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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
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OR |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 |
OR |
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to |
OR |
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-36458
Neovasc Inc.
(Exact name of Registrant as specified in its charter) |
Not Applicable (Translation of Registrant's name into English) |
Canada (Jurisdiction of incorporation or organization) |
Suite 5138 13562 Maycrest Way, Richmond, British Columbia, Canada V6V 2J7 (Address of principal executive offices) |
Chris Clark, Chief Financial Officer; Tel (604) 248-4138; Fax (604) 270-4384 Suite 5138 13562 Maycrest Way, Richmond, British Columbia, Canada V6V 2J7 (Name, Telephone, E-mail, and/or Facsimile number and Address of Company Contact Person) |
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
---|---|---|---|---|
Common Shares, No Par Value | NVCN | Nasdaq Capital Market |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: The Registrant had 7,647,823 Common Shares outstanding as at December 31, 2019.
Indicate by check mark whether Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
o Yes ý No
If this report is an annual or transition report, indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
o Yes ý No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
ý Yes o No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit such files).
ý Yes o No
Indicate by check mark whether Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of "accelerated filer", "large accelerated filer", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated Filer o | Accelerated Filer o | Non-accelerated Filer ý | Emerging growth company o |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:
U.S. GAAP o |
International Financial Reporting Standards as issued
by the International Accounting Standards Board ý |
Other o |
If "Other" has been check in response to the previous question, by check mark which financial statement item Registrant has elected to follow:
o Item 17 o Item 18
If this is an annual report, indicate by check mark whether Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes ý No
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In this Annual Report on Form 20-F ("Annual Report"), all references to the "Company", "Neovasc", "our", "us" or "we" refer to Neovasc Inc. and its subsidiary, unless the context clearly requires otherwise. Certain terms used herein are defined in the text and others are included in the glossary of terms. See "Glossary of Terms".
Neovasc uses the United States dollar as its reporting currency. All references to "$" or "US$" are to United States dollars and references to "C$" are to Canadian dollars. On March 27, 2020, the daily average exchange rate for the conversion of Canadian dollars into U.S. dollars as reported by the Bank of Canada was C$1.00 = US$0.7114. See also Item 3 "Key Information" for more detailed currency and conversion information.
On September 18, 2018, the Company effected a share consolidation (reverse stock split) of its issued and outstanding common shares of the Company (the "Common Shares") on the basis of one post-consolidation Common Share for every one hundred pre-consolidation Common Shares. On June 25, 2019, the Company effected a share consolidation (reverse stock split) of its issued and outstanding Common Shares on the basis of one post-consolidation Common Share for every ten pre-consolidation Common Shares. All references in this Annual Report to Common Shares and options have been retroactively adjusted to reflect these share consolidations. The number of warrants and aggregate principle amount of the senior secured convertible notes (the "2017 Notes") outstanding as of the date of the consolidations were not affected by the consolidations, but the Common Shares issuable upon exercise of the warrants or conversion of the 2017 Notes have been and will be adjusted in accordance with the adjustment provisions in such warrants or 2017 Notes, as applicable.
On December 31, 2019, the Company identified certain accounting differences requiring restatement of previously issued consolidated financial statements for the years ended December 31, 2018 and 2017. The accounting differences are related to Reducer units purchased for research and development during the year ended December 31, 2017 and recognized as product development and clinical trials expenses during that period. Not all of the units were used for product development and clinical trials and during the year ended December 31, 2019, as Reducer revenue increased, the Company used certain of those units in commercial activities. In order to correctly state the cost of goods sold for the year ended December 31, 2019 and the correct period expense for the years ended December 31, 2019, 2018 and 2017 the Company has restated the years ended December 31, 2018 and 2017 to include those Reducer units as research and development supplies assets with potential future economic value at the end of each of those periods. All references relating to financial information for the years ended December 2018 and 2017 have been adjusted to be reflected in this Annual Report.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. The words "expect", "anticipate", "plan", "may", "will", "estimate", "continue", "intend", "believe", "target", "potential", "seek", "explore" and other similar words or expressions are intended to identify such forward-looking statements. Forward-looking statements are necessarily based on estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as the factors we believe are appropriate. Forward-looking statements in this Annual Report include, but are not limited to, statements relating to:
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Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate in the circumstances. Many factors could cause the Company's actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation:
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Forward-looking statements reflect our current views with respect to future events and are subject to risks and uncertainties and are necessarily based upon a number of estimates and assumptions that, while considered reasonable by us, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies, many of which, with respect to future events, are subject to change. The material factors and assumptions used by us to develop such forward-looking statements include, but are not limited to:
By their very nature, forward-looking statements or information involve known and unknown risks, uncertainties and other factors that may cause our actual results, events or developments, or industry results, to
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be materially different from any future results, events or developments expressed or implied by such forward-looking statements or information. In evaluating these statements, prospective purchasers should specifically consider various factors, including the risks outlined herein, under Item 3.D "Risk Factors". Should one or more of these risks or uncertainties or a risk that is not currently known to us materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein. These forward-looking statements are made as of the date of this Annual Report and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law. Investors are cautioned that forward-looking statements are not guarantees of future performance and investors are cautioned not to put undue reliance on forward-looking statements due to their inherent uncertainty.
The Company advises you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to the Company or persons acting on its behalf.
This glossary contains general terms used in the discussion of the cardiovascular medical device industry, as well as specific technical terms used in the descriptions of the Company's technology and business.
Angioplasty: a procedure for the elimination of areas of narrowing in blood vessels.
Aortic: of or pertaining to the aorta or aortic heart valve.
Artery: blood vessel that carries oxygenated blood from the heart to the body's organs.
Atrium: chamber in the heart.
Balloon catheter: hollow tube with a tiny balloon on its tip, used for gaining access to the arteries; once the catheter is in position, the balloon is inflated in order to push open a section of artery that is obstructed (see Angioplasty).
Biocompatible: materials that can be implanted or used in a patient without the body reacting adversely to the material.
Bovine: of or derived from or pertaining to a cow.
Cardiac reconstruction: procedure to repair damaged portions of the heart in order to improve its function.
Cardiovascular: system encompassing the heart, veins and arteries.
Cardiovascular disease: disease that restricts blood flow within the arteries, generally due to a build-up of Plaque; may refer to coronary or peripheral arteries, or both.
Catheter: hollow tube used for gaining access to the arteries, either to deliver medications or devices, or to withdraw fluids or samples from the body.
CCS: the Canadian Cardiovascular Society.
CE Mark: designation used to signify regulatory approval for the sale of a product in the European Union.
Coronary Artery: artery that supplies oxygen-rich blood to the heart muscle.
Coronary Artery Disease: disease that affects the Coronary Arteries (the arteries that provide oxygenated blood to the heart muscle); also called cardiovascular disease. (See Cardiovascular Disease).
COSIRA: the Company's Coronary Sinus Reducer for Treatment of Refractory Angina clinical trial a multi-center, double blinded sham-controlled study intended to assess the safety and efficacy of the Reducer in a rigorous, controlled manner.
COSIRA-II: the Company's Coronary Sinus Reducer for Treatment of Refractory Angina clinical trial a multicenter, randomized, double-blinded, sham-controlled clinical trial of approximately 380
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participants at up to 35 investigational centers in North America who will be randomized and followed through 5 years.
FDA: U.S. Food and Drug Administration; governing body that regulates approval for the sale of medical devices in the United States.
French: the French size is a measure of the external diameter of a catheter, a catheter of 1 French has a diameter of 1/3 mm.
Health Canada: the federal department of health of Canada responsible for the regulation of drugs, natural health products, cosmetics and medical devices and includes the Therapeutic Products Directorate, which in turn includes the Medical Devices Bureau.
IDE: an investigational device exemption, which allows the investigational device to be used in a U.S. clinical study in order to collect safety and effectiveness data required to support a PMA application or a Premarket Notification 510(k) submission to the FDA. All clinical evaluations of investigational devices in the United States, unless exempt, must have an approved IDE before the study is initiated.
Interventional Cardiology: practice of treating Coronary Artery Disease intravascularly; that is, through the arterial system using minimally invasive techniques, rather than with open-heart surgery.
Mitral: of or pertaining to the mitral heart valve.
Mitral Regurgitation: inadequate function of the mitral valve allowing blood to leak back through the closed valve. This is a severe and debilitating medical condition.
Nasdaq: the Nasdaq Capital Market.
Pericardium: sac in the chest cavity that contains the heart; pericardial tissue is the soft tissue that forms the sac.
Peripatch: tissue material made from bovine or Porcine pericardium; used to repair damaged/diseased vessels or organs by working as an internal bandage or as a component in the manufacture of heart valves.
Plaque: deposit of fats, cholesterol and other substances on artery walls that eventually causes arteries to become narrowed, restricting proper blood flow.
Porcine: of or derived from or pertaining to a swine or pig.
PMA: Premarket Approval; the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices.
Reducer: the Neovasc Reducer, Neovasc's proprietary technology for the treatment of refractory angina.
Stent: expandable, metallic tube inserted into a diseased artery to hold vessel open and maintain proper blood flow; may be used to deliver medication to the artery wall (a "drug-eluting stent").
Tiara: the Tiara, Neovasc's proprietary transcatheter mitral valve system in development for the transcatheter treatment of mitral valve disease.
TIARA-I: the Company's multinational, multicenter early feasibility study being conducted to assess the safety and performance of the Tiara in high risk surgical contexts.
TIARA-II: the Company's multinational, multicenter study evaluating the Tiara's safety and performance. It is expected that data from this study will be used to file for CE Mark approval.
TF/TS Tiara: the Company's fully retrievable transfemoral trans-septal Tiara system, including a modified, lower profile valve and a steerable delivery system.
Transcatheter: implanted or completed via a catheter or small tube instead of surgically.
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Transcatheter heart valves: specialized artificial heart valves which are implanted via a catheter rather than a traditional surgical approach.
TSX: the Toronto Stock Exchange.
Vein: blood vessel that carries de-oxygenated blood from the body organs to the heart.
Vessel: artery, vein or duct that carries blood through the body.
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. Directors and Senior Management
Not applicable.
B. Advisors
Not applicable.
C. Auditors
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
A. Selected Financial Data
The following table sets forth selected consolidated financial information for the periods indicated, prepared in accordance with International Financial Reporting Standards ("IFRS"). The selected consolidated financial information as at and for the years ended December 31, 2019, December 31, 2018, December 31, 2017, December 31, 2016 and December 31, 2015 has been derived from Neovasc's audited consolidated financial statements and accompanying notes.
The selected consolidated financial information should be read in conjunction with "Management's Discussion and Analysis" and the audited consolidated financial statements and accompanying notes contained elsewhere in this Annual Report. The selected consolidated financial information set out below may not be indicative of Neovasc's future performance.
|
Year Ended December 31, | |||||||||||||||
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2019 |
2018
(as restated) |
2017
(as restated) |
2016 | 2015 | |||||||||||
Revenues |
$ | 2,092,032 | $ | 1,749,133 | $ | 5,389,014 | $ | 9,512,796 | $ | 9,929,940 | ||||||
Loss |
(35,131,015 | ) | (107,983,475 | ) | (21,634,068 | ) | (86,494,893 | ) | (26,730,490 | ) | ||||||
Basic and diluted loss per share |
(5.40 | ) | (76.26 | ) | (265.37 | ) | (1,280.00 | ) | (410.00 | ) | ||||||
Total assets |
10,105,840 | 13,327,340 | 23,481,096 | 98,809,503 | 61,228,394 | |||||||||||
Total long-term liabilities and damages provision |
9,830,047 | 13,384,415 | 32,577,647 | 111,781,096 | | |||||||||||
Cash dividend declared per share |
$ | nil | $ | nil | $ | nil | $ | nil | $ | nil |
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
This document contains forward-looking statements regarding the Company, business, prospects and results of operations that involve risks and uncertainties. Neovasc's actual results could differ materially from the results that may be anticipated by such forward-looking statements and discussed elsewhere in this Annual Report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below, as
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well as those discussed elsewhere in this Annual Report. If any of the following risks occur, the Company's business, financial condition or operating results could be harmed. In that case, the trading price of the Common Shares could decline.
Investment in the Common Shares of the Company is highly speculative and involves a high degree of risk, is subject to the following specific risks among others, and should be undertaken only by purchasers whose financial resources are sufficient to enable them to assume such risks. The Common Shares of the Company should not be purchased by persons who cannot afford the possibility of the loss of their entire investment. Prospective purchasers should review these risks as well as other matters disclosed elsewhere in this Annual Report with their professional advisors.
There is substantial doubt about our ability to continue as a going concern.
Our audited consolidated financial statements for the year ended December 31, 2019 were prepared under the assumption that we would continue our operations as a going concern. Our independent registered public accounting firm has included a "going concern" emphasis of matter paragraph in its report on our consolidated financial statements as at and for the years ended December 31, 2019, 2018 and 2017. The terms of the 2017 Private Placement and the 2017 underwritten public offering (the "2017 Public Transaction, and together with the 2017 Private Placement, the "2017 Financings") included, amongst other things, future priced securities, full ratchet anti-dilution clauses and a senior convertible debt instrument secured on substantially all of the assets of the Company. These terms may make it more difficult to obtain additional debt or equity financing in the future. As at December 31, 2019, the Company had approximately $5.3 million in cash and cash equivalents, after receipt of the net proceeds of approximately $8.9 million from the January 2020 Financing on January 6, 2020, the Company expects that if the 2017 Notes are converted prior to the maturity date its cash is sufficient to sustain operations until approximately August 2020 at the current burn rate. If the 2017 Notes are paid out on the maturity date of May 17, 2020, the Company expects that it will have sufficient cash on hand to sustain operations until June 30, 2020 at the current burn rate. The Company will need to obtain additional debt or equity financing later in 2020 to fund ongoing operations. The Company can give no assurance that it will be able to raise the additional funds needed, on terms agreeable to the Company, or at all. These circumstances indicate the existence of material uncertainty and cast substantial doubt about the Company's ability to continue as a going concern. The audited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The 2017 Notes issued pursuant to the 2017 Private Placement have resulted in significant dilution to our shareholders and may result in further significant dilution.
As part of the 2017 Financings, we issued certain warrants (the "2017 Warrants") and the 2017 Notes containing so-called full-ratchet anti-dilution provisions as well as other anti-dilution provisions. All of the 2017 Warrants have been exercised or cancelled, but these provisions may be triggered with respect to the 2017 Notes upon any future issuance by us of Common Shares or Common Share equivalents at a price per share below the then- conversion price of the 2017 Notes, subject to some exceptions, which could result in significant additional dilution to our shareholders. For example, as a result of the May 2019 Financing, the conversion price of the 2017 Notes was reset to $3.95. In addition, the 2017 Notes contain future-priced conversion provisions and certain other provisions that reset the conversion price of such 2017 Notes based on the market price of the Common Shares at a future date. Such provisions have resulted in the issuance of a large number of Common Shares because the market price for our Common Shares declined below the initial conversion and exercise prices following the 2017 Financings, thereby putting pressure on the market price of our Common Shares and increasing the risk of further significant dilution upon subsequent conversions or exercises of the securities. For example, as of March 27, 2020, $28,837,000 aggregate principle amount of the 2017 Notes had been converted for 4,150,735 Common Shares and $3,913,000 aggregate principle amount of the 2017 Notes remained outstanding. To the extent that holders of the 2017 Notes convert the 2017 Notes, the market price of our Common Shares may decrease further due to the additional dilution and selling pressure in the market. The risk of dilution from issuances of Common Shares pursuant to conversions of the 2017 Notes may cause shareholders to sell their Common Shares, which could further contribute to any decline in the Common Share price. For a description of the 2017 Warrants and 2017 Notes exercised and converted, respectively, and the Common Shares
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issued pursuant to such exercises and conversions to date, see Item 5.A "Operating Results Discussion of Liquidity and Capital Resources 2017 Financings" and Item 10.A "Share Capital" of this Annual Report.
We have significant additional future capital needs and there are uncertainties as to our ability to raise additional funding.
We require significant additional capital resources to expand our business, in particular the further development of our medical devices. Technical innovations often require substantial time and investment before we can determine commercial viability. Advancing our products, market expansion of our currently marketed products or acquisition and development of any new products or medical devices will require considerable resources and additional access to capital markets. In addition, our future cash requirements may vary materially from those now expected. For example, our future capital requirements may increase if:
We could potentially seek additional funding through corporate collaborations and licensing arrangements, through public or private equity or debt financing, or through other transactions. However, if sales are slow to increase or if capital market conditions in general, or with respect medical device companies such as ours, are unfavorable, our ability to obtain significant additional funding on acceptable terms, if at all, will be negatively affected. Additional financing that we may pursue may involve the sale of our Common Shares or financial instruments that are exchangeable for, or convertible into, our Common Shares which could result in significant dilution to our shareholders. Additionally, the future-priced conversion mechanism and the full-ratchet anti-dilution provisions in the 2017 Notes may make it more difficult and more expensive for us to raise capital in the future. See the risk factor entitled "Future-priced conversion provisions and adjustment provisions in the 2017 Notes may make it more difficult and expensive for us to raise additional capital in the future and may result in further dilution to investors."
If sufficient capital is not available, we may be required to delay our business expansion or our research and development projects, either of which could have a material adverse effect on our business, financial condition, prospects or results of operations.
Future-priced conversion provisions and adjustment provisions in the 2017 Notes may make it more difficult and expensive for us to raise additional capital in the future and may result in further dilution to investors.
The 2017 Notes include, among other things, provisions relating to future-priced conversion determined in accordance with a formula referred to in the 2017 Notes as the "Alternate Conversion Price", and pursuant to other terms and conditions. In addition, the 2017 Notes contain full-ratchet anti-dilution provisions. If we are unable to raise additional capital at an effective price per Common Share that is higher than the conversion price of the 2017 Notes, the anti-dilution provisions contained in the 2017 Notes may make it more difficult and more expensive to raise capital in the future. Any reduction in the conversion price of the 2017 Notes, or any increase in the number of Common Shares issuable upon the conversion of the 2017 Notes, may also result in additional dilution in the per share net tangible book value of our Common Shares.
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Sales of a significant number of Common Shares in the public markets, or the perception of such sales, have depressed and may continue to depress the market price of the Common Shares.
Sales of a substantial number of Common Shares or other equity-related securities in the public markets by the Company or its shareholders could depress the market price of the Common Shares and impair our ability to raise capital through the sale of additional equity securities. While we cannot predict the effect that sales of the securities issued pursuant to the 2017 Financings or other equity-related securities have on the market price of the Company's Common Shares, we believe that issuances of Common Shares upon the exercise of 2017 Warrants and the conversion of 2017 Notes containing future-priced exercise formulae, and the sales of such Common Shares in the public markets, or the perception of such sales, have materially impacted the market price for the Common Shares since the 2017 Financings, regardless of the performance of the Company. The price of the Common Shares could be affected by further sales of the Common Shares issuable upon conversion of the 2017 Notes, or by hedging or arbitrage trading activity, which we expect may be occurring involving the Common Shares issuable upon conversion of the 2017 Notes.
The sale of Common Shares issued upon conversion of the 2017 Notes issued pursuant to the 2017 Private Placement could encourage short sales by third parties which could further depress the price of the Common Shares.
Any downward pressure on the price of Common Shares caused by the sale of the Common Shares issued upon the conversion of the 2017 Notes could encourage short sales by third parties. In a short sale, a prospective seller borrows Common Shares from a shareholder or broker and sells the borrowed Common Shares. The prospective seller hopes that the Common Share price will decline, at which time the seller can purchase Common Shares at a lower price for delivery back to the lender. The seller profits when the Common Share price declines because it is purchasing Common Shares at a price lower than the sale price of the borrowed Common Shares. Such sales could place downward pressure on the price of our Common Shares by increasing the number of Common Shares being sold, which could further contribute to any decline in the market price of our Common Shares.
Our Common Shares may be delisted from the Nasdaq or the TSX, which could affect their market price and liquidity. If our Common Shares were to be delisted, investors may have difficulty in disposing of their shares.
Our Common Shares are currently listed on the Nasdaq and on the TSX under the symbol "NVCN". We must meet continuing listing requirements to maintain the listing of our Common Shares on the Nasdaq and the TSX. For example, for continued listing, the Nasdaq requires, among other things, that an issuer's listed securities maintain a total market value of $35 million pursuant to Nasdaq Listing Rule 5550(b)(2). On August 22, 2019, the Company received written notification (the "Market Value Notification Letter") from the Nasdaq Listing Qualifications Department notifying the Company that it was not in compliance with the $35 million minimum market value requirement set forth in the Nasdaq Marketplace Rules. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company was provided 180 calendar days, or until February 17, 2020 (the "Compliance Period"), to regain compliance. To regain compliance, the market value of our listed securities had to have exceeded $35 million for a minimum of 10 consecutive business days. The Company did not regain compliance by February 17, 2020. On February 19, 2020, the Company received notice from the Listing Qualifications Staff (the "Staff") of The Nasdaq Stock Market LLC ("Nasdaq") indicating that the Staff had determined to delist the Company's common shares from Nasdaq unless the Company requests a hearing before the Nasdaq Hearings Panel. On February 26, 2020, the Company requested such a hearing and the date of the hearing has been set by the Nasdaq for April 2, 2020. This request for a hearing will stay any further action by the Staff and the Company's securities will continue to be eligible to trade on Nasdaq at least pending the ultimate conclusion of the hearing process.
The dilution from the 2017 Financings, pressure on the share price from the future priced conversion features of the 2017 Notes, or from subsequent sales of Common Shares issued upon the conversion 2017 Notes, may continue to put downward pressure on the price and market value of our Common Shares. In addition to the specified criteria for continued listing, the Nasdaq also has broad discretionary public interest authority that it can exercise to apply additional or more stringent criteria for the continued listing of the Common Shares, or suspend or delist securities even though the securities met all enumerated criteria for continued listing on the Nasdaq. We cannot assure you that the Nasdaq will not exercise such discretionary authority.
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There can be no assurance that our Common Shares will remain listed on the Nasdaq or the TSX. If we fail to meet or regain compliance with any of the Nasdaq's or the TSX's continued listing requirements, our Common Shares may be delisted. A delisting from the Nasdaq would result in an event of default under the 2017 Notes. Any delisting of our Common Shares may adversely affect a shareholder's ability to dispose, or obtain quotations as to the market value, of such shares.
In connection with the preparation and audit of our financial statements for the year ended December 31, 2019, 2018 and 2017, material weaknesses in our internal control over financial reporting were identified, which means that a reasonable possibility exists that material misstatements in the Company's financial statements will not be prevented or detected on a timely basis.
The Sarbanes-Oxley Act of 2002 ("SOX") and applicable Canadian securities laws require an annual assessment by management of the effectiveness of the Company's ICFR. The Company's management, under the supervision and with the participation of its President and Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company's ICFR as of December 31, 2019, 2018 and 2017. As a result of this evaluation, management concluded that it did not have appropriate controls in place to perform an effective risk assessment process, to design and implement controls supported by documentation and to provide evidence that such controls were designed and operating effectively, which contributed to a material weakness as the Company incorrectly determined testing units as a period expense in product development and clinical trials expenses rather than as an asset classified as research and development supplies. A material weakness, as defined in National Instrument 52-109 of the Canadian Securities Administrators and Rule 12b-2 under the U.S. Exchange Act, is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
In light of the identified material weakness, the Company was unable to conclude that it had effective ICFR as of December 31, 2019, 2018 and 2017 in accordance with Section 404 of SOX and applicable Canadian securities laws. While the Company has concluded that its financial statements for the year ended December 31, 2019 fairly present in all material respects its financial position, results of operations and cash flows for the periods presented in accordance with IFRS, the Company's inability to maintain effective ICFR could result in the loss of investor confidence in the reliability of the Company's financial statements, which in turn could harm its business and negatively impact the trading price or the market value of its securities. The Company has taken measures, and plans to continue to take measures, to remediate this material weakness. However, the implementation of these measures may not fully address this material weakness in ICFR. In addition, the material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. If the Company is unable to correct this material weakness on a timely basis or to discover and address any other control deficiencies, this could result in inaccuracies in its financial statements and could also impair its ability to comply with applicable financial reporting requirements and make related regulatory filings on a timely basis. No evaluation can provide complete assurance that the Company's ICFR will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be reported. The effectiveness of the Company's processes, procedures and controls could also be limited by simple errors or faulty judgments. As the Company continues to expand, the challenges involved in implementing appropriate ICFR will increase and will require that the Company continue to monitor its ICFR. Although the Company intends to expend substantial time and incur substantial costs, as necessary, to remediate the material weakness and ensure ongoing compliance, it cannot be certain that it will be successful in complying with Section 404 of SOX and similar Canadian securities law requirements.
Our Common Share price has experienced significant volatility and may be subject to fluctuation in the future based on market conditions or conversion of the 2017 Notes issued pursuant to the 2017 Private Placement.
The market prices for the securities of medical companies, including our own, have historically been highly volatile. The market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of any particular company. In addition, because of the nature of our business, certain factors such as our announcements and the public's reaction, our operating performance and
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the performance of competitors and other similar companies, government regulations, changes in earnings estimates or recommendations by research analysts who track our securities or securities of other companies in the medical sector, general market conditions, announcements relating to litigation, the arrival or departure of key personnel and the other factors listed under the heading "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" can have an adverse impact on the market price of the Common Shares. For example, from January 1, 2019 to March 27, 2020, the closing price of the Common Shares on the TSX has ranged from a high of C$14.50 to a low of C$2.08 and from January 1, 2019 to March 27, 2020 the closing price of the Common Shares on the Nasdaq has ranged from a high of $11.00 to a low of $1.42.
Any negative change in the public's perception of our prospects could cause the price of our securities to decrease dramatically. Furthermore, selling pressure caused by the conversion of the 2017 Notes issued pursuant to the 2017 Private Placement, adjustments to the conversion price of such 2017 Notes as a result of anti-dilution provisions therein or the future-priced conversion mechanism in the 2017 Notes or otherwise, or negative change in the public's perception of the prospects of medical companies in general, could further depress the price of our securities, regardless of our performance. Following declines in the market price of a company's securities, securities class-action litigation is often instituted. Litigation of this type, if instituted, could result in substantial costs and a diversion of our management's attention and resources.
Certain shareholders of the Company hold significant amounts of the listed and outstanding Common Shares, or securities convertible into Common Shares, which could influence our business operations and sales of our shares by such shareholders could influence our share price.
To the best knowledge of the Company, Magnetar Financial LLC owns beneficially, directly or indirectly, over 5% of the Common Shares on a diluted basis. The holdings of certain of these securityholders may increase upon the conversion of 2017 Notes issued to them pursuant to the 2017 Private Placement. The exercise of voting rights associated with shares held by these shareholders at meetings of shareholders may have significant influences on our business operations. If any of these major securityholders sell their shares, it could have significant influences on our share price, depending on the market environment at the time of such sale.
Our significant indebtedness could adversely affect our financial condition, and we could have difficulty fulfilling our obligations under our indebtedness, which may have a material adverse effect on us.
