NVCN - Neovasc Inc. (NVCN) CEO Fred Colen on Q2 2022 Results - Earnings Call Transcript
Neovasc Inc. (NVCN)
Q2 2022 Results Conference Call
August 11, 2022 04:30 PM ET
Company Participants
Mike Cavanaugh - Investor Relations
Fred Colen - President and Chief Executive Officer
Chris Clark - Chief Financial Officer
Conference Call Participants
Vernon Bernardino - H. C. Wainwright
Presentation
Operator
Greetings and welcome to Neovasc Inc Second Quarter 2022 Earnings Call. [Operator Instructions]
As a reminder, this conference is being recorded.
I would now like to turn the call over to Mike Cavanaugh, Investor Relations. Please go ahead, sir.
Mike Cavanaugh
Good afternoon, and thank you for joining us today. Earlier today, Neovasc Incorporated 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.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 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, 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, 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 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’s Annual Report on Form 20-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, August 11, 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.
Fred Colen
Thank you, Mike and good afternoon everyone. As always, thank you for joining us today. I will start today’s call with an business update and 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've touched upon in Q1 earnings call, our team's reimbursement efforts domestically and abroad have been tremendous. Domestically, the COSIRA-II trial, which is intended to support the Reducer in 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 and all value 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, and 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 provided positive guidance for the Neovasc Reducer system. This supports the first therapeutic intervention for stable angina patients, who have not responded to treatment. 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. Securing reimbursement in the U.K. 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 for 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 our value creation strategy is the U.S. market. The COSIRA-II trial is ramping up and we currently have 40 patients enrolled, 21 patients randomized at 10 sites. As a reminder, the COSIRA-II 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 substudies as part of COSIRA-II designed to provide insights 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 a debilitating effects of Refractory Angina will have access to an FDA designated breakthrough medical device in our placebo control 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 COSIRA-II 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 Reducer device in the United States, including during the placebo controlled COSIRA-II trial. We are on track to have the first readout from the COSIRA-II trial in the second half of 2024, which would potentially put us on track for an FDA decision around mid-2025. As the trial continues to ramp up, we are gratified that patients are able to access the reduce of therapy and are getting closer to what's a domestic approval decision.
As for the third pillar of our value creation strategy, we are continuing to work on critical FEA and bench tests for our Tiara TA mitral valve replacement device. We continue to work on these and all the new test requirements by the new European MDR medical device regulations. We anticipate a decision under the new MDR 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 reducer device in the second quarter of 2022. In April, the European hard 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, Cotignola, Italy and others, 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 objective 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 calendar 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 1:25 share consolidation and on May 16, 2022, the company received a written notification from the NASDAQ stock market inform the company that it had regained compliance with the minimum bid price rule requirement and the Nasdaq Listing Rule 5550(a)(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 dollars in shareholders' 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 Neovasc. I am incredibly proud of the team for all of their dedicated, hard work, manifesting 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 our financial results. Chris?
Chris Clark
Thanks, Fred. Revenues increased by 29% to $818,000 for the three months ended June 30, 2022, compared to revenues of $633,000 for the same period in 2021.
As Fred mentioned, this is a quarterly record and reflects advances we have made with reimbursement, the expansion of our sales effort in Europe and the increasing enrollment in the COSIRA-II trial which is being reimbursed by CMS. The cost of goods sold for the three months ended June 30, 2022 was $158,000, compared to $109,000 for the same period in 2021.
The overall gross margin for the three months ended June 30, 2022 was 81% compared to 83% gross margin for the same period in 2021 as we wrote down some obsolete inventory. Total expenses for the three months ended June 30, 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 one, $1.5 million decrease in share based payments; two, a $594,000 decrease in impairment charge to fixed assets that occurred in June, 2021. Three, a $309,000 decrease in employee termination expenses related to pausing the Tiara TF program in June, 2021. And four, a 292,000 decrease in litigation expenses.
