Nov 14, 2017
Executives
Alexei Marko - President and CEO Chris Clark - CFO
Analysts
John Gillings - JMP Securities Jason Mills - Canaccord Genuity
Operator
Good afternoon, ladies and gentlemen and welcome to the Neovasc Third Quarter Fiscal 2017 Results Conference Call. 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 questions.
[Operator Instructions] I would like to remind everyone that today's discussions include 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, litigation, the closing of the financing and other matters.
Words or expressions such as expect, anticipate, may, will, estimate, continue, intend, believe, trend, go into, look forward and similar words or expressions are meant to identify looking forward 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 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 third quarter MD&A which is available on SEDAR and EDGAR. Now, I would like to turn the call over to Alexei Marko, Chief Executive Officer.
Please go ahead sir.
Alexei Marko
Thank you, Sylvie and welcome everyone. With me this afternoon is Chris Clark, our CFO, it has certainly been an eventful period since we last spoke and for the purposes of today's call after Chris provides a high level summary of our financials, I simply want to outline to you immediate focuses and why.
So, Chris, over to you.
Chris Clark
Thank you, Alexei, and good afternoon, everybody. I'll remind everyone that our financial results are in U.S.
dollars and prepared in compliance with IFRS. I would like to start by briefly discussing the financing announced last Friday, which is expected to close on Friday November 17, that generate gross proceeds of approximately $65 million for the company.
The company has applied to the TSX to use a financial hardship exemption from the requirement to obtain shareholder approval that should allow the company to close the transaction on a timing manner and satisfy the remaining damages owe to CardiAQ of approximately $42 million after approximately $70 million were reversed from escrow to CardiAQ yesterday. The specific terms of the financing are described in our press release issued on Thursday November 9th.
And so, I want to repeat it here, but I do encourage you to read the press release as well as the summary of the financial for the financing and related risk to the company contained in our third quarter MD&A. This is a very difficult financing given the company's position and the amount of money we had to raise to not only satisfy the judgment but also provide some additional funding to enable the company to move forward.
The terms are not as favorable as we would have liked, however it is important to put the financing into perspective. We do not have the funds to pay the remaining damages and interest awards resulting from our litigation with CardiAQ we've now exhausted our appeals.
We are extremely disappointed with the judgments against the company with a choice was either to try and complete this financing to enable the company to play the judgment and move forward or file for bankruptcy protection. After a very careful review of the available options the company decided to proceed with the financing for the benefit of our stakeholders.
In total, the company will have used approximately $140 million to defend them settle these claims. This is an extra ordinary amount of capital to have had to deploy away from development of a world class device that is successfully being implanted on an ongoing basis.
It should also be noted that the amount owing today would be significantly larger it we had not been able to pay $70 million into escrow after agreement to sell our tissue technology to Boston Scientific. And we may not have been able to finance the total damages and interest awards of approximately $112 million at all if it would not for this transaction.
We expect that after settling the remaining damages and interest awards and paying fees and expenses associated with the financing. The company will receive net proceeds of approximately $18 million to fund its ongoing operations and refocus the company on enrollment in the TIARA-II study and further development of the Tiara device.
Now moving on to the results of the company for the third quarter of 2017, in the third quarter of 2017, revenue was $1.4 million decreasing by 55% from the same period last year. The decrease was expected as the company transitioned its business away from its traditional revenue streams towards development and commercialization of its own products the Reducer and Tiara.
Revenue from Reducer sales the company's innovative device to treat refractory angina increased 27% over the same period last year, reaching $334,000 for the quarter. This represents a new quarterly revenue high.
We are closely monitoring the sales activity of Reducer and our analysis continues to be positive. We have observed a significant increase in the underlying implant rate year-over-year and while we may see volatility on our quarterly basis from time-to-time, we continue to be very encouraged by the growth in the number of procedures.
Total expenses for the third quarter of 2017 were $6.5 million compared to $8.4 million for the same period of last year, representing a decrease of 22%. The decrease in total expenses principally relates to a $1.3 million reduction in litigation expenses compared to the same period last year.
The loss for the third quarter was $4.7 million or $0.06 basic and diluted loss per share compared to $29.1 million or $0.44 basic and diluted loss per share for the same period last year. The $24.4 million decrease in the operating loss compared to the same period last year can be substantially explained by the $21 million charge for enhanced damages related to litigation with CardiAQ booked in the third quarter of 2016.
As of September 30, 2017, the company had cash and cash equivalents of $6.3 million compared to $23 million at December 31, 2016. The company spent $3.8 million on operations in the third quarter and spent $4.2 million in total during the quarter.
