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Healthcare

Medical Devices & Instruments

Neovasc Inc.

Investment Appraisal
Neovasc&#8217;s management yesterday provided a corporate update and announced several agreements, which we believe improve the Company&#8217;s financial position. Management believes the $5 mm financing, combined with the retirement of 2017 Notes (which had onerous provisions) improves the Company&#8217;s financial position and revamps its capital structure. &nbsp;&nbsp;&nbsp;&nbsp;
<ul>
<li>Neovasc announced an offering of convertible notes (&#8220;2020 Notes&#8221;) and warrants (&#8220;2020 Warrants&#8221;) to &#8220;Strul Medical Group&#8221; for gross proceeds of up to $5.0 mm; </li>
<li>The Company also announced the repayment of 2017 Convertible Notes and related settlement; </li>
<li>Neovasc entered into a settlement agreement with certain holders of the 2017 Notes whereby the Company will issue warrants to such holders; </li>
<li>Neovasc entered into an agreement to exchange most of the outstanding warrants issued in January 2020 for common shares of the Company. </li>
</ul>
Upon completion of these agreements, Neovasc will have an issued and outstanding share capital of 12,306,270 common shares and 21,226,518 fully diluted shares. 
Management Business Update
Neovasc&#8217;s management yesterday gave a corporate update on the business. Management mentioned that elective procedures have restarted in Germany and other European markets. Due to the COVID-19 pandemic, the Company faced a significant slowdown in Reducer implants starting in March. However, management said that in Germany the rate of Reducer implants is back to where it was before March. In Germany, Neovasc has a direct sales team and NUB Status 1 designation for reimbursement. Management also acknowledge the potential backlog due to patients waiting for a Reducer implant after elective procedures were postponed in Europe, which could impact revenue in subsequent quarters. In the United States, management indicated that Pre-Market Approval (PMA) review is progressing as the Company just completed the &#8220;100-day Meeting&#8221; with FDA. 
Neovasc&#8217;s management announced that it has applied for CE Mark approval of TA Tiara under the Medical Device Directive (MDD). The Company is seeking European approval to commercialize transapical Tiara for mitral valve replacement. Neovasc is also advancing preclinical studies with the transfemoral Tiara TF mitral valve replacement system. The Company expects to commence human clinical studies with this system by the end of 2020. 
Terms of the 2020 Notes
The 2020 Notes are convertible at $2.81525 per common share for 1,776,041 common shares. The 2,573,959 warrants (2020 Warrants) are exercisable at $2.634 per warrant share with a 4 year term. The 2020 Notes will bear interest at the rate of 8% computed on the basis of a 360-day year and twelve 30-day months and shall be payable in additional 2020 Notes on the date that is six-months after issuance and on each six-month period thereafter up to, and including, the maturity date. 
<ul type="disc">
<li>The 2020 Notes will have a maturity date of 48-months after issuance with the holder&#8217;s option for early redemption at 24-months. </li>
<li>The Offering will be completed in two tranches comprised of an &#8220;initial closing&#8221; of $4 mm aggregate principal amount of 2020 Notes and 2,573,959 of 2020 Warrants and additional closing, or &#8220;final closing&#8221;, of $1 mm aggregate principal amount of 2020 Notes. </li>
<li>Use of proceeds from the offering &#8211; Development and commercialization of the Reducer for the treatment of refractory angina, and Tiara for the treatment of mitral valve regurgitation, and for general corporate purposes.</li>
</ul>
Settlement of 2017 Notes
Pursuant to the 2017 Note Settlement, Neovasc made a final payment of $2,897,000 to holders of the 2017 Notes and $1,016,000 in 2017 Notes was converted for the issuance of 500,014 common shares. Neovasc and certain holders of the 2017 Notes also agreed to a mutual release (the Settlement) in return for the issuance by the Company, in the aggregate, of 500,000 Settlement Warrants to such holders. Each Settlement Warrant entitles the holder to purchase one common share in the capital of the Company at an exercise price of $2.634 per Settlement Warrant for a period of 4 years following issuance and are subject to transfer/leak-out restrictions, including volume and public float restrictions. 