These were offset by a $923,000 increase in employee expenses related to the accrual of annual business period. That were not accrued, but were incurred 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, company used $6.5 million of cash in the quarter, including a $301,000 1x UK distributor transition expense.
Back to you, Fred.
Fred Colen
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 not like to call -- open up the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from [David Norton of King Burton]. Please go ahead.
Unidentified Analyst
Good afternoon. This is Antonio 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 reducers stand on those criteria? And then I have another question.
Fred Colen
Yes. 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 NUB 1 reimbursement process in Germany. So the reduce actually is reimbursed in Germany, as we speak has been for several years, and it's being renewed on an annual basis. There are several categories for that NUB 1 means it's the newest and highest importance 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 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 let's say, countrywide reimbursement process. We -- there's work ongoing on that. We have made several filings with the, 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, early next year. But again, it doesn't really impact our business because we already have reimbursement on a hospital by hospital level at this point in time, and we have that in place in several years.
Unidentified Analyst
So you mentioned you don't impact -- you don't anticipate and impact in your business if you're able to get the countrywide reimbursement.
Fred Colen
So it would, if that would come at some point in the future, we hope then that would basically nationalize 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's a very stable history of pricing for our device across Germany. So we don't anticipate that to be any issues with that.
Unidentified Analyst
And then the next question is, can you give us some color regarding the impact on physician perception of reducer, of the recent studies of exploring the mechanism of the implant?
Fred Colen
The mechanism of action, you mean?
Unidentified Analyst
Yeah. And what has been the impact on physician perception of reducer, those recent studies?
Fred Colen
Yeah, right. So there are a lot of what we call third party independent, publications and research that's 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 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 stimulants and the biggest growth driver that we actually observe in the market. We see that -- 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 added in the US -- even before we did the COSIRA-II 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 COSIRA-II and have been big support of us in getting the study going and in enrollment in that study. So 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 continues to drive the growth in all the markets we are in.
Operator
Our next question is from Vernon Bernardino of H. C. Wainwright. Please go ahead.
Vernon Bernardino
Hey, Frederic and hey, Chris. Thanks for taking my questions and congrats on the record quarter. So you talked a bit about the U.K. and it sounds like something where -- it really is an opportunity, where a lot of acceleration could occur as far as direct sales for the Reducer. Just wondering if you could characterize a little bit better what you expect to see now with this specific sales force that you have there?
Fred Colen
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 U.K. for the device not only based on the expense positions up with the pay 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's 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 facility to actually already start direct sales as of the first of July, for which obviously we had to pay the distributor a certain fee for his lost 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 a process of actually hiring an additional person as we speak in the UK. And we really believe that the U.K. along with France, we shouldn't forget France, are great growth opportunities for us basically really new markets for us to really strive and build additional big business growth in Europe. So that is a very positive for us, Vernon.
Now I'd say that against the backdrop of in my remarks, I said we had strong currency headwinds. I mean, don't forget the Euro was extremely weak in the quarter. At times the Euro was 20% down compared to the U.S. dollar. And so 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.
Vernon Bernardino
And I'm sorry if I missed it. What is the update as far as the efforts in France?
Fred Colen
Yes. 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 U.S. for the devices used in the COSIRA-II randomized trial, that's another additional gross driver. So outside of just penetration grows, you see big opportunities for us to really expand the revenue. And that's why we are quite optimistic about continued big growths for the next couple of quarters.
Vernon Bernardino
Terrific. Yes. I'm looking forward to seeing the progress in France and congrats again on the record quarter and taking my questions.
Operator
Ladies and gentlemen, we have reached the end of the question-and-answer session. Now I'd like, turn a call back to Fred Colen for closing remarks.
Fred Colen
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 toward 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.
Operator
That conclude today's conference. Thank you for joining us. You may now disconnect your lines.
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Neovasc Inc. (NVCN) CEO Fred Colen on Q2 2022 Results - Earnings Call Transcript