As of December 31, 2019, we had approximately $3,913,000 of senior secured indebtedness outstanding that matures on May 17, 2020 and $11,500,000 of additional secured indebtedness from the issuance of the convertible 2019 Notes that mature On May 16, 2023. Our significant level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. The level of our indebtedness could have other important consequences on our business, including:
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The occurrence of any one or more of these circumstances could have a material adverse effect on us. Our ability to make scheduled payments on or to refinance our indebtedness, depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business, and other factors (many of which are beyond our control), including the availability of financing in the international banking and capital markets. We cannot be certain that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to repay or refinance our debt, or to fund our other liquidity needs. If we are unable to make our scheduled payments on our debt or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt. Failure to successfully restructure or refinance our debt could cause us to default on our debt obligations and would impair our liquidity. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.
Moreover, in the event of a default, the holders of the applicable indebtedness could elect to declare all the funds borrowed to be due and payable. We cannot be certain that our assets or cash flows would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. In addition, the 2017 Notes are secured by a first priority lien on all of our present and after-acquired personal property, which includes all of our assets in the U.S., Canada and Israel related to the Tiara and the Reducer, and, upon the occurrence and continuation of any event of a default the 2017 Notes, the holders of the 2017 Notes generally would be entitled to seize the collateral. Any such event of defaults could materially and adversely affect our results of operations and financial condition.
Third parties may claim we are infringing their intellectual property or have misappropriated their trade secrets and we could suffer significant litigation or licensing expenses or be prevented from selling products.
We may be involved in substantial litigation regarding patent and other intellectual property and trade secret rights in the medical device industry. We may be subject to challenges by third parties regarding our intellectual property, including, among others, claims regarding validity, enforceability, scope and effective term. From time to time, we have been and may in the future be forced to defend against claims and legal actions alleging infringement of the intellectual property rights of others, and such intellectual property litigation is typically costly and time-consuming. In particular, see Item 8.A "Consolidated Statements and Other Financial Information Legal Proceedings" herein for a description of certain pending and ongoing legal proceedings. Adverse determinations in any such litigation could result in significant liabilities to third parties or injunctions, or could require us to seek licenses from third parties and, if such licenses are not available on commercially reasonable terms, prevent us from manufacturing, selling or using certain products, any one of which could have a material adverse effect on us. In addition, some licenses may be non-exclusive, which could provide our competitors access to the same technologies.
Third parties could also obtain patents that may require us to either redesign products or, if possible, negotiate licenses from such third parties. Such licenses may materially increase our expenses. If we are unable to redesign products or obtain a license, we might have to exit a particular product offering.
The success of our business depends in part on our ability to obtain and maintain intellectual property protection for our technology and know-how, and operate without infringing the intellectual property rights of other companies. It is possible that as a result of future litigation our products currently marketed or under development may be found to infringe or otherwise violate third party intellectual property rights. Intellectual property litigation proceedings, if instituted against us, could result in substantial costs, inability to market our products including the Tiara, loss of our proprietary rights and diversion of our management's and technical team's attention and resources.
The Company is subject to lawsuits that could divert its resources and result in the payment of significant damages and other remedies.
From time to time, the Company may be subject to litigation claims through the ordinary course of its business operations or otherwise, regarding, among other things, intellectual property rights matters,
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employment matters and tax matters. Litigation to defend the Company against claims by third parties, or to enforce any rights that the Company may have against third parties, may be necessary, which could result in substantial costs and diversion of the Company's resources, causing a material adverse effect on its business, financial condition and results of operations. Given the nature of the Company's business, it is, and may from time to time in the future be, party to various, and at times numerous, legal, administrative and regulatory inquiries, investigations, proceedings and claims that arise in the ordinary course of business, as well as potential class action lawsuits. Because the outcome of such legal matters is inherently uncertain, if one or more of such legal matters were to be resolved against the Company for amounts in excess of management's expectations or any applicable insurance coverage or indemnification right, the Company's results of operations and financial condition could be materially adversely affected. Any litigation to which the Company is a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal, or in payments of substantial monetary damages or fines, the posting of bonds requiring significant collateral, letters of credit or similar instruments, or the Corporation may decide to settle lawsuits on similarly unfavorable terms. Moreover, the Company cannot be sure that the remedies available to it at law or under contract, or the indemnification granted to it by sellers of acquired companies, will be sufficient in amount, scope or duration to fully or partially offset any such possible liabilities. Any of these factors, individually or in the aggregate, could have a material adverse effect on the Company's business, results of operations, cash flows or liquidity. For a description of certain currently pending legal and regulatory proceedings, see Item 8.A "Consolidated Statements and Other Financial Information Legal Proceedings" of this Annual Report.
The Company was engaged in litigation with Edwards Lifesciences CardiAQ LLC ("CardiAQ"), formerly known as CardiAQ Valve Technologies Inc., as further described below. Litigation resulting from CardiAQ's claims has been, and is expected to continue to be, costly and time-consuming and could divert the attention of management and key personnel from our business operations. We cannot assure that we will succeed in defending any of these claims and that further judgments will not be entered against us with respect to the litigation resulting from such claims. If we are unsuccessful in our defense of these claims or unable to settle the claims in a manner satisfactory to us, we may be faced with significant monetary damages that could exceed our resources and/or loss of intellectual property rights that could have a material adverse effect on the Company and its financial position.
On June 6, 2014, Neovasc was named in a lawsuit filed by CardiAQ in the U.S. District Court for the District of Massachusetts concerning intellectual property rights ownership, unfair trade practices and a breach of contract relating to Neovasc's transcatheter mitral valve technology, including the Tiara ("CardiAQ v. Neovasc Inc."). On May 19, 2016, a jury awarded $70 million in favor of CardiAQ on certain trade secret claims. On October 31, 2016, a judge awarded an additional $21 million in enhanced damages to the jury's award. On January 18, 2017, a judge granted CardiAQ's motion for pre- and post-judgment interest. Neovasc and CardiAQ each appealed on various grounds. The judgment in the District of Massachusetts case, including the pre- and post- judgment interest amounts, was stayed pending completion of the appeal pursuant to a court order of December 23, 2016. Under the terms of the stay, Neovasc deposited $70 million into a joint escrow account and entered into a general security agreement related to the remaining damages awarded by the court. On September 1, 2017, the Appeals Court affirmed the trial court judgment against Neovasc, and denied CardiAQ's cross-appeal. On November 13, 2017, the final mandate was issued by the Appeals Court and approximately $70 million was released from escrow to CardiAQ to partially settle approximately $112 million damages and interest awards. Upon closing of the 2017 Financings on November 17, 2017, the Company used approximately $42 million from the $65 million net proceeds of the 2017 Financings to settle the remaining damages and interest awards.
On June 23, 2014, CardiAQ filed a complaint against Neovasc in Munich, Germany (the "German Court") requesting that Neovasc assign its right to one of its European patent applications to CardiAQ. After a hearing held on December 14, 2016, the German Court rendered its decision on June 16, 2017, granting co-ownership of the European patent application to CardiAQ but denying their claim for full entitlement. On July 14, 2017, Neovasc filed a notice of appeal against the German Court's decision with the Appeals Court of Munich. On July 20, 2017, CardiAQ filed a notice of appeal with the same court. The decision of the Appeals Court of Munich was rendered on March 21, 2019, wherein it amended the decision of the German Court and
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dismissed the complaint of CardiAQ in full. There are no monetary awards associated with these matters and no damages award was recognized.
On March 24, 2017, CardiAQ filed a related lawsuit in the U.S. District Court for the District of Massachusetts (the "Court"), asserting two claims for correction of patent inventorship as to Neovasc's U.S. Patents Nos. 9,241,790 and 9,248,014. On October 4, 2017, CardiAQ amended its pleading to add a third claim for correction of patent inventorship as to Neovasc's U.S. Patent No. 9,770,329. The lawsuit did not seek money damages and would not have prevented the Company from practicing these patents. The Company moved to dismiss the complaint on November 16, 2017, and the Court denied this motion on September 28, 2018. On April 17, 2019, the Company resolved the three claims for correction of patent inventorship and, without reaching conclusion on the merits of the claims, the parties agreed to the correction of patent inventorship and added co-inventors to the three patents in question. Each party will bear its own costs. There were no monetary awards associated with these matters and no damages award was recognized.
On January 22, 2019, the Company announced that pursuant to a settlement reached with Edwards Lifesciences PVT, Inc. and Edwards Lifesciences (Canada) Inc. (collectively, the "Edwards Plaintiffs"), the patent infringement action that the Edwards Plaintiffs had previously commenced in the Federal Court of Canada against the Company, Boston Scientific Corporation ("Boston Scientific") and Livanova, would be dismissed on a no-costs basis.
On August 3, 2018, the Company announced that it had entered into a collaboration and licensing agreement (the "Penn Agreement") with Penn Medicine and the Gorman Cardiovascular Research Group at the University of Pennsylvania (together, "Penn"), which resolved certain potential claims against the Company that had been previously disclosed.
On February 20, 2019, the Company announced that it had entered into a settlement agreement with Endovalve Inc. and Micro Interventional Devices, Inc. (collectively, "Endovalve"), which resolved certain claims against the Company that had been previously disclosed.
The Company intends to continue to vigorously defend itself in its ongoing litigation. The outcome of these matters is not currently determinable.
Our inability to protect our intellectual property could have a material adverse effect on our business.
Our success and competitive position are dependent in part upon our proprietary intellectual property. We rely on a combination of patents and trade secrets to protect our proprietary intellectual property, and we expect to continue to do so. Although we seek to protect our proprietary rights through a variety of means, we cannot guarantee that the protective steps we have taken are adequate to protect these rights. Patents issued to or licensed by us in the past or in the future may be challenged and held invalid. The scope of our patent claims also may vary between countries, as individual countries have distinctive patent laws. In addition, as our patents expire, we may be unsuccessful in extending their protection through patent term extensions. The expiration of, or the failure to maintain or extend our patents, could have a material adverse effect on us.
We also rely on confidentiality agreements with certain employees, consultants and other third parties to protect, in part, trade secrets and other proprietary information. These agreements could be breached and we may not have adequate remedies for such a breach. In addition, others could independently develop substantially equivalent proprietary information or gain access to our trade secrets or proprietary information.
We may spend significant resources to enforce our intellectual property rights and such enforcement could result in litigation. Intellectual property litigation is complex and can be expensive and time-consuming. However, our efforts in this regard may not be successful. We also may not be able to detect infringement. In addition, competitors may design around our technology or develop competing technologies. Patent litigation can result in substantial cost and diversion of effort. Intellectual property protection may also be unavailable or limited in some foreign countries, enabling our competitors to capture increased market position. The invalidation of key intellectual property rights or an unsuccessful outcome in lawsuits filed to protect our intellectual property could have a material adverse effect on our financial condition, results of operations or prospects.
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Our products are continually the subject of clinical trials conducted by us, our competitors, or other third parties, the results of which may be unfavorable, or perceived as unfavorable, and could have a material adverse effect on our business, financial condition, and results of operations.
The regulatory approval process for new products and new indications for existing products requires extensive clinical trials and procedures, including early clinical experiences and regulatory studies. Unfavorable or inconsistent clinical data from current or future clinical trials or procedures conducted by us, our competitors, or third parties, or perceptions regarding this clinical data, could adversely affect our ability to obtain necessary approvals and the market's view of our future prospects. Such clinical trials and procedures are inherently uncertain and there can be no assurance that these trials or procedures will be completed in a timely or cost-effective manner or result in a commercially viable product. Failure to successfully complete these trials or procedures in a timely and cost-effective manner could have a material adverse effect on our prospects. Clinical trials or procedures may experience significant setbacks even after earlier trials have shown promising results. Further, preliminary results from clinical trials or procedures may be contradicted by subsequent clinical analysis. In addition, results from our clinical trials or procedures may not be supported by actual long-term studies or clinical experience. If preliminary clinical results are later contradicted, or if initial results cannot be supported by actual long-term studies or clinical experience, our business could be adversely affected. Clinical trials or procedures may be suspended or terminated by us or regulatory authorities at any time if it is believed that the trial participants face unacceptable health risks.
A number of companies in the medical device industry have suffered significant setbacks in advanced clinical trials, even after positive results in earlier trials. Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be delayed, repeated or terminated. In addition, failure to construct appropriate clinical trial protocols could result in the test or control group experiencing a disproportionate number of adverse events and could cause a clinical trial to be repeated or terminated.
Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, the Company may be required to report some of these relationships to the FDA. The FDA may conclude that a financial relationship between the Company and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of regulatory approval of one or more of our product candidates.
We have a history of significant losses and a significant accumulated deficit.
We may incur losses in the future and our losses may increase. We have incurred net losses in each fiscal year since inception. In the year ended December 31, 2019, we had a net loss of $35,131,015 and at December 31, 2019, we had an accumulated deficit of $366,532,164. We have increased our research and development expenses in recent periods and we plan further increases in the future as cash flows allow. The planned increases in research and development expenses may result in larger losses in future periods. As a result, we will need to generate significantly greater revenues than we have to date to achieve and maintain profitability. There can be no assurance that revenues will increase. Our business strategies may not be successful and we may not be profitable in any future period. Our operating results have varied in the past and they may continue to fluctuate in the future. In addition, our operating results may not follow any past trends.
We are subject to the risks associated with product liability claims, insurance and recalls.
Prior to patient use, our products undergo extensive clinical testing and are approved by the applicable regulatory authorities. However, despite all reasonable efforts to ensure safety, it is possible that we or our partners may sell products which are defectively manufactured or labeled, contain defective components or are misused. Our products may also fail to meet patient expectations or produce harmful side effects. Such unexpected quality, safety or efficacy issues may be caused by a number of factors, including manufacturing
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defects, failure to adhere to good clinical practices, failure to adhere to good manufacturing practices, non-compliance with clinical protocols or the presence of other harmful conditions in a clinical trial, inadequacies of product-related information conveyed to physicians or patients, or other factors or circumstances unique to the patient. Whether or not scientifically justified, such unexpected safety or efficacy concerns can arise and may lead to product recalls, loss of or delays in market acceptance, market withdrawals, or declining sales, as well as product liability, consumer fraud and/or other claims. Additionally, we may be exposed to product liability claims from patients in clinical trials. Such liability might result from claims made directly by consumers or by medical device companies or others selling such products. It is impossible to predict the scope of injury or liability from such defects or unexpected reactions, or the impact on the market for such products of any allegations of these claims, even if unsupported, or the measure of damages which might be imposed as a result of any claims or the cost of defending such claims. Substantial damage awards and/or settlements have been handed down notably in the United States and other common law jurisdictions against medical device companies based on claims for injuries allegedly caused by the use of their products. Although our shareholders would not have personal liability for such damages, the expenses of litigation or settlements, or both, in connection with any such injuries or alleged injuries and the amount of any award imposed on us in excess of existing insurance coverage, if any, may have a material adverse impact on us and on the price of our Common Shares. In addition, we may not be able to avoid significant product liability exposure even if we take appropriate precautions, including maintaining product liability coverage (subject to deductibles and maximum payouts). Any liability that we may have as a result could have a material adverse effect on our business, financial condition and results of operations, to the extent insurance coverage for such liability is not available. Product liability claims in the future, regardless of their ultimate outcome, could have a material adverse effect on our reputation and on our ability to attract and retain customers for our products.
Use of our products in unapproved circumstances could expose us to liabilities.
The marketing approval from the FDA and other regulators of certain of our products are, or are expected to be, limited to specific indications. We are prohibited by law from marketing or promoting any unapproved use of our products. Physicians, however, in most jurisdictions, can use these products in ways or circumstances other than those strictly within the scope of the regulatory approval. Although the product training we provide to physicians and other health care professionals is limited to approved uses or for clinical trials, no assurance can be given that claims might not be asserted against us if our products are used in ways or for procedures that are not approved.
We have substantial competition in the medical device industry and with respect to our products.
The medical device industry is highly competitive and is characterized by extensive research and development and rapid technological change. Many companies, as well as research organizations, currently engage in, or have in the past engaged in, efforts related to the development of medical devices in the same therapeutic areas as we do. Due to the size of the cardiovascular market and the large unmet medical need for products that treat cardiovascular illnesses, a number of the world's largest medical device companies are developing, or could potentially develop, products that could compete with ours.
Many of the companies developing competing technologies and products may have significantly greater financial resources and expertise in discovery, research and development, manufacturing, pre-clinical studies and clinical testing, obtaining regulatory approvals and marketing than we do. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Academic institutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to ours. There is a risk that one or more of our competitors may develop more effective or more affordable products than us and that such competitors will commercialize products that will render our medical devices obsolete. We face competition with respect to product efficacy and safety, ease of use and adaptability to various modes of administration, acceptance by physicians, the timing and scope of regulatory approvals, availability of resources, reimbursement coverage, price and patent positions of others. In addition, these companies and institutions also compete with us in recruiting and retaining qualified personnel. If we fail to develop new products or enhance our existing
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products in the face of such strong competition, such competition could have a material adverse effect on our business, financial condition or results of operations.
Our approved products may not achieve or maintain expected levels of market acceptance, which could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our securities to decline.
Even if we are able to obtain regulatory approvals for our products, the success of those products is dependent upon achieving and maintaining market acceptance. New medical devices that appear promising in development may fail to reach the market or may have only limited or no commercial success. Levels of market acceptance for our products could be impacted by several factors, many of which are not within our control, including but not limited to:
In addition, the success of any new product will depend on our ability to either successfully build our in-house sales capabilities or to secure new, or to realize the benefits of existing arrangements with, third-party marketing or distribution partners. Seeking out, evaluating and negotiating marketing or distribution agreements may involve the commitment of substantial time and effort and may not ultimately result in an agreement. In addition, the third-party marketing or distribution partners may not be as successful in promoting our products as we had anticipated. If we are unable to commercialize new products successfully, whether through a failure to achieve market acceptance, a failure to build our own in-house sales capabilities, a failure to secure new marketing partners or to realize the benefits of our arrangements with existing marketing partners, there may be a material adverse effect on our business, financial condition and results of operations and it could cause the market value of our securities to decline.
In addition, by the time any products are ready to be commercialized, the proposed market for these products may have changed. Our estimates of the number of patients who have received or might have been candidates to use a specific product may not accurately reflect the true market or market prices for such products or the extent to which such products, if successfully developed, will actually be used by patients. Our failure to successfully introduce and market our products that are under development would have a material adverse effect on our business, financial condition, and results of operations.
If we are not able to convince public payors and hospitals to include our products on their approved product lists, our revenues may not meet expectations and our business, results of operations and financial condition may be adversely affected.
The direct cost of implanting or using our medical devices is seldom paid by individual patients. Successful commercialization of such devices will depend largely upon the availability of reimbursement for the surgery and medical costs associated with the product from third-party payors. We expect that our products will be purchased by health-care providers, clinics, and hospitals that will subsequently bill various third-party payors such as government programs and private insurance plans. These expectant payors carefully review and increasingly challenge the prices charged for medical devices and services. Provincial government sponsored health programs in Canada and similar programs in the United States reimburse hospitals a pre-determined fixed amount for the costs associated with a particular procedure based on the patient's discharge diagnosis and similarly reimburse the surgeon or physician based on the procedure performed, without taking into consideration the actual costs incurred by either party or the actual cost of the device. New products are being
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scrutinized increasingly with respect to whether or not they will be covered by the various health plans and at what level of reimbursement. Third-party payors may determine that our products are unnecessary, not cost-effective, too experimental, or are primarily intended for non-approved indications.
Our business may be materially adversely affected by new legislation, new regulatory requirements, and the continuing efforts of governmental and third-party payors to contain or reduce the costs of healthcare through various means, including the U.S. healthcare reform legislation signed in 2010.
The government and regulatory authorities in Canada, the United States, Europe and other markets in which we sell our products may propose and adopt new legislation and regulatory requirements relating to medical product approval criteria and manufacturing requirements. Such legislation or regulatory requirements, or the failure to comply with such, could adversely impact our operations and could have a material adverse effect on our business, financial condition and results of operations.
The growth of overall healthcare costs as a percentage of gross domestic product in many countries means that governments and payors are under intense pressure to control healthcare spending even more tightly. These pressures are particularly strong given the ongoing effects of the global economic and financial crisis, including the continuing debt crisis in certain countries in Europe, and the risk of a similar crisis in the United States. As a result, our businesses and the healthcare industry in general are operating in an ever more challenging environment with very significant pricing pressures. In recent years, national, federal, provincial, state, and local officials and legislators have proposed, or are reportedly considering proposing, a variety of price-based reforms to the healthcare systems in the European Union, the United States and other countries. Some proposals include measures that would limit or eliminate payments for certain medical procedures and treatments or subject pricing to government control. Furthermore, in certain foreign markets, the pricing or profitability of healthcare products is subject to government controls and other measures that have been prepared by legislators and government officials. While we cannot predict whether any such legislative or regulatory proposals or reforms will be adopted, the adoption of any such proposals or reforms could adversely affect the commercial viability of our existing and potential products.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the "ACA") was enacted. The ACA imposed new taxes on medical device makers in the form of a 2.3% excise tax on all U.S. medical device sales. In 2015, Congress imposed a 2-year moratorium on this medical device tax, so that medical device sales during the period between January 1, 2016 and December 31, 2017 are exempt from the tax. New legislation was passed in January 2018 that delayed the tax until January 1, 2020, and the tax was repealed in December 2019 pursuant to the Further Consolidated Appropriations Act. The device tax, if reinstated, could materially and adversely affect our business, cash flows and results of operations. The ACA also focuses on a number of Medicare provisions aimed at improving quality and decreasing costs. It is uncertain at this point what negative unintended consequences these provisions will have on patient access to new technologies. The Medicare provisions include value-based payment programs, increased funding of comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital acquired conditions, and pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician and hospital payments). Additionally, the ACA includes a reduction in the annual rate of inflation for Medicare payments to hospitals and the establishment of an independent payment advisory board to recommend ways of reducing the rate of growth in Medicare spending. Other legislative changes have been proposed and adopted since the ACA was enacted. These changes included an aggregate reduction in Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and will remain in effect through 2025 unless additional Congressional action is taken. In addition, the Medicare Access and CHIP Reauthorization Act of 2015, enacted on April 16, 2015, repealed the formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed annual updates and a new system of incentive payments that began in 2019, which are based on various performance measures and physicians' participation in alternative payment models such as accountable care organizations. Individual states in the U.S. have also become increasingly aggressive in passing legislation and implementing regulations designed to control product pricing, including price or patient reimbursement constraints and discounts, and require marketing cost disclosure and transparency measures. There have also been judicial and congressional challenges to the ACA, as well as efforts by the U.S.
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administration to modify, repeal, or otherwise invalidate all, or certain provisions of, the ACA. Since January 2017, the U.S. President has signed Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. The current U.S. administration also discontinued the payment of cost-sharing reduction ("CSR") payments to insurance companies in 2017. In addition, CMS has proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces. Because of the Tax Cuts and Jobs Act enacted on December 22, 2017, the ACA's individual mandate penalty for not having health insurance coverage was repealed on January 1, 2019. Further, each chamber of Congress has put forth multiple bills designed to repeal or repeal and replace portions of the ACA. Although the majority of these measures have not been enacted by Congress to date, Congress will likely continue to consider other legislation to repeal or repeal and replace elements of the ACA. Also, in addition to other judicial challenges to the ACA, a petition for certiorari is pending before the U.S. Supreme Court to review a December 2019 ruling in the U.S. Court of Appeals for the Fifth Circuit finding the individual mandate of the ACA to be unconstitutional. Any regulatory or legislative developments in domestic or foreign markets that eliminate or reduce reimbursement rates for procedures performed with our products could harm our ability to sell our products or cause downward pressure on the prices of our products, either of which would adversely affect our business, financial condition and results of operations.
Our industry is the subject of numerous governmental investigations into marketing and other business practices. These investigations could result in the commencement of civil and/or criminal proceedings, substantial fines, penalties, and/or administrative remedies, divert the attention of our management, and have an adverse effect on our financial condition and results of operations.
Our industry is the subject of numerous governmental investigations into marketing and other business practices. This has included increased regulation, enforcement, inspections, and governmental investigations of the medical device industry and disclosure of financial relationships with health care professionals. In the United States, the laws in which we are subject to include:
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Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities, including certain sales and marketing practices and financial arrangements with physicians, could be subject to challenge under one or more of such laws. Any action against us, even if we successfully defend against it, could result in the commencement of civil and/or criminal proceedings, exclusion from governmental health care programs, substantial fines, penalties, and/or administrative remedies, divert the attention of our management, and have an adverse effect on our financial condition and results of operations. We anticipate that the government will continue to scrutinize our industry closely, and that additional regulation by governmental authorities, both foreign and domestic, may increase compliance costs, exposure to litigation and other adverse effects to our operations.
Our products are subject to extensive regulation, which can be costly and time consuming, cause unanticipated delays, or prevent the receipt of the required approvals to commercialize products.
The pre-clinical and clinical trials of any products developed by us and the manufacturing, labeling, sale, distribution, export or import, marketing, advertising and promotion of any of those products are subject to rigorous regulation by federal, provincial, state and local governmental authorities. Our medical devices are principally regulated in the United States by the FDA, in Canada by the Health Canada (particularly, the Therapeutic Products Directorate), in the European Union by the European Medicines Agency ("EMA"), and by other similar regulatory authorities in other jurisdictions. Government regulation substantially increases the cost and risk of researching, developing, manufacturing and selling products. Following several widely publicized issues in recent years, the FDA and similar regulatory authorities in other jurisdictions have become increasingly focused on product safety. This development has led to, among other things, requests for more clinical trial data, for the inclusion of a significantly higher number of patients in clinical trials and for more detailed analysis of trial results. Consequently, the process of obtaining regulatory approvals, particularly from the FDA, has become more costly, time consuming and challenging than in the past. Any product developed by us or our future collaborative partners, if any, must receive all relevant regulatory approvals or clearances from the applicable regulatory authorities before it may be marketed and sold in a particular country.
Any of our products that receive regulatory approval could be subject to extensive post-market regulation that can affect sales, marketing and profitability.
With respect to any products for which we obtain regulatory approval, we will be subject to post-marketing regulatory obligations, including the requirements by the FDA, EMA and similar agencies in other jurisdictions to maintain records regarding product safety and to report to regulatory authorities serious or unexpected adverse events. The occurrence of unanticipated serious adverse events or other safety problems could cause the governing agencies to impose significant restrictions on the indicated uses for which the product may be marketed, impose other restrictions on the distribution or sale of the product or require potentially costly post-approval studies. In addition, post-market discovery of previously unknown safety problems or increased severity or significance of a pre-existing safety signal could result in withdrawal of the product from the market and product recalls. Compliance with extensive post-marketing record keeping and reporting requirements requires a significant commitment of time and funds, which may limit our ability to successfully commercialize approved products.
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Our industry is subject to health and safety risks.