After the financing the company expects to have approximately $20 million cash on hand we will focus those funds towards the clinical advancement and technological development of our Tiara device. Alexei will speak more on this in a few moments, but our fiscal commitment to this study is our highest priority.
As always, we will continue to update the market as material events occur. And I will now hand the proceedings back to Alexei.
Alexei Marko
Thanks, Chris. For the past two years, this company and our Tiara technology has been under the threat of [ph] the lawsuit, it has been a massive distraction and extremely costly.
As we recently disclosed, we've exhausted all legal avenues available to us in the case against that Cardiac Edwards brought against us in the U.S. and although we disagree with the outcome of the trial and appeal our intended to pay the awarded damages and move on, to again focus on what we do best, which is to get great medical products into the clinic.
And so, I'm turning the page I want to use my time today to remind us all about our core story, because while it is simple one it is an important one. There is a serious and deadly heart condition that affects millions of patients around the world called mitral regurgitation or MR.
For many of these millions of patients there is no good treatment currently available for them due to their unique anatomy or the state of their condition which may have deteriorated to the point where surgery is no longer a possibility often times there are no available solutions to resolve their disease. The center of this condition a heart valve called the mitral valve is damaged it can no longer do its job.
Many companies both large and multinationals and startups have attempted to invent a human made mitral valve that can be implanted using a small catheter inserted into the body to replace the damaged one without requiring traditional surgery. But as is often the case, replicating Mother Nature is proving challenging.
Many of these programs have struggled to show success in the clinic or failed out right. Only a small handful of transcatheter mitral valve programs have been able to show early success in treating these patients.
And today, Tiara remains one of these groundbreaking programs. Tiara has been implanted in 39 patients to-date, these patients were typically suffering from severe often life threatening MR and in many cases had no other viable options available to treat their disease.
We are proud of the results Tiara has been able to achieve, both in terms of technical success in low 30 day mortality rates, but also in terms of how patients have responded and recovered with restored valve function and improved quality of life. So far in 2017 in spite of all the distractions around this lawsuit we've been able to implant 17 patients with Tiara with 100% technical success and with only one of these 17 patients failing to recover and survive past 30 days.
Again, no matter how you measure it our Tiara Valve, which opens and closes some 100,000 times a day inside of beating heart, that was developed and manufactured in our own premises that has been implanted by more than a dozen doctors across six countries is working day after day to make patients' lives better. Often more there was no other option available.
So, what is our company focused on moving forward, we're going to rally around Tiara and drive its clinical progress. Our chief priority is to complete recruitment, enrollment and treatment in our 115 patient TIARA-II CE Mark study.
We have 10 centers approved in screening patients for this study and we look forward to accelerating enrollment over the coming months. We will be turning our attention once again to next generation Tiara devices including a transseptal delivery catheter and procedure, which we hope to have in animal trials in 2018.
We look forward to continuing to update you on our Tiara progress on future quarterly calls and of course at upcoming scientific medical conferences, such as TCT, PCR, DVT. Of course, we have one other important asset, Reducer, that often times takes the back seat to Tiara.
However, Reducer continues to advance and show growing value in the effective treatment of refractory angina patients. Reducer as Chris mentioned had its best quarterly results to-date eclipsing $300,000 in quarterly sales for the first time.
To-date Reducer has been implanted in over 500 patients and are real world results what we have seen in our published clinical studies. Reducer brings significant release of angina symptoms in the majority of patients in which its implanted, patients with no other option for treating their chronic chest pain.
And as announced last week, we have just received FDA approval to begin a U.S. IDE study for Reducer.
Putting this important product into the hands of U.S. physicians for the first time to treat their patients, we see significant value in the Reducer product line, it brings relief of chronic chest pain to a large population of no option refractory angina patients and we will be actively exploring multiple options over the coming quarters for how best to advance this program and to be able to take off the U.S.
study. I'll close my prepared comments there and open the floor to Q&A.
Operator
[Operator Instructions] And your first question sir, is from John Gillings at JMP Securities. Please go ahead.
John Gillings
Hey guys, can you hear me okay.
Alexei Marko
Yes, we can hear you fine, John.
John Gillings
Okay great. So, congrats on getting the financing in place, I am sure that was a lot of work in challenging circumstances.
One thing I have had a couple questions about is maybe you could give us just a quick overview of who Bio IP Ventures is, they have become obviously very important shareholder and it's not a fund that I am familiar with, but just any background you could give to kind of help people understand who this new financing partners?
Alexei Marko
Yes, it's a large fund based at New York is leading it and then we have brought in a number of other folks including some of our existing investors. So yes, they are a new fund and new to us, but they do invest in the healthcare sector and I think they are going to be an important part for us going forward.
