Neovasc Inc. (NASDAQ:NVCN) Q3 2021 Earnings Conference Call November 9, 2021 4:30 AM ET
Mike Cavanaugh - MD, Westwicke
Fred Colen - President and CEO
Chris Clark - CFO
Conference Call Participants
Greetings and welcome to the Neovasc Incorporated Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host, Mike Cavanaugh, Managing Director at Westwicke. Please proceed.
Good afternoon, and thank you for joining us today. Earlier today, Neovasc Incorporated released financial results for the quarter ended September 30, 2021. The release is currently available on the Investors section of the company's Website at www.neovasc.com/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'd 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, 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 section of Neovasc's annual information report on Form 40-F and the discussion in Neovasc's MD&A, which are available on EDGAR and SEDAR. The information provided in this conference call speaks only to the live broadcast today, November 09, 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 will now turn the call over to Fred.
Thank you, Mike, and good afternoon, everyone. As always thank you for joining us today. I will give an overview of the quarter, and a business update before turning the call over to Chris to discuss our financials. Q3 was a strong quarter operationally for Neovasc, as we continued to advance our three value creation strategies. We are particularly pleased with our sales results generating record reduced revenues.
We made great progress in advancing preparations to begin to COSIRA-II US-based trial for Reducer and continue to advance our efforts to secure reimbursement for Reducer in Europe. Importantly, some of the initiatives we executed in the first half of 2021 have solidified our financial footing and we are and are expected to extend our cash runway into mid 2024, which Chris will further discuss.
One of the three pillars of our value-creation strategy is expanding the use of Reducer in Europe and elsewhere outside of the United States through marketing efforts, expanding into new markets and driving reimbursement coverage.
Neovasc has direct salespeople in Europe, working hard to market Reducer and additional distributor partnerships throughout Europe, including Switzerland and the United Kingdom, Italy, Spain, the Netherlands and Austrian. The benefits of these efforts can be seen in the top line as we recorded record revenues of just over $700,000 during the quarter despite lingering COVID issues in Europe.
It is gratifying to see growing acceptance and use of the Reducer for the treatment of refractory angina as we have seen first-hand how the Reducer can change lives of people with no other traditional options. We are using these tangible success stories to help us continue to pursue reimbursement for the Reducer in multiple countries. We think the value based benefits Reducer brings to patients and healthcare systems alike are clear and we are convinced that this is the foundation for the progress we believe we continue to make to with our reimbursement objectives in the United States, in the United Kingdom, France and Germany. We believe we will have more news in the coming months on further specific outcomes.
Turning to our efforts to promote and gain approval for Reducer in the United States. Our key initiative here is to advance towards the first patient enrollment in our new US IDE clinical study called the Coursera 2 in 2021, with the aim of supporting a future PMA submission to the FDA. We achieved an important milestone in September of 2021 when we received approval for the study protocol from the FDA. The protocol is designed to investigate the safety and efficacy of the Reducer for patients suffering from refractory angina.
The primary endpoint of the trial will be exercised tolerance after six months nd we expect to enrol approximately 380 patients in up to 50 US and Canadian sites with an interim look up on 80% enrollment and the ability to adjust the sample size as needed to increase the likelihood of achieving statistically significant results. With this important approval secured, we remain on track to enrol the first patients in the trial in Q4 of 2021.
In the meantime, we are working on the selection of several best suited service providers, for example, an appropriate clinical research organization in the United States and the core labs for the trial. And we are qualifying our clinical trial sites, obtaining institutional review board approvals and initiating and reviewing contracts with clinical sites.
In addition, we have successfully filed for the registration of Coursera 2 in the clinical trials dot gov [ph] system. Finally, we are working on finding a path towards US reimbursement for coverage and device payment by CMS, during the Coursera 2 clinical trial. This is a complex undertaking and the outcome is not certain at all that we have initiated our request.
We also continue to see a steady flow of positive data. For example, near the end of the quarter, the results of the REDUCER-1 study were published in the journal Euro Intervention. The data published from this real-world study confirmed a strong safety profile as well as a sustained improvement in angina severity and quality of life out to two years.