We produce products for human implantation and use. While we take substantial precautions such as laboratory and clinical testing, clinical studies, quality control and assurance testing and controlled production methods, the associated health and safety risks cannot be eliminated. Our products may be found to be, or to contain substances that are harmful to the health of our patients and customers and which, in extreme cases, may cause serious health conditions or death. This sort of finding may expose us to substantial risk of litigation and liability.
Further, we could be forced to discontinue production of certain products, which would harm our profitability. Neovasc maintains product liability insurance coverage; however, there is no guarantee that our current coverage will be sufficient or that we can secure insurance coverage in the future at commercially viable rates or with the appropriate limits.
We may face risks associated with our manufacturing operations.
Manufacturing operations are subject to numerous unanticipated technological problems and delays. Our manufacturing processes, products and their various components are, and will be, subject to regulations specified by the various regulatory bodies such as Health Canada and the FDA. There can be no assurance that we will be able to comply with all stated manufacturing regulations. Failure or delay by the Company to comply with such regulations or to satisfy regulatory inspections could have an adverse effect on the Company's business and operations.
Additionally, two critical components of the Reducer are not readily available. The balloon portion of the delivery system is technically challenging to manufacture and the Reducer device, while a basic technology, must be manufactured in Israel due to restrictions on the transfer of intellectual property and manufacturing out of Israel stemming from certain research grants received by Neovasc Medical Ltd. ("NML") prior to the acquisition in July 2008.
Use of our products may increase the risk of animal disease.
Our critical raw material used in most of our customers' devices is animal derived pericardial tissue. As this raw material is derived from an animal, it is subject to many inconsistencies and potential risks. The most notable risk is the disease Bovine Spongiform Encephalopathy ("BSE"), also known as mad cow disease which can arise from bovine tissue. Although the tissue originates from the United States where strict controls are in place to prevent diseased animals from being processed, it cannot be assured that the livestock in the United States will remain free from BSE. There is also no assurance that our supplier will regularly deliver tissue with the specifications required to manufacture its products.
The manufacture of our products is highly regulated and complex and we may experience supply interruptions that could harm our ability to manufacture products.
We use a broad range of raw and organic materials and other items in the design and manufacture of our products. Our products are manufactured from treated natural animal tissue and man-made materials. Our non-implantable products are manufactured from man-made raw materials including resins, chemicals, electronics and metals. We purchase certain of the materials and components used in the manufacture of our products from external suppliers, and we purchase certain supplies from single sources for reasons of quality assurance, cost-effectiveness, availability or constraints resulting from regulatory requirements. General economic conditions could adversely affect the financial viability of our suppliers, resulting in their inability to provide materials and components used in the manufacture of our products. While we work closely with suppliers to monitor their financial viability and to assure continuity of supply and maintain high quality and reliability, these efforts may not be successful. In addition, due to the rigorous regulations and requirements of regulatory authorities regarding the manufacture of our products (including the need for approval of any change in supply arrangements), we may have difficulty establishing additional or replacement sources on a timely basis or at all if the need arises. Although alternative supplier options are considered and identified, we typically do not pursue regulatory qualification of alternative sources due to the strength of our existing supplier relationships and the time and expense associated with the regulatory validation process. A change in suppliers
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could require significant effort or investment in circumstances where the items supplied are integral to product performance or incorporate unique technology, and the loss of any existing supply contract could have a material adverse effect on us.
In particular, the Tiara valve is made up of two major components: the leaflets and skirt, which are made from the Peripatch and the nitinol frame, which is manufactured by a well-established specialty manufacturer in the medical device industry. However, if this supplier were unable to provide the nitinol frame in the future, it would seriously impact the further development of the Tiara.
Regulatory agencies from time to time have limited or banned the use of certain materials used in the manufacture of medical device products. In these circumstances, transition periods typically provide time to arrange for alternative materials.
We are dependent on limited products for substantially all of our current revenues. If the volume or price of these products decline or the costs of related manufacturing, distribution or marketing increase, it could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our securities to decline.
Sales of a limited number of our products represent substantially all of our current revenues. If the volume or pricing of our existing significant products decline in the future, or our cost to manufacture, distribute our existing significant products increase in the future, our market our business, financial condition and results of operations could be materially adversely affected and this could cause the market value of our securities to decline. In addition, if these products were to become subject to any other issues, such as material adverse changes in prescription growth rates, unexpected side effects, regulatory proceedings, material product liability litigation, publicity affecting doctor or patient confidence or pressure from competitive products, the adverse impact on our business, financial condition, results of operations and the market value of our securities could be significant.
We may face exposure to adverse movements in foreign currency exchange rates.
Our business has expanded internationally and as a result, a significant portion of our revenues, expenses, current assets and current liabilities are preliminary denominated in U.S. dollars, Euros and other foreign currencies. Up until September 30, 2017, the functional currency of Neovasc and its subsidiaries was the Canadian dollar and the presentation currency of our financial statements was U.S. dollars. A decrease in the value of such foreign currencies relative to the Canadian dollar could result in losses in revenues from currency exchange rate fluctuations. To date, we have not hedged against risks associated with foreign exchange rate exposure. Effective on October 1, 2017, the functional and reporting currency of Neovasc and its subsidiaries is the U.S. dollar. A decrease in the value of such foreign currencies relative to the U.S. dollar could result in losses in revenues from currency exchange rate fluctuations. We continue not to hedge against risks associated with foreign exchange rate exposure.
If we were to lose our foreign private issuer status under U.S. federal securities laws, we would likely incur additional expenses associated with compliance with the U.S. securities laws applicable to U.S. domestic issuers.
As a foreign private issuer, as defined in Rule 3b-4 under the Securities Exchange Act of 1934, as amended, we are exempt from certain of the provisions of the U.S. federal securities laws. For example, the U.S. proxy rules and the Section 16 reporting and "short swing" profit rules do not apply to foreign private issuers. However, if we were to lose our status as a foreign private issuer, these regulations would immediately apply and we would also be required to commence reporting on forms required of U.S. companies, such as Forms 10-K, 10-Q and 8-K, rather than the forms currently available to us, such as Forms 20-F and 6-K. Compliance with these additional disclosure and timing requirements under these securities laws would likely result in increased expenses and would require our management to devote substantial time and resources to comply with new regulatory requirements. Further, to the extent that we were to offer or sell our securities outside of the United States, we would have to comply with the more restrictive Regulation S requirements that apply to U.S. companies, which could limit our ability to access the capital markets in the future.
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There may be adverse U.S. federal income tax consequences for investors if we are or become a PFIC under the U.S. Internal Revenue Code of 1986, as amended.
Although we do not currently anticipate that we will be treated as a PFIC in the current taxable year or in the foreseeable future, the determination as to whether we are a PFIC for any taxable year is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations, and is not determinable until after the end of such taxable year. Further, the determination is based in part on the mix, use and value of our assets, which values may be treated as changing for U.S. federal income tax purposes as our market capitalization changes. Because of the above described uncertainties, there can be no assurance that the U.S. Internal Revenue Service ("IRS") will not challenge the determination made by us concerning our PFIC status or that we will not be a PFIC for any taxable year. Investors should read "U.S. Federal Income Tax Considerations" for more information, and consult their own tax advisors regarding the application of the PFIC rules to their particular circumstances.
Failure to comply with the U.S. Foreign Corrupt Practices Act (the "FCPA"), as well as the anti-bribery laws of the nations in which we conduct business (such as the United Kingdom's Bribery Act or the Corruption of Foreign Public Officials Act of Canada (the "CFPOA"), could subject us to penalties and other adverse consequences.
Our business is subject to the FCPA which generally prohibits companies and company employees from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. The FCPA also requires companies to maintain accurate books and records and internal controls, including at foreign-controlled subsidiaries. In addition, we are subject to other anti-bribery laws of the nations in which we conduct business that apply similar prohibitions as the FCPA (e.g., the United Kingdom's Bribery Act, the CFPOA and the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions). Our employees or other agents may, without our knowledge and despite our efforts, engage in prohibited conduct under our policies and procedures and the FCPA or other anti-bribery laws that we may be subject to for which we may be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.
Legislative actions, potential new accounting pronouncements, and higher insurance costs are likely to impact our future financial position or results of operations.
Future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with greater frequency and are expected to occur in the future. Compliance with changing regulations of corporate governance and public disclosure may result in additional expenses. All of these uncertainties are leading generally toward increasing insurance costs, which may adversely affect our business, results of operations and our ability to purchase any such insurance, at acceptable rates or at all, in the future.
We are dependent upon our key personnel to achieve our business objectives.
As a technology-driven company, intellectual input from key management and personnel is critical to achieve our business objectives. Consequently, our ability to retain these individuals and attract other qualified individuals is critical to our success. The loss of the services of key individuals might significantly delay or prevent achievement of our business objectives. In addition, because of a relative scarcity of individuals with the high degree of education and scientific achievement required for our business, competition among medical device companies for qualified employees is intense and, as a result, we may not be able to attract and retain such individuals on acceptable terms, or at all. We do not maintain "key person" life insurance on any of our officers, employees, or consultants, and so any delay in replacing such persons, or an inability to replace them with persons of similar expertise, would have a material adverse effect on our business, financial condition and results of operations.
We also have relationships with scientific collaborators at academic and other institutions, some of whom conduct research at our request or assist us in formulating our research and development strategies.
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These scientific collaborators are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, even though our collaborators are required to sign confidentiality agreements prior to working with us, they may have arrangements with other companies to assist such other companies in developing technologies that may prove competitive to us.
Incentive provisions for our key executives include the granting of stock options that vest over time, designed to encourage such individuals to stay with us. However, a low share price, whether as a result of disappointing progress in our sales or development programs or as a result of market conditions generally, could render such agreements of little value to our key executives. In such event, our key executives could be susceptible to being hired away by our competitors who could offer a better compensation package. If we are unable to attract and retain key personnel our business, financial conditions and results of operations may be adversely affected.
The continuing development of many of our products depends upon us maintaining strong relationships with physicians.
If we fail to maintain our working relationships with physicians, many of our products may not be developed and marketed in line with the needs and expectations of the professionals who use and support our products, which could cause a decline in our earnings and profitability. The research, development, marketing, and sales of our new and improved products is dependent upon our maintaining working relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience regarding the development, marketing, and sale of our products. Physicians assist us as researchers, marketing and product consultants, inventors, and public speakers. If we are unable to maintain our strong relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which could have a material adverse effect on our consolidated earnings, financial condition, and/or cash flows.
A period of significant growth or significant decline can place a strain on management systems.
If we experience a period of significant growth or decline in the number of personnel, this could place a strain upon its management systems and resources. Our future will depend in part on the ability of its officers and other key employees to implement and improve its financial and management controls, reporting systems and procedures on a timely basis and to expand or contract, train and manage its employee workforce. There can be no assurance that we will be able to effectively manage such growth or contraction. Our failure to do so could have a material adverse effect upon our business, prospects, results of operation and financial condition.
Consolidation in the health care industry could have an adverse effect on our revenues and results of operations.
Many health care industry companies, including health care systems, are consolidating to create new companies with greater market power. Organizations such as group purchase organizations, independent delivery networks, and large single accounts such as the U.S. Veterans Administration, continue to consolidate purchasing decisions for many of our health care provider customers. As a result, transactions with customers are larger, more complex, and tend to involve more long-term contracts. The purchasing power of these larger customers has increased, and may continue to increase, causing downward pressure on product pricing. If we are not one of the providers selected by one of these organizations, we may be precluded from making sales to its members or participants. Even if we are one of the selected providers, we may be at a disadvantage relative to other selected providers that are able to offer volume discounts based on purchases of a broader range of medical equipment and supplies. Further, we may be required to commit to pricing that has a material adverse effect on our revenues and profit margins, business, financial condition and results of operations. We expect that market demand, governmental regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide health care industry, resulting in further business consolidations and alliances, which may exert further downward pressure on the prices of our products and could adversely impact our business, financial condition, and results of operations.
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We may or may not successfully identify and complete corporate transactions on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances, and such acquisitions could result in unforeseen operating difficulties and expenditures, require significant management resources and require significant charges.
As a part of our growth strategy, we regularly explore potential acquisitions of complementary businesses, technologies, services or products as well as potential strategic alliances or divestitures of assets or a sale of the Company. We may be unable to find suitable acquisition candidates or appropriate partners with which to form alliances. Even if we identify appropriate acquisition or alliance candidates, we may be unable to complete the acquisitions or alliances on favorable terms, if at all. Acquisition activities can be thwarted by overtures from competitors for the targeted candidates, government regulation and replacement product developments in our industry. In addition, the process of integrating an acquired business, technology, service or product into our existing operations could result in unforeseen difficulties and expenditures. Integration of an acquired company often requires significant expenditures as well as significant management resources that otherwise would be available for ongoing development of our other businesses. Moreover, we may not realize the anticipated financial or other benefits of an acquisition or alliance.
We may be required to take charges or write-downs in connection with acquisitions. In particular, acquisitions of businesses engaged in the development of new products may give rise to in-process research and development assets. To the extent that the value of these assets declines, we may be required to write down the value of the assets. Also, in connection with certain asset acquisitions, we may be required to take an immediate charge related to acquired in-process research and development. Either of these situations could result in substantial charges, which could adversely affect our results of operations.
Future acquisitions could also involve the issuance of equity securities, the incurrence of debt, contingent liabilities or amortization of expenses related to other intangible assets, any of which could adversely impact our financial condition or results of operations. In addition, equity or debt financing required for such acquisitions may not be available.
Any corporate transaction will be accompanied by certain risks including but not limited to:
We may not be able to successfully overcome these risks and other problems associated with acquisitions and this may adversely affect our business, financial condition or results of operations.
The 2017 Notes issued pursuant to the 2017 Private Placement contain provisions that restrict the Company's ability to enter into Fundamental Transactions.
The 2017 Notes issued pursuant to the 2017 Private Placement contain provisions that restrict the Company's ability to enter into a transaction whereby (i) the Company or any of its subsidiaries, (1) consolidate or merge with any other person, (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other person, (3) allow any other person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding Common Shares of the Company, (4) consummate share purchase agreement or other business combination
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with any other person whereby such other person acquires more than 50% of the outstanding Common Shares of the Company, (5) reorganize, recapitalize or reclassify the Common Shares of the Company, (ii) any "person" or "group" is or shall become the "beneficial owner" of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Shares of the Company, or (iii) any transaction or series of related transactions which, directly or indirectly, could result in the issuance of Common Shares of the Company or convertible securities or the entering into any other agreement structured in a manner to circumvent, or that circumvents, the intent of this definition (each a "Fundamental Transaction"), unless (i) the successor entity assumes in writing all of the obligations of the Company under the 2017 Notes and other transaction documents, including entering into agreements to deliver to the holder in exchange for the 2017 Notes a security of the successor entity evidenced by a written instrument substantially similar in form and substance to the 2017 Notes; and (ii) the successor entity is a publicly traded corporation listed on The New York Stock Exchange, the NYSE American, the Nasdaq Global Select Market, the Nasdaq Global Market, the OTCQB or the Nasdaq (the "Eligible Markets"). These provisions may impact the Company's ability to effect a transaction that it believes is in the best interest of the stakeholders, including a transaction with a foreign acquirer that is not listed on an Eligible Market.
Anti-takeover provisions could discourage a third party from making a takeover offer that could be beneficial to our shareholders.
Some of the provisions in our articles of incorporation and by-laws could delay or prevent a third party from acquiring us or replacing members of our board of directors, even if the acquisition or the replacements would be beneficial to our shareholders. Such provisions include the following:
These provisions could also reduce the price that certain investors might be willing to pay for our securities and result in the market price for our securities, including the market price for our Common Shares, being lower than it would be without these provisions.
The recent coronavirus outbreak or other health epidemics could significantly impact our operations, sales or ability to raise capital.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The outbreak was initially concentrated in China, although numerous cases continue to be confirmed in other countries. Our results of operations could be adversely affected to the extent that the coronavirus or any other epidemic harms the global economy. We may also experience impacts to certain of our or suppliers as a result of a health epidemic or other outbreak occurring in one or more of our markets. Further, our operations have and may further experience disruptions, such as temporary closure of our offices and/or those of our suppliers and suspension of services, which may materially and adversely affect our business, financial condition and results of operations. Such a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, which could in turn adversely impact our ability to raise capital. The duration of the business disruption and related financial impact cannot be reasonably estimated at this time but may materially affect our consolidated results for the first quarter and fiscal year 2020. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.
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ITEM 4. INFORMATION ON THE COMPANY
A. History and development of the Company
1. Name, Address and Incorporation; Trading Market
The Company was incorporated under the name "Medical Ventures Inc." pursuant to the Business Corporations Act (British Columbia) on November 2, 2000 and was continued to federal jurisdiction under the Canada Business Corporations Act on April 19, 2002. On July 1, 2008, the Company completed the acquisition of two Israel-based vascular device development companies, concurrently raising C$8.3 million in equity financing in a non-brokered private placement, completing a 20 for 1 share consolidation and changing its name from Medical Ventures Inc. to "Neovasc Inc."
The Company's registered and records office is located at Suite 2600, 595 Burrard Street, Three Bentall Center, Vancouver, British Columbia, V7X 1L3, telephone number (604) 270-4344. The Company's head office and principal place of business is located at Suite 5138 13562 Maycrest Way, Richmond, British Columbia, V6V 2J7.
The Company has been trading its Common Shares under the symbol "NVCN" on the Nasdaq since May 21, 2014 and on the TSX since March 13, 2017. Prior to that, the Company's Common Shares traded under the symbol "NVC" on the TSX beginning on June 23, 2014.
2. Summary Corporate History and Intercorporate Relationships
Intercorporate Relationships
The Company has the following seven wholly owned subsidiaries:
Name:
|
Date of Incorporation: | Jurisdiction of Incorporation: | ||
---|---|---|---|---|
Neovasc Medical Inc. (formerly PM Devices Inc.) |
May 7, 1998 | British Columbia | ||
Neovasc Tiara Inc. |
March 11, 2013 | Canada (federal) | ||
Neovasc Medical Ltd. |
September 9, 2002 | Israel | ||
Neovasc (US) Inc. (formerly Medical Ventures (US) Inc.) |
July 2, 2007 | United States | ||
B-Balloon Ltd.(1) |
March 30, 2004 | Israel | ||
Neovasc GmbH |
August 14, 2017 | Germany | ||
Neovasc Management Inc. |
January 23, 2018 | United States |
Overview
Neovasc is a specialty medical device company that develops, manufactures and markets products for the rapidly growing cardiovascular marketplace. Its products include the Tiara technology in development for the transcatheter treatment of mitral valve disease and the Reducer for the treatment of refractory angina.
Neovasc's business operations started in March 2002, with the acquisition of Neovasc Medical Inc. ("NMI") (formerly PM Devices Inc.). NMI manufactured a line of collagen based surgical patch products. The products are made from chemically treated pericardial tissue. In 2012, the Company sold the rights to the surgical patch products to LeMaitre Vascular, Inc. ("LeMaitre"), but retained rights to the underlying tissue technology for all other uses.
In May 2003, Neovasc acquired Angiometrx Inc. ("ANG"). ANG developed a technology called the Metricath, a catheter-based device that allowed clinicians to measure artery and stent size and confirm deployment during interventional treatment of coronary and peripheral artery disease. In 2009, Neovasc ceased all activities related to Metricath and on January 1, 2015 ANG was amalgamated into NMI.
In July 2008, Neovasc acquired two pre-commercial vascular device companies based in Israel: NML and B-Balloon Ltd. ("BBL"). NML developed and owned intellectual property related to the Reducer, a novel catheter-based treatment for refractory angina, a debilitating condition resulting from inadequate blood flow to
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the heart muscle. In 2009, Neovasc ceased all activities related to BBL's technologies and is in the process of voluntarily liquidating BBL.
In late 2009, Neovasc started initial activities to develop novel technologies for the catheter-based treatment of mitral valve disease. Based on the positive results of these activities, the Company launched a program to develop the Tiara transcatheter mitral valve.
In late 2016, Neovasc sold its tissue processing technology and facility for $67,909,800 to Boston Scientific, and concurrently, Boston Scientific invested an additional $7,090,200 in Neovasc for a 15% equity interest in the Company. Under the terms of the equity investment, Boston Scientific purchased 11,817,000 Common Shares of Neovasc at a price of $0.60 per Common Share, for gross proceeds of $7,090,200. Under the terms of the asset purchase agreement, Neovasc has been granted a license to the purchased assets and access to the sold facilities to allow it to continue its tissue and valve assembly activities for its remaining customers, and continue its own tissue-related programs, including advancing the Tiara through its clinical and regulatory pathways.
Additionally, throughout the years 2014 to 2019, the Company announced a number of developments pertaining to litigation, all as more fully discussed under Item 8.A "Consolidated Statements and Other Financial Information Legal Proceedings".
In November 2017, Neovasc completed the 2017 Financings, comprising the 2017 Public Transaction and the 2017 Private Placement, for aggregate gross proceeds of approximately $65 million. The Company used the net proceeds of the 2017 Financings to fully fund the approximately $42 million balance of the damages and interest awards in its litigation with CardiAQ (after subtracting the approximately $70 million that the Company had paid into escrow), with remaining funds being used (i) to partially fund the ongoing Tiara clinical program; (ii) to support the completion of the TIARA-II study; and (iii) for general corporate purposes. The only securities issued pursuant to the 2017 Financings that remain outstanding are $ 3,913,000 aggregate principal amount of the 2017 Notes. For a description of the terms of the 2017 Financings and the securities issued pursuant to the 2017 Financings, see Items 5.A "Operating and Financial Review and Prospects Discussion of Liquidity and Capital Resources" and 10.A "Share Capital" herein, and the prospectus supplement, dated November 10, 2017 (the "Prospectus Supplement") and the forms of securities, each as filed or furnished under the Company's profiles on SEDAR at www.sedar.com and on the SEC's website at www.sec.gov.
On February 28, 2019, the Company completed the February 2019 Financing, an underwritten public offering of 1,111,111 Common Shares, at a price of $4.50 per Common Share, for gross proceeds of approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company. The Company used the net proceeds of the February 2019 Financing for the development and commercialization of the Reducer, development of the Tiara and general corporate and working capital purposes. As part of the underwriter's compensation in the February 2019 Financing, the Company issued the underwriter warrants (the "February Broker Warrants") to purchase in aggregate up to a 72,222 Common Shares, exercisable at a price per Common Share equal to $5.625 for a period of three years following issuance.
On March 15, 2019, the Company completed the March 2019 Financing, an underwritten public offering of 1,111,111 Common Shares, at a price of $4.50 per Common Share, for gross proceeds of approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company. The Company used the net proceeds of the March 2019 Financing for the development and commercialization of the Reducer, development of the Tiara and general corporate and working capital purposes. As part of the underwriter's compensation in the March 2019 Financing, the Company issued the underwriter warrants (the "March Broker Warrants", and together with the February Broker Warrants, the "2019 Broker Warrants") to purchase in aggregate up to a 72,222 Common Shares, exercisable at a price per Common Share equal to $5.625 for a period of three years following issuance.
On May 16, 2019, the Company completed the May 2019 Financing of (i) the 15% original issue discount 2019 Notes with a face value of $11.5 million, for gross proceeds to the Company of $9,775,000, and (ii) 334,951 Common Shares at a price of $5.15 per Common Share, for gross proceeds to the Company of $1,725,000.
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On June 4, 2019, Dr. William O'Neill resigned from the board of Directors and Fred Colen was elected in his place, and on September 16, 2019, Jane Hsiao resigned from the board of Directors and Norman Radow was appointed in her place.
On January 6, 2020, the Company completed a registered direct offering of an aggregate of 1,185,000 series A units ("Series A Units") and 1,241,490 series B units ("Series B Units") at a price of US$4.1351 per Series A Unit and US$4.135 per Series B Unit for aggregate gross proceeds to the Company of approximately US$10 million, before deducting placement agent's fees and estimated expenses of the Offering payable by the Company.
On August 22, 2019, the Company received written notification (the "Notification Letter") from the Nasdaq notifying the Company that it is not in compliance with the minimum market value requirement set forth in Nasdaq Rules for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(2) requires companies to maintain a minimum market value of US$35 million and Listing Rule 5810(c)(3)(C) provides that a failure to meet the market value requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the market value of the Company for the 30 consecutive business days from July 10, 2019 to August 20, 2019, the Company no longer meets the minimum market value requirement. The Notification Letter does not impact the Company's listing on the Nasdaq Capital Market at this time. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company has been provided 180 calendar days, or until February 17, 2020, to regain compliance with Nasdaq Listing Rule 5550(b)(2). To regain compliance, the Company's market value must exceed US$35 million for a minimum of 10 consecutive business days. The Company did not regain compliance by February 17, 2020. On February 19, 2020, the Company received notice from the Listing Qualifications Staff (the "Staff") of The Nasdaq Stock Market LLC ("Nasdaq") indicating that the Staff had determined to delist the Company's common shares from Nasdaq unless the Company requests a hearing before the Nasdaq Hearings Panel. On February 26, 2020, the Company requested such a hearing and the date of the hearing has been set by the Nasdaq for April 2, 2020. This request for a hearing will stay any further action by the Staff and the Company's securities will continue to be eligible to trade on Nasdaq at least pending the ultimate conclusion of the hearing process.
The Company and its subsidiaries now operate as follows: Neovasc Inc. is the Canadian public company and 100% owner of each of the subsidiary entities. NMI and Neovasc (US) Inc. ("NUS") are the operating companies for the group. They hold the majority of the tangible assets and NMI holds the Peripatch tissue license. NMI and NUS employ the majority of the employees of the Company. NTI holds all the intangible assets related to the Tiara and NML holds all the intangible assets related to the Reducer program. NMI charges both NTI and NML for the development services performed by its employees to develop the Tiara and the Reducer respectively. NML receives a royalty based on the Reducer revenues generated by NMI. NUS, the full fledged distributer of Reducer IP in the US and of Tiara IP globally, charges NMI for development services performed by its employees to develop the Tiara and the Reducer respectively and these are then passed on through NMI to NTI and NML respectively. Neovasc GmbH conducts sales and marketing activities on behalf of NMI as part of the license agreement between NML and NMI for NMI to manufacture, distribute and sell the Reducer on behalf of NML. Neovasc Management Inc provides executive management services to Neovasc Inc.
B. Business Overview
Introduction
Neovasc is a specialty medical device company that develops, manufactures and markets products for the rapidly growing cardiovascular marketplace. Its products include the Tiara technology, in development for the transcatheter treatment of mitral valve disease, and the Reducer, for the treatment of refractory angina.