Exchange Agreement
Pursuant to the Exchange Agreement, Neovasc will issue an aggregate of 672,937 Exchange Shares for the surrender and cancellation of 2,176,490 warrants outstanding (the Exchange) on the basis of approximately 0.3092 of an Exchange Share for each warrant. After the exchange there will be 250,000 January 2020 warrants outstanding. Exchange Shares issued in the Exchange are subject to transfer/leak-out restrictions, including volume and public float restrictions. 
The Exchange, Settlement and Initial Closing are expected to be completed the week of May 25, 2020, subject to customary closing conditions, including TSX approval. The Final Closing is expected on June 3, 2020. 
Review of Recent Financial Results 
On May 7, 2020, Neovasc reported financial results for Q1/F2020. Reducer revenue decreased by 9% relative to Q1/F2019. Total Q1/F2020 revenue was $532,895 compared to $585,793 in Q1/F2019. Revenues were negatively affected by COVID-19 pandemic as elective procedures such as Reducer implants were postponed in Europe. In the quarter, COGS was $124,563 compared to $143,994 in the corresponding period last year. In Q1/F2020, gross margin was 77% compared to 75% in Q1/F2019. In the quarter, total expenses increased 4% to $7.56 mm from $7.29 mm in the corresponding period last year. The increase in total expenses was primarily due to relatively higher R&amp;D expenses related to clinical trials with the Reducer and Tiara. In Q1/F2020, Neovasc incurred a net loss of $2.67 mm or $(0.38) per fully diluted and basic share, compared to a net loss of $7.9 mm or $(0.21) per fully diluted and basic share in Q1/F2019. Management mentioned the difference between net losses of Q1/F2020 and Q1/F2019 is mainly attributed to a $4.56 mm increase in income related to the accounting treatment of F2017 Notes and F2019 Notes, offset by a $741,632 increase in other comprehensive income. In Q1/F2020, Neovasc received an extension by Nasdaq for compliance with the $35 mm minimum market value of listed securities (&#8220;MVLS&#8221;) requirement. The extension was granted until August 17, 2020.
The Reducer for the Treatment of Refractory Angina
In human clinical trials, treatment with the Reducer resulted in a statistically significant and clinically relevant benefit to patients suffering from refractory angina. The most significant of these trials is known as the COSIRA study. On this trial, treatment with the Reducer met its primary efficacy end point (Exhibit 1). The results were published in the prestigious New England Journal of Medicine (N Engl J Med 2015, 372, 519-527). In the study, 35% of treated patients showed a reduction of two or more CCS angina classes compared to only 15% of patients in control group. In many human clinical trials completed in recent years, the therapeutic benefits of the Reducer for the treatment of refractory angina have been clearly shown. Treatment with the Reducer not only alleviates clinical symptoms (improving CCS angina class), but also reduces ischemic burden in treated patients, improves left ventricular functions including contractility and ejection fraction, ameliorates oxygen kinetics of heart muscle, improves microvasculature functions, which are all very important attributes of an effective treatment for patients suffering from refractory angina (including patients with non-obstructive coronary disease (ANOCA, MINOCA), and coronary microvascular dysfunction).
Exhibit 1 &#8211; Results from COSIRA clinical trial. Panel A &#8211; Thirty five percent of the patients who were treated with &#8220;the Reducer&#8221; showed a reduction of two or more &#8220;Canadian Cardiovascular Society&#8221; (CCS ) classes of angina (compared to only 15% of patients in control group). Panel B &#8211; In patients treated with the Reducer, the mean &#8220;Canadian Cardiovascular Society (CCS) angina class&#8221; was reduced from 3.2 at baseline (before treatment) to 2.1 at six months post-treatment compared to a reduction from 3.1 to 2.6 for control group (data was statistically significant with P value of 0.001; a P value of less than 0.05 is deemed significant).
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/Snip20200527_20.png" style="width: 395px;height: 542px;float: none" /> 

