NASDAQ: NVCN
TSX: NVC
VANCOUVER, March 29, 2016 /PRNewswire/ - Neovasc Inc. ("Neovasc" or the "Company") (NASDAQ: NVCN) (TSX: NVC) today announced financial results for the year ended December 31, 2015. Of note, the Company's financial results are now being presented in U.S. dollars.
"Our chief priority for 2016 is to complete all the necessary regulatory and clinical activity to begin a CE Mark trial for Tiara, while continuing to expand Reducer's commercial footprint in Europe," commented Neovasc CEO, Alexei Marko.
"2016 will be our first full year of commercial sales for Reducer, and with distributors now in multiple European countries including Italy and Germany, we expect this base of business to grow," said Chris Clark, CFO of Neovasc. "As we continue transitioning revenue from our legacy businesses to our own proprietary products, our balance sheet remains very strong, entering 2016 with more than $55 million in cash."
Subsequent to year end, the Company received FDA approval to include the 40 mm Tiara valve in the TIARA-I Early Feasibility Trial, and now has four U.S. hospitals approved to begin screening patients for this sized device. The Company believes the 40 mm valve and other initiatives will result in steady patient enrolment in the trial and related early feasibility clinical activities. Management will update the trial's progress and provide a broader clinical update for both its Tiara and the Neovasc Reducer at upcoming medical conferences.
Neovasc to change presentation currency to US dollars
The Company has elected to adopt the U.S. dollar as its presentation currency to better reflect its business and to improve comparability of its financial information with other publicly traded businesses in the life sciences industry. This change is effective for the year ended December 31, 2015 and all comparative financial information contained herein has been recast to reflect the Company's results as if they had been historically reported in U.S. dollars. The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.
Results for the quarters ended December 31, 2015 and 2014
Revenues
Revenues for the quarter ended December 31, 2015 were $2,224,046 compared to $2,953,039 for the same period in 2014. Reducer revenues increased to $192,013 for the quarter, representing a 20% increase from the quarter ended September 30, 2015. The Company initiated its focused commercialization of Reducer in Europe in the first quarter of 2015.
Contract manufacturing revenues were comparable to the prior period and consulting services declined by $670,422 or 39%, which is consistent with the year-over-year decline and consistent with the Company's strategy to focus its business towards development and commercialization of its own products, the Reducer and Tiara.
Cost of Goods Sold
The cost of goods sold for the quarter ended December 31, 2015 was $1,942,140, compared to $2,344,816 for the same period in 2014. The gross margin for the quarter ended December 31, 2015 was 13%, compared to 21% for the same period in 2014. Historically, margins have been lower in the fourth quarter than other periods. In addition, in 2015, we issued a credit note to a single customer, which reduced margins from 23% to 13% for the fourth quarter of 2015.
Expenses
Total expenses for the quarter ended December 31, 2015 were $8,352,093, compared to $7,363,045 for the same period in 2014, an increase of 13%. The increase is substantially due to an increase of $683,674 in general and administrative expenses and an increase of $112,266 in clinical trial and product development expenses for the Company's two new product development programs.
Selling expenses were $292,456 for the quarter ended December 31, 2015, compared to $99,348 for the same period in 2014, an increase of 194% as the Company commercializes Reducer in Europe. General and administrative expenses were $3,498,682 for the quarter ended December 31, 2015, compared to $2,815,008 in the same period in 2014, representing an increase of 24%. The increase in general and administrative expenses was principally due to a $1,502,911 increase in litigation expenses. The increase in research and development costs, including product development and clinical trial expenses is principally due to increased investment in the Tiara development program.
Losses
The net loss for the quarter ended December 31, 2015 was $7,383,608, or $0.11 basic and diluted loss per share, compared with a loss of $6,710,674, or $0.12 basic and diluted loss per share for the same period in 2014.