In 2009, Neovasc started initial activities to develop novel technologies for catheter-based treatment of mitral valve disease. Based on the early positive results of these activities, the Company formally launched a program to develop the Tiara. Neovasc established a separate entity, Neovasc Tiara Inc. ("NTI"), in March 2013 to develop and own the intellectual property related to the Tiara (Neovasc has transferred all intellectual property related to Tiara to NTI). On February 3, 2014, Neovasc announced the first human implant of the Tiara under special access compassionate use exemptions. Subsequently additional patients have been treated with the
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Tiara (22 under compassionate use approvals in Vancouver, Canada and in Europe, 27 in the TIARA-I study and 33 in the TIARA-II clinical trial) bringing the total number of patients treated with the device to 82 through March 27, 2020. In December 2014, the Company announced that it had received approval from the U.S. Food and Drug Administration ("FDA") to initiate the TIARA-I study in the United States. The TIARA-I study is a multinational, multicenter early feasibility study being conducted to assess the safety and performance of the Tiara valve system in high risk surgical patients. The study includes 27 patients enrolled at centers in the United States, Canada and Belgium. We received approval from the FDA to close enrollment in the TIARA-I study in the United States on November 15, 2019. On November 28, 2016, the Company announced that it had received both regulatory and ethics committee approval to initiate the TIARA-II in Italy. The TIARA-II study has since expanded through the opening of clinical sites in Germany, Israel, Spain and the United Kingdom. The TIARA-II study is a 115 patient, non-randomized, prospective clinical study evaluating the Tiara's safety and performance. It is expected that data from this study will be used to file for CE Mark approval which would enable Neovasc to market the device in Europe.
In July 2008, Neovasc acquired NML, a pre-commercial vascular device company based in Israel. NML developed and owned intellectual property related to a novel catheter-based treatment for refractory angina, a debilitating condition resulting from inadequate blood flow to the heart muscle. Refractory angina, resulting in continuing symptoms despite maximal medical therapy and without further revascularization options, is estimated to affect 600,000 to 1.8 million Americans, with 50,000 to 100,000 new cases per year. A recent publication in the Cardiovascular Revascularization Medicine Journal by Benck and Henry suggests that the prevalence of No-Option Refractory Disabling Angina (NORDA) in the U.S. population is between 26,000 and 52,000. In another publication in the European Heart Journal by Crea et al., stated persistence of angina caused by incomplete coronary revascularization may occur in up to 30% in the current era, although definitions of incomplete revascularization are heterogeneous. It further stated that persistent angina is associated with a significant economic burden with healthcare costs almost being two-fold higher among patients with persistent angina post-percutaneous coronary intervention vs. those who become symptom free. The Company completed development of the Reducer and obtained authorization to affix the CE Mark, which allows for marketing of the Reducer product in the European marketplace. The Company initiated commercial sales of the Reducer product in early-2015. In March 2014, the Company announced that results of its COSIRA clinical trial had been presented at the ACC.14 medical conference. The COSIRA trial was a sham-controlled randomized, double-blinded study of the Reducer device in 104 patients with moderate to severe refractory angina. The results presented at ACC.14 confirmed that the COSIRA study had met its primary endpoint demonstrating the efficacy of the Reducer device with statistical significance. The COSIRA trial results were published in the New England Journal of Medicine in February 2015.
In 2016, Neovasc initiated the REDUCER-I observational study as a multi-center, multi-country, three-arm study collecting long-term data from European patients implanted with the Reducer. The study is expected to enroll up to 400 patients. Currently, 190 patients have been enrolled across 20 centers that are active in Italy, Germany, Belgium, Netherlands, United Kingdom and Switzerland. In February 2018, the Reducer reached NUB 1 status in Germany, the highest level for important new therapies. NUB 1 status was renewed in January 2019 and again in January 2020. In 2018 and 2019. In 2020, more German clinics will continue to negotiate and finalize these reimbursement negotiations.
In October 2018, the Company announced that the FDA designated the Reducer as a Breakthrough Device. In December 2018, the Company filed a Q-Sub submission to the FDA containing a comprehensive overview of all available Reducer Clinical data, real world performance data and a risk/benefit analysis for patients with Refractory Angina requesting an FDA Sprint discussion meeting. The Sprint discussion occurred during January 2019. On February 20, 2019 the Company announced that the FDA had informed Neovasc that, despite "Breakthrough Device Designation", the FDA review team recommends collection of further pre-market blinded data prior to PMA submission. Through the Sprint discussion process, Neovasc will continue discussions with the FDA and their senior management to attempt to bring this promising refractory angina device therapy to U.S. patients as soon as possible. On December 31, 2019, the Company announced the submission of a PMA to the FDA for the Reducer.
Neovasc's business operations started in March 2002, with the acquisition of Neovasc Medical Inc. ("NMI"). NMI manufactured a line of collagen-based surgical patch products made for use in cardiac
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reconstruction and vascular repair procedures as well as other surgeries. Neovasc, through NMI, also sold biological tissue to industry partners and other customers who incorporated this tissue into their own products such as transcatheter heart valves. Neovasc's biological products were made from chemically treated biocompatible pericardial tissue. In 2012, Neovasc sold the rights to manufacture a specific line of conventional surgical patch products to LeMaitre Vascular, Inc. ("LeMaitre") for $4.6 million but retained rights to the underlying tissue technology for all other uses. On December 2, 2016, the Company and Boston Scientific entered into a definitive agreement for Boston Scientific Corporation to acquire Neovasc's advanced biologic tissue capabilities and certain manufacturing assets and make a 15% equity investment in Neovasc, for a total of $75 million in cash. Neovasc retained a license for its own Tiara products but ceased operations of its consulting services and contract manufacturing revenue line items in 2017.
Neovasc's Strategy
The Company's core strategy is to focus on re-establishing trust and confidence with its stakeholders, to re-structure the Company's financing and to continue the development and commercialization of its products, the Tiara and the Reducer, providing minimally invasive medical devices for a cardiovascular market that the Company believes is both growing and under-served by current treatment solutions.
Key elements of this strategy include:
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Neovasc's Products
Tiara
In 2009, Neovasc started initial activities to develop novel technologies for catheter-based treatment of mitral valve disease. In the second quarter of 2011, the Company formally initiated a new project to develop the Tiara, a product for treating mitral valve disease. The transapically delivered Tiara is currently in the clinical trial phase providing a minimally invasive transcatheter device for patients who experience severe Mitral Regurgitation as a result of functional (most patients) or degenerative mitral heart valve disease, combined with an enlarged left ventricle. There are millions of patients worldwide who suffer from severe Mitral valve regurgitation, the majority of them with functional Mitral Regurgitation. The unmet medical need in these patients is high. Mitral Regurgitation is often severe and can lead to heart failure and death. Currently, a significant percentage of patients with severe Mitral Regurgitation are not good candidates for conventional surgical repair or replacement due to frailty or comorbidities. Many of these patients are treated today via minimally invasive mitral valve repair procedures; however, these procedures are also complex, can take a long period of time to complete, and the clinical outcomes may not be optimal. Currently there is no transcatheter mitral valve replacement device approved for use in the U.S.
Our clinical experience to date has been with the 35 mm and 40 mm Tiara valve. First clinical use of the 40mm Tiara occurred in the fourth quarter of 2015. These two sizes allow for the treatment of approximately 75% of the annulus sizes in this high-risk patient population, in our TIARA-I and TIARA-II Clinical Studies. Currently, approximately 20% of this high-risk patient population meet all inclusion criteria for the Tiara studies and can be treated.
As of March 27, 2020, 82 patients have been treated with Tiara in either the TIARA-I Early Feasibility Clinical Study, compassionate use cases or in our TIARA-II CE Mark Clinical Study. Neovasc believes that early results have been encouraging. The 30-day survival rate for the 82 patients treated with the Tiara (i.e. those treated more than 30 days ago) is 89% with one patient now over six years post implant. The Tiara has successfully treated both functional and degenerative Mitral Regurgitation patients, as well as patients with pre-existing prosthetic aortic valves and mitral surgical annuloplasty rings. On November 15, 2019, TIARA-I study enrollment was closed with 27 treated patients enrolled. This decision was not due to any safety concerns. The objective of the TIARA-I Early Feasibility study was to demonstrate the safety of the Neovasc TMVR system, while gathering preliminary information on device performance and clinical outcomes. With the experience to date, we believe that we have accomplished this objective. The patients that are in follow-up will continue to be followed with continued follow up assessments, reporting requirements, etc. as per protocol through their 5-year visits. This decision has no impact on the currently enrolling TIARA-II CE Mark Study. There are currently 18 active sites across Germany, Israel, Spain, the Netherlands and the UK with additional sites in the process of obtaining regulatory approvals.
The results from our clinical experience to-date continues to demonstrate the potential benefit for patients who otherwise have no treatment options. Patient selection continues to be challenging as the Company and clinical community continue to learn more about treating this population of very sick patients.
Neovasc believes that there are several unique attributes of the Tiara that may provide advantages over other approaches to mitral valve replacement, in particular the low atrial profile, its D shape, enabling a better anatomical fit and less risk of left ventricular outflow tract obstruction, and its unique combined skirt and anchoring mechanism. The Tiara has successfully treated 17 patients with previous aortic valves (AVR), including mechanical, bioprosthetic and TAVI, without any LVOT obstruction, no peri-procedural deaths or paravalvular leak. Data on the first twelve patients with previous AVR, treated with Tiara was published in 2018 in Circulation: Cardiovascular Interventions.
There are several other transcatheter mitral valve replacement devices in development by third-parties, some of which have been implanted in early feasibility type studies, pivotal U.S. studies, and CE Mark studies with varying results. There is no certainty that the Tiara will successfully proceed through clinical evaluation and ultimately receive regulatory approval to treat these patients.
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The Tiara valve is manufactured, packaged and labelled in-house by the Company and is made up of two major components: the leaflets which are made from the Peripatch bovine tissue licensed from Boston Scientific, a fabric skirt, and the nitinol frame (to which the leaflets and skirt are attached), which is manufactured by a well-established specialty manufacturer in the medical device industry. If this supplier were unable to provide the nitinol frame in the future, it would seriously impact further development of the Tiara. The Tiara delivery system is manufactured, packaged and labelled in-house by the Company using customized standard catheter construction components that are readily available through vendors.
The TIARA-II study is estimated to cost approximately $15 million. While many challenges remain prior to achieving commercialization (including, but not limited to, positive clinical trial results and obtaining regulatory approval from the relevant authorities), the Company believes the Tiara is being recognized as one of the leading mitral valve replacement devices. Neovasc is managing and conducting the TIARA-II study itself in conjunction with certain service providers who undertake portions of data collection, data management, data analysis, safety and event monitoring and similar functions. The Tiara is currently manufactured for use in these studies by Neovasc at its own facilities following required medical device quality requirements. In the event of a positive outcome from the TIARA-II study and the Company successfully obtaining CE Mark approval, the Tiara would be commercially manufactured in the same manner at Neovasc's facility.
Regulatory Status
The Tiara is an early-stage development product without regulatory approvals in any country. The Company intends to continue to fund development of the product as cash flow allows and is targeting applying for CE Mark approval in Europe in approximately 2020, assuming sufficient patients will have been enrolled with sufficient follow-up time by then. There is no assurance that European regulatory filing and an approval will be granted in the time frame anticipated by management or granted at any time in the future. There is no expectation that this product will be revenue-generating in the near term, although management believes that the product is addressing an important unmet clinical need.
On November 28, 2016, the Company announced that it had received both regulatory and ethics committee approval to initiate the TIARA-II study in Italy. Since then Neovasc has received regulatory and ethics committee approvals to conduct the study in Germany, Israel, Spain, the Netherlands and the United Kingdom.
Reducer
The Reducer is a treatment for patients with refractory angina, a painful and debilitating condition that occurs when the coronary arteries deliver an inadequate supply of blood to the heart muscle, despite treatment with standard revascularization or cardiac drug therapies.
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Worldwide, coronary artery disease ("CAD") is the leading cause of death. It is the largest contributor to the global burden of disease as reflected in disability-adjusted life years, a measure which combines premature mortality and the prevalence and severity of ill-health. On this measure, the impact of CAD increased by 29% in the period 1990 to 2010. This reflects the worldwide shift to those chronic diseases associated with an ageing global population. The most frequent (and often the first) manifestation of stable CAD is chronic stable angina. As a result, angina is a significant burden of healthcare systems worldwide. There is a clear association between more frequent angina and greater utilization of healthcare resources.
Refractory angina, resulting in continued symptoms despite maximal medical therapy without revascularization options, is estimated to affect 600,000 to 1.8 million Americans, with 50,000 to 100,000 new cases per year. A recent publication in the Cardiovascular Revascularization Medicine Journal by Benck and Henry suggests that the prevalence of No-Option Refractory Disabling Angina (NORDA) in the U.S. population is between 26,000 and 52,000. Another publication in the European Heart Journal by Crea et al., stated persistence of angina caused by incomplete coronary revascularization may occur in up to 30% in the current era, although definitions of incomplete revascularization are heterogeneous. It further stated that persistent angina is associated with a significant economic burden with healthcare costs almost being two-fold higher among patients with persistent angina post-percutaneous coronary intervention vs. those who become symptom free. Additionally, there is emerging interest in treating patients that have refractory angina despite patent coronary arteries. Angina with non-obstructive coronary artery disease may affect as many as 39% of patients with chest pain according to a study from Patel et. al, published in the New England Journal of Medicine. Furthermore, a publication in Circulation by Lee et. al. suggests upwards of 20% of patients with angina and non-obstructive coronary artery disease have evidence of microvascular dysfunction. Increasing interest in diagnosis and treatment of angina and microvascular dysfunction as evidenced by the 2019 ESC Guidelines for the diagnosis and management of chronic coronary syndromes provides growing support for Reducer treatment.
The pain and shortness of breath associated with refractory angina can make it difficult for patients to engage in routine activities, such as walking or climbing stairs. Clinical studies demonstrate that the Reducer can provide significant relief of chest pain, shortness of breath and other debilitating symptoms in refractory angina patients. A significant proportion of the angina patients in the United States and in Europe are potential candidates for the current Reducer therapy, either because they cannot be revascularized or because they are otherwise poorly managed using conventional medical therapies. These patients represent a substantial potential market opportunity for the Reducer. There continues to be interest from the medical community to explore the use of Reducer for other indications. Further clinical trials will need to be conducted to explore this possibility.
The Reducer is targeting a patient population that has failed to gain relief of their symptoms, despite other medical treatment options. A refractory patient by definition is resistant to other therapies, existing interventional cardiology therapies and is not receiving adequate relief from available drug regimens to manage their chest pain, shortness of breath and other debilitating symptoms. As such there are currently no direct competitors to the Reducer as the patient will have exhausted all other treatment options before the Reducer is considered. Neovasc believes that further studies may demonstrate that additional patient populations may benefit from treatment with Reducer and thus could further increase its market potential.
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The Reducer is an hourglass-shaped, balloon-expandable, stainless steel, bare metal device, which is implanted in the coronary sinus, creating a restriction in venous outflow from the myocardium (the muscular layer of the heart wall). It is implanted using conventional percutaneous, or needle puncture, techniques. The Reducer is provided sterile and pre-loaded on a balloon catheter system. The system is 9 French sheath compatible and operates over a .035 inch guide wire. The implant procedure requires minimal training for experienced interventionalists. Once guide wire access to the coronary sinus is achieved, implantation typically takes less than 20 minutes.
Using a catheter-based procedure, the Reducer is implanted in the coronary sinus (the main vein draining blood from the heart muscle). Following implantation, the Reducer becomes covered with endothelial tissue after about 4-6 weeks. This tissue coverage creates a permanent (but reversible, if necessary) narrowing in the coronary sinus. The coronary sinus is narrowed from a typical diameter of 10-12mm to approximately 3mm at the site of implantation. This focal narrowing provides a backwards pressure elevation in the coronary sinus which is intended to improve blood perfusion to ischemic territories of the heart muscle by forcing redistribution of blood from the less ischemic areas to the more ischemic areas of the heart muscle. This can result in improved perfusion of the endocardium, which helps relieve ischemia and chest pain, shortness of breath and other debilitating symptoms. The physiological mechanism behind this effect is well documented in medical literature.
The clinical utility of this approach was demonstrated by a number of analogous approaches used in the past that achieved positive clinical outcomes for angina patients by constricting or intermittently blocking the coronary sinus to improve perfusion to the heart muscle. However, these therapies required the use of highly invasive surgery, or leaving a catheter in the heart for a prolonged period, making them impractical or clinically unacceptable for use in modern medical practice. The Reducer was developed to deliver this therapy in a safe, simple and effective manner via a minimally invasive catheter that is consistent with contemporary medical practice.
The Reducer has demonstrated excellent results in multiple animal studies, a first-in-human clinical trial of fifteen patients suffering from chronic refractory angina who were followed out to six months, and then again at three years post implantation. The six-month results from this clinical trial were published in the Journal of the American College of Cardiology and three-year follow-up data was presented at the annual scientific meeting of the American College of Cardiology in March 2010. In this clinical trial, implantation of the Reducer resulted in significant clinical improvements in stress test and perfusion measurements, as well as in overall quality of life in the majority of the patients at six months and these same results were noted at the three year follow up. During this period, the Reducer appeared safe and well tolerated in these patients.
The Company completed the COSIRA trial, a prospective, multicenter, randomized, double-blind, sham-controlled study to assess the safety and effectiveness of the Reducer device in 2013. The COSIRA trial's primary endpoint was a two-class improvement in Angina symptoms, six months after implantation in patients' ratings on the CCS angina grading scale, a four-class functional classification that is widely used to characterize the severity of angina symptoms and disability. Only patients with severe angina, CCS Class III or IV, were enrolled in the COSIRA trial. The COSIRA trial analysis showed that the study met the primary endpoint, with
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patients receiving the Reducer achieving a statistically significant improvement in CCS scores (two classes or better) compared to patients receiving a sham control (18 of 52 [34.6%] of the Reducer patients improved ³ 2 CCS classes compared to 8 of 52 [15.4%] of the control patients [p-value = 0.024]). The analysis also showed that patients treated with the Reducer showed a statistically significant improvement of one or more CCS classes compared to the sham control patients (37 of 52 [71.2%] of the Reducer patients showed this improvement compared to 22 of 52 [42.3%] of the control patients [p-value = 0.003]). The COSIRA trial results were published in the New England Journal of Medicine in February 2015.
In 2016, Neovasc initiated the REDUCER-I observational study as a multi-center, multi-country, three-arm study collecting long-term data from European patients implanted with the Reducer. The study is expected to enroll up to 400 patients. Currently, 242 patients have been enrolled across 23 centers that are active in Italy, Germany, Austria, Belgium, the Netherlands, the United Kingdom and Switzerland.
In 2018 an article by Parikh, Parth et al., was published in the Journal of the American College of Cardiology (JACC) titled, "First-in-Human Use of Coronary Sinus Reducer in Patients with Refractory Angina". This article describes the long-term structural, anatomic, and clinical durability of the Reducer. Reducers were patent 12 years following implantation, with no signs of strut fractures, dislocation, thrombosis, or migration, and sustained improvement in angina class at six months and three years. These results were also maintained at the 12-year follow-up.
Hundreds of patients have been enrolled in clinical studies conducted by third parties across Europe and Israel relating to the Reducer. These studies continue to show a strong safety profile and positive clinical results that trend closely to the COSIRA randomized study. Many of these studies have been published and presented in medical forums. It is anticipated that as the commercial use of the Reducer continues to expand, additional third-party studies, investigations and presentations will be undertaken. If the results from such third-party activities continue to show positive results from the product, they may provide additional data to support expanded adoption of the Reducer for the intended patient population. As a result of the clinical evidence from these studies and publications, the Reducer Therapy has now been recognized in the European Society of Cardiology Guidelines as a treatment option for refractory angina.
There have been numerous publications of clinical results since the COSIRA study was published in the New England Journal of Medicine in 2015. Recently a publication in the European Heart Journal by Gallone, et al., on the "Cost-effectiveness of the coronary sinus Reducer and its impact on the healthcare burden of refractory angina" indicated that the Reducer was consistently cost-effective according to a range of cost-effectiveness thresholds after just one year of implant.
Following the positive data from the COSIRA trial, the Company initiated a pilot launch of the Reducer in select European markets in early 2015. The Company has signed distribution agreements in multiple jurisdictions across Europe. Direct sales are underway in select centers in Germany. Based on the initial results from the targeted launch, Neovasc has developed an expanded sales plan and strategy for 2020 and beyond. Any sales of the product in the United States would follow obtaining U.S. regulatory approval, if such approval is granted, as described further below.
Based on achieving NUB 1 status in Germany and a general positive reception in the European market, with positive experiences by many physicians from the treatment of their own patients with the Reducer, we are seeing an increase in adoption of the Reducer therapy in Europe. The commercial progress for the Reducer in 2019 was encouraging with a 20% increase in revenue compared to 2018.
The Reducer therapy requires broader therapy development in the market and in particular with referring physicians. The Company has launched pilot programs in Germany, with additional support from a professional therapy development organization, to learn more about therapy development challenges and opportunities.
We are seeing a growing level of enthusiasm in Europe for the Reducer therapy and we believe that the therapy has significant potential. In order to further accelerate the penetration of the therapy, we are open to considering strategic alternatives for the Reducer, including potential alliances in Europe, the United States and the rest of the world.
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On January 18, 2018, the Company reported the Reducer was featured in a "live case" broadcast to more than 800 participants at the Kardiologie Symposium 2018 held in Berlin, Germany. The successful live case was performed by Dr. Spyrantis and Professor Banai in the Sana-Klinikum Lichtenberg. During May 2018 and again in 2019, at the Euro PCR Conference in Paris, the Reducer was showcased during a dedicated Reducer symposium.
On June 20, 2018, the Company announced the first U.S. patient had been implanted with the Reducer under compassionate use. On October 3, 2018, the Company reported the positive follow-up for this patient noting that the patient was able to walk several miles without any symptoms. The patient has reduced his use of nitroglycerin from 2-3 times a week to 1 or 2 times per month. A second patient received a Reducer implant under Compassionate Use on January 31, 2019 in the U.S. The most recent update from the attending physician indicated that this second patient was doing well.
On March 5, 2019, the Company reported the Reducer was featured in a "live case" broadcast to more than 3,000 participants at the Cardiovascular Research Technologies (CRT) meeting in Washington D.C. The successful live case was performed by Dr Giannini at Maria Cecilia Hospital in Cotignola, Italy.
On May 6, 2019, the Company announced that 1,000 patients diagnosed with refractory angina have been treated with the Reducer. The Reducer therapy now benefits from medical evidence spanning 1,000 patients and 14 years of follow up.
On September 3, 2019, the Company announced that the European Society of Cardiology included Neovasc Reducer in the European Practice Guidelines for the Diagnosis and Management of Chronic Coronary Syndromes. The Reducer entered at Class 2 B, the highest recommendation class for therapies addressing refractory angina.
On November 1, 2019, the Company announced it had advised the FDA of its decision to submit a PMA application, and on December 31, 2019, the Company announced the submission of a PMA to the FDA for the Reducer.
Regulatory Status
The Reducer is approved for sale in Europe, having received CE Mark designation in November 2011. In preparation for product launch, Neovasc completed development of the commercial-generation Reducer and the product is currently in commercial scale manufacture.
On November 3, 2017, Neovasc received FDA approval for a U.S. IDE clinical trial, COSIRA II (a trial design similar to the COSIRA study). While the principal investigator and co-principal investigator for this study were already appointed, the Company evaluated the timing for starting such a U.S. clinical trial, funding being the largest impediment. The cost of this U.S. clinical trial is expected to be approximately $20 million. U.S. marketing approval is expected about four years after the clinical trial begins. There is no assurance that U.S. regulatory approval will be granted in the time frame anticipated by management, or granted at any time in the future.
On October 10, 2018, the Company announced that the FDA has granted "Breakthrough Device Designation" for the Reducer. The FDA grants this designation in order to expedite the development and review of a device that demonstrates compelling potential to provide a more effective treatment or diagnosis for life-threatening or irreversibly debilitating diseases.
On December 20, 2018, Neovasc filed a comprehensive Q-Sub submission to the FDA with all available Reducer Clinical evidence, requesting a Sprint FDA discussion meeting. The Neovasc team, together with two top U.S. Cardiologists, met with the FDA proposing moving forward with a PMA submission using the available Neovasc clinical evidence including the prospective, multicenter, randomized, double-blind, sham controlled study assessing the safety and efficacy of the Reducer in 104 patients in the European Union and Canada (COSIRA), a multi-center, multi-country, three-arm observational post market study (REDUCER-I), and supportive safety and efficacy data from peer-reviewed journals.
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On February 20, 2019 the Company announced that the FDA had informed Neovasc that, despite "Breakthrough Device Designation", the FDA review team recommends collection of further pre-market blinded data prior to PMA submission.
On June 26, 2019, the Company and two top U.S. Cardiologists, met with FDA to further discuss available clinical evidence for the Reducer, to try to reach agreement on potential options to enter the U.S. Market. FDA provided the Company with guidance towards potential alternate options, including the HDE pathway for class IV refractory angina patients and/or alternate clinical trial designs for a broader refractory angina patient population.
Following the Sprint discussion held with the FDA on October 9, 2019 and weighing all available options a decision was made by the Company to pursue a PMA application for this Breakthrough medical device. The Company believes that the totality of clinical evidence from the COSIRA study, interim results from the REDUCER-I European Post-Market study, and multiple independent studies published in peer-reviewed journals, will provide reasonable assurance of safety and effectiveness to support a PMA. The PMA application was submitted December 30, 2019, with a request for an Advisory Panel meeting. While any pathway to U.S. market approval by the FDA carries considerable risk, and there can be no assurance that the PMA will be approved by the FDA in a timely manner or at all, we believe the full PMA application pathway brings the best chance of success within reasonable cost and time constraints. While an additional post-market study will most likely be needed and the body of real-world evidence continues to grow, the Company believes that the clinical evidence already available will be sufficient to not further delay the availability of this Breakthrough medical device for the treatment of U.S. patients. In the event that the PMA is approved by the FDA, there can be no assurance that Neovasc will be successful in commencing commercialization of Reducer in the United States on a timely basis or at all, or of the total addressable market size for Reducer.
New Products/Components/Cycles
Tiara
A key strategic and focused activity for the Company in the Mitral Valve space is the development of the transfemoral, trans-septal version of the Tiara Mitral Valve, which the Company believes has the potential to lead to a breakthrough for the optimal treatment of severe Mitral Regurgitation, by providing a safe and broadly usable implantation technique. These development activities are taking place both in the Company's Vancouver, BC and New Brighton, MN facilities. Outside of the development of a unique and innovative delivery system, the Company will make several minor, but meaningful changes to the current Tiara valve, in order to enhance trans-septal delivery & deployment, as well as to further increase the suitable patient population, while maintaining the core features and functionality of the current valve in order to leverage clinical and technical performance data. We initiated the formal development of this system, based on the completed conceptual work at the end of the first quarter of 2019.
Reducer
The Reducer is a late-stage product with European CE Mark approval. The Company initiated a pilot launch of the Reducer in select European markets in 2015. The Company has also been exploring initiation of the Reducer sales in other non-US markets and has signed distribution agreements in several countries. Any sales of the product in the United States would follow obtaining U.S. regulatory approval, if such approval is granted, as described further above.