John Gillings
Okay. And then just to make sure I heard correctly in the prepared remarks, I was taking notes and I am not sure if I missed it, but I believe you said in 2018 that you might have the transseptal delivery in animals, is that correct, did I hear that right?
Alexei Marko
Yes, that is correct. So, we have a prototype that's working in bench top models and to be frank we hadn't actually been putting a lot of work into that recently have been focusing in other areas.
But going forward into 2018 we're going to put effort into that and we believe we will have it into animals this coming year.
John Gillings
Okay. Yes, so one of the things I was a little bit surprised about to be honest at TCT was there did seem to be a little bit more of a buzz than I expected around transseptal delivery given that there is not really any evidence at this point, that it would be - that you would get same benefits in mitral as you do in the aortic valve.
But just to kind of give people a sense of what the challenges or the strengths of Tiara are, I know with some people I have talked to some of the other valve designs out there are such that they rely on an anchoring mechanism that would still necessitate some type of transapical entry even if you put the valve in transseptal or they have got an outer versus an inner frame that might kind of limit your ability to have a low profile sheath [ph]. Are there any sort of engineering just general things that we should be watching for as we look for you moving forward in this transseptal delivery system?
Alexei Marko
Well, one of the things we have really like about Tiara is the ease of the implantation. Typically, we have had procedures that are done in well under 10 minutes from the time you enter the apex to the time that we're out and closing.
But more typically they're sort of in the 10 to 20 minute range, but it's a very straight forward procedure, you go in, you unsheathe [ph] the atrial skirt first, you then let the anchors project out the way you want, and you release them and then you check and make sure everything is functioning and you release - then you release the valve. So, our approach with transseptal is exactly the same, we go in the same order, we have just reversed the delivery system and have a multi-part delivery system that just allows us to do that sort of from the other direction.
So, it seems to be working well in the bench. And we believe we can transfer it into animals and we're optimistic may we can eventually get into human.
So, we feel good about it. I like you believe - I think like you believe that transapical will continue to have a place in this field.
It is such a straightforward and easy access even though you have a small cut down, and so we don't even - we don't spread the ribs, we just sneak in between the ribs. It's such a straightforward access, that I think in lot of patients it is going to make sense.
That said, we do recognize that the market is really seeking a transseptal approach that is less invasive and doesn't require that surgical cut down so that's going to be an increasing focus of ours and we will move towards that.
John Gillings
Okay, I appreciate that, that's helpful. And then just one last one for you Chris and then I'll hop off.
Just looking at the cash, it looks like you guys burned about $5.3 million in the third quarter. And then looking forward, I would assume there will be some kind of an uptick given that you'll be pulling into the CE Mark trial probably a little bit more aggressively than you have to-date.
Just any kind of a basic idea of what we should be looking at in terms of cash per quarter?
Chris Clark
I think it's a little too early to give any guidance on the cash per quarter. Obviously, we weren't clear of exactly the funds that we would have as a residual from this financing.
We've got a bit of hard work to do to really settle down and come up with that number. But I think it's important to point out that the numbers that we've been discussing when talking about the litigation are so significantly larger than the numbers that we need for our CE Mark Study.
That yes there is likely to be a slight uptick, but I think it will be modest. The work that we do in getting to the CE Mark study is significantly less than the money we have had to pay out for the litigation.
And so, we will try and give guidance when we can, but I don't think it's quite appropriate yet.
John Gillings
Okay make sense. All right, well thanks a lot guys.
Chris Clark
Thanks, John. Appreciate your questions.
Operator
Thank you. [Operator Instructions].
And your next question will be from Jason Mills at Canaccord Genuity. Please go ahead.
Jason Mills
Hi, Alexei and Chris. Thanks for letting me on the call.
Can you hear me okay?
Chris Clark
Yes, we can hear you fine Jason.
Jason Mills
Super. So, I just want to focus on the enrollment for a second, Alexei really just going back to slide decks from period gone by, I think the first Tiara was dropped in the early '14.
So, the math that suggests one Tiara every let's call it 70 days through September 30th of this year. And then you've had one every nine days since then.
So perhaps it's getting positive for litigations and focusing more on it, but could you give us a sense for the rationale or the reasons behind the accelerated enrollment, it's been quite a remarkable what has been done in the last 40 days.
Chris Clark
I think it's a case of critical mass I don't know how to describe. We've got our screening procedures down, we're working with the large number of centers, we've got our training figured out, we're making sure the centers understand how best to prescreen patients and get us the sorts of patients that make sense for enrollment.
