Aug 10, 2018
Executives
Jeremy Feffer - MD, LifeSci Advisors Fredericus Colen - President & CEO Christopher Clark - CFO & Corporate Secretary
Analysts
Dylan Gantley - Leerink Partners Jeffrey Cohen - Ladenburg Thalmann & Co.
Operator
Good day everyone and welcome to the Neovasc Incorporated Second Quarter 2018 Earnings Call. Today's conference is being recorded.
And at this time I'd like to turn the conference over to Jeremy Feffer. Please go ahead, sir.
Jeremy Feffer
Thank you, Tulare. At this time all participants are in a listen-only mode.
Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for your questions.
[Technical Difficulty]. I would like to remind everyone that today's discussion includes forward-looking statements within the meaning of applicable U.S.
and Canadian securities laws that reflect Neovasc's current views with respect to future events, including the company's plans and expectations relating to its business, financial results, capital structure, litigation, and other matters. Words such as expect, outlook, anticipate, exploring, may, might, will, should, estimate, continue, strategy, potential, intend, going to, believe, plan, opportunity, trend, growing, look forward, and similar words or expressions are meant to identify forward-looking statements.
Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statement. 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 sections of Neovasc's annual report on Form 20-F and the discussion in Neovasc's MD&A, which are available on SEDAR and EDGAR.
Now, I would like to turn the call over to Fred Colen, President and Chief Executive Officer of Neovasc. Fred?
Fredericus Colen
Thank you, Jeremy. Welcome everyone.
With me this afternoon is Chris Clark, our CFO. I will begin today's call with an update on our Tiara and Reducer programs, and then turn the call over to Chris for a quick summary of the financials for the second quarter of 2018 and an update on our capital structure.
We will then open the call up for questions. Beginning with the Tiara, we continue to work toward increasing interest in this minimally invasive mitral valve replacement technology.
Through live case demonstrations and presentation of clinical results at leading conferences, we are able to show clinicians and the medical community at large that this product has the potential to be a safe, effective, and leading treatment option for individuals who have few, if any, treatment alternatives. As mentioned in last quarter's earnings conference call, clinical results from Tiara patients were shared at the EuroPCR conference in Paris in May, and in the meantime also at the CSI Frankfurt conference as well as at the 11th Annual Transcatheter Valve Therapy Conference in Chicago.
On June 21, 2018, the Tiara was featured in a live case at this 11th annual TVT conference. The successful live case was performed by Dr.
Anson Cheung and Dr. John G.
Webb of St. Paul's Hospital in Vancouver, Canada, who successfully implanted a 40 millimeter Tiara transcatheter mitral valve in a patient suffering from severe mitral regurgitation.
There have been 58 total Tiara implants to date, 20 in the TIARA-I clinical study, 16 in the TIARA-II clinical study and 22 under compassionate use, with a longest follow up period of 4 years on 1 patient. The 30 day survival rate for all implants is 90% and 94% in the TIARA-II study.
Using this minimally invasive, transapical transcatheter approach, mitral regurgitation was completely or nearly completely resolved. Enrollment of patients in the European TIARA-II CE mark clinical study continues, albeit at a slower than expected rate.
In an attempt to further increase patient enrollment, we have implemented an easy to use local screening tool for physicians and clinical sites, increased the number of qualified proctoring physicians, increased our field clinical engineering support in Europe, and most importantly added additional clinical investigation sites. We already qualified and added 4 new clinical sites during July.
Therefore, we currently have 13 active clinical sites, 7 in Germany, 4 in Italy and 2 in the UK. We are currently planning on activating additional clinical sites in September in Israel, Germany, the Netherlands and Spain, as well as qualifying additional clinical sites to a maximum of 20 sites overall.
As a result, the company believes it will be able to increase enrollment in the TIARA-II clinical study to attempt to stay on our plan to submit the application for a CE mark approval during 2020. Our efforts to grow awareness around the Tiara through presentations and live cases has led to increasing recognition of Tiara as a leading device in mitral valve replacement as well as in substantial interest by new clinical sites to become investigative sites.
In addition, the company continues to focus on efforts to develop an alternative implantation technique in order to more effectively combat competition from clipping repair procedures. During the EuroPCR Conference, there was also a presentation of results from our first acute animal study, which supports the feasibility of the transfemoral transseptal delivery of the Tiara.