A well-known and well-established medical device contract manufacturer is manufacturing the Reducer for the Company. The majority of the components that make up the Reducer are readily available; however, two critical components of the device are not. The balloon portion of the delivery system is technically challenging to manufacture and the Reducer device, while a basic technology, must be manufactured in Israel due to restrictions on the transfer of intellectual property and manufacturing out of Israel stemming from certain research grants received by NML prior to the acquisition in July 2008.
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Peripatch Technology used in our Tiara Mitral Valve
The basic Peripatch technology licensed from Boston Scientific was established over 25 years ago, when the material was used to fashion the leaflets and other components in surgical heart valves.
Neovasc sources its bovine tissue from abattoirs in New Zealand for the manufacture of Tiara devices. There is a degree of capacity constraint related to the supply of raw tissue but the risk of disruption is minimal, due to the relatively small amounts of tissue required for the current Tiara programs.
While a definitive pattern of demand has not yet been established and the effect is expected to be minimal, the cyclical nature of the meat industry could conceivably have an impact on the quality and availability of raw tissue and could potentially impact the yields and margins for the product over the course of any given year. Further information about Peripatch can be found above under the heading "Neovasc's Products".
Principal Markets
Category of Activity
The Company's revenues have historically been derived from its sales of the Reducer, contract manufacturing and consulting services. The following table sets forth the breakdown of revenues by these categories of activity:
|
% Revenue | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Year Ended December 31, | |||||||||
Category of Activity
|
2019 | 2018 | 2017 | |||||||
Reducer Sales |
$ | 2,092,032 | $ | 1,749,133 | $ | 1,128,126 | ||||
Contract Manufacturing |
| | $ | 949,379 | ||||||
Consulting Services |
| | $ | 3,311,509 | ||||||
Total |
$ | 2,092,032 | $ | 1,749,133 | $ | 5,389,014 |
At the end of 2017, the Company ceased all Contract Manufacturing and Consulting Services activities and is now focused on the commercialization of its own product, the Reducer, only.
Marketing
The Company markets the Reducer through direct sales in Germany and through distributors for other countries in Europe and the Middle East. The Company has signed distribution agreements in a number of European countries as well as Saudi Arabia and Israel, and has ongoing Reducer sales activities in these countries. In 2020, Neovasc's marketing plan is to focus its sales activities on Germany after retaining NUB 1 status in that country, as well as on further penetration of markets where the Company already has a sales presence with distributors, rather than expanding into more countries at this point in time. The Company is unable to initiate marketing activities in the United States until receiving U.S. regulatory approval, if such approval is granted. Based on achieving NUB 1 status in Germany and a general positive reception of the Reducer in the European market, including positive experiences by many physicians treating their own patients with the Reducer, the Company is seeing an increase in adoption of the Reducer therapy in Europe and is focusing on using its NUB 1 status to further develop its marketing efforts, in Germany in particular.
Economic Dependence
Our success and competitive position are dependent in part upon our proprietary intellectual property. We rely on a combination of patents and trade secrets to protect our proprietary intellectual property, and we expect to continue to do so.
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Commercial Contracts
For the year ended December 31, 2019, revenues from the Company's three largest customers accounted for approximately 12%, 9% and 8% of the Company's sales. These customers are typically established medical device distributors who distribute Reducer within a broader portfolio of third party products.
Intellectual Property Strategy
Both Neovasc and the broader medical device industry attach significant importance to patents for the protection of new technologies, products and processes. Accordingly, Neovasc's success depends, in part, on its ability to obtain patents or rights thereto, to protect commercial secrets and carry on activities without infringing the rights of third parties. See "Risk Factors" in Item 3.D and "Consolidated Statements and Other Financial Information Legal Proceedings" in Item 8.A elsewhere in this Annual Report for a description of certain pending, ongoing or potential future legal proceedings and risks relating thereto. Where appropriate, and consistent with management's objectives, patents are pursued once concepts have been validated through appropriate laboratory work. To that end, Neovasc will continue to seek patents in relation to those components or concepts that it perceives to be important.
Neovasc has patents and patent applications with respect to its technology. The specific active patent applications and granted patents to which Neovasc has rights are listed below, along with notes relating to the countries in which the patent applications have been filed and the expected expiration dates of such patent applications.
Tiara Pending Applications
TITLE
|
SERIAL NUMBER | COUNTRY |
STANDARD
EXPIRATION DATES |
|||
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METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM |
2854719 | European Patent Office | May 30, 2033 | |||
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM |
2016106476576 | China | May 30, 2033 | |||
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM |
20190254820 | United States of America | May 29, 2033 | |||
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM |
2900571 | Canada | March 6, 2034 | |||
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM |
2018112168938 | China | March 6, 2034 | |||
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM |
147641062 | European Patent Office | March 6, 2034 | |||
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM |
14195576 | United States of America | March 3, 2034 | |||
METHODS AND SYSTEMS FOR RAPID RETRACTION OF A TRANSCATHETER HEART VALVE DELIVERY SYSTEM |
15819512 | United States of America | N/A | |||
METHODS AND SYSTEMS FOR RAPID RETRACTION OF A TRANSCATHETER HEART VALVE DELIVERY SYSTEM |
201736296 | Australia | November 21, 2037 | |||
METHODS AND SYSTEMS FOR RAPID RETRACTION OF A TRANSCATHETER HEART VALVE DELIVERY SYSTEM |
3042588 | Canada | November 21, 2037 | |||
METHODS AND SYSTEMS FOR RAPID RETRACTION OF A TRANSCATHETER HEART VALVE DELIVERY SYSTEM |
137495784 | European Patent Office | February 13, 2033 |
43
TITLE
|
SERIAL NUMBER | COUNTRY |
STANDARD
EXPIRATION DATES |
|||
---|---|---|---|---|---|---|
METHODS AND SYSTEMS FOR RAPID RETRACTION OF A TRANSCATHETER HEART VALVE DELIVERY SYSTEM |
2017800720409 | China | November 21, 2037 | |||
METHODS AND SYSTEMS FOR RAPID RETRACTION OF A TRANSCATHETER HEART VALVE DELIVERY SYSTEM |
178708202 | European Patent Office | November 21, 2037 | |||
METHODS AND SYSTEMS FOR RAPID RETRACTION OF A TRANSCATHETER HEART VALVE DELIVERY SYSTEM |
2019526481 | Japan | November 21, 2037 | |||
METHODS AND SYSTEMS FOR RAPID RETRACTION OF A TRANSCATHETER HEART VALVE DELIVERY SYSTEM |
16-796157 | United States of America | March 3, 2034 | |||
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE |
3066262 | Canada | February 13, 2033 | |||
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE |
137495784 | European Patent Office | February 13, 2033 | |||
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE |
16/439170 | United States of America | February 8, 2033 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
3043737 | Canada | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
117770651 | European Patent Office | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
2019000320 | Japan | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
191896000 | European Patent Office | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
191895416 | European Patent Office | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
16/559191 | United States of America | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
16/659354 | United States of America | April 28, 2031 | |||
TRANSFEMORAL DELIVERY SYSTEM |
2020191015527 | Germany | December 15, 2026 | |||
TRANSSEPTAL DELIVERY SYSTEM |
2016800818120 | China | December 15, 2026 | |||
TRANSSEPTAL DELIVERY SYSTEM |
168742054 | European Patent Office | December 15, 2026 | |||
TRANSSEPTAL DELIVERY SYSTEM |
2018530833 | Japan | December 15, 2026 | |||
TRANSSEPTAL DELIVERY SYSTEM |
3007660 | Canada | December 15, 2026 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
16/707481 | United States | November 16, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
3065854 | Canada | November 20, 2032 | |||
PROSTHETIC VALVE FOR AVOIDING OBSTRUCTION OF OUTFLOW |
3007670 | Canada | January 27, 2037 | |||
PROSTHETIC VALVE FOR AVOIDING OBSTRUCTION OF OUTFLOW |
201780021798X | China | January 27, 2037 | |||
PROSTHETIC VALVE FOR AVOIDING OBSTRUCTION OF OUTFLOW |
177435344 | European Patent Office | January 27, 2037 | |||
PROSTHETIC VALVE FOR AVOIDING OBSTRUCTION OF OUTFLOW |
2018539080 | Japan | January 27, 2037 | |||
PROSTHETIC VALVE FOR AVOIDING OBSTRUCTION OF OUTFLOW |
16-559169 | United States of America | January 27, 2037 |
44
TITLE
|
SERIAL NUMBER | COUNTRY |
STANDARD
EXPIRATION DATES |
|||
---|---|---|---|---|---|---|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
Canada | August 24, 2038 | ||||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
188491807 | European Patent Office | August 24, 2038 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
16/111898 | United States | August 24, 2038 | |||
METHODS AND APPARATUS FOR DELIVERING A PROSTHETIC VALVE TO A BEATING HEART |
16/440765 | United States of America | April 1, 2034 | |||
VENTRICULAR DEPLOYMENT OF A TRANSCATHETER MITRAL VALVE PROSTHESIS |
16/678364 | United States of America | November 8, 2039 | |||
VENTRICULAR DEPLOYMENT OF A TRANSCATHETER MITRAL VALVE PROSTHESIS |
PCTCA2019051598 | International | February 8, 2021 | |||
CONTROLLABLY DEPLOYABLE PROSTHETIC VALVE |
62/827380 | United States of America | April 1, 2020 | |||
PROSTHETIC VALVE WITH NATURAL BLOOD FLOW |
62/831922 | United States of America | April 10, 2020 | |||
RETRIEVABLE PROSTHESIS DELIVERY SYSTEM |
62/815832 | United States of America | March 8, 2020 | |||
LOW PROFILE PROSTHETIC MITRAL VALVE |
62/864008 | United States of America | June 20, 2020 | |||
INTRODUCER WITH HEMOSTASIS MECHANISM |
62/850179 | United States of America | May 20, 2020 |
Tiara Granted Patents
TITLE
|
PATENT NUMBER | COUNTRY | STANDARD EXPIRATION DATES | |||
---|---|---|---|---|---|---|
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM |
104507424 | China | May 30, 2033 | |||
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM |
JP2015517854 | Japan | May 30, 2033 | |||
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM |
US2014-0155990 A1 | United States of America | May 29, 2033 | |||
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM |
US2016-0228251 A1 | United States of America | May 29, 2033 | |||
METHODS AND APPARATUS FOR LOADING A PROSTHESIS ONTO A DELIVERY SYSTEM |
US2018-0168807 A1 | United States of America | May 29, 2033 | |||
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM |
2014231689 | Australia | Mar 6, 2034 | |||
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM |
ZL201480014460.8 | China | Mar 6, 2034 | |||
PROSTHETIC VALVE WITH ANTI-PIVOTING MECHANISM |
2016-508858 | Japan | Mar 6, 2034 |
45
TITLE
|
PATENT NUMBER | COUNTRY | STANDARD EXPIRATION DATES | |||
---|---|---|---|---|---|---|
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE |
2013220881 | Australia | Feb 13, 2033 | |||
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE |
104203158 | China | Feb 13, 2033 | |||
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE |
2016105430005 | China | Feb 13, 2033 | |||
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE |
2015-506768 | Japan | Feb 13, 2033 | |||
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE |
US2014-0052237 A1 | United States of America | Feb 13, 2033 | |||
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE |
US2017-0231760 A1 | United States of America | Feb 13, 2033 | |||
METHODS AND APPARATUS FOR ENGAGING A VALVE PROSTHESIS WITH TISSUE |
2017239620 | Australia | Feb 13, 2033 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
2011250606 | Australia | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
2014203064 | Australia | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
103079498 | China | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
105287050 | China | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
202011110951.1 | Germany | May 4, 2021 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
202011110985.6 | Germany | May 4, 2021 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
2013-525039 | Japan | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
2016-185404 | Japan | May 4, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
US2011-0319989 A1 | United States of America | April 28, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
US2014-0039611 A1 | United States of America | April 28, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
US2015-0216655 A1 | United States of America | April 28, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
US2015-0257878 A1 | United States of America | April 28, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
US2017-0348100 A1 | United States of America | April 28, 2031 | |||
TRANSCATHETER MITRAL VALVE PROSTHESIS |
2797863 | Canada | May 4, 2031 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2782523 | Austria | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2782523 | Switzerland | Nov 20, 2032 |
46
TITLE
|
PATENT NUMBER | COUNTRY | STANDARD EXPIRATION DATES | |||
---|---|---|---|---|---|---|
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
104302247 | China | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2782523 | Germany | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2782523 | Denmark | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2782523 | European Patent Office | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2782523 | Spain | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2782523 | France | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2782523 | United Kingdom | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2782523 | Italy | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2015-504337 | Japan | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2782523 | Netherlands | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2782523 | Sweden | Nov 20, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
US2013-0211508 A1 | United States of America | Nov 16, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
US2016-0157999 A1 | United States of America | Nov 16, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
US2017-0281336 A1 | United States of America | Nov 16, 2032 | |||
SEQUENTIALLY DEPLOYED TRANSCATHETER MITRAL VALVE PROSTHESIS |
2017232067 | Australia | Nov 20, 2032 | |||
PROSTHETIC VALVE FOR AVOIDING OBSTRUCTION OF OUTFLOW |
US2017-0216023 A1 | United States of America | January 27, 2037 | |||
METHODS AND APPARATUS FOR DELIVERING A PROSTHETIC VALVE TO A BEATING HEART |
2014201920 | Australia | April 3, 2034 | |||
METHODS AND APPARATUS FOR DELIVERING A PROSTHETIC VALVE TO A BEATING HEART |
US2014-0343669 A1 | United States of America | April 3, 2034 | |||
METHODS AND APPARATUS FOR DELIVERING A PROSTHETIC VALVE TO A BEATING HEART |
US2017-0209266 A1 | United States of America | April 3, 2034 |
47
Reducer Pending Applications
TITLE
|
FILING DATE | COUNTRY | STANDARD EXPIRATION DATES | |||
---|---|---|---|---|---|---|
VASCULAR IMPLANT |
January 21, 2020 | United States of America | November 18, 2024 | |||
FLOW REDUCING IMPLANT |
October 3, 2002 | Canada | October 3, 2022 | |||
METHODS FOR TREATING ABNORMAL GROWTHS IN THE BODY USING A FLOW REDUCING IMPLANT |
December 10, 2019 | United States of America | October 3, 2023 | |||
VARYING DIAMETER VASCULAR IMPLANT AND BALLOON |
Sep 29, 2017 | United States of America | March 27, 2020 | |||
COVERED FLOW AND PRESSURE MODIFYING APPARATUS |
Jan 23, 2019 | United States of America | June 28, 2020 | |||
COVERED FLOW MODIFYING APPARATUS |
January 23, 2020 | United States of America | January 23, 2040 | |||
COVERED FLOW MODIFYING APPARATUS |
January 23, 2020 | United States of America | N/A | |||
FLOW AND PRESSURE MODIFYING IMPLANTS |
Jan 24, 2019 | United States of America | January 24, 2040 | |||
FLOW AND PRESSURE MODIFYING IMPLANTS |
Jan 24, 2019 | United States of America | N/A |
Reducer Granted Patents
48
TITLE
|
PATENT NUMBER | COUNTRY |
STANDARD
EXPIRATION DATES |
|||
---|---|---|---|---|---|---|
VASCULAR IMPLANT |
EP2756821 | France | November 18, 2024 | |||
VASCULAR IMPLANT |
EP1689324 | United Kingdom | November 18, 2024 | |||
VASCULAR IMPLANT |
EP2756821 | United Kingdom | November 18, 2024 | |||
VASCULAR IMPLANT |
175747 | Israel | November 18, 2024 | |||
VASCULAR IMPLANT |
5154799 | Japan | November 18, 2024 | |||
VASCULAR IMPLANT |
8911489 | United States of America | November 18, 2024 | |||
VASCULAR IMPLANT |
9744059 | United States of America | November 18, 2024 | |||
FLOW REDUCING IMPLANT |
EP1450727 | Austria | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
EP1450727 | Belgium | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
2769574 | Canada | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
2870392 | Canada | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
EP1450727 | Switzerland | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
602 36 755.7 | Germany | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
EP1450727 | Denmark | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
EP1450727 | European Patent Office | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
EP1450727 | Spain | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
EP1450727 | France | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
EP1450727 | United Kingdom | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
161278 | Israel | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
EP1450727 | Italy | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
4398244 | Japan | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
EP1450727 | Liechtenstein | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
EP1450727 | Netherlands | October 3, 2022 | |||
FLOW REDUCING IMPLANT |
EP1450727 | Sweden | October 3, 2022 | |||
METHODS FOR TREATING ABNORMAL GROWTHS IN THE BODY USING A FLOW REDUCING IMPLANT |
8556954 | United States of America | October 3, 2020 | |||
METHODS FOR TREATING ABNORMAL GROWTHS IN THE BODY USING A FLOW REDUCING IMPLANT |
8858612 | United States of America | October 3, 2020 | |||
METHODS FOR TREATING ABNORMAL GROWTHS IN THE BODY USING A FLOW REDUCING IMPLANT |
9364354 | United States of America | October 3, 2020 | |||
METHODS FOR TREATING ABNORMAL GROWTHS IN THE BODY USING A FLOW REDUCING IMPLANT |
10542994 | United States of America | October 3, 2020 | |||
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
EP1587449 | Austria | November 25, 2023 | |||
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
EP1587449 | Belgium | November 25, 2023 | |||
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
EP1587449 | Switzerland | November 25, 2023 | |||
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
603 26 883.8 | Germany | November 25, 2023 | |||
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
EP1587449 | European Patent Office | November 25, 2023 | |||
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
EP1587449 | Spain | November 25, 2023 | |||
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
EP1587449 | France | November 25, 2023 | |||
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
EP1587449 | United Kingdom | November 25, 2023 | |||
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
EP1587449 | Italy | November 25, 2023 | |||
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
EP1587449 | Liechtenstein | November 25, 2023 |
49
TITLE
|
PATENT NUMBER | COUNTRY |
STANDARD
EXPIRATION DATES |
|||
---|---|---|---|---|---|---|
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
EP1587449 | Netherlands | November 25, 2023 | |||
VARYING-DIAMETER VASCULAR IMPLANT AND BALLOON |
EP1587449 | Sweden | November 25, 2023 |
C. Organizational Structure
The Company has the following seven wholly owned subsidiaries:
Name:
|
Date of Incorporation: | Jurisdiction of Incorporation: | ||
---|---|---|---|---|
Neovasc Medical Inc. (formerly PM Devices Inc.) |
May 7, 1998 | British Columbia | ||
Neovasc Tiara Inc. |
March 11, 2013 | Canada (federal) | ||
Neovasc Medical Ltd. |
September 9, 2002 | Israel | ||
Neovasc (US) Inc. (formerly Medical Ventures (US) Inc.) |
July 2, 2007 | United States | ||
B-Balloon Ltd.(1) |
March 30, 2004 | Israel | ||
Neovasc GmbH |
August 14, 2017 | Germany | ||
Neovasc Management Inc. |
January 23, 2018 | United States |
D. Property, Plants and Equipment
Neovasc's operating plan does not include building infrastructure in the form of an in-house laboratory, capital equipment, headcount, or administrative burden. Neovasc operates from its head office located in Richmond, British Columbia, Canada. Neovasc sold its office and laboratory building, previously used for manufacture and testing of devices as well as office space, in June 2018.
The following table outlines significant properties that Neovasc currently leases:
LOCATION
|
AREA
(IN SQUARE FEET) |
LEASE EXPIRATION DATE | USE | ||||
---|---|---|---|---|---|---|---|
Richmond, Canada |
10,692 | May 31, 2022 | Office space and research and development lab | ||||
Richmond, Canada |
14,965 | May 31, 2022 | Subleased space | ||||
Richmond, Canada |
10,956 | July 31, 2021 | Manufacturing | ||||
Richmond, Canada |
2,660 | December 18, 2020 | Office and warehousing | ||||
New Brighton, MN |
6,716 | March 31, 2023 | Office and research and development lab |
The Richmond office space costs $36,760 per month and is rented on an annual basis. The New Brighton office and research and development space costs $6,767 per month and is rented on an annual basis. Neovasc believes that its current facilities are adequate to meet its ongoing needs and that, if Neovasc requires additional space, it will be able to obtain additional facilities on commercially reasonable terms.
Social or Environmental Policies
The Company's processing of its pericardial tissue involves the use of some controlled and/or hazardous materials. The use and disposal of these materials is controlled by the Company's quality control procedures and systems. Environmental factors are considered when disposing of these materials and the Company takes steps to ensure it is in compliance with the appropriate regulations surrounding disposal of these materials.
50
ITEM4A UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating Results
Three Year Development
Recent Developments Subsequent to December 31, 2019
On January 6, 2020, the Company completed a registered direct offering of an aggregate of 1,185,000 Series A Units and 1,241,490 series B units Series B Units at a price of US$4.1351 per Series A Unit and US$4.135 per Series B Unit for aggregate gross proceeds to the Company of approximately US$10 million, before deducting placement agent's fees and estimated expenses of the Offering payable by the Company. As part of the underwriter's compensation in the January 2020 Financing, the Company issued the underwriter warrants (the "2020 Broker Warrants") to purchase in aggregate up to a 157,721 Common Shares, exercisable at a price per Common Share equal to $5.1689 for a period of three years following issuance.
On January 15, 2020, the Company announced the receipt of an Administrative Acceptance Review Notification for the Company's PMA from the FDA for the Reducer.
On January 24, 2020, the Company announced that after further successful acute animal tests, a final design concept for the TF/TS Tiara system, including a modified, lower profile valve and a steerable delivery system, had been established and moved into a design freeze phase review, in accordance with the Company's quality system. On February 12, 2020, the Company, announced achievement of design freeze.
On January 28, 2020, the Company established an Executive Steering Committee for its TF/TS Tiara program.
On January 31, 2020, the Company announced that the German Institute for the Hospital Remuneration System had awarded the Reducer NUB status 1 designation again for 2020.
On February 11, 2020, the Company announced that it had retained independent expert Joshua Mitts, a professor at Columbia University specializing in securities trading and the capital markets, to investigate unusual trading activity in the Company's common shares. In particular, the Company retained Professor Mitts to examine trading history related to the unusual volume and downward pressure on the price of the common shares of the Company after positive news releases, and the unusual volume and downward pressure on the price of the common shares of the Company after the Company announced an update on its compliance with the Nasdaq's minimum value of listed securities rule.
On February 19, 2020, the Company received the expected notice from the Staff indicating that the Staff has determined to delist the Company's shares from the Nasdaq Capital Market unless the Company requests a hearing before the Panel by February 26, 2020. The Company subsequently requested a hearing before the Panel, at which the Company will present its plan for regaining compliance with the market value of listed securities requirement.
Year Ended December 31, 2019
On January 3, 2019, the Company received the Market Value Notification Letter from the Nasdaq Listing Qualifications Department notifying the Company that it was not in compliance with the $35 million minimum market value requirement set forth in the Nasdaq Marketplace Rules. The Market Value Notification Letter did not impact the Company's listing on the Nasdaq at that time. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company was provided 180 calendar days, or until July 2, 2019, to regain compliance.
On January 14, 2019, the Company received the Bid Price Notification Letter from the Nasdaq Listing Qualifications Department notifying the Company that it was not in compliance with the $1.00 minimum bid price requirement set forth in the Nasdaq Marketplace Rules. The Bid Price Notification Letter did not
51
impact the Company's listing on the Nasdaq at that time. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days, or until July 15, 2019, to regain compliance.
In the event the Company does not regain compliance with the Nasdaq minimum market value or minimum bid price rules within the prescribed compliance periods, the Company may be eligible for additional time to regain compliance or may face delisting. Nasdaq also has broad discretionary public interest authority that it can exercise to apply additional or more stringent criteria for the continued listing of the Common Shares, or suspend or delist securities even if the securities meet all enumerated criteria for continued listing on the Nasdaq. The Nasdaq could use this discretionary authority at any time to delist the Common Shares. There can be no assurance that Nasdaq will not exercise such discretionary authority. In addition, there is no assurance that the Company will be able to regain compliance with the minimum bid price and minimum market value requirements prior to expiration of the prescribed compliance periods, or if it does, that the Company will be able to maintain such compliance as a result of the risks and uncertainties described above.
On January 22, 2019, the Company announced that pursuant to a settlement reached with the Edwards Plaintiffs, the patent infringement action that the Edwards Plaintiffs had previously commenced in the Federal Court of Canada against the Company, Boston Scientific and Livanova, will be dismissed on a no-costs basis.
On January 23, 2019, the Company announced that the Journal of the American College of Cardiology: Cardiovascular Interventions had published a peer-reviewed article on the use of dipyridamole stress perfusion cardiac magnetic resonance to assess the performance of the Reducer, titled "Coronary Sinus Reducer Implantation to Reduce the Ischemic Burden in Refractory Angina."
On January 29, 2019, the Company announced that it had completed the Phase 1 requirements of the TIARA-II study in both Germany and the United Kingdom and has received approval to proceed with Phase 2 of the TIARA-II study.
On January 30, 2019, the Company announced that the German Institute for the Hospital Remuneration System had awarded the Reducer NUB status 1 designation again for 2019.
On February 11, 2019, the Company announced that the Pierangeli Clinic of Pescara, Italy had initiated a program to provide its patients access to the Reducer.
On September 7, 2018, Endovalve filed a complaint in the United States District Court for the District of New Jersey against Neovasc Inc. and Neovasc Tiara Inc. (the "Neovasc Defendants"), alleging claims for trade secret misappropriation, breach of contract, and unfair competition. Endovalve alleged that it was a former customer of Neovasc Inc., and that the Neovasc Defendants improperly used trade secrets in the development of Tiara. The Complaint sought injunctive relief, money damages, and attorneys' fees. On February 20, 2019, the Company announced that it had entered into a settlement agreement with Endovalve. This agreement resolved certain potential claims against the Company. The settlement agreement contemplates certain fees being paid by Neovasc to Endovalve, including settlement fees in installments totaling $3 million over the two and a half years following the agreement's execution. In addition, Neovasc agreed to pay Endovalve a royalty of 1.3% on the annual net sales of the Tiara following the first commercial sale of the Tiara. Also contained in the settlement agreement are buy-out clauses that allow Neovasc, or an acquirer of Neovasc or the Tiara assets, to buy out these royalty obligations. As part of the settlement agreement, the claims against the Neovasc Defendants were dismissed with prejudice.
On December 20, 2018, the Company filed a comprehensive Q-Sub submission to the FDA with all available Reducer clinical evidence, requesting a Sprint FDA discussion meeting. The Neovasc team, together with two top U.S. Cardiologists, met with the FDA proposing moving forward with a PMA submission using the available Neovasc clinical evidence. On February 20, 2019, the Company announced that the FDA had informed Neovasc that, despite "Breakthrough Device Designation", the FDA review team recommends collection of further pre-market blinded data prior to PMA submission. Through the Sprint discussion process, Neovasc will continue discussions with the FDA and their senior management, to attempt to bring this promising refractory angina device therapy to U.S. patients as soon as possible.