More recently in October, the Reducer was featured in an article in the Polish Heart Journal. The study evaluated in the article demonstrated a statistically significant improvement in the Canadian cardiovascular society, angina score and measure of chest pain severity in patients with right side ischemia. Early Reducer trials have been primarily conducted in patients with the left side ischemia. We continue to be very pleased with the flow of data that supports the safety and efficacy of Reducer.
Recently, two European physicians demonstrated a very meaningful improvement in the absolute coronary blood flow into the heart muscle upon implantation of the Reducer in two consecutive patients. This is the very first time this could be demonstrated in humans using the most advanced diagnostic tools and leading science. The physicians, both world-renowned experts in coronary physiology were emphatic about the positive results.
For the first time, the physicians were able to demonstrate in real time that implantation of the coronary sinus Reducer resulted in an immediate increase in blood flow to the heart muscle. This is important because it points to the potential mechanism of action of the Reducer. Patients experienced angina when the heart muscle doesn't get enough oxygenated blood. Increasing the option to blood flow to the muscle is critical to relieve the chest pain associated with angina. More work is still to be done here, but this is potentially a key development and may signify the beginning of a new era in interventional cardiology for the optimal treatment of occluded blood vessels of the heart.
Moving on to our efforts to advance our Tiara technology. As many of you are aware, we paused work on the Tiara transfemoral device to focus on the Tiara transapical device, which is more advanced in its development stage than the transfemoral program. We continue to work with our notified body in Europe to advance our CE Mark application for the Tiara transapical and we are targeting a decision under the new European Medical Device regulation or MDR rules in late 2022.
I would also revisit some of the actions we took during the first half of the year and the resultant effect on our balance sheet. As many of you will recall, we made some difficult decisions during the first half of the year. Last is centered on the suspension of our development of the Tiara transfemoral system, which included a significant corporate headcount reduction.
These decisions did in fact result in a significant reduction of our cash burn and we believe that we now have a cash runway extending at least into mid 2024, which allows us to, among other things focus on and execute the new Coursera 2 IDE clinical trial for Reducer. Overall, we are pleased with the progress we made in the quarter to position Neovasc going forward.
And before I turn call over to Chris, I would like to take this opportunity to comment on our current strategy, to regain compliance with the NASDAQ listing rules. As you are likely aware, we are currently in breach of the NASDAQ $1 minimum bid price rule, and we have been granted an initial grace period to cure this breach. We can still cure this breach by closing 10 consecutive trading days above $1 before November 22, 2021. It may be unlikely though that we can achieve this in the remaining short period of time.
However, we do believe that according to the NASDAQ rules and guidelines, we could be eligible for a second 180-day grace period until May 21, 2022, giving us additional time to cure this breach. We will make an application for a second grace period in the coming weeks, but NASDAQ will only be able to decide and all eligibility for this additional grace period on or after the last day of the initial grace period on November 22, 2021.
I would also like to point out that while our shareholder's equity remains greater than $2.5 million satisfying the shareholder's equity requirement, the $35 million market capitalization requirement is not applicable for Neovasc. Overall, we are glad to see that the $72 million financing in February this year has placed us in a stronger position also to meet the NASDAQ listing requirements. And we believe that there is a potential pathway to being granted a second 180-day grace period in which to cure the remaining breach of the NASDAQ rules. We also believe we have a strong operational plan over the next six months.
We accomplished a great deal during the third quarter, advancing our goals to expand adoption and reimbursement of the Reducer and we're beginning to see the financial benefits of some wise, but difficult decisions we made in the first half of the year. However we understand there is more to be done on all fronts, and we hope to be for more positive milestones during the balance of 2021 and beyond. As always we want to thank our investors, our employees and our customers for their continued support of Neovasc.
I will now turn the call over to Chris for a review of all our financial results. Chris?
Thank you, Fred. As Fred mentioned briefly in his comments, what recorded record revenues, during the quarter. Revenues increased by 12% to $703,000 for the three months ended September 30, 2021, compared with revenues of $626,000 for the same period in 2020. It is particularly gratifying this is during the latest COVID-19 Delta variant surge of the summer.