We are continuing with acute animal study work, bench testing and simulations to optimize the overall design of the system, which is comprised of a transfemoral transseptal delivery system and a further optimized smaller profile Tiara valve. This implantation technique may be a potential breakthrough in the treatment of severe mitral valve regurgitation.
By developing multiple implantation techniques, the Tiara can become a broadly usable option. Turning to the Reducer, a CE mark medical device used for the treatment of refractory angina, which saw a further increase in European adoption building on the pattern of growth seen last quarter.
As part of the previously discussed EuroPCR conference, a symposium on the Reducer was hosted by Dr. Stefan Verheye and Dr.
Shmuel Banai, and included presentations from physicians on their clinical experience with Reducer, discussions about potential additional applications for the Reducer, and a cost/benefit analysis of Reducer utilizations for healthcare systems. Attendance at this symposium exceeded capacity.
The Reducer continues to gain attention from medical professionals around the world as the number of patient cases have increased with the scaling of our commercial activities. Very recently, a publication in the International Journal of Cardiology showed remarkably consistent safety and efficacy data with the results of the randomized COSIRA study for the Reducer in a 141 patient real world multicenter study, the REDUCE.
Meanwhile, this past June we announced the first Reducer implantation in a U.S. patient.
Under compassionate use, cardiologists at the Henry Ford Hospital in Detroit implanted the Reducer in a patient suffering from refractory angina for years. The 20 minute procedure was tolerated very well by the patient and there were no complications.
The commercial progress for the Reducer in Europe and the Middle East in the first half of 2018 was encouraging, with a 47% increase in revenue compared to the same time period of 2017. Sales of the Reducer in the second quarter were up 64% over the same period in 2017.
More than 15 clinics in Germany have begun and completed the reimbursement negotiations with the German health insurance companies and have now established a satisfactory overall reimbursement amount for the Reducer procedure, including payment for the Reducer product at list price, while others are either in the negotiation process or will negotiate later this year for preset negotiation cycles. While we only have a very small sales organization in Europe, we are still planning on a doubling of Reducer implants in Europe during 2018 over '17 and an almost tripling of Reducer implants in Germany.
One of the drivers behind this success is the NUB 1 status for new therapies in Germany, which the Reducer received at the end of January 2018. The company continues to enroll in the REDUCER-I post-market clinical study and is exploring all options for a U.S.
market entry, including the initiation of the REDUCER-IDE study, a 385 patient study to be conducted at up to 35 centers in the United States, which was approved by the FDA in late 2017. Finally, we are very pleased with the collaboration and licensing agreement signed last Friday with Penn Medicine and the Gorman Cardiovascular Research Group.
As announced, this agreement resolves certain potential claims against the company and opens the door for us to collaborate with this research group in the mitral valve space. With that update on our programs, let me know turn the call over to Chris to discuss our financial highlights.
Chris?
Christopher Clark
Thank you, Fred. Good afternoon everybody.
I remind everyone that our financial results are in U.S. dollars and prepared in compliance with IFRS.
To keep my comments brief, I'll refer you to our full disclosure filed on SEDAR and EDGAR for a more fulsome review of our second quarter 2018 results. Starting with the Reducer commercialization, while in the 3 months ended June 30, 2018 we experienced an overall 69% decrease in revenue as we ended our contract manufacturing and consulting services business at the end of 2017, we are very pleased with the performance of the Reducer in 2018 and we recorded our highest quarterly Reducer revenue in the second quarter of 2018 at $405,000, up from $340,000 last quarter and $278,000 for the same quarter last year.
Our total revenue for the six months ended June 30, 2018 were $745,000 compared to $508,000 for the same period last year, an increase of 47%. Our margins for the 3 months ended June 30, 2018 reflect and are expected to reflect going forward the margins on the Reducer only, which were 78%, or $317,000, compared to the blended gross margin for all revenue segments of 33%, or $432,000, for the same period in 2017.