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On February 21, 2019, the Company announced that a patient implanted with the Tiara had celebrated her fifth anniversary since undergoing the procedure. The Company believes that this patient is the longest surviving transcatheter mitral valve replacement therapy recipient in the world.
On February 27, 2019, the Company announced that it would present a corporate overview at the 8th Annual SVB Leerink Global Healthcare Conference held on February 27-March 1, 2019 in New York, NY.
On February 28, 2019, the Company completed an underwritten public offering of 1,111,111 Common Shares, at a price of $4.50 per Common Share, for gross proceeds of approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company. The Company intends to use the approximately $4.02 million net proceeds of the February 2019 Financing for the development and commercialization of the Reducer, development of the Tiara and general corporate and working capital purposes. As part of the underwriter's compensation in the February 2019 Financing, the Company issued the underwriter warrants (the "February Broker Warrants") to purchase in aggregate up to a 72,222 Common Shares, exercisable at a price per Common Share equal to $5.625 for a period of three years following issuance.
On March 4, 2019, the Company announced that the Tiara was featured in an update presentation at the Cardiovascular Research Technologies (CRT) meeting held March 2-5, 2019 in Washington, D.C.
On March 5, 2019, the Company announced that the Reducer was featured in a "Live Case" broadcast at the Cardiovascular Research Technologies (CRT) meeting held March 2-5, 2019 in Washington, D.C.
On March 12, 2019, the Company announced that it had entered into Exchange Agreements with the holders of all of its outstanding Series A common share purchase warrants (the "Series A Warrants") and Series E common share purchase warrants (the "Series E Warrants") issued pursuant to the 2017 Financings, pursuant to which the Company issued an aggregate of approximately 496,239 Common Shares for the surrender and cancellation of all of the Series A Warrants and Series E Warrants outstanding, on the basis of 0.0085 of a Common Share for each Series A Warrant or Series E Warrant (the "Exchange"). Following completion of the Exchange, there are no longer any warrants remaining outstanding from the 2017 Financings.
On March 14, 2019, the Company announced that it had successfully completed its 2019 mandatory Surveillance Audit with its Notified Body, resulting in the maintenance of the Regulatory Certification (EC marking) and maintenance of the ISO 13485: 2016 certification of its quality management system.
On March 15, 2019, the Company completed an underwritten public offering of 1,111,111 Common Shares, at a price of $4.50 per Common Share, for gross proceeds of approximately $5 million before deducting the underwriting commission and offering expenses payable by the Company. The Company intends to use the approximately $4.25 million net proceeds of the March 2019 Financing for the development and commercialization of the Reducer, development of the Tiara and general corporate and working capital purposes. As part of the underwriter's compensation in the March 2019 Financing, the Company issued the underwriter warrants (the "March Broker Warrants", and together with the February Broker Warrants, the "Broker Warrants") to purchase in aggregate up to a 72,222 Common Shares, exercisable at a price per Common Share equal to $5.625 for a period of three years following issuance.
On March 21, 2019, the Company announced that the Appeals Court in Munich rendered its decision with respect to the Company's litigation with CardiAQ in Germany. The Appeals Court amended the decision of the German Court and dismissed the complaint of CardiAQ in full.
On May 16, 2019, the Company completed the May 2019 Financing of (i) 15% original issue discount convertible notes ("2019 Notes") with a face value of $11.5 million, for gross proceeds to the Company of $9,775,000, and (ii) 334,951 common shares of the Company at a price of $5.15 per Common Share, for gross proceeds to the Company of $1,725,000.
On June 4, 2019, Dr. William O'Neill resigned from the board of Directors and Fred Colen was elected in his place, and on September 16, 2019, Jane Hsiao resigned from the board of Directors and Norman Radow was appointed in her place.
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On August 22, 2019, the Company received written notification (the "Notification Letter") from the Nasdaq notifying the Company that it is not in compliance with the minimum market value requirement set forth in Nasdaq Rules for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(2) requires companies to maintain a minimum market value of US$35 million and Listing Rule 5810(c)(3)(C) provides that a failure to meet the market value requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the market value of the Company for the 30 consecutive business days from July 10, 2019 to August 20, 2019, the Company no longer meets the minimum market value requirement. The Notification Letter did not impact the Company's listing on the Nasdaq Capital Market at that time. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company was been provided 180 calendar days, or until February 17, 2020, to regain compliance with Nasdaq Listing Rule 5550(b)(2). To regain compliance, the Company's market value must exceed US$35 million for a minimum of 10 consecutive business days. In the event the Company does not regain compliance by February 17, 2020, the Company may be eligible for additional time to regain compliance or may face delisting.
On November 7, 2019 the Company announced the appointment of Bill Little as Chief Operating Officer of the Company.
On December 31, 2019, the Company announced the submission of a PMA to the FDA for the Reducer.
Year Ended December 31, 2018
On January 22, 2018, the Company appointed Fred A. Colen as President and Chief Executive Officer.
On February 1, 2018, the Company announced that the German Institute for the Hospital Remuneration System had awarded the Reducer NUB status 1 designation for 2018.
On April 11, 2018, the Company announced that it had received $7,132,488 in proceeds from investor-initiated exercises of 4,885,266 of the Series C Warrants issued pursuant to the 2017 Public Transaction. Each Series C Warrant was exercised at an exercise price equal to $1.46.
On April 30, 2018, the Company announced that it had received $4,666,099 in proceeds from additional investor initiated exercised of 3,195,958 of the Series C Warrants issued pursuant to the 2017 Public Transaction. Each Series C Warrant was exercised at an exercise price equal to $1.46.
On May 15, 2018, the Company announced it was urging the shareholders of record to vote for the proposal authorizing the Board to effect a reverse stock split at the upcoming Annual General and Special Meeting of Shareholders, in order to best meet the needs of the Company and the shareholders.
On May 25, 2018, the Company announced it had a successfully generated increased interest with European physicians in either participating in the ongoing Tiara clinical trials or in using the Reducer for their patients suffering from refractory angina at the EuroPCR, the annual meeting of the European Association of Percutaneous Cardiovascular Interventions of the European Society of Cardiology.
On June 4, 2018, the Company announced results of the Annual General and Special Meeting of Shareholders held on June 4, 2018. At the Meeting, the shareholders of the Company re-elected board members, approved amendments to the Company's stock option plan and the unallocated options thereunder, approved the Company's reverse stock split (common share consolidation) and re-appointed the auditors of the Company.
On June 20, 2018, the Company announced the first U.S. patient had been implanted with a Reducer under compassionate use. The compassionate use case was conducted by Dr. Gerald Koenig, along with Dr. Ryan Gindi and colleagues, of the Division of Cardiology at Henry Ford Hospital in Detroit, Michigan.
On June 21, 2018, the Company announced that the Tiara transcatheter mitral valve replacement device was featured in a "Live Case" broadcast at the 11th Annual Transcatheter Valve Therapy Conference. In a live case broadcast to the main arena of the conference, Dr. Anson Cheung, and Dr. John G. Webb of
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St. Paul's Hospital (Vancouver, Canada) successfully implanted a 40mm Tiara transcatheter mitral valve in a patient suffering from severe mitral regurgitation.
On July 2, 2018, the Company announced that the Tiara and the Reducer were featured in presentations at the CSI Frankfurt 2018 conference held on June 27-30, 2018 in Frankfurt, Germany.
On July 9, 2018, the Company received an expected delisting determination from the Nasdaq Listing Qualifications Department for non-compliance with the $1.00 minimum bid price requirement. On July 16, 2018, Nasdaq scheduled an oral hearing for August 30, 2018, at which the panel would consider the Company's appeal of the delisting determination. On September 11, 2018, the Company announced that it had received an extension from the panel until October 15, 2018 to regain compliance with the $1.00 minimum bid price requirement. The Company also announced its plans to execute the share consolidation (reverse stock split), approved at the Annual General and Special Meeting of Shareholders on June 4, 2018. On October 9, 2018, the Company announced that it had received written notification from the panel that the Company had regained compliance with the minimum bid price requirement, the Company was in compliance with all other applicable continued listing requirements and the panel had determined to continue listing the Common Shares on the Nasdaq.
On July 16, 2018, the Company announced that it had filed an "administrative" prospectus supplement relating to the expiration of its prior shelf prospectus and registration statement on July 9, 2018, so that the registration of the 2017 Financings from the Company's prior registration statement was moved to the new registration statement.
On August 3, 2018, the Company announced that it had entered into the Penn Agreement, which resolved certain potential claims against the Company that had been previously disclosed.
On August 6, 2018, the Company announced that it would present at the 38th Annual Canaccord Genuity Growth Conference in Boston, Massachusetts.
On August 6, 2018, the Company announced the publication of the manuscript, "Safety and efficacy of the Reducer: A multicenter clinical registry REDUCE study" in the International Journal of Cardiology. This study presented results on the safety and effectiveness of the Reducer using a sample of 141 patients suffering from coronary artery disease and chronic refractory angina.
On September 12, 2018, the Company announced that holders of its senior secured convertible 2017 Notes had agreed to amend certain terms of the 2017 Notes and other concessions, including a one-year extension of the maturity of the 2017 Notes from May 17, 2019 until May 17, 2020.
On September 18, 2018, the Company effected a share consolidation (reverse stock split) of its issued and outstanding Common Shares on the basis of one post-consolidation Common Share for every one hundred pre-consolidation Common Shares.
On September 19, 2019, the Company announced that the Reducer had been implanted in 100 patients in Germany.
On September 20, 2019, the Company announced that the Tiara and Reducer would both be featured in several presentations at the Transcatheter Cardiovascular Therapeutics 2018 scientific symposium from September 21-25, 2018, in San Diego, California.
On October 3, 2018, the Company announced positive 12-week follow-up data from the first U.S. patient implanted with the Reducer. The Compassionate Use case was conducted in June 2018.
On October 10, 2018, the Company announced that the FDA has granted "Breakthrough Device Designation" for the Reducer. The FDA grants this designation to expedite the development and review of a device that demonstrates compelling potential to provide a more effective treatment or diagnosis for life-threatening or irreversibly debilitating diseases.
On October 16, 2018, the Company announced the publication of a peer-reviewed article on the Tiara in Circulation: Cardiovascular Interventions, titled "Transcatheter Mitral Valve Replacement in Patients
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with Previous Aortic Valve Replacement." The article reports for the first time the experience of transcatheter mitral valve replacement using the Tiara valve in patients with previous aortic valve replacement.
On October 22, 2018, the Company announced that the Tiara was featured in a "Live Case" broadcast at the 32nd Annual European Association for Cardio-Thoracic Surgery Meeting held October 18-20 in Milan, Italy.
On November 20, 2018, the Company announced that the Journal of American College of Cardiology: Cardiovascular Interventions had published a peer-reviewed article on the clinical response of a patient that received the Reducer titled, "Coronary Sinus Reducer Implantation to Reduce the Ischemic Burden in Refractory Angina."
On December 11, 2018, the Company announced that the Journal of the American College of Cardiology had published new, peer-reviewed Reducer data describing the long-term clinical and anatomical follow-up of patients with severe angina pectoris treated with the Reducer twelve years ago. The publication is entitled "First-in-Human Use of Coronary Sinus Reducer in Patients with Refractory Angina."
On December 21, 2018, the Company announced that it had received ISO 13485:2016 certification, an internationally recognized quality standard specific to the medical device industry.
Year Ended December 31, 2017
On January 18, 2017, in CardiAQ v. Neovasc Inc., the trial court granted CardiAQ's motion for pre- and post-judgment interest. The Court awarded $20,675,154 in pre-judgment interest and assessed a running rate of $2,354.27 per day from November 16, 2016 until the judgment was satisfied, unless the Company prevailed on appeal.
On June 16, 2017, the Company announced that the District Court in Munich, Germany partially found in favor of CardiAQ in its case against Neovasc. The German court found CardiAQ had contributed in part to the invention of the Tiara and awarded to CardiAQ co-entitlement rights to the disputed Tiara European patent application. There are currently no monetary awards associated with this matter. The Company and CardiAQ each filed notices of appeal in July 2017. The case is likely to be heard in the fourth quarter of 2018.
On September 1, 2017, the Company announced that a panel of the United States Court of Appeals for the Federal Circuit affirmed the judgment of the United States District Court for the District of Massachusetts in the case of CardiAQ v. Neovasc Inc. The panel also affirmed the district court's decision not to enjoin the Tiara program. As a result, Neovasc owed the full judgement of approximately $112 million and there are no other monetary damages arising from this award. Neovasc remained the joint inventor of the '964 patent, one of the patents in the Tiara patent family, along with two employees of CardiAQ, both parties having freedom to use the patent without an obligation to pay royalties to the other.
On November 3, 2017, the Company reported that the United States Court of Appeals for the Federal Circuit affirmed the judgment of the United States District Court for the District of Massachusetts in the case of CardiAQ v. Neovasc Inc. and denied the petition for panel rehearing. At this point, the appeals process was exhausted and the full judgment of approximately $112 million became due on November 13, 2017.
On November 6, 2017, the Company announced that it had received approval of the FDA to initiate the COSIRA-II IDE pivotal clinical trial. The trial's purpose will be to demonstrate the safety and effectiveness of the Company's novel Reducer system for treatment of patients with refractory angina. Once completed, the trial data is intended to support an application to the FDA for approval to begin marketing the Reducer in the United States.
In November 2017, Neovasc completed two financing transactions, the 2017 Public Transaction and the 2017 Private Placement, for aggregate gross proceeds of approximately $65 million. The Company used the net proceeds of the 2017 Financings to fully fund the approximately $42 million balance of the damages and interest awards in the case of CardiAQ v. Neovasc Inc. (after subtracting the approximately $70 million that the Company had paid into escrow), with remaining funds being used (i) to partially fund the ongoing Tiara clinical program; (ii) to support the completion of the TIARA-II study; and (iii) for general corporate purposes.
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On November 13, 2017, the TSX reported that Neovasc was under a remedial delisting review as a result of the financial hardship exemption application filed by the Company in connection with the 2017 Financings. The Company subsequently regained compliance with the TSX's continued listing requirements.
Trends, Risks and Uncertainties
Losses and Additional Funding Requirements
Neovasc has a limited operating history, which makes it difficult to predict how its business will develop or what its future operating results will be. The Company has a history of operating losses since its inception and will need to generate significantly greater revenues than it has to date to achieve and maintain profitability. There is no certainty of future profitability, and results of operations in future periods cannot be predicted based on results of operations in past periods. The securities of the Company should be considered a highly speculative investment.
The Company has incurred losses and comprehensive losses of $35,131,015 and $33,618,494 for the year ended December 31, 2019, respectively (2018: $107,983,475 and $108,993,067) and has a deficit of $366,532,164 at December 31, 2019 compared to a deficit of $331,401,149 as at December 31, 2018. As at December 31, 2019 the Company had $5,292,833 in cash and cash equivalents (December 31, 2018: $9,242,809).
The Company will need to raise additional capital to fund its short and medium-term objectives for the Tiara and the Reducer prior to the successful commercialization of these products. There is no certainty that the Company will be able to raise additional capital through debt or equity or other means on terms acceptable to the Company or at all. There is also no certainty that the programs will be successfully commercialized or any required funds will be available to the Company at the time needed or on terms acceptable to the Company. The terms of the 2017 Financings included, amongst other things, future priced securities, full ratchet anti-dilution clauses and a senior convertible debt instrument secured on substantially all of the assets of the Company. These terms may make it more difficult to obtain additional debt or equity financing in the future.
As at December 31, 2019, the Company had approximately $5.29 million in cash and cash equivalents. On January 6, 2020, the Company completed a registered direct offering for aggregate gross proceeds of $10 million before deducting fees and expenses (see Subsequent Events). If the 2017 Notes are converted prior to the maturity date, the Company expects that its cash on hand as at December 31, 2019 and including the January 2020 Financing (see Subsequent Events) is sufficient to sustain operations until approximately August 2020 at the current burn rate. If the 2017 Notes are paid out on the maturity date of May 17, 2020, the Company expects that it will have sufficient cash on hand to sustain operations until June 30, 2020 at the current burn rate. Given the current nature of the Company's capital structure, the Company can give no assurance that it will be able to obtain the additional funds needed, on terms agreeable to the Company, or at all. These circumstances indicate the existence of material uncertainty and cast substantial doubt about the Company's ability to continue as a going concern. For a description of the risks relating to the Company's need for additional financing and the 2017 Notes see the Company's Annual Report on Form 20-F, which is available on SEDAR at sedar.com and as filed with the SEC at www.sec.gov.
The consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. Material adjustments may be necessary to the audited consolidated financial statements should these circumstances impair the Company's ability to continue as a going concern.
Litigation Matters
Between June 2016 and November 2017, Neovasc was engaged in litigation with CardiAQ in the U.S. District Court for the District of Massachusetts and, upon appeal, in the United States Court of Appeals for the Federal Circuit (the "Appeals Court"). On November 13, 2017, the final mandate was issued by the Appeals Court and approximately $112 million damages and interest awards became due and payable. The Company had approximately $70 million placed in escrow but needed to raise an additional approximately $42 million or face bankruptcy proceedings. On November 17, 2017, the Company closed the 2017 Financings for gross proceeds of approximately $65 million and used approximately $42 million to settle the remaining damages and interest
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awards. For a description of the Company's ongoing litigation, see Item 8.A "Consolidated Statements and Other Financial Information Legal Proceedings" of this Annual Report.
Operating Risks
The Company may need to raise additional capital prior to the successful commercialization of its products. There is no certainty that the Company's programs will be successfully commercialized or that any required funds will be available to the Company at the time needed or on terms acceptable to the Company.
Neovasc is subject to risks and uncertainties associated with operating in the life sciences industry and as a company engaged in significant development, regulatory, production and commercialization activity. Neovasc cannot anticipate or prevent all of the potential risks to its success, nor predict the impact of any such risk.
Operating risks include but are not limited to: the clinical success of the Tiara; market acceptance of the Company's technologies and products; litigation risk associated with the Company's intellectual property and the Company's defense and protection thereof; the Company's ability to obtain and enforce timely patent protection of its technologies and products; the Company's ability to develop, manufacture and commercialize its products cost-effectively and according to the regulatory standards of numerous governments; the competitive environment and impact of technological change and/or product obsolescence; the Company's ability to conduct and complete successful clinical trials; the Company's ability to garner regulatory approvals for its products in a timely fashion; the Company's ability to attract and retain key personnel, effectively manage growth and smoothly integrate newly acquired businesses or technologies; limitations on third-party reimbursement; instances of product or third-party liability; dependence on a single supplier for some products; animal disease or other factors affecting the quality and availability of raw materials; conflicts of interest among the Company's directors, officers, promoters and members of management; fluctuations in the values of relative foreign currencies; volatility of the Company's share price; fluctuations in quarterly financial results; unanticipated expenses; changes in business strategy; impact of any negative publicity; general political and economic conditions; and acts of god and other unforeseeable events, natural or human-caused.
Risks Relating to the 2017 Financings
The 2017 Notes contain, among other things, so-called full-ratchet anti-dilution and future pricing provisions, which create a high degree of risk relating to, among other things, significant dilution to shareholders and the Company's ability to raise additional financing. The exercise of warrants issued pursuant to the 2017 Financings (the "2017 Warrants") and conversion of 2017 Notes resulted in significant dilution to our shareholders. Future conversions of the 2017 Notes may result in further significant dilution in the future. For details concerning the terms of the 2017 Notes, see the prospectus supplement and the form of 2017 Notes filed on SEDAR at www.sedar.com and with the SEC at www.sec.gov. For a description of the risks associated with the 2017 Notes, the amount of 2017 Notes converted to date, the dilution to date and the potential dilution in the future due to such conversions, see the Company's Annual Report on Form 20-F, which is available on SEDAR at www.sedar.com and as filed with the SEC at www.sec.gov. For a description of the risks associated with these securities, the amount of such securities exercised to date, the dilution to date and the potential dilution in the future due to such conversions, see Items 3.D "Risk Factors" and 10.A "Share Capital" of this Annual Report.
Risks Relating to Potential Global Pandemics
A global pandemic could cause temporary closure of businesses in regions that are significantly impacted by the health crises, or cause governments to take preventative measures such as the closure of points of entry, including ports and borders. These restrictive measures along with market uncertainty could cause an economic slowdown resulting in a decrease in the demand or sales for our products. The recent outbreak of the novel coronavirus (2019-nCoV) has had a negative impact on capital markets and governmental actions to contain the outbreak may impact our ability to transport or market our products or adversely affect our ability to raise capital.
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Foreign Operations
The Company changed functional currency on October 1st, 2017 from Canadian to U.S. dollars.
The majority of the Company's revenues are derived from product sales in Europe, primarily denominated in U.S. dollars and Euros, while the majority of the Company's costs are denominated in Canadian dollars and U.S. dollars. A decrease in the value of the Euro in relation to the U.S. dollar will have an adverse effect on the Company's results of operations, with lower than expected revenue amounts and gross margins being reported in the Company's U.S. dollar financial statements. In addition, any decrease in the value of the Euro occurring in between the time a sale is consummated and the time payment is received by Neovasc will lead to a foreign exchange loss being recognized on the foreign currency denominated trade account receivable. The fluctuation of foreign exchange may impose an adverse effect on the Company's results of operations and cash flows in the future. The Company does not conduct any hedging activities to mitigate these foreign exchange risks. Additionally, Neovasc may be materially and adversely affected by increases in duty rates, exchange or price controls, repatriation restrictions, or other restrictions on foreign currencies. The Company's international operations are subject to certain other risks common to international operations, including, without limitation: government regulations; import restrictions and, in certain jurisdictions, reduced protection for the Company's intellectual property rights.
Foreign currency translation gains and losses arising from normal business operations are credited to or charged to operations in the period incurred. To date, Neovasc has not entered into any foreign exchange forward contracts.
Selected Financial Information
The following discussion should be read in conjunction with the consolidated financial statements for the years ended December 31, 2019, 2018 and 2017.
Discussion of Operations and Financial Condition
Results for the years ended December 31, 2019 and 2018 follow (as restated):
Losses
The operating losses and comprehensive losses for the year ended December 31, 2019 were $35,131,015 and $33,618,494 respectively, or $5.40 basic and diluted loss per share, as compared with losses of $107,983,475 and $108,993,067 respectively, or $76.26 basic and diluted loss per share, for the same period in 2018.
The $75,374,573 decrease in the comprehensive loss incurred for the year ended December 31, 2019 compared to the same period in 2018 can be substantially explained by a $70,784,391 decrease in the charges related to the accounting treatment of the 2017 and May 2019 Financings, a $2,522,113 decrease in other comprehensive loss, and a decrease in operating loss of $2,363,610.
Revenues
Revenues increased 20% to $2,092,032 for the year ended December 31, 2019, compared to revenues of $1,749,133 for the same period in 2018. The Company sees continued physician interest and solid scientific credibility for Reducer therapy as evidenced by its validation by the European Society of Cardiology in its recent practice guidelines. We have led in Germany, together with our local partners, various therapy development sessions to stimulate patient flow from general cardiologists to Reducer implanting centers. Germany has been a driver in our gross margin and top line growth. The Company is encouraged by the progress this year but recognizes that future revenues may be unstable before the Reducer becomes widely adopted. The continued success of the commercialization of the Reducer will be dependent on the amount of internal resources allocated to the product, obtaining appropriate reimbursement in various territories and correctly managing the referral process.
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Cost of Goods Sold
The cost of goods sold for the year ended December 31, 2019 was $458,436 compared to $366,258 for the same period in 2018. The overall gross margin for the year ended December 31, 2019 was 78%, compared to 79% gross margin for the same period in 2018. The Company continues to focus on Germany where the Company sells the Reducer direct for higher margins. The Company voluntarily replaced certain expired inventory of Reducers for newly sterilized product, which reduced the gross margin in the third quarter of 2019 by $59,800.
Expenses
Total expenses for the year ended December 31, 2019 were $31,680,676, compared to $33,793,565 for the same period in 2018, representing a decrease of $2,112,889 or 6%. The decrease in total expenses for the year ended December 31, 2019 compared to the same period in 2018 reflects i) a $4,436,711 decrease in non-cash charges for accretion on collaboration, license and settlement agreements provision, ii) a $735,304 decrease in employee termination expenses, iii) a $458,954 decrease in litigation expenses as litigation matters came to a close, iv) a $1,333,717 increase in overall employee expenses, v) a $662,201 increase in other expenses to reclassify research and development supplies and vi) a $2,012,230 increase in other expenses primarily relating to other product development and clinical trial expenses as the Company continues to incur development and clinical costs related to Tiara and regulatory costs related to Tiara and Reducer.
Selling expenses for the year ended December 31, 2019 were $1,645,985, compared to $1,353,165 for the same period in 2018, representing an increase of $292,820 or 22%. The increase in selling expenses for the year ended December 31, 2019 compared to the same period in 2018 reflects an increase in costs incurred for commercialization activities related to the Reducer as we add more sales representatives in Germany and increase our commercialization efforts. The investments in Germany are carefully focused on increasing our coverage in the most active Reducer centers and targeting experienced therapy development representatives around the top implanting centers. The new German structure will be established to drive our growth into 2020.
General and administrative expenses for the year ended December 31, 2019 were $10,013,732, compared to $16,438,936 for the same period in 2018, representing a decrease of $6,425,204 or 39%. The decrease in general and administrative expenses for the year ended December 31, 2019 compared to the same period in 2018 can be substantially explained by i) a $4,436,711 decrease in non-cash charges for accretion on collaboration, license and settlement agreements provisions as the liabilities for the collaboration and licensing agreements with Penn were accrued during the third quarter in 2018, ii) a $735,304 decrease in employee termination expenses, iii) a $458,954 decrease in litigation expenses as litigation matters have come to a close and iv) a $399,172 decrease in non-cash stock-based compensation charges as fewer incentives were issued in 2019. The Company continues to minimize its general and administrative expenses when possible as the cash resources of the Company are still limited.
Product development and clinical trial expenses for the year ended December 31, 2019 were $20,020,959 compared to $16,001,464 for the same period in 2018, representing an increase of $4,019,495 or 25%. The increase in product development and clinical trial expenses for the year ended December 31, 2019 was the result of i) a $2,674,431 increase in other expenses as the Company continues to incur development and clinical costs related to Tiara and regulatory costs related to Tiara and Reducer, ii) a $931,976 increase in employee expenses iii) a $277,589 increase in non-cash stock-based compensation charges and iv) a $135,499 increase in non-cash depreciation charges.
The Company's expenses are subject to inflation and cost increases. 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 Loss
The other loss for the year ended December 31, 2019 was $5,055,142 compared to loss of $75,465,692 for the same period in 2018, a decrease in other loss of $70,410,550. The decrease in the other loss can be substantially explained by a $70,784,391 decrease in charges related to the accounting treatment of the 2017 and May 2019 Financings.