The cost of goods sold for the three months ended September 30, 2021 was $165,000 compared to $151,000 for the same period in 2020. The overall gross margin for the three months ended September 30, 2021 was 77% compared to 76% of gross margin for the same period in 2020. Company continues to take some journey when the company sells the Reducer direct for high margins.
Total expenses for the three months ended September 30, 2021 was $7.3 million compared to $10.6 million for 2020, but presenting a decrease of $3.4 million or 32%. The decrease in total expenses during the quarter can be substantial explained by a $2.1 million decrease in legal and underwriting fees related to the August 2025, a $1 million decrease in employment expenses due to the company's reduction in force at the end of 2020 until the -- in June 2021 and an $849,000 decrease in other product development and clinical trial expenses as the company indefinitely calls all activities related to the PRTF [ph] Valve Replacement Program in June 2021, all offset by a $430,000 increase in non-cash share-based payments.
Selling expenses for the three months ended September 30, 2021 were $786,000 compared to $499,000 for 2020 representative an increase of $287,000 or 58%. The year-over-year increase in selling expenses could be substantial explained by a $219,000 increase in other expenses incurred for commercialization activities related to the Reducer as the company increased its selling activities from the COVID month driven low point, and the comparable period.
General and administrative expenses for the three months ended September 30, 2021 were $3.0 million compared to $4.6 million for the same period in 2020, but presenting a decrease of $1.6 million or 35%. The decrease can be substantially explained by $2.1 million decrease in legal and underwriting piece related to the August 2020 financing offset by $545,000 increase in non-cash share-based payments. Product development and clinical trial expense for the three months ended September 30, 2021 were $3.5 million compared to $5.5 million for 2020, while presenting a decrease of $2 million or 37%.
The decrease in product development and clinical trial expenses can be substantially explained by the $924,000 decrease in employment expenses due to the company's reduction costs at the end of 2020 and further in June, 2021 and an $849,000 decrease in other product development clinical trial expenses as the company definitely paused all activities related to PRTF to transfer more mitral valve replacement program in June 2021.
The operating losses and comprehensive losses for the three months ended September 30, 2020 were $6.7 million and $6.9 million respectively on $0.11 basis value to loss per share as compared with $10.2 million of breaking losses and $10.4 million comprehensive loss or $0.51 basic and diluted loss per share for the same period in 2020. The decrease of $3.4 million in operating losses can substantially be explained by a $3.4 million decrease in operating expenses as described earlier.
Our shares issued and outstanding increased by 2,667 shares during the quarter to 067,587,079 shares at the quarter end. Our fully diluted share count including the exercise of all ordinary warrants and equity incentives and the conversion of all outstanding debt at the conversion price higher than the current share price is approximately 130.6 million shares.
We ended the third quarter of 2021 with cash and cash equivalent, cash equivalents of $55.8 million. During the quarter we spent $7.5 million. $4.4 million was spent on ongoing operating activities and leases of which $3.7 million was spent on sales and product development and $3.1 million, was injected into the balance sheet principally in one time transactions.
Notably, we made our final payment on our second collaboration agreements of $1.25 million and second older accounts payable of $1.1 million. Bringing our operating burn rate below $5 million for the quarter was important to allow room for expenses to increase as we initiate our Coursera 2 study while still aiming to maintain a long cash runway. As Fred mentioned, we are in a strong position financially, and are hopefully will reach critical valuation events before needing more capital. This is a complex process, but we hope to provide positive updates in the future. Fred?
Thank you, Chris. And thank you all for listening to our opening remarks. We have sharpened our focus on advancing the three value creation strategies, and we have begun to realize the benefits of a cleaner balance sheet and lower expense base. We continue to believe in the value potential of our devices and we are gratified to see a steady flow of data, supporting the efficacy and safety off Reducer. Once again, thank you all for your continued support.
I would now like to open up the call for questions.
Okay. Well it looks like there were no further questions. Thank you all very much for your participation. It's very much appreciated and we'll talk to you again after the next quarter. We look forward to it. Thank you all. Bye-Bye.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation and have a great day.