Our departmental expenses for the 3 months ended June 30, 2018 decreased by $408,000 to $6.3 million from $6.7 million for the same period in 2017. Contributing to this decrease, there were a $270,000 reduction in cash-based employee expenses as we have reduced headcount from approximately 150 to 90 staff; a $202,000 decrease in stock-based compensation as both the size of the awards and the value of the awards declined in 2018 compared to the same period in 2017; a $508,000 reduction in litigation expenses as the matters facing the company either headed toward a conclusion or required less effort than in 2017; all offset by a $679,000 in general expenses, mostly related to an increase in corporate legal services as we incurred heavier charges than expected on various non-litigation matters such as renewing our base shelf prospectus, filing on Form 20-F, not Form 40-F, filing in XBRL for the first time, and managing compliance matters with the NASDAQ.
Our operating loss for the 3 months ended June 30, 2018 was $6.0 million compared to $6.3 million for the same period in 2017. The overall loss for the three months ended June 30, 2018 was $49.1 million compared to $5.3 million for the same period in 2017.
The change in the loss can be explained by 2 large non-cash charges; a $26.5 million charge for the realized loss on the exercise of warrants and a $17.4 million charge for the amortization of the deferred loss in the derivative liabilities and convertible note. These accounting charges are best explained in the financial statements and do not impact the cash flows expected in the coming quarters.
Without these non-cash charges related to the accounting treatment of the 2017 financing, the overall loss would have been $5.7 million in the second quarter of 2018. Our basic and diluted loss per share for the second quarter of 2018 was $0.04 per share compared to $0.07 per share for the same period in 2017.
From a cash flow perspective, in the second quarter of 2018 we spent approximately $5.9 million on operations and received approximately $650,000 from the non-cash working capital adjustments and other cash flows. Our total net cash expenditure for the quarter was $5.25 million.
Significant amongst the other cash flows, we received proceeds from the sale of a building of $866,000 and placed $650,000 in trust with our counsel related to the signing of the license and collaboration agreement. We finished the second quarter of 2018 with $20.1 million of cash.
We believe this is sufficient to last the company at least 3 quarters at our current burn rate from the end of the second quarter. We will need to raise additional capital in the next 12 months, but the current capital structure as described in our risk factors is a significant obstacle to achieving this.
Such circumstances suggest a material uncertainty about our ability to continue as a going concern. However, as we've disclosed in our recent earnings calls, we are actively taking steps to try and address this situation.
As of today, our issued and outstanding share capital is approximately 1.89 billion common shares. And our fully diluted share capital, assuming all the remaining warrants were exercised using the cashless alternative net number, if applicable, and all the debt was converted using the alternate conversion price, is approximately 2.98 billion common shares.
However, there are two important observations. Firstly, there only 1.32 million warrants with the cashless alternative net number feature remaining.
Approximately 98% of these types of warrants from the November 2017 financing have been exercised. Secondly, there is a distinction between the cashless exercise of warrants and the conversion of debt.
The former provides little benefit to the company on exercise, while the latter reduces the amount of debt on the balance sheet when converted. Regarding our NASDAQ listing status, on July 6, 2018, as expected, we received notice from NASDAQ indicating that our initial 180 days to regain compliance with the minimum bid price requirement had expired and that our common shares would be delisted from the NASDAQ Capital Market if we did not file an appeal within the stated timeline.
We requested such an appeal and have been granted an appeal hearing date of August 30 with the NASDAQ Hearing Panel, who will consider our appeal and our request for an additional 180 day extension. As previously announced, the company has already received shareholder approval to execute a reverse stock split common share consolidation in order to regain compliance with the minimum bid price requirement.
However, we are seeking an additional 180 day extension so that the board and management can effect the reserve stock split at a time that is in the best interest of the company and its shareholders. Shareholder approval of the reverse stock split does not necessarily guarantee that the panel will grant the company an extension to regain compliance with the $1.00 minimum bid price requirement or that, if granted, such extension will be for an additional 180 days requested by the company.
In the event the panel refuses to grant such an extension, the company's common shares may be delisted from the NASDAQ Capital Market. NASDAQ also has broad discretionary public interest authority that it can exercise to apply additional or more stringent criteria for the continued listing of the company's common shares or suspend or delist securities, which the NASDAQ could use to delist the company's common shares at any time.
As a reminder, our noncompliance with the NASDAQ minimum bid price requirement does not affect our status with the TSX. We will continue to update you as we continue to fix and right-size the company's capital structure in order to provide long term investors with a clearer picture on the future growth opportunities for the Tiara and the Reducer.