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Tax Expense
The tax expense for the year ended December 31, 2019 was $28,793, compared to a $107,093 expense for the same period in 2018. Neovasc (US) Inc. was established in 2015 to provide clinical trial services to Neovasc Medical Inc. The cross border intercompany charges from Neovasc (US) Inc. to Neovasc Medical Inc. created a taxable profit in Neovasc (US) Inc. and U.S. federal and state taxes were charged.
Results for the years ended December 31, 2018 and 2017 follow (as restated):
Losses
The losses and comprehensive losses for the year ended December 31, 2018 were $107,983,475 and $108,993,067, respectively, or $76.26 basic and diluted loss per share, as compared with losses and comprehensive losses of $21,634,068 and $23,584,464, respectively, or $265.37 basic and diluted loss per share, for the same period in 2017.
The $85,408,603 increase in the comprehensive loss incurred for the year ended December 31, 2018 compared to the same period in 2017 can be substantially explained by a $85,190,307 increase in other losses (the accounting treatment of the 2017 Financings resulting in an increase in charges of $83,092,711 in the year) and a $1,536,435 increase in operating losses ($754,153 increase in general and administrative expenses and a $212,975 reduction in product development and clinical trials expenses as the Company continues to control costs).
Revenues
Revenues decreased 68% to $1,749,133 for the year ended December 31, 2018, compared to revenues of $5,389,014 for the same period in 2017. In December 2017, the Company closed its contract manufacturing and consulting services business and is now focused on the commercialization of its own product, the Reducer.
Sales of the Reducer for the year ended December 31, 2018 were $1,749,133 compared to $1,128,126 for the same period in 2017, representing an increase of 55%. The Company is encouraged by the progress this year but recognizes that future revenues may be unstable before the Reducer becomes widely adopted. The continued success of the commercialization of the 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 year ended December 31, 2018 was $366,258 compared to $3,477,821 for the same period in 2017. The overall gross margin for the year ended December 31, 2018 was 79%, compared to 35% gross margin for the same period in 2017. The gross margin now reflects the gross margin on the Reducer product only, whereas the comparable period included contract manufacturing and consulting services.
Expenses
Total expenses for the year ended December 31, 2018 were $33,793,565 compared to $32,785,448 for 2017, representing an increase of $1,008,117 or 3%. The increase in total expenses for the year ended December 31, 2018 compared to 2017 can be substantially explained by a $754,153 increase in general and administrative expenses and a $466,939 increase in selling expenses offset by a $212,975 decrease in product development and clinical trial expenses as we continue to preserve cash resources.
Selling expenses for the year ended December 31, 2018 were $1,353,165, compared to $886,226 for 2017, representing an increase of $466,939, or 53%. The increase in selling expenses for the year ended December 31, 2018 compared to 2017 reflects an increase in costs incurred for commercialization activities related to the Reducer. The Company continues to minimize its selling expenses as the cash resources of the Company are still limited.
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General and administrative expenses for the year ended December 31, 2018 were $16,438,936, compared to $15,684,783 for 2017, representing an increase of $754,153 or 5%. The increase in general and administrative expenses for the year ended December 31, 2018 compared to 2017 can be substantially explained by a $1,067,205 increase in stock based compensation and a $2,379,790 charge for collaboration and settlement expenses and a $2,749,968 charge for settlement expenses and a $1,441,125 increase in other expenses including a substantial increase in legal expenses as we renewed the base shelf prospectus, filed XBRL for the first time and filed our annual report on the more demanding Form 20-F, as compared to the Form 40-F filed in 2017, offset by a decrease in expenses related to the 2017 Financings of $5,447,182 and a decrease in litigation expenses of $1,870,225.
Product development and clinical trial expenses for the year ended December 31, 2018 were $16,001,464 compared to $16,214,439 for 2017, representing a decrease of $212,975 as the Company continues to control costs. As restated, for the year ended December 31, 2017 the Company reversed the $1,274,653 Reducer R&D inventory charge decreasing product development and clinical trial expenses.
The Company's expenses are subject to inflation and cost increases. 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 Loss
The other loss for the year ended December 31, 2018 was $75,465,692 compared to other income of $9,724,615 for 2017, an adverse change of $85,190,307. The increase in the other loss can be substantially explained by the accounting treatment of the 2017 Financings resulting in a $83,092,712 adverse change (charges of $75,712,610 in the year compared to other income of $7,380,102 in the prior year) and a $2,901,782 adverse change in foreign exchange losses and gains compared to the prior year.
Tax Expense
The tax expense for the year ended December 31, 2018 was $107,093 compared to $484,428 in 2017. Neovasc (US) Inc. was established in 2015 to provide clinical trial services to Neovasc Medical Inc. The cross border intercompany charges from Neovasc (US) Inc. to Neovasc Medical Inc. created a taxable profit in Neovasc (US) Inc. and U.S. federal and state taxes were incurred.
Results for the three months ended December 31, 2019 and 2018 follow (as restated):
Losses
The operating losses and comprehensive losses for the three months ended December 31, 2019 were $9,573,489 and $11,154,637, respectively, or $1.45 basic and diluted loss per share, as compared with $10,253,593 operating losses and $10,902,126 comprehensive income, or $5.07 basic and diluted earnings per share, for the same period in 2018. The reduction of $1,401,698 in operating losses can be explained by the decrease in general and administrative expenses due to the collaboration and licensing agreement in 2018.
The $22,056,763 decrease in the comprehensive income incurred for the three months ended December 31, 2019 compared to the same period in 2018 can be substantially explained by a $24,709,870 decrease in income related to the accounting treatment of the 2017 Notes and May 2019 Financings, offset by a $1,976,830 decrease in other comprehensive loss.
Revenues
Revenues increased 8% to $565,821 for the three months ended December 31, 2019, compared to revenues of $523,424 for the same period in 2018 as the Company continues its commercialization strategies. Physician interest continues to be high, as displayed at well attended Reducer Symposia during the National Cardiology Meetings of Germany and Italy respectively in Berlin and Milano in October. The validation in September of Reducer Therapy by the ESC in its most recent Practice Guidelines, is a significant milestone, particularly for referring physicians who are considering sending a patient to an implanting center. In Germany we now have four sales representatives. We continue to work on our reimbursement strategies in several European countries to further streamline the processes to get approval for and payment of the ongoing
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implantations. The Company recognizes that future revenues may be unstable before the Reducer becomes widely adopted. The continued success of the commercialization of the 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 months ended December 31, 2019 was $109,449 compared to $93,519 for the same period in 2018. The overall gross margin for the three months ended December 31, 2019 was 81%, compared to 82% gross margin for the same period in 2018. The Company voluntarily replaced certain expired inventory of Reducers for newly sterilized product, which increased the cost of goods by $59,800 and reduced the overall gross margin in the third quarter of 2019.
Expenses
Total expenses for the three months ended December 31, 2019 were $10,029,861 compared to $10,683,498 for 2018, representing a decrease of $653,637 or 6%. The decrease in total expenses for the three months ended December 31, 2019 compared to 2018 can be substantially explained by a $2,336,216 decrease in non-cash charges for on collaboration, license and settlement agreements provisions booked in 2018, offset by a $662,201 increase in other expenses to reclassify R&D supplies and a $1,571,157 increase in other expenses primarily relating to other product development and clinical trial expenses as the Company continues to incur development and clinical costs related to Tiara and regulatory costs related to Tiara and Reducer.
Selling expenses for the three months ended December 31, 2019 were $502,828, compared to $614,742 for 2018, representing a decrease of $111,914 or 18%. The Company continues to minimize its selling expenses as the cash resources of the Company are still limited.
General and administrative expenses for the three months ended December 31, 2019 were $2,671,418, compared to $5,415,634 for the same period in 2018, representing a decrease of $2,744,216. The decrease in general and administrative expenses for the three months ended December 31, 2019 compared to 2018 can be substantially explained by a $2,336,216 decrease in non-cash charges for collaboration, license and settlement agreements provision as liabilities for the collaboration and licensing agreement were accrued during the fourth quarter of 2018, and a $266,517 decrease in litigation expenses as litigation matters came to a close.
Product development and clinical trial expenses for the three months ended December 31, 2019 were $6,855,615 compared to $4,653,122 for 2018, representing an increase of $2,202,493 or 47%. The increase in product development and clinical trial expenses for the three months ended December 31, 2019 can be substantially explained by a $662,201 increase in other expenses to reclassify research and development supplies and a $1,571,157 increase in other product development and clinical trial expenses as the Company continues to incur development and clinical costs related to Tiara and regulatory costs related to Tiara and Reducer.
The Company's expenses are subject to inflation and cost increases. 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 Loss
The other loss for the three months ended December 31, 2019 was $2,739,008 compared to other income of $21,862,040 for the same period in 2018, a decrease of $24,601,048. The decrease in the other loss can be substantially explained by a $24,709,870 decrease in income related to the accounting treatment of the 2017 and May 2019 Financings.
Tax Expense
The tax expense for the three months ended December 31, 2019 was $41,688 compared to a $70,961 recovery in 2018. Neovasc (US) Inc. was established in 2015 to provide clinical trial services to Neovasc Medical Inc. The cross border intercompany charges from Neovasc (US) Inc. to Neovasc Medical Inc. created a taxable profit in Neovasc (US) Inc. and U.S. federal and state taxes were incurred.
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Results for the three months ended December 31, 2018 and 2017 follow (as restated):
Losses
The income and comprehensive income for the three months ended December 31, 2018 were $11,679,408 and $10,902,126 respectively, or $5.07 basic earnings per share, as compared with losses and comprehensive losses of $3,751,813 and $5,702,209 respectively or $82.66 basic and diluted loss per share, for the same period in 2017.
The $15,431,221 increase in the income incurred for the three months ended December 31, 2018 compared to the same period in 2017 can be substantially explained by a $14,652,143 increase in other income, substantially due to the accounting treatment of the 2017 Financings, and a $2,902,915 decrease in general and administrative expenses decrease in expenses related to the fees of the 2017 Financings.
Revenues
Revenues decreased 57% to $523,424 for the three months ended December 31, 2018, compared to revenues of $1,227,625 for the same period in 2017. In December 2017, the Company closed its contract manufacturing and consulting services business and is now focused on the commercialization of its own product, the Reducer. Sales of the Reducer for the three months ended December 31, 2018 were $523,424 compared to $285,598 for the same period in 2017, representing an increase of 83%. The Company is encouraged by the progress this year but recognizes that future revenues may be unstable before the Reducer becomes widely adopted. The continued success of the commercialization of the 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 months ended December 31, 2018 was $93,519 compared to $1,136,804 for the same period in 2017. The overall gross margin for the three months ended December 31, 2018 was 82%, compared to 7% gross margin for the same period in 2017. The gross margin now reflects the gross margin on the Reducer product only, whereas the comparable period included contract manufacturing and consulting services.
Expenses
Total expenses for the three months ended December 31, 2018 were $10,683,498, compared to $11,026,929 for the same period in 2017, representing a decrease of $343,431 or 3%. The increase in total expenses for the three months ended December 31, 2018 compared to the same period in 2017 can be substantially explained by a $2,902,915 decrease in general and administrative expenses due to the decrease of $5,447,182 related to expenses from the 2017 Financings offset by a $393,857 increase in selling expenses due to an increase in costs incurred for commercialization activities related to the Reducer and a $2,165,627 increase in product development and clinical trial expenses includes increased share-based payments as options were granted and the December 31, 2017 adjustment of $1,274,653 for R&D inventory charges.
Selling expenses for the three months ended December 31, 2018 were $614,742, compared to $220,885 for the same period in 2017, representing an increase of $393,857, or 178%. The increase in selling expenses for the three months ended December 31, 2018 compared to the same period in 2017 reflects an increase in costs incurred for commercialization activities related to the Reducer. The Company continues to manage its selling expenses as the cash resources of the Company are still limited.
General and administrative expenses for the three months ended December 31, 2018 were $5,415,634, compared to $8,318,549 for the same period in 2017, representing a decrease of $ 2,902,915 or 35%. The decrease in general and administrative expenses for the three months ended December 31, 2018 compared to the same period in 2017 can be substantially explained by a decrease of $5,447,182 related to expenses from the 2017 Financings offset by a $2,749,968 charge for settlement expenses (see "Consolidated Statements and Other Financial Information Legal Proceedings" of the Company's Annual Report on Form 20-F, which is available on SEDAR at www.sedar.com and as file with the SEC at www.sec.gov).
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Product development and clinical trial expenses for the three months ended December 31, 2018 were $4,653,122 compared to $2,487,495 for the same period in 2017, representing an increase of $2,165,627 or 87%. The increase in product development and clinical trial expenses for the three months ended December 31, 2018 was primarily the result of a $626,271 increase in share-based payments as options were granted, a $480,699 increase in cash-based employee expenses and a $978,719 increase in other product development and clinical trial expenses as the Company continues to incur development and clinical costs related to Tiara and regulatory costs related to Tiara and Reducer. As restated, for the year ended December 31, 2017 the Company reversed the $1,274,653 Reducer R&D inventory charge decreasing product development and clinical trial expenses.
The Company's expenses are subject to inflation and cost increases. 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 Loss
The other income for the three months ended December 31, 2018 was $21,862,040 compared to other income of $7,209,897 for the same period in 2017, an increase of $14,652,143. The increase in the other income can be substantially explained by the accounting treatment of the 2017 Financings resulting in charges of $14,506,846 in the quarter.
Tax Expense
The tax expense for the three months ended December 31, 2018 was $70,961 compared to $25,602 for the same period in 2017. Neovasc (US) Inc. was established in 2015 to provide clinical trial services to Neovasc Medical Inc. The cross border intercompany charges from Neovasc (US) Inc. to Neovasc Medical Inc. created a taxable profit in Neovasc (US) Inc. and U.S. federal and state taxes were incurred.
Annual Information
The following is a summary of selected financial information for the three fiscal years to December 31, 2019 (as restated in 2018 and 2017):
|
2019 | 2018 | 2017 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Revenues |
$ | 2,092,032 | $ | 1,749,133 | $ | 5,389,014 | ||||
Loss |
(35,131,015 | ) | (107,983,475 | ) | (21,634,068 | ) | ||||
Basic and diluted loss per share |
(5.40 | ) | (76.26 | ) | (265.37 | ) | ||||
Total assets |
10,105,840 | 13,327,340 | 23,481,096 | |||||||
Total long-term liabilities and damages provision |
9,830,047 | 15,626,394 | 32,577,647 | |||||||
Cash dividend declared per share |
nil | nil | nil |
Revenues from the Reducer have increased year-over-year from 2018 to 2019 by 20% as the Company focuses its resources on growing Reducer revenues. Revenues declined year-over-year from 2017 to 2018 as the development of transcatheter aortic valves by our customers has reached its peak. The Company closed all of its revenue generating business segments except its Reducer business at the end of 2017.
The Company has incurred significant costs in defending itself in lawsuits filed by CardiAQ. In 2016 the Company provided $111,781,096 for damages and interest awards related to the primary U.S. litigation with CardiAQ (see Item 8.A "Consolidated Statements and Other Financial Information Legal Proceedings" of this Annual Report), which is only partially offset by a $65,095,733 gain on sale of assets related to the agreement with Boston Scientific.
In December 2016, the Company entered into an agreement for Boston Scientific to acquire the Company's advanced biologic tissue capabilities and certain manufacturing assets and make a 15% equity investment in Neovasc, for a total of $75 million in cash. Under the terms of the approximate $68 million asset purchase agreement the Company has been granted a license to the purchased trade secrets and know-how and access to the sold facilities to allow it to continue its tissue and valve assembly activities for its remaining customers, and continue its own tissue-related programs, including advancing Tiara through its clinical and regulatory pathways.
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The Company remains focused on the development and commercialization of the Tiara and the Reducer over the next several years. The 2017 Financings completed in November 2017 allowed us to settle the claims against us related to the primary U.S. litigation with CardiAQ and continue our business. The Company used the remaining capital to execute our development and commercialization plans.
The accounting treatment of the 2017 Financings as derivative financial instruments resulted in non-cash charges of $79,935,783 for the year ended December 31, 2018 and $4,928,219 for the year ended December 31, 2019, substantially explaining the significant decrease in losses year-over-year from 2018 to 2019.
Quarterly Information
The following is a summary of selected unaudited financial information for the twelve fiscal quarters to December 31, 2019:
|
December 31,
2019 |
September 30,
2019 |
June 30,
2019 |
March 31,
2019 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
REVENUE |
$ | 565,821 | $ | 500,498 | $ | 439,920 | $ | 585,793 | |||||
COST OF GOODS SOLD |
109,449 | 137,999 | 66,994 | 143,994 | |||||||||
GROSS PROFIT |
456,372 | 362,499 | 372,926 | 441,799 | |||||||||
EXPENSES |
|||||||||||||
Selling expenses |
502,828 | 380,412 | 394,512 | 368,233 | |||||||||
General and administrative expenses |
2,671,418 | 2,197,922 | 2,463,461 | 2,680,931 | |||||||||
Product development and clinical trials expenses |
6,855,615 | 4,777,197 | 4,148,184 | 4,239,963 | |||||||||
|
10,029,861 | 7,355,531 | 7,006,157 | 7,289,127 | |||||||||
OPERATING LOSS |
(9,573,489 | ) | (6,993,032 | ) | (6,633,231 | ) | (6,847,328 | ) | |||||
Other (expense)/income |
(2,739,008 | ) | 775,550 | (1,287,267 | ) | (1,804,417 | ) | ||||||
Tax (expense)/income |
(41,688 | ) | 15,505 | (38,980 | ) | 36,370 | |||||||
LOSS FOR THE PERIOD |
$ | (12,354,185 | ) | $ | (6,201,977 | ) | $ | (7,959,478 | ) | $ | (8,615,375 | ) | |
BASIC LOSS PER SHARE |
$ | (1.45 | ) | $ | (0.83 | ) | $ | (1.17 | ) | $ | (2.10 | ) | |
|
December 31,
2018 As restated |
September 30,
2018 |
June 30,
2018 |
March 31,
2018 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
REVENUE |
$ | 523,424 | $ | 480,540 | $ | 405,247 | $ | 339,922 | |||||
COST OF GOODS SOLD |
93,519 | 96,743 | 88,603 | 87,393 | |||||||||
GROSS PROFIT |
429,905 | 383,797 | 316,644 | 252,529 | |||||||||
EXPENSES |
|||||||||||||
Selling expenses |
614,742 | 202,947 | 248,538 | 286,938 | |||||||||
General and administrative expenses |
5,415,634 | 6,340,747 | 2,213,464 | 2,469,091 | |||||||||
Product development and clinical trials expenses |
4,653,122 | 3,490,696 | 3,858,255 | 3,999,391 | |||||||||
|
10,683,498 | 10,034,390 | 6,320,257 | 6,755,420 | |||||||||
OPERATING LOSS |
(10,253,593 | ) | (9,650,593 | ) | (6,003,613 | ) | (6,502,891 | ) | |||||
Other income/(expense) |
21,862,040 | (4,932,151 | ) | (43,071,578 | ) | (49,324,003 | ) | ||||||
Tax income/(expense) |
70,961 | (54,000 | ) | (70,400 | ) | (53,654 | ) | ||||||
INCOME/(LOSS) FOR THE PERIOD |
$ | 11,679,408 | $ | (14,636,744 | ) | $ | (49,145,591 | ) | $ | (55,880,548 | ) | ||
BASIC (LOSS)/GAIN PER SHARE |
$ | 5.07 | $ | (7.80 | ) | $ | (36.59 | ) | $ | (385.90 | ) | ||
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|
December 31,
2017 As restated |
September 30,
2017 |
June 30,
2017 |
March 31,
2017 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
REVENUE |
$ | 1,227,625 | $ | 1,374,893 | $ | 1,305,136 | $ | 1,481,360 | |||||
COST OF GOODS SOLD |
1,136,804 | 659,686 | 872,703 | 808,628 | |||||||||
GROSS PROFIT |
90,821 | 715,207 | 432,433 | 672,732 | |||||||||
EXPENSES |
|||||||||||||
Selling expenses |
220,885 | 253,791 | 224,382 | 187,168 | |||||||||
General and administrative expenses |
8,318,549 | 1,864,302 | 2,253,219 | 3,248,713 | |||||||||
Product development and clinical trials expenses |
2,487,495 | 4,422,641 | 4,250,780 | 5,053,523 | |||||||||
|
11,026,929 | 6,540,734 | 6,728,381 | 8,489,404 | |||||||||
OPERATING LOSS |
(10,936,108 | ) | (5,825,527 | ) | (6,295,948 | ) | (7,816,672 | ) | |||||
Other income/(expense) |
7,209,897 | 1,473,493 | 1,012,926 | 28,299 | |||||||||
Tax expense |
(25,602 | ) | (343,926 | ) | (58,286 | ) | (56,614 | ) | |||||
LOSS FOR THE PERIOD |
$ | (3,751,813 | ) | $ | (4,695,960 | ) | $ | (5,341,308 | ) | $ | (7,844,987 | ) | |
BASIC LOSS PER SHARE |
$ | 82.66 | $ | (59.50 | ) | $ | (67.80 | ) | $ | (99.70 | ) | ||
The Company closed its contract manufacturing and consulting services revenue generating business segments at the end of 2017 and the only revenue going forward will be derived from sales of the Reducer.
Selling expenses are expected to generally increase as the Company continues its focused commercialization of the Reducer in select countries in Europe. General and administrative expenses reached peaks in the third and fourth quarter of 2018 due to the accrual of future collaboration and license fees. While we aim to increase product development and clinical trial activities quarter over quarter, with quarterly fluctuations depending on the activities conducted in that quarter to develop the Tiara and the Reducer, the Company has been resource-constrained since the litigation loss in the second quarter of 2016 as we have been forced to defer or cancel certain otherwise desirable projects we would like to have undertaken.
Discussion of Liquidity and Capital Resources
Results for the years ended December 31, 2019 and 2018 follow (as restated):
Neovasc finances its operations and capital expenditures with cash generated from operations and through equity and debt financings. As at December 31, 2019 the Company had cash and cash equivalents of $5,292,833 compared to cash and cash equivalents of $9,242,809 as at December 31, 2018. The Company will require significant additional financing in order to continue to operate its business. Given the current nature of the Company's capital structure, there can be no assurance that such financing will be available on favorable terms, or at all.
The Company is in a negative working capital position of $6,705,728, with current assets of $8,015,830 and current liabilities of $14,721,558. The Company will require additional working capital in order to continue to operate its business and there can be no assurance that such additional working capital will be available on favorable terms, or at all.
Net cash applied to operating activities for the year ended December 31, 2019 was $23,972,126, compared to $22,794,748, for the same period in 2018. For the year ended December 31, 2019, cash operating expenses were $25,959,718, compared to $23,865,257 for the same period in 2018, an increase of $2,094,461 as the Company continues to manage its cash flows while still advancing the commercialization and development of its products. Net cash provided from the net change in non-cash working capital items for the year ended December 31, 2019 was $1,831,473, compared to $1,065,498 in the same period in 2018, a $765,975 increase.
Net cash applied to investing activities for the year ended December 31, 2019 was $266,639 compared to net cash received from investing activities of $713,752 for the same period in 2018, primarily due to the $865,610 cash inflow from the sale of a manufacturing building in 2018.
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During the year ended December 31, 2019, the Company received net proceeds of $19,601,526 from the 2019 Financings and $1,200,400 from the exercise of 2017 Warrants, compared to $13,086,587 proceeds from the exercise of 2017 Warrants in 2018.
The majority of the revenue and expenses of the Company are incurred in the parent and in two of its subsidiaries, NMI, which is located in Canada, and Neovasc (US) Inc. which is located in the United States. There were no significant restrictions on the transfer of funds between these entities during the periods ended December 31, 2019 and 2018 and the Company had no complications in transferring funds to and from its subsidiaries in Israel and the United States.
The Company is exposed to foreign currency fluctuations on $1,266,206 of its cash and cash equivalents and restricted cash held in Canadian dollars and Euros.
Results for the years ended December 31, 2018 and 2017 follow (as restated):
Neovasc finances its operations and capital expenditures with cash generated from operations and through equity and debt financings. As at December 31, 2018 the Company had cash and cash equivalents of $9,242,809 compared to cash and cash equivalents of $17,507,157 as at December 31, 2017. The Company will require significant additional financing in order to continue to operate its business. Given the current nature of the Company's capital structure, there can be no assurance that such financing will be available on favorable terms, or at all.
The Company is in a positive working capital position of $6,040,192, with current assets of $12,073,976 and current liabilities of $6,033,784. The Company will require additional working capital in order to continue to operate its business and there can be no assurance that such additional working capital will be available on favorable terms, or at all.
Cash used in operating activities for the year ended December 31, 2018 was $22,794,748, compared to $138,613,945 for the same period in 2017. For the year ended December 31, 2018, operating activities were $23,865,257, compared to $25,128,439 for the same period in 2017, a decrease of $1,263,182. Net cash provided from the net change in non-cash working capital items for the year ended December 31, 2018 was $1,065,498, compared to a net cash outflow of $113,342,424 in the same period in 2017. The decrease in net cash outflow can be attributed to the payment of the damages and interest awards in relation in the Company's primary U.S. litigation with CardiAQ in 2017.
Net cash received from investing activities for the year ended December 31, 2018 was $713,752 compared to net cash applied to investing activities of $69,496,853 for the same period in 2017, primarily due the release of cash held in escrow to settle damages and interest awards in the Company's primary U.S. litigation with CardiAQ in 2017.
The majority of the revenue and expenses of the Company are incurred in the parent and in two of its subsidiaries, NMI, which is located in Canada, and Neovasc (US) Inc. which is located in the United States. There were no significant restrictions on the transfer of funds between these entities during the periods ended December 31, 2018 and 2017 and the Company had no complications in transferring funds to and from its subsidiaries in Israel and the United States.
The Company is exposed to foreign currency fluctuations on $1,508,963 of its cash and cash equivalents and restricted cash held in Canadian dollars and Euros.
2017 Financings
In November 2017, Neovasc completed two financing transactions, the 2017 Public Transaction and the 2017 Private Placement, for aggregate gross proceeds of approximately $65 million. The Company used the net proceeds of the 2017 Financings to fully fund the approximately $42 million balance of the damages and interest awards in the case of CardiAQ v. Neovasc Inc. (after subtracting the approximately $70 million that the Company had paid into escrow), with remaining funds being used (i) to partially fund the ongoing Tiara clinical program; (ii) to support the completion of the TIARA-II study; and (iii) for general corporate purposes.
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On November 17, 2017, the Company completed the underwritten 2017 Public Transaction of 6,609,588 Series A units (the "Series A Units") of Neovasc and 19,066,780 Series B units (the "Series B Units" and together with the Series A Units, the "Units") of Neovasc, at a price of $1.46 per Unit for gross proceeds of approximately $37.487 million, before deducting the underwriting discounts and commissions and other estimated offering expenses payable by Neovasc. The price of $1.46 per Unit represented the market price (as defined in the TSX Company Manual) of Neovasc's Common Shares as of the date of announcement of the 2017 Financings.
