correctly the stock fell every single day during the trial, whether it was CardiAQ/Edwards Lifesciences (NYSE:EW) presenting the evidence or Neovasc defending it. I am not a lawyer but that was a concerning sign. I was comforted after talking to some trial experts that assured me that the current sentiment of the courts was that even if Neovasc was found guilty they would probably have to give up 1-10% royalties and/or a fine from $1-7 million.

With the jury coming back and finding Neovasc guilty with a $70 million penalty, I got three calls telling me that Neovasc management couldn't be trusted as the evidence must have been compelling as heck. After hearing that they were going to make post jury pleas (I'm not sure what this stage is called) and that the penalty would be reduced significantly by the judge I decided to stick it out. The judge came back and after further review raised the penalty by $21 million and threw out the right to a new trial. Sure, the judge didn't put an injunction on Neovasc, but perhaps only because the company's devices are saving lives.

I do believe that both the Reducer and the Tiara work, but it simply doesn't matter. The Reducer, over time — time Neovasc doesn't have —will be worth a lot of money. But over the appeal time it will only grow to a value of $10 million, tops (being generous because, again, it won't matter in the end).

I personally believe the Tiara works and the marketplace has set the price for these products from $300-400 million. With patients livings years from Tiara implantation it is truly amazing and the judge certainly doesn't want to rule in a way that people in need can't get one. The judge did in fact give CardiAQ joint ownership of the patent while denying Neovasc a new trial. At the present time I think Edwards Lifesciences/CardiAQ are still working on their loser valve but will soon take over the Tiara and run away with it. I must admit that when I saw Edwards Lifesciences purchase CardiAQ i was shocked. I was shocked because I don't believe their device works. It is now apparent to me that they purchased CardiAQ for the Tiara. Neovasc thinks that the patents they have beyond the original patent will stop Edwards Lifesciences but let's be real. If it is proven you stole someone's idea and then progressed with it you will likely also have to allow those that you stole from to use the additional patents as well.

Neovasc has about $25 million left in the bank. This number is dropping rapidly from the litigation expenses and the development of the two valves. The first hurdle will be for Neovasc to get the stay on paying the judgment. If they don't then it is simple — game over — zero. I actually believe Neovasc will win the motion to stay the judgment but not because anyone thinks they will win the appeal but because of the irreparable harm that it will cause the company if they win the one in a million appeal.

Reducer: 5x future revs = $10 mil (generous as I can be)
Cash: $25mil (zero in 12-18 months from legal and development)
Tiara: $350 mil - $175 mil (Edwards Lifesciences owns half)
$175 mil - "how much more" =?

"How much more" is the amount we must take off the value because it is a tainted good that carries heavy risk. If Neovasc wins the appeal then I am dead wrong but I already explained that every single sign from the court has them more guilty than anyone with trial experience ever dreamt of. The favorable no injunction is only to save lives while Neovasc waits to lose the appeal. Knowing that Neovasc is guilty as heck means that at best they get to retain their half of the Tiara but don't be surprised if they ultimately lose all ownership of the Tiara to Edwards Lifesciences. This will come after using the rest of their money perfecting it and of course paying lawyers. That being said I put the value of "how much more" at a minimum of another $100 million. So we are now:

Reducer: 5x future revs = $10 mil (generous as I can be)
Cash: $25mil (zero in 12-18 months from legal and development)
Tiara: $350 mil - $175 mil (Edwards owns half)
$175 mil - $100 mil = $75 mil

10 million + zero + 75 million = 85
-Judgment (91 million)
Equals -$6 million of value for about 70 million shares outstanding -$0.00 value on the equity

(Please keep in mind that this is the scenario if the Tiara and Reducer continue to work.)

The company will have zero cash and as we know means they will need to raise cash either along the way or when they get to my scenario. Either way it is very dilutive and drives down the price especially since I'm not sure anyone will even give a dime to a guilt management. I keep a $.10 value on the stock as there is "stupid" money out there and someone might want to take a shot at that valuation. Buy the company for $7 million and pay the $91 million judgment and put in working capital while taking the risk of not owning the Tiara and just having the Reducer. This could pay off if Tiara continues to work which will increase its value and Edwards Lifesciences falls asleep at the wheel with their half of Tiara. The other risk is if Neovasc wins the appeal but considering it is one in a million you can put very little value on this even if the Tiara's value increased to $700 million (one in a million of being worth 700 million is worth $700). If Neovasc somehow owns the Tiara in Europe without Edwards Lifesciences then they will still have to partner with someone to help commercialize it. This will bring down their piece of the revenues significantly and the European revenues are far less than those in America.

In conclusion I don't see how Neovasc can ever live to benefit from the Tiara and the Reducer even if they are proven to work. They won't own it and if they do they won't have cash to run it. They will also be in competition with Edwards Lifesciences, Abbott (NYSE:ABT), and Medtronic (NYSE:MDT). The latter two seem to also have successful products that might end up being superior to the Tiara.

I wrote this article myself, and I am currently long NVCN. As of today's close I only have about 20% of my holdings left and thought it was more important to share this story with the public than wait until I sold all of mine. I have messed this trade up so much I deserve to have some stock certificates left to use as wallpaper.

Disclosure: I am/we are long NVCN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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