With that, I will turn the call back to Fred.
Fredericus Colen
Thank you, Chris. With that, we will be happy to answer your questions.
Operator, please open the call for questions.
Operator
[Operator Instructions]. We'll take our first question from Danielle Antalffy with Leerink Partners.
Dylan Gantley
This is Dylan on for Danielle. I wanted to start with the Tiara trials.
I know you're at 58 patients enrolled right now. I was curious if you could just talk a little bit more about your confidence for staying on track for submission there in 2020 and maybe what a good run rate looks like -- a max run rate looks like for patient adds once you have all of your centers onboard there.
And then maybe as a component of that, with the new screening process, how do you think that'll change the number of patients that actually make it through the screening verse the old process there.
Fredericus Colen
Yes, Dylan. So obviously we are working very hard on that part of the Tiara program.
There are many moving parts. The most important one is the amount of active clinical investigative sites.
As I stated, we have already added 4 in mid to late July, so that really didn't kick in but will be kicking in now. And we have another 4 sites in the process.
Then we are going to add even more sites up to the 20, so that actually is going to have an impact because we'll just have a lot more clinical sites that can provide us the patients that we need to get the enrollment numbers up. We would like to get to somewhere in the, I don't know, 3 to 7 or 8 patients per month for TIARA-II.
But again, it depends mostly on how many active clinical sites do we have, do we have sufficient infrastructure in place to support those in Europe, which comes with having enough proctoring physicians and enough field clinical engineering support, which is -- all of these moving parts are being addressed, as I stated in my prepared remarks. So, we are working on that part very well.
I think we're making good progress, but there's more work to be done on that side. So we remain optimistic about it, and that's mostly because we have a lot of physicians and clinical sites that are really interested in our program.
Otherwise we wouldn't be able to add so many clinical sites on a relatively short term basis. So that's essentially the basis for our optimism.
Does that answer your question, Dylan?
Dylan Gantley
Yes. And then I was just curious if you would talk a little bit about the -- I think you mentioned a new protocol for screening patients for the trial, how you expect that will impact enrollment as well.
Fredericus Colen
Yes, it's really not a different screening protocol that we use for the final determination of an eligible patient or not. That part, the official screening process, is not changing.
What we are doing is we are essentially instituting an additional prescreening tool at the local hospitals that's mostly based on echo so that the hospitals can find the patients easier to submit to us. So it's basically optimizing the process for the clinics so that we don't need to go through a lot of data back and forth, but that the clinics have a prescreening tool that's mostly based on echo.
And through that, they can go through the database of patients. And with that, we have a higher chance of getting the patients submitted that are actually suitable.
We are not -- as I said, we are not changing the formal inclusion criteria in the trial. That stays the same.
Dylan Gantley
On the mitral competitive landscape, there are a lot of programs going on. And they're pretty early in development so it's kind of hard to really assess a leader, if you will, based on the clinical data that's available.
I was just hoping for your perspective on I guess the competitive landscape here and where Neovasc is in terms of the race of getting a product to market here.
Fredericus Colen
Yes. So, I mean, obviously there is the Abbott and Medtronic program.
They have enrolled a significant amount of patients. They are now starting to focus more on the U.S.
clinical side of the equation more so than in Europe. We really don't see a lot of competition from them in the European area for patients.
The other programs that you mention, and you rightly stated are still in very early stages. So when we look at the competitive landscape, we really don't see a lot of competition for full valve replacement in the European countries for our clinical trial.
The most competition that we see is actually coming from the mitral clipping procedures. Don't forget that in Europe mitral clipping is an approved and reimbursed therapy not just for degenerative mitral regurgitation but also for functional MR.
So that's where we see the biggest competition. And we need to work with clinics in a very detailed manner in terms of getting the cardiologists and the surgeons together with a process whereby they look at what's the best option for all of these FMR patients, and is it not so that our program is actually better for the patient than the mitral clipping procedure.
That's really the process that we're going through. So competition is mostly that.
Now obviously, we are working hard in our transfemoral program for Tiara which will help a lot in that space as well, because that is going to be a procedure that the interventional cardiologists will then do also, so it actually changes the equation quite a bit moving forward. But at the moment in the transapical approach, we need to get the surgeons and the cardiologists working together and figure out the best procedure or best therapy for the patients -- the FMR patients that they have.