Source &#8211; New England Journal of Medicine 2015; 372:519-527
The Reducer is commercially available in Europe, but it has yet to gain FDA clearance for commercialization in the U.S. Based on the analysis of existing clinical data, we believe the Reducer will be approved by U.S. FDA in 2021. 
Tiara for the Treatment of Mitral Valve Regurgitation
Neovasc&#8217;s second device, Tiara, is being developed for the treatment of mitral valve regurgitation. In human clinical trials, TA (transapical) Tiara removed signs of regurgitation in treated patients meeting primary efficacy end points of the studies, TIARA-I and TIARA-II (Exhibit 2). In the trials, treatment with TA Tiara device resulted in improvement in NYHA (New York Heart Association) functional class (Class I/II corresponds to milder disease, whereas patients classified as Class III/IV have worse symptoms, Class IV being the most severe heart failure disease). Treatment with TA Tiara reduced the number of class III/IV patients from 86% to 48.7% after 30 days post-implantation (Exhibit 2). Neovasc&#8217;s management plans to file for CE Mark approval of TA Tiara in Europe in 2020. The Company is also developing a new generation Tiara device system, known as TF/TS (transfemoral/trans-septal) Tiara, which has superior features and could potentially expand Neovasc&#8217;s commercial opportunity.
Exhibit 2 &#8211; Improvement of NYHA (New York Heart Association) class of patients suffering from mitral regurgitation treated with TA Tiara system in TIARA-I and TIARA-II studies. NYHA classes I (green), II (blue), III (orange), IV (red). At baseline (before treatment), 49 of fifty seven (86%) MR patients were classified as NYHA class III/IV. Thirty days post TA Tiara implantation, only 19 out of thirty nine (48.7%) patients were NYHA class III/IV. At the one-year follow up, only 2 out of 18 patients (11%) were class III, while the rest were NYHA classes I/II.
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/Snip20200527_21.png" style="width: 495px;height: 335px;float: none" /> 

Source &#8211; Neovasc, Inc.
Reiterating Outperform Rating
We believe that without the financial overhang caused by the 2017 Notes, investors can now focus on the potential of Neovasc&#8217;s Reducer and Tiara programs. We believe Neovasc will emerge as a leader for the treatment of refractory angina, which represents a total commercial opportunity worth an estimated $3.5 billion. In December of 2019, Neovasc filed a PMA with the U.S. FDA seeking approval to commercialize its lead product, the Reducer, in the United States. Based on the analysis of existing clinical data, we believe the agency will approve Neovasc&#8217;s Reducer for the treatment of refractory angina in 2021. In many human clinical studies performed over a period of 14 years, approximately 70-85% of patients suffering from refractory angina have benefited from treatment with the Reducer. In our opinion, the potential approval of the Reducer in the U.S. will have a positive impact on European sales. Besides the Reducer, Neovasc is developing TA Tiara and TF/TS Tiara device systems for the treatment of mitral valve regurgitation, another multibillion dollar cardiovascular market. We value Neovasc using a risk-adjusted discounted cash flow model. We have modified our model to reflect the impact of yesterday&#8217;s transactions. Assuming FDA approval in F2021, we forecast F2022 (first full year of commercialization in the U.S.) total revenue, net income and f.d. EPS, respectively, of $67.1 mm, $24.7 mm and $1.16. We believe final FDA approval of the Reducer could potentially act as a positive catalyst for Neovasc&#8217;s shares. We are reiterating our Outperform rating and $15.00 target price.&nbsp;

Neovasc Inc. (NVCN)

Neovasc Removes Financing Overhang

Fundamental Analysis:

Rating: Log in to view

Complied with Nasdaq Minimum Bid Price Requirement (NVCN)

Q3 Earnings: Reducer Commercialization in the US is Delayed (NVCN)

The FDA Panel to Decide on Reducer Commercialization in the US (NVCN)

Q2 EPS Preview: Lots of Near-Term Catalysts (NVCN)

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