So, I think we're just sort of reaching that point where there is enough activity, and everybody trained well enough that we're able to - we're just seeing a lot more patients coming through and a lot more opportunities. So, I think we're going to see that continue or that rate continue to rise.
Again, as we - the results this year have been really - results for quite a while of Tiara have been solid and we're very proud of the results, but we just get better and better with every case that we do and we're just seeing such nice consistent results. What I believe a really good outcomes coming out of these patients we're treating, we're dealing with difficult anatomy and getting great results and good anchoring and no trace or no PVL in and out in 20 minutes.
And patients have recovered well. So, we're just seeing great results coming out of these cases and as we do more and more of those and word spread, and physicians participate and see how the device goes in and how these procedures go.
I think just enthusiasm and desire to find an enrolled patient is growing. So, I think that's part of it and we're going to just continue trying to push that and move forward with that kind of support.
Jason Mills
Okay, it's helpful. And perhaps you are not ready to give some of the guidance on this, yes, but you stimulated Alexei that you expect it to maintain the speed might get a little bit faster.
Does that sort of suggest - maybe I should ask you the question what does that suggest in terms of targeted date to complete TIARA-II enrollment?
Alexei Marko
Well I think realistically, it's going to be sometime in 2019, for complete full enrollment. But and you are correct, it is too early to give guidance, I think we just need to get our heads up and refocus on this with getting the other things behind us now.
But I think our goal is to get a good chunk of those patients enrolled through 2018 and really that is going to be the focus of the company going forward. So, I think probably the next quarterly calls when we are in a better position to give guidance on how that enrollment is going and what the rates going to be, but we do expect it to continue to tick up.
Jason Mills
Okay, that's helpful. Two, just quick follow-ups and I'll get back in the queue.
First following up on the transseptal delivery mechanism and any specifics you can give us maybe with respect to the modifications that might be necessary for you to be able to consummate a transseptal delivery with the Tiara valve or anything you can give us in terms of complexities or hurdles that you have had or think you will have to overcome to transition the valve from a transapical delivery to transseptal delivery. Maybe you just help us understand how hard that is given the heterogeneity of the mitral valve and a difficulty there in?
And then I guess secondly any perspective you might have Alexei on the Medtronic Intrepid study and more specific the trial design inclusion, exclusion criteria? And just what observations you had when you saw that trial and what that might mean for you at some point in the future in terms of the Tiara U.S.
pivotal study? Thanks.
Alexei Marko
Yes, no problem. So, we will take obviously first question first.
In terms of complexity, it's obviously much more complex to come from a transseptal approach. The catheter needs to come up and around a corner and deploy back that way.
The nice thing about the way we're doing it is the same valve, we are not making any modifications to Tiara itself, or we don't believe we're going to need to make any modifications to Tiara itself we're using our standard valve that's really the delivery system. And certainly, there is some added complexity and those that know our current system that deployment is very straight forward, you just withdraw a sheet and everything just flows naturally out of that sheet being withdrawn each step and then there is a final release step.
We're maintaining the exact deployment order with the same valve, so it winds up being a more complex call it delivery head where you have a sheet coming back in one direction and another sheet is going sort of in a different direction. So, there is more going on there, but I believe we have it handled.
The challenges and the hurdles will be just managing that added complexity and obviously keeping the front size down. We can't let these things get too bigger, they become in practical I think as others have discovered.
In terms of the Intrepid study to be honest I haven't had a chance really to look at it in a lot of detail, and I can't really intelligently comment on it other than just having sort of seen the top-line things and looked at it. It seems at to me a first blush, it's a well-designed study, it's certainly a large study.
I think every - ourselves and I expect others that had some initial discussions with the FDA about what a pivotal study would look like and have been tossing around ideas as to what the controls would be and what the general study design would be. This is along the lines of some of the things, I think we have been discussing with the FDA and clearly Medtronic Intrepid has carried it further.
My guess is that this is going to sort of be the model that ourselves and others are going to have to follow, this is a design the FDA has agreed upon with Medtronic my guess is it will be in some manner, shape or form relatively broadly applicable to the rest of companies coming along and trying to get their valves approved. So, I think it's going to service the model going forward.
Jason Mills
Got you. Thank you, Alexei.
Alexei Marko
You are most welcome.
Operator
Thank you. And at this time, I would like to turn the call back over to Mr.
Marko.
Alexei Marko
All right, thank you everyone for your participation today and we look forward to updating you again as soon as we can. Take care, have a good afternoon.
Operator
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today.
Once again, thank you for attending and at this time we do ask that you please disconnect your lines. Have yourself a lovely evening.