And again, I don't see a lot of competition from other valve replacement programs, either because Medtronic and Abbott are now more focused on the U.S. or because all these other programs are still in very early stages in Europe.
So we don't see that, but we see the competition mostly from the mitral clipping procedures, as I explained. Does that make sense?
Dylan Gantley
It does. Yes, that makes a lot of sense.
Operator
And next we'll move to Jason Mills with Canaccord Genuity.
Unidentified Analyst
This is David on for Jason with Canaccord. I think kind of enrollment, at least in TIARA-II, was certainly slower than we had kind of seen coming off the first 5 months or so of the year.
Maybe asking a different way, if we can elaborate a little bit more on kind of the dynamics around how you see enrollment trends, maybe what's kind of the biggest barriers to entering the trials. And maybe just as far as talking about the focus as far as enrolling sites or bringing sites up to enrollment and kind of how that played out in the quarter, was enrollment a little bit lower given the enhanced focus on site enrollment?
Just trying to kind of understand what kind of detracted a little bit from enrollment trends in the past couple months or so.
Fredericus Colen
Yes. So I think I already talked about that quite a bit in terms of competition for patients, making sure that we have a very collaborative cardiology/surgical suite in the clinics that we work with, and the fact that we need to make life for the clinics easier in terms of finding the most suitable patients for us.
So I think that as well as the infrastructure that we need to support the clinical study in Europe are key factors. So for example, if a clinic has to go through a lot of additional imaging to find the right patient, that's problematic.
If we can give them a pretty good tool whereby they can utilize the echo database that they have, that makes life a lot easier for them. So those are the kind of things that we're working on, as well as increasing the supporting infrastructure in terms of clinical -- field clinical engineers and proctoring physicians.
But again, most importantly we have to and we are increasing the amount of clinical sites dramatically. And that I think is going to be the fact that is going to be the most important in getting our enrollment numbers further up.
So I think that's about what I can say about it. In terms of competition for patients, I already went through that with Dylan in the prior question.
Does that makes sense, David?
Unidentified Analyst
Yes. On the Reducer at least, as far as the data that kind of came out or that you've published, incrementally, if at all, how positive has this been with the sales force in pushing Reducer sales since the presentations came out?
Fredericus Colen
So the Reducer is doing extremely well. We are tracking on our plan.
We have a plan in place for commercialization that has higher targets every quarter this year. So far we have hit our plan 2 times in a row.
In the second quarter, we were 108% of plan. For the first half year, we were 115% of plan for the Reducer commercialization.
And you need to realize that we have essentially 2 people in Europe accomplishing this. So we have 1 individual that's focused mostly on sales to distributors, and then we have 1 direct salesperson in Germany.
We are actually in the process of hiring a second salesperson for Germany for the Reducer that we hope to bring on to the team by in the late fall of this year to help us with the fourth quarter objective. So Reducer is really taking off.
There's a lot of buzz about it. We have a lot of physicians that are very excited about it.
We have a lot of publications. The one that I mentioned before in my remarks, the REDUCE Multicenter Registry, showed very, very similar results to our randomized clinical study.
And we are getting more and more physicians talking about additional applications for the Reducer. And I think in the next couple of quarters we're probably going to talk about that some more in terms of additional patient populations that might benefit from this product.
So yes, the Reducer is actually doing very well and is creating a lot of positive momentum for us.
Unidentified Analyst
As far as the U Penn Medicine and the Gorman Cardiovascular Research Group, can you talk a little bit more about what the deal was there, what kind of the economics behind the agreement was there and how that affects kind of what the development is like and what the enrollment is like going forward for Tiara?
Fredericus Colen
So like I said, we are very excited that we have this now signed licensing and collaboration agreement with U Penn and with the Gorman lab. The Gorman brothers as well as Dr.
Gillespie are very well known in the mitral valve space. We are now able to work with them in a very collaborative manner.
We have to fill out the details of that moving forward. And at the same time, we resolved some potential claims that were hanging out there.
So this could not have gone any better I think from our perspective, and we are very pleased with this collaboration agreement moving forward. So again, more work to be done and more things to be filled out in terms of what it all is going to entail, but we look forward to good collaboration with the Gorman Research Lab.
