NASDAQ: NVCN
TSX: NVC
VANCOUVER, April 29, 2016 /PRNewswire/ - Neovasc Inc. ("Neovasc" or the "Company") (NASDAQ: NVCN) (TSX: NVC) today announced financial results for the quarter ended March 31, 2015 (all figures in US dollars unless otherwise indicated).
"We continue to see momentum building in our Tiara program with fifteen patients treated to date and additional patients expected over the coming weeks. In addition, and subsequent to the quarter end, Health Canada approved the use of our 40 mm Tiara valve in the TIARA-I Early Feasibility Trial," commented Neovasc CEO, Alexei Marko. "Along with centers in the U.S. and Europe, three Canadian hospitals are now approved to treat patients with this sized device. With a number of recent clinical cases performed, this approval and other measures are contributing to trial enrolment."
"Reducer sales in Europe continue to grow quarter over quarter reflecting the positive impact of our grass roots awareness campaign within the European interventional cardiologist community," said Chris Clark, CFO of Neovasc. "Reorders from existing users and distributors are driving the majority of this growth, and serves as a benchmark of physician satisfaction with the device to alleviate angina discomfort in these refractory patients who suffer persistent angina pain."
Subsequent to the quarter end the Company initiated REDUCER-I (An Observational Study of the Neovasc Reducer System), a post market, multi-center, multi-country three-arm, five-year follow-up study. Its primary endpoint is the percentage of subjects who experience improvement in their angina symptoms defined as a reduction in CCS grade at 6 months as compared to baseline. The study is intended to provide further clinical evidence supporting the use of the Reducer in this patient population.
Revenues
Revenues for the three months ended March 31, 2016, were $2,006,742 compared to revenues of $2,304,823 for the same period in 2015. The Company is focusing its business away from its traditional revenue streams towards development and commercialization of its own products, the Neovasc Reducer and Tiara. The Company started its sales of Reducer in the first quarter of 2015 as it initiated its focused commercialization of the product in Europe.
Reducer sales for the three months ended March 31, 2016 were $213,765, compared to $40,398 for the same period in 2015, representing an increase of 429%. Included within these revenues are stocking orders from new territories and re-orders from certain territories in Europe.
Revenues from consulting services for the three months ended March 31, 2016 were $1,186,194, compared to $1,477,452 for the same period in 2015. 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. Contract manufacturing revenues for the three months ended March 31, 2016 were $606,783, compared to $563,562 for the same period in 2015, representing an increase of 8%.
Cost of Goods Sold
The cost of goods sold for the three months ended March 31, 2016 was $1,445,644, compared to $1,607,572 for the same period in 2015. The overall gross margin for the three months ended March 31, 2016 was 28%, compared to 30% gross margin for the same period in 2015. The Company has seen 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 it has implemented a rigorous commercial stage quality system required to meet the expectations of its more advanced customers.
Expenses
Total expenses for the three months ended March 31, 2016 were $10,075,039, compared to $5,881,601 for the same period in 2015, representing an increase of $4,193,438 or 71%. The increase in total expenses for the three months ended March 31, 2016 compared to the same period in 2015 reflects a $3,501,019 increase in general and administrative expenses (of which $3,555,515 relates to an increase in litigation expenses) and a $651,394 increase in product development and clinical trial expenses to advance the Tiara and Reducer development programs.
Selling expenses for the three months ended March 31, 2016 were $164,847, compared to $123,822 for the same period in 2015, representing an increase of $41,025, or 33%. The increase in selling expenses for the three months ended March 31, 2016 compared to the same period in 2015 reflects costs incurred for Reducer commercialization activities. 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 three months ended March 31, 2016 were $5,827,405, compared to $2,326,386 for the same period in 2015, representing an increase of $3,501,019 or 150%. The increase in general and administrative expenses for the three months ended March 31, 2016 compared to the same period in 2015 can be substantially explained by a $3,555,515 increase in litigation expenses and a $224,236 increase in cash-based employee expenses, offset by a $457,639 decrease in share-based payments. 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 three months ended March 31, 2016 were $4,082,787, compared to $3,431,393 for the same period in 2015, representing an increase of $651,394, or 19%. The increase in product development and clinical trial expenses for the three months ended March 31, 2016 was due to a $379,157 increase in cash-based employee expenses as the Company hired additional staff to advance product development and a $497,013 increase in other expenses as the Company invested in its two major new product initiatives, offset by a $240,543 decrease in share-based payments.
The Company's expenses are subject to inflation and cost increases. Salaries and wages have increased on average by 4% in the three months ended March 31, 2016 compared to the same period in 2015. 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 loss for the three months ended March 31, 2016 was $1,319,023, compared to other income of $222,976 for the same period in 2015. The Company's investments in high interest savings accounts and guaranteed investment certificates generated $89,274 interest during the three months ended March 31, 2016 compared to $99,435 for the same period in 2015. During the three months ended March 31, 2016, the Company had $1,408, 297 foreign exchange loss compared to a $124,841 gain for the same period in 2015.
Losses
The operating losses and comprehensive losses for the three months ended March 31, 2016 were $10,881,138 and $7,591,702 respectively, or $0.16 basic and diluted loss per share, as compared with losses of $4,961,374 and $7,677,054, or $0.08 basic and diluted loss per share for the same period in 2015. The $5,919,764 increase in the operating loss incurred for the three months ended March 31, 2016 compared to the same period in 2015 can be substantially explained by a $3,501,019 increase in general and administrative expenses (of which $3,555,515 relates to an increase in litigation expenses), a $651,394 increase in product development and clinical trial expenses, and a $1,541,999 decrease in other income. Litigation expenses for the three months ended March 31, 2016 represent a loss of $0.06 basic and diluted loss per share compared to a loss of $0.01 basic and diluted loss per share for the same period in 2015. To date, 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 $11.93 million and the Company may require an additional $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 March 31, 2016, the Company had cash and cash equivalents of $46,903,192 compared to cash and cash equivalents of $55,026,171 as at December 31, 2015.
Cash used in operating activities for the three months ended March 31, 2016, was $10,903,712, compared to $3,458,334 for the same period in 2015. For the three months ended March 31, 2016, operating expenses were $10,256,486, compared to $3,767,466 for the same period in 2015, cash expenditures on litigation (litigation expenses less change in accounts payable related to litigation) were approximately $3.2 million and cash expenditures on research and development and clinical trials (expenses less share based payments and depreciation and less change in accounts payable related to research & development) were approximately $4.1 million.
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