Results for the years ended December 31, 2015 and 2014
Revenues
Revenues decreased 31% year-over-year to $9,929,940 for the year ended December 31, 2015, compared to revenues of $14,370,667 for the same period in 2014. This decline is in line with the Company's expectations and consistent with its strategy to drive development and commercialization of Tiara and Reducer.
Reducer sales for the year ended December 31, 2015 were $526,412, compared to $nil for the same period in 2014. Included within these revenues are stocking orders from new territories and re-orders from certain territories in Europe.
Contract manufacturing revenues for the year ended December 31, 2015 were $3,236,978, compared to $3,033,976 for the same period in 2014, representing an increase of 7%. The increase in revenue for the year ended December 31, 2015 compared to the same period in 2014 is primarily due to growing revenues from a single customer. The Company has seen a concentration of revenue into fewer larger accounts and expects that this reflects growing demand for those customers' products. Neovasc anticipates that contract manufacturing will continue to grow in the long term as its customers' products receive regulatory approvals and are commercialized, but recognizes that these revenues will be derived from a smaller customer base as the transcatheter aortic valve market matures.
Revenues from consulting services for the year ended December 31, 2015 were $5,812,814, compared to $9,282,649 for the same period in 2014, representing a decrease of 37%. The loss of a single contract accounts for the majority of this decline and is indicative of the trend the Company is seeing in consulting service revenue. The Company anticipates that its consulting services revenue will decline in the long term as its consulting customers continue to transition to becoming contract manufacturing customers.
Product sales for the year ended December 31, 2015 were $353,736, compared to $2,054,042 for the same period in 2014, representing a decrease of 83%. Product sales are solely comprised of sales of surgical patches to LeMaitre Vascular, Inc. Neovasc ceased manufacturing surgical patches for LeMaitre in June 2015.
Cost of Goods Sold
The cost of goods sold for the year ended December 31, 2015 was $6,938,134, compared to $9,146,371 for the same periods in 2014. The overall gross margin for the year ended December 31, 2015 was 30%, compared to 36% gross margin for the same period in 2014. The Company lost a significant higher margin contract manufacturing account toward the end of 2014 and has seen during the year its consulting services revenue margins decline as its ability to charge higher fees for these services has decreased as the transcatheter aortic valve market has matured. In addition, the Company is experiencing higher cost of goods sold as its quality system has been improved to meet the expectations of rapidly maturing customers. These increases are not productive improvements and result in an overall downward trend in margins.
Expenses
Total expenses for the year ended December 31, 2015 were $31,750,140, compared to $22,494,468 for the same period in 2014, representing an increase of $9,255,672 or 41%. The increase in total expenses for the year ended December 31, 2015 compared to the same period in 2014 reflects a $498,279 increase in selling expenses as the Company commercializes Reducer, a $3,187,418 increase in general and administrative expenses (of which $6,223,938 relates to an increase in litigation expenses) and a $5,569,975 increase in product development and clinical trial expenses to advance the Tiara and Reducer development programs.
Selling expenses for the year ended December 31, 2015 were $655,669, compared to $157,390 for the same period in 2014, representing an increase of $498,279, or 317%. The increase in selling expenses for the year ended December 31, 2015 compared to the same period in 2014 reflects costs incurred for Reducer commercialization activities in 2015. The Company anticipates a significant increase in selling expenses in 2016 as it continues its commercialization of the Reducer in select countries in Europe.
General and administrative expenses for the year ended December 31, 2015 were $13,913,076, compared to $10,725,658 for the same period in 2014, representing an increase of $3,187,418, or 30%. The increase in general and administrative expenses for the year ended December 31, 2015 compared to the same period in 2014 can be substantially explained by a $6,223,938 increase in litigation expenses and a $703,989 increase in cash-based employee expenses, offset by a $3,480,148 decrease in share-based payments. In 2015 the Company adjusted its compensation plan to directors, officers and senior management, decreasing the number of options granted by 75%, replacing these options with a smaller cash based bonus plan and increasing officers and senior management's base salaries by 10%. Other cash based employee expenses are related to additional headcount in quality, finance and human resource departments and with other employee expenses.