Operator
[Operator Instructions]. We'll move next to Jeffrey Cohen with Ladenburg Thalmann.
Jeffrey Cohen
I guess firstly, could you walk us through a little bit more as far as Reducer currently, implantations, give us a sense of geographical implantations and numbers there, and perhaps give us a little color as far as pricing as well? You had mentioned before getting some ASPs out of some German sites as well.
Fredericus Colen
Yes. So in terms of implantation numbers, the highest implanting countries are Germany and Italy.
Then we have implants in Belgium and the UK as well as in the Netherlands, but those are a somewhat lower number. We do have some implants happening in the Middle East as well, in particular in Saudi Arabia.
And we are getting more and more interest from other countries, like for example Slovenia is just starting as well in terms of getting going on the Reducer. We have maintained what I would like to call a high price strategy for the Reducer given that we have a unique product with no competition.
And we have consistently deployed that strategy over time. We have not made any concessions on that.
So when we talk about increasing sales numbers in the 47% to 64% range, that's not at all because of any price gimmicks. I mean, this is all list price sales.
And the good news is that, when we talk about reimbursement in Germany, because of the fact that we have consistently had a high price strategy, is that all the clinics that have so far negotiated the price with the insurance companies have all gotten included our list price for reimbursement of our product. So there's no discount there.
It's a healthy price that we are able to generate. And that also leads to very favorable gross margins, as we reported.
So I think that's about as far as I can go on that, Jeff.
Jeffrey Cohen
And then secondly, could you discuss a little bit more for us about the transfemoral approach that's being done with some animal work and any further information on the approach and maybe some sizes or sizing? And could that potentially -- what would that lead to and in what timeframe as far as in some man studies?
And would there be any affect upon the latter portion of the trial perhaps?
Fredericus Colen
Yes. So on the transfemoral side, also there we are making some really good progress.
We have done by now a lot of bench testing, simulation testing, as well as two series of acute animal tests. What we are working on right now, Jeff, is the optimization of the design concept for both the delivery system as well as for the smaller profile Tiara valve.
Obviously, we need to bring the profile of the delivery system down to make the transfemoral approach a success, and we are aiming for a sub 30 French introducer system. We are hoping to be able to get to like a 28 French device, and for that we have to and are making changes, I would say minor changes at this point, to the Tiara valve so that we also can bring the valve size down further so that it will fit the smaller profile transfemoral delivery system.
That also actually helps us with patient population. We also believe that, given our database that we know have of all patients that were submitted to us, we have a very good idea about how the size of the device will actually fit the most optimum patient population.
So reducing the size of the Tiara valve is good for two things. One is to get to a lower profile transfemoral delivery system, but it also will enable us to treat a larger patient population, essentially patients that have smaller ventricles as well compared to what we currently treat.
So those are the things that we are focused on. In terms of timing, we want to make sure that we finish our design concept and we have basically a design concept nailed by the end of this year, at the very latest by Q1 of next year.
And from there on, we're going to go into the chronic animal testing, etc. Later this year, probably in the late fall, I will lay out a complete schedule for the transfemoral program, including all of the testing as well as development activities and when we are going to get into a first in man.
It'd be a little early for me to talk about that at this point, but I'll certainly do that later in the fall, Jeff, and give you guys more transparency on that side. But so far so good.
We have spent quite a bit of time also on the deployment. We'll continue to deploy the atrial side first and then the ventricular side as we do today, or vice versa in the transfemoral version.
And we actually believe that it's indeed going to be possible and better to continue to deploy the atrial side first and then the ventricular side. But that's, for example, one of the things we are looking at.
We also are pretty confident by now that we can indeed exert enough force through the transfemoral approach to hold the Tiara valve down into the annulus of the mitral valve space. So we are learning a lot by doing all this early stage work and are actually very confident that we can pull this off.
Operator
That does conclude our question and answer session. At this time, I'll turn the call back to our speakers for any final or closing remarks.
Fredericus Colen
Thank you very much. In closing, we wish to thank you all for your participation and we look forward to updating you again in the future regarding our progress.
Thank you and goodbye.
Operator
That does conclude our conference call for today, everyone. We do thank you for your participation.
You may now disconnect.