NASDAQ: NVCN
TSX: NVC
VANCOUVER, Nov. 9, 2015 /PRNewswire/ - Neovasc Inc. ("Neovasc" or the "Company") (NASDAQ: NVCN) (TSX: NVC) today announced financial results for the quarter ended September 30, 2015.
"Of critical importance during the quarter we continued to advance our Tiara transcatheter mitral valve program, making adjustments to our clinical program to increase enrolment and completing development of the 40mm size," commented Neovasc CEO, Alexei Marko. "Development of the 45mm size is underway in addition to other improvements that will broaden the applicable patient population. Neovasc's Tiara technology remains at the forefront of products under development for transcatheter mitral valve replacement. We are advancing the Tiara program in a careful and controlled manner in order to most effectively bring Tiara to market to meet this pressing need."
"For the second quarter in a row, Reducer's sales in Europe have met our expectations and in particular, the reorder rate from our early adopters is an encouraging sign for this device's longer-term acceptance into standard medical practice," said Chris Clark, CFO of Neovasc. "Reducer's performance is important to our business plan, as we continue to transition our focus from our legacy tissue business lines to our internally developed medical device products. Our cash position remains very strong with ample funds to support our clinical and regulatory programs for Tiara and Reducer in the near term."
Tiara Update
To date, eleven patients have been implanted with Tiara in early feasibility and compassionate use cases and early results have been encouraging. Eight of the eleven cases have proceeded substantially as intended resulting in stable implants, good prosthetic valve function, and no valvular leaks. In two of the eleven cases Tiara was malpositioned during implant, which required conversion to surgery, with one Tiara being explanted, the other repositioned and fully functional. In the remaining case, the patient developed a ventricular septal defect caused by the Tiara device, which the Company believes should be avoided in the future through modifications it has made to the screening process. To date, the 30-day survival rate for the first eleven patients implanted with Tiara is 73% with one patient now over 600 days post implant. Tiara devices have been successfully implanted in both functional and degenerative MR patients, as well as patients with pre-existing prosthetic aortic valves and mitral surgical rings, using both 35mm and 40mm Tiara devices. Additional details of implantation results will be presented at appropriate medical conferences as they become available.
The results from these early feasibility and compassionate use cases have been instrumental in helping to demonstrate the potential of the Tiara as well as refining the implantation procedure, patient selection criteria and the device itself. The Company is continuing to expand its clinical program and the 45mm Tiara is in development.
Revenues
Revenue for the three months ended September 30, 2015, were $3,237,810 compared to revenues of $4,269,360 for the same period in 2014. Revenues for the nine months ended September 30, 2015, were $9,698,290 compared to revenues of $12,510,010 for the same period in 2014. The Company is refocusing its business away from its traditional revenue towards development and commercialization of its own products, the Reducer and Tiara.
The Company ceased its production of surgical patches (product sales) in June 2015. 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 September 30, 2015 were $208,631, compared to $nil for the same period in 2014. Reducer sales for the nine months ended September 30, 2015 were $424,299, 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. The success of the commercialization of Reducer will be dependent on the amount of internal resources allocated to the product, obtaining appropriate reimbursement codes in various territories and correctly managing the referrals process.
Cost of Goods Sold
The cost of goods sold for the three and nine months ended September 30, 2015 was $2,058,989 and $6,286,597, respectively, compared to $2,468,747 and $7,450,193 for the same periods in 2014. The overall gross margin for the three and nine months ended September 30, 2015 was 36% and 35%, respectively, compared to 42% and 40% gross margin for the same periods in 2014. We lost a significant higher margin contract manufacturing account toward the end of 2014 and have seen during the year our consulting services revenue margins decline as our ability to charge higher fees for these services has decreased as the transcatheter aortic valve market has matured.
Expenses
Total expenses for the three and nine months ended September 30, 2015 were $12,533,549 and $29,598,438, respectively, compared to $6,423,477 and $16,555,555 for the same periods in 2014, representing an increase of $6,110,072 or 95%, and $13,042,883 or 79%, respectively. The increase in total expenses for the three months ended September 30, 2015 compared to the same period in 2014 reflects a $129,816 increase in selling expenses as we commercialize Reducer, a $3,043,239 increase in general and administrative expenses (of which $3,306,231 relates to an increase in litigation expenses) and a $2,937,017 increase in product development and clinical trial expenses to advance the Tiara and Reducer development programs. The increase in total expenses for the nine months ended September 30, 2015 compared to the same period in 2014 reflects a $393,473 increase in selling expenses as we commercialize Reducer, a $4,536,884 increase in general and administrative expenses (of which $6,086,957 relates to an increase in litigation expenses) and a $8,112,526 increase in product development and clinical trial expenses to advance the Tiara and Reducer development programs.
Selling expenses for the three and nine months ended September 30, 2015 were $149,101 and $457,086, respectively, compared to $19,285 and $63,613 for the same periods in 2014, representing an increase of $129,816, or 673%, and $393,473 or 619%. The increase in selling expenses for the three and nine months ended September 30, 2015 compared to the same periods in 2014 reflects costs incurred for Reducer commercialization activities in the first nine months of 2015. The Company anticipates a significant increase in selling expenses in 2015 and 2016 as it initiates a focused commercialization of the Reducer in select countries in Europe.
General and administrative expenses for the three and nine months ended September 30, 2015 were $5,959,380 and $13,193,866, respectively, compared to $2,916,141 and $8,656,982 for the same periods in 2014, representing an increase of $3,043,239, or 104% and $4,536,884, or 52%, respectively. The increase in general and administrative expenses for the three months ended September 30, 2015 compared to the same period in 2014 can be substantially explained by a $3,306,231 increase in litigation expenses, a $355,087 increase in cash based employee expenses and offset by a $750,604 decrease in share-based payments. The increase in general and administrative expenses for the nine months ended September 30, 2015 compared to the same period in 2014 can be substantially explained by a $6,086,957 increase in litigation expenses, a $727,979 increase in cash based employee expenses and offset by a $2,526,241 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 HR departments and with other employee expenses.
Product development and clinical trial expenses for the three and nine months ended September 30, 2015 were $6,425,068 and $15,947,486, respectively, compared to $3,488,051 and $7,834,960 for the same periods in 2014, representing an increase of $2,937,017, or 84% and $8,112,526, or 104%. The increase in product development and clinical trial expenses for the three months ended September 30, 2015 was due to a $829,470 increase in cashbased employee expenses as the Company hired additional staff to advance product development, a $2,616,845 increase in other expenses as the Company invested in its two major new product initiatives, offset by a $509,298 decrease in share-based payments. The increase in product development and clinical trial expenses for the nine months ended September 30, 2015 was due to a $2,301,124 increase in cashbased employee expenses as the Company hired additional staff to advance product development, a $6,006,599 increase in other expenses as the Company invested in its two major new product initiatives, offset by a $195,197 decrease in share-based payments.
The Company's expenses are subject to inflation and cost increases.
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