Each Series A Unit was comprised of (i) 0.001 Common Share of the Company (each, a "Unit Share"), (ii) one Series A warrant of the Company (each, a "Series A Warrant"), exercisable into 0.001 Common Shares, (iii) one Series B warrant of the Company (each, a "Series B Warrant"), exercisable into 0.001 Common Shares and (iv) 0.40 Series C unit purchase warrant (each a "Series C Warrant") to purchase a unit (each, a "Series C Unit") comprised of 0.001 Common Shares, one Series A Warrant and one Series B Warrant.
Each Series B Unit was comprised of (i) either 0.001 Unit Shares or one pre funded Series D warrant of the Company (each, a "Series D Warrant") exercisable into 0.001 Common Shares, (ii) one Series A Warrant, (iii) one Series B Warrant, (iv) 0.40 Series C Warrant, and (v) 1.1765 Series F Common Share purchase warrant of the Company (each, a "Series F Warrant"). The Series A Units and Series B Units separated into their component parts upon distribution.
Each Series A Warrant entitled the holder to purchase one Common Share (each, a "Series A Warrant Share") at an exercise price of $1.61 per Series A Warrant Share at any time prior to 11:59 p.m. (New York time) on November 17, 2022. Each Series B Warrant entitled the holder to purchase one Common Share (each, a "Series B Warrant Share") at an exercise price of $1.61 per Series B Warrant Share at any time prior to 11:59 p.m. (New York time) on November 17, 2019. Each Series C Warrant entitled the holder to purchase a Series C Unit comprised of a Common Share (each a "Series C Unit Share"), a Series A Warrant and a Series B Warrant, at an exercise price of $1.46 per Series C Unit at any time prior to 11:59 p.m. (New York time) on November 17, 2019. Each Series D Warrant entitled the holder to purchase one Common Share (each, a "Series D Warrant Share") at an exercise price of $1.46 per Series D Warrant Share, all of which were pre-funded except for a nominal exercise price of $0.01 per Series D Warrant Share at any time prior to 11:59 p.m. (New York time) on November 17, 2022. Each Series F Warrant entitled the holder to purchase one Common Share (each, a "Series F Warrant Share" and together with the Series A Warrant Shares, Series B Warrant Shares, Series C Unit Shares, and Series D Warrant Shares, the "2017 Warrant Shares") at an exercise price of $1.61 per Series F Warrant Share at any time prior to 11:59 p.m. (New York time) on November 17, 2019.
Concurrent with the 2017 Public Transaction, the Company completed the 2017 Private Placement for the sale of $32,750,000 aggregate principal amount of senior secured convertible 2017 Notes of the Company and Series E Common Share purchase warrants of the Company (the "Series E Warrants") to purchase 0.001 Common Share at a price of $1,610 per Common Share. As a result of the January 2020 Financing, the exercise prices of the 2017 Notes were not adjusted and remained at $3.95. The 2017 Notes were issued with an original issue price of $850 per $1,000 principal amount of note. The 2017 Notes initially carried an 18-month term and carry an interest rate of 0.0% per annum (increasing to 15% upon an event of default) from November 17, 2018. The maturity date of the 2017 Notes was extended to May 17, 2020, pursuant to certain waiver agreements between the Company and the holders of the 2017 Notes, along with certain other amendments. The form of waiver agreement is available on the Company's profiles on SEDAR at www.sedar.com and with the SEC at www.sec.gov. Interest on the 2017 Notes will commence accruing on November 17, 2018, will be computed on the basis of a 360-day year and twelve 30-day months and will be payable in cash on January 1, 2018 and on the first day of each calendar quarter thereafter up to, and including, the maturity date. The Series E Warrants had the same terms and conditions as the Series A Warrants. The 2017 Notes are secured by a first priority security interest on all of Neovasc's assets. The 2017 Notes and Series E Warrants are subject to adjustment, at any time prior to their expiry. The 2017 Notes contain, among other things, provisions relating to future-priced conversion or exercise formula and full-ratchet anti-dilution.
As of March 12, 2019, all of the warrants issued pursuant to the 2017 Financings have been either exercised or cancelled, such that no such warrants remain outstanding.
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For a description of the terms of the securities issued pursuant to the 2017 Financings, see the prospectus supplement and the forms of such securities filed on SEDAR at www.sedar.com and with the SEC at www.sec.gov. For a description of the risks associated with these securities, the amount of such securities exercised to date, the dilution to date and potential dilution in the future due to conversions, see Items 3.D "Risk Factors" and 10.A "Share Capital" of this Annual Report.
Conversions of 2017 Notes and Exercises of 2017 Warrants
The Series A Warrants, Series B Warrants, Series C Warrants, Series E Warrants and Series F Warrants were each subject to a hold period that restricted each warrant from being exercised until January 17, 2018. As of December 31, 2019, all of the 25,676,368 Series B Warrants initially granted and 10,273,972 Series B Warrants issued upon exercise of Series C Warrants have been exercised and all of the 22,431,506 Series F Warrants initially granted have been exercised. As of December 31, 2019, all of the 10,273,972 Series C Warrants initially granted have been exercised, for proceeds to the Company of $14,999,999. Such exercises of Series C Warrants resulted in the issuance of 102,740 Common Shares and the issuance of an additional 10,273,972 Series A Warrants.
On March 12, 2019, the Company announced that it had entered into exchange agreements with the holders of all of its outstanding Series A Warrants and Series E Warrants, pursuant to which the Company issued an aggregate of approximately 496,236 Common Shares for the surrender and cancellation of all of the Series A Warrants and Series E Warrants outstanding, on the basis of 0.0085 of a Common Share for each Series A Warrant or Series E Warrant (the "Exchange").
As of March 12, 2019, all of the warrants issued pursuant to the 2017 Financings have been either exercised or cancelled, such that no 2017 Warrants remain outstanding.
As of March 27, 2020, of the $32,750,000 aggregate principle amount of 2017 Notes initially issued, $28,837,000 aggregate principle amount has been converted using the alternate conversion price mechanism, resulting in the issuance of 4,150,735 Common Shares, and $3,913,999 aggregate principle amount remains outstanding As a result of the February 2019 Financing, the conversion price of the 2017 Notes reset, as of that time, to $4.50 and as a result of the June 2019 Common Share consolidation, the conversion price of the 2017 Notes reset to $3.95.
For a description of the risks associated with the securities issued pursuant to the 2017 Financings, the amount of such securities exercised or converted to date, the dilution to date, and the potential dilution in the future due to such exercises or conversions, see Items 3.D "Risk Factors" and 10.A "Share Capital" of this Annual Report.
Outstanding Share Data
As at March 27, 2020, the Company had 11,133,319 common voting shares issued and outstanding. Further, the following securities are convertible into Common Shares: 2,426,490 2020 Warrants with an exercise price of $4.15, 1,509,990 stock options with a weighted average price of $13.18, 482,956 restricted stock units, which are granted subject to shareholder approval at the next shareholders meeting, 144,444 2019 Broker Warrants with an exercise price of $5.625 and 157,721 2020 Broker Warrants with an exercise price of $5.1689 and the $3,913,000 convertible 2017 Notes that could convert into 990,632 Common Shares (not taking into account the alternate conversion price mechanism in the 2017 Notes). Our fully diluted share capital as of the same date is 18,378.885. Our fully diluted share capital, adjusted on the assumption that all the outstanding 2017 Notes are exercised using the alternate conversion price at the closing price on March 27, 2020 is 20,064,724.
For details concerning the terms of the securities issued pursuant to the 2017 Financings, see the prospectus supplement and the forms of such securities filed on SEDAR at www.sedar.com and with the SEC at www.sec.gov. For a description of the risks associated with these securities, the amount of such securities exercised to date, the dilution to date and the potential dilution in the future due to such exercises or conversions, see Items 3.D "Risk Factors" and 10.A "Share Capital" of this Annual Report.
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Contractual Obligations and Contingencies
For a description of legal claims and litigation involving the Company, see Item 8.A "Consolidated Statements and Other Financial Information Legal Proceedings" of this Annual Report.
Contractual obligations
The following table summarizes our contractual obligations as at December 31, 2019:
Contractual Obligations
|
Total | Less than 1 year | 2 - 3 years | 4 - 5 years | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating leases |
$ | 1,061,507 | $ | 526,839 | $ | 497,685 | $ | 36,983 |
Off Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Related Party Transactions
There were no ongoing contractual commitments and transactions with related parties during the years ended December 31, 2019, 2018 or 2017, other than those as described elsewhere herein and those compensation-based payments disclosed in Note 23 of the consolidated financial statements for the years ended December 31, 2019, 2018 and 2017.
Critical Accounting Estimates and Management Judgment
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Significant areas requiring the use of estimates relate to the determination of the net realizable value of inventory (obsolescence provisions), allowance for doubtful accounts receivable, impairment of non-financial assets, useful lives of depreciable assets and expected life, and volatility and forfeiture rates for share-based payments.
Inventories
The Company estimates the net realizable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices.
Allowance for doubtful accounts receivable
The Company has established and applied a provision matrix to the trade accounts receivables balances in order to calculate an allowance for doubtful accounts on adoption of IFRS 9. Actual collectability of customer balances can vary from the Company's estimation.
Impairment of long-lived assets
In assessing impairment, the Company estimates the recoverable amount of each asset or cash generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate.
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Useful lives of depreciable assets
The Company reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utilization of the assets.
Share-based payment
The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, risk free interest rate, volatility and forfeiture rates and making assumptions about them.
Determination of functional currency
The Company determines its functional currency as the United States dollar based on the primary economic environment in which it operates. IAS 21 The Effects of Changes in Foreign Exchange Rates outlines a number of factors to apply in determining the functional currency, which is subject to significant judgment by management. Management uses a number of factors to determine the primary economic environment in which the Company operates; it is normally the one in which it primarily generates and expends cash.
Deferred tax assets
Deferred tax assets are recognized in respect of tax losses and other temporary differences to the extent probable that there will be taxable income available against which the losses can be utilized. Judgment is required to determine the amount of deferred tax assets that can be recognized based on estimates of future taxable income.
Contingent Liabilities
Contingent liabilities are assessed continually to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the consolidated financial statements of the year in which the change in probability occurs.
Accounting for financing and determination of fair value of derivative liabilities
The determination of the accounting treatment for the financing transaction completed in November 2017 is an area of significant management judgment. In particular, this involved the determination of whether the warrants issued and the conversion feature associated with the convertible note should be classified as equity or as derivative liabilities. The difference between the transaction amount and the fair value of the instruments issued in connection with the financing gives rise to a loss which has been deferred as the fair values were not determined using only observable market inputs. The manner in which the deferred loss will be recognized within income involves management judgment.
The Company's warrants and convertible notes will be measured at fair value through profit and loss at each period end. The calculations of the fair value of these instruments involves the use of a number of estimates and a complex valuation model. The carrying amounts of these liabilities may change significantly as a result of changes to these estimates. Details of the estimates used as at December 31, 2019 are disclosed in Note 15 to the Company's consolidated financial statements as at and for the years ended December 2019, 2018 and 2017.
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Right of use asset and lease liability
At the commencement date, the Company measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available. If the interest rate implicit in the lease is not readily available, the Company discounts using the Company's incremental borrowing rate. The Company measures the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.
Changes in Accounting Policies Including Initial Adoption
During the year ended December 31, 2019, there have been no changes in accounting policies, except as disclosed herein. The Company has adopted IFRS 16 and IFRIC 23 during the year ended December 31, 2019.
Adoption of New Standard
Accounting standard issued and effective January 1, 2019
IFRS 16 Leases
IFRS 16 'Leases' replaces IAS 17 'Leases' along with three Interpretations (IFRIC 4 'Determining whether an Arrangement contains a Lease', SIC 15 'Operating Leases Incentives' and SIC 27 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease'). The new Standard has been applied using the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognized in equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods have not been restated.
For contracts in place at the date of initial application, the Company has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as lease under IAS 17 and IFRIC 4.
The Company has elected to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of IFRS 16, being January 1, 2019. At this date, the Company has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.
The Company performed an impairment review on the right-of-use assets at the date of initial application.
On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low-value assets the Company has applied the optional exemptions to not recognize right-of-use assets but to account for the lease expense on a straight-line basis over the remaining lease term.
On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognized under IFRS 16 was 10%.
The Company has benefited from the use of hindsight for determining the lease term when considering options to extend and terminate leases.
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The following is a reconciliation of total operating lease commitments at December 31, 2018 to the lease liabilities recognized at January 1, 2019:
Total operating lease commitments disclosed at December 31, 2018 |
$ | 1,431,188 | ||
Recognition exemptions: |
||||
Leases of low value assets |
| |||
Leases with remaining lease term of less than 12 months |
| |||
Variable lease payments not recognized |
| |||
Operating lease liabilities before discounting |
1,431,188 | |||
Discounted using incremental borrowing rate |
(142,082 | ) | ||
Operating lease liabilities |
1,289,106 | |||
Total lease liabilities recognized under IFRS 16 at January 1, 2019 |
$ | 1,289,106 |
For any new contracts entered into on or after January 1, 2019, the Company considers whether a contract is, or contains a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration'. To apply this definition the Company assesses whether the contract meets three key evaluations which are whether:
Measurement and recognition of leases as a lessee
At the lease commencement date, the Company recognizes a right-of-use asset and a lease liability on the statement of financial position.
The Company depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Company also assesses the right-of-use asset for impairment when such indicators exist.
At the commencement date, the Company measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available. If the interest rate implicit in the lease is not readily available, the Company discounts using the Company's incremental borrowing rate.
Lease payments included in the measurement of the lease liability are made up of fixed payments (including in-substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.
The Company has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognizing a right-of-use asset and lease liability, the payments in relation to these are recognized as an expense in profit or loss on a straight-line basis over the lease term.
On the statement of financial position, right-of-use assets have been included under non-current assets and lease liabilities have been included under current and non-current liabilities.
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IFRIC 23 Uncertainty over Income Tax Treatments
In June 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments. This interpretation specifies that if an entity concludes it is probable that the taxation authority will accept an uncertain tax treatment, it shall determine the tax result consistently with the tax treatment used or planned to be used in its income tax filing. If it is not probable, the entity shall reflect the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which one the entity expects to better predict the resolution of the uncertainty:
The adoption of IFRIC 23 on January 1, 2019 has not had a significant impact on the consolidated financial statements.
Financial Instruments
The Company's financial instruments include its cash and cash equivalents, restricted cash, accounts receivable and accounts payable, derivative warrant liability from financing, convertible notes, and accrued liabilities.
The fair value hierarchy establishes three levels to classify fair value measurements based upon the observability of significant inputs used in the valuation techniques. The three levels of the fair value hierarchy are described below:
Level 1 -- Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 -- Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)
Level 3 -- Inputs for the assets or liability that are not based on observable market data (that is, unobservable inputs)
The following table sets forth the Company's financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as at December 31, 2019, 2018 and 2017. As required by IFRS 13, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
As at December 31, 2017:
|
Level 1 | Level 2 | Level 3 | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial liabilities at fair value through profit and loss |
||||||||||||||
2017 Convertible Notes |
$ | | $ | | $ | 20,007,559 | $ | 20,007,559 | ||||||
Derivative warrant financial liability from financing |
$ | | $ | | $ | 36,829,030 | $ | 36,829,030 |
As at December 31, 2018:
|
Level 1 | Level 2 | Level 3 | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial liabilities at fair value through profit and loss |
||||||||||||||
2017 Convertible Notes |
$ | | $ | | $ | 14,617,336 | $ | 14,617,336 | ||||||
Derivative warrant financial liability from financing |
$ | | $ | | $ | 190,303 | $ | 190,303 |
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As at December 31, 2019:
|
Level 1 | Level 2 | Level 3 | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial liabilities at fair value through profit and loss |
||||||||||||||
2017 Convertible Notes |
$ | | $ | | $ | 5,400,189 | $ | 5,400,189 | ||||||
2019 Convertible Notes |
$ | | $ | | $ | 9,265,480 | $ | 9,265,480 |
The carrying amounts of financial assets and financial liabilities in each category are as follows:
|
December 31,
2019 |
December 31,
2018 |
December 31,
2017 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Amortized cost |
|||||||||||
Cash and cash equivalents |
$ | 5,292,833 | $ | 9,242,809 | $ | 17,507,157 | |||||
Accounts receivable |
715,696 | 647,143 | 1,334,923 | ||||||||
Restricted cash |
462,874 | 439,736 | 478,260 | ||||||||
|
$ | 6,471,403 | $ | 10,329,688 | $ | 19,320,340 | |||||
Other financial liabilities at amortized cost |
|||||||||||
Accounts payable and accrued liabilities (current) |
$ | 7,794,456 | $ | 4,610,560 | $ | 1,844,955 | |||||
Accrued liabilities (non-current) |
1,186,601 | 2,241,979 | | ||||||||
Financial liabilities at fair value through profit and loss |
|||||||||||
2017 Convertible Notes (current) |
5,400,189 | 1,423,224 | 4,261,597 | ||||||||
2019 Convertible Notes (current) |
1,090,561 | | | ||||||||
Derivative liability from financing (current) |
| | 19,997,345 | ||||||||
2017 Convertible Notes (non-current) |
| 13,194,112 | 15,745,962 | ||||||||
2019 Convertible Notes (non-current) |
8,174,919 | | | ||||||||
Derivative warrant liability from financing (non-current) |
| 190,303 | 16,831,685 | ||||||||
|
$ | 23,646,726 | $ | 21,660,178 | $ | 58,681,544 | |||||
The carrying amounts of cash and cash equivalents, accounts receivable, restricted cash and accounts payable and accrued liabilities are considered a reasonable approximation of fair value due to their short-term nature.
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The Company monitors its cash flow on a monthly basis and compares actual performance to the budget for the period. After receipt of the net proceeds of approximately $3.9 million from the February 2019 financing, $4.2 million from the March 2019 financing, and $11.35 million from the May 2019 financing, the Company expects that its cash on hand as at December 31, 2019 and including the January 2020 Financing (see Subsequent Events) is sufficient to sustain operations until approximately August 2020 at the current burn rate if the 2017 Notes are converted prior to the maturity date. If the 2017 Notes are paid out on the maturity date of May 17, 2020, the Company expects that it will have sufficient cash on hand to sustain operations until June 30, 2020 at the current burn rate. The Company may obtain additional debt or equity financing in future periods. Further into the future the Company is dependent on the profitable commercialization of its products or obtaining additional debt or equity financing to fund ongoing operations until profitability is achieved.
The maximum exposure, if all of the Company's customers were to default at the same time is the full carrying value of the trade accounts receivable as at December 31, 2019 is $597,505 (as at December 31, 2018 and 2017: $637,421 and $1,201,292, respectively). As at December 31, 2019, the Company had $148,814 (as at December 31, 2018 and 2017: $311,642 and $588,282, respectively) of trade accounts receivable that were overdue according to the customers' credit terms. During the year ended December 31, 2019 the Company wrote down $64,600, respectively, of accounts receivable owed by customers (year ended December 31, 2018 and 2017: $489,449 and $26,931 respectively).
The Company may also have credit risk related to its cash and cash equivalents and restricted cash, with a maximum exposure of $5,755,707 as at December 31, 2019 (as at December 31, 2018 and 2017: $9,682,545 and $17,985,417, respectively). The Company minimizes its risk to cash and cash equivalents and restricted cash by maintaining the majority of its balances with Canadian Chartered Banks.
A. Disclosure Controls and Procedures and Internal Control of Financial Reporting
See Item 15.A "Disclosure Controls and Procedures" of this Annual Report for details regarding Neovasc's ICFR and disclosure controls and procedures ("DC&P").
B. Liquidity and Capital Resources
See Item 5.A "Operating Results" of this Annual Report for details regarding Neovasc's liquidity and capital resources.
Commitments for Capital Expenditures
See Item 5.A "Operating Results" of this Annual Report for details regarding Neovasc's commitments for capital expenditures.
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Transfer Restrictions
The majority of the revenue and expenses of the Company are incurred in the parent and in one of its subsidiaries, NMI, both of which are Canadian companies. There were no significant restrictions on the transfer of funds between these entities and during the years ended December 31, 2019, 2018 and 2017 the Company had no complications in transferring funds to and from its subsidiaries in Israel and the United States.
Foreign Operations and Currency Exposure
See Item 5.A "Operating Results" of this Annual Report for details regarding Neovasc's foreign operations and currency exposure.
C. Research and Development, Patents and Licenses, etc.
See Item 5.A "Operating Results" of this Annual Report for details regarding Neovasc's research and development policies and practices.
Key Patent Applications
See "Patents Applications" in Item 4 of this Annual Report for details regarding Neovasc's key patent applications.
Licensed Pending Applications
See "Pending Licensed Applications" in Item 4 of this Annual Report for details regarding Neovasc's licensed intellectual property pending applications.
D. Trend Information
See Item 5.A "Operating Results" of this Annual Report for details regarding recent affecting Neovasc's business and operations.
E. Off-Balance Sheet Arrangements
Neovasc has no material undisclosed off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on its results of operations, financial condition, revenues or expenses, liquidity, capital expenditures or capital resources that is material to investors.
F. Tabular Disclosure of Contractual Obligations
See Item 5.A "Operating Results" of this Annual Report for details regarding Neovasc's contractual obligations.
G. Safe Harbor
See "Cautionary Note Regarding Forward-Looking Statements" in the introduction to this Annual Report.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth the names and municipalities of residence of the Company's directors and executive officers as well as their positions with the Company and principal occupations for the previous five years. All directors, officers and employees are required to sign standard confidentiality and non-disclosure agreements with the Company. Each director's terms of office expires at the next annual general meeting of the shareholders of the Company.
Name and Place of Residence
|
Age | Principal Occupations | ||
---|---|---|---|---|
Fred Colen
|
66 | President and Chief Executive Officer, Neovasc Inc. (January 2018 Present), Director, Neovasc Inc. (June 2019 Present), President and Chief Executive Officer, Benechill, Inc. (November 2011 March 2016) | ||
Chris Clark
|
48 | Chief Financial Officer and Secretary, Neovasc Inc. (April 2007 Present) | ||
Bill Little
|
49 | Chief Operating Officer, Neovasc Inc. (November 2019 Present), Global Head of Customer and New Market Insights and Divisional Vice President of Global Marketing, Abbott (January 2012 November 2019) | ||
Vicki Bebeau
|
68 | Vice-President of Clinical and Regulatory Affairs, Neovasc Inc. (May 2014 Present) | ||
Aaron Chalekian
|
40 | Vice-President, Product Development & Manufacturing Engineering, Neovasc Inc. (March 2015 Present), Director, Research & Development, St Jude Medical (November 2007 March 2015) | ||
John Panton
|
54 | Vice-President, Quality, Neovasc Inc (January 2018 Present), Director, Quality, Neovasc Inc (May 2015 January 2018), Global Director, Quality Systems, Verathon Medical Canada ULC (May 2009 April 2015) | ||
Steve Rubin(1)(2)
|
58 | Chairman of the Board, Neovasc Inc. (June 2018 Present); Director, Neovasc Inc. (February 2008 Present); Executive Vice President Administration, OPKO Health, Inc. (May 2007 Present) | ||
Paul Geyer(1)(2)(3)
|
55 | Director, Neovasc Inc. (November 2000 Present); Chairman of the Board, Neovasc Inc. (November 2000 May 2018); CEO, Discovery Parks and Nimbus Synergies (March 2017 Present); CEO, LightIntegra Technology Inc. (June 2009 March 2017) | ||
Norman Radow(3)
|
63 | Director, Neovasc Inc. (September 2019 Present); Founder, CEO, RADCO Companies (October 1994 Present), Managing Partner, Strul Medical Group (May 2019 Present) | ||
Douglas Janzen(1)(2)
|
50 | Director, Neovasc Inc. (June 2005 Present); CEO, Northview Ventures (2012 Present); CEO, Aequus Pharmaceuticals Inc. (January 2013 Present) | ||
Alexei Marko(3)
|
50 | Director (June 2003 Present), Former Chief Executive Officer Neovasc Inc. (July 2008 January 2018), |
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Name and Place of Residence
|
Age | Principal Occupations | ||
---|---|---|---|---|
Brian McPherson
|
57 | Former Chief Operating Officer, Neovasc Inc. (June 2009 January 2018) | ||
Randy Lane
|
46 | Former Vice-President of New Concept Development & Intellectual Property, Neovasc Inc. (March 2018 September 2018), Vice-President, Research & Development, Neovasc Inc. (May 2014 March 2018) |
Biographies
Fred Colen President, Chief Executive Officer
Fred Colen has over 40 years of experience in the medical device field spans product development, sales and marketing and executive management. Mr. Colen has held management positions with Neovasc since January 2018. Mr. Colen is a resident of Florida, United States.
Fred Colen has contributed to many significant turnarounds in his career, including the post-acquisition Guidant Company, which became the CRM division of Boston Scientific, a firm with which he held progressively senior executive roles over 11 years, including Chief Technology Officer from 2001-2008 and Member of the Executive Committee from 2001-2010. During his tenure at Boston Scientific, Mr. Colen is credited with numerous successes. As President of the company's Cardiac Rhythm Management (CRM) Group his team regained trust and confidence in the division's implantable pacemakers, leads, defibrillators and re-synchronization devices, increasing annual product revenue growth by over 10% in a flat US market and growing global divisional operating income from below 10% to 25% of sales, exceeding the planned annual free cash flow goals. As Chief Technology Officer, he led the development and global commercial launch for the Company's first- and second-generation implantable drug-eluting coronary stents (the Taxus Express and Taxus Liberte), leading to global market leadership with incremental revenues of $2 billion annually. The Taxus Express market introduction is viewed as one of the most successful launches ever in the medical device industry.
Prior to joining Boston Scientific, Mr. Colen, in his role as Executive Vice President in the Pacesetter division, played a key role in the execution of St. Jude Medical's diversification strategy, which resulted in its evolution from a successful heart valve company to a broad-based medical device company with a highly successful cardiac rhythm management business. In addition to restructuring organizational processes, he introduced the "Fast Cycle Time" approach in R&D to reduce development cycle times and optimize timing of new product introductions and manufacturing processes. During this time period, St. Jude also achieved a sharp increase in European sales through business focus, additional sales capacity, and marketing campaigns.
Mr. Colen also served as the President and Chief Executive Officer of BeneChill, building its early stage business in Europe and developing its clinical, regulatory and marketing strategy for the US market. He oversaw financing rounds E and F before the company was acquired by a Swedish firm that specializes in brain cooling.
Mr. Colen has also held a number of Board Directorships or Advisory roles, including Mölnlycke Healthcare, Biim Ultrasound, and is currently a director of GTX Medical, a private medical device company. He served on the Board of Middle Peak Medical, a company developing a mitral valve replacement device, until its acquisition by Symetis, which in turn was acquired by Boston Scientific.
Chris Clark Chief Financial Officer and Corporate Secretary
In April 2007, Mr. Clark was appointed Chief Financial Officer of the Company. Prior to that, Mr. Clark was Director of Finance of Mr. Lube Canada Inc. from 2005