Product development and clinical trial expenses for the year ended December 31, 2015 were $17,181,395, compared to $11,611,420 for the same period in 2014, representing an increase of $5,569,975, or 48%. The increase in product development and clinical trial expenses for the year ended December 31, 2015 was due to a $1,943,414 increase in cashbased employee expenses as the Company hired additional staff to advance product development, a $4,707,064 increase in other expenses as the Company invested in its two major new product initiatives, offset by a $1,198,786 decrease in share-based payments.
The Company's expenses are subject to inflation and cost increases. Salaries and wages have increased on average by 6% in the year ended December 31, 2015 compared to the same period in 2014. The Company has not seen a material increase in the price of any of the components used in the manufacture of its products and services.
Other Income
The other income for the year ended December 31, 2015 was $2,195,195, compared to $94,427 for the same period in 2014. The Company's investments in high interest savings accounts and guaranteed investment certificates generated $577,006 interest during the year ended December 31, 2015. The Company benefited from significant foreign exchange gains on its foreign currency-denominated cash and cash equivalents and accounts receivable during the year ended December 31, 2015 of $1,620,727.
Losses
The operating losses and comprehensive losses for the year ended December 31, 2015 were $26,730,490 and $35,116,695 respectively, or $0.41 basic and diluted loss per share, as compared with losses of $17,175,745 and $18,154,725, or $0.33 basic and diluted loss per share for the same period in 2014. The $9,554,745 increase in the operating loss incurred for the year ended December 31, 2015 compared to the same period in 2014 can be substantially explained by a $2,232,490 decrease in gross profit, a $3,187,418 increase in general and administrative expenses (of which $6,223,938 relates to an increase in litigation expenses), a $5,569,975 increase in product development and clinical trial expenses, and offset by a $2,100,768 increase in other income. Litigation expenses for the year ended December 31, 2015 represent a loss of $0.11 basic and diluted loss per share compared to a loss of $0.02 basic and diluted loss per share for the same period in 2014. The Company has incurred significant costs in defending itself in lawsuits filed by CardiAQ Valve Technologies, Inc. Total litigation costs since the initial claims were filed in June 2014 are approximately $7.89 million and the Company may require an additional $7.5 million to cover additional litigation expenses up to and including the trial, scheduled for May 2016.
Discussion of Liquidity and Capital Resources
Neovasc finances its operations and capital expenditures with cash generated from operations, lines of credit and equity financings. At December 31, 2015, the Company had cash and cash equivalents of $55,026,171 compared to cash and cash equivalents of $5,193,561 and short term investments of $10,343,999 at December 31, 2014.
Cash used in operating activities for the year ended December 31, 2015, was $21,282,958, compared to $8,063,446 for the same period in 2014. For the year ended December 31, 2015, operating expenses were $22,693,678, compared to $8,202,450 for the same period in 2014, cash expenditures on litigation (litigation expenses less change in accounts payable related to litigation) were approximately $6.0 million and cash expenditures on research and development and clinical trials (expenses less share based payments and depreciation) were approximately $6.6 million. Working capital items generated cash of $821,165, compared to $39,960 for the same period in 2014, as accounts receivable absorbed cash due at year end due to a late payment received immediately after the year end, inventory absorbed cash principally in the development of reasonable working quantities of Reducer inventory, prepaid expenses and other assets generated cash due to decreased prepayment and accounts payable preserved cash at year end due to significant litigation expenses incurred but not paid for of approximately $1.1 million as at December 31, 2015.
Outstanding Share Data
As at March 29, 2016, the Company had 66,837,345 common voting shares issued and outstanding. Further, the following securities are convertible into common shares of the Company: 8,171,966 stock options with a weighted average price of CDN$3.96. The fully diluted share capital of the Company at March 29, 2016 is 75,008,711.
To read full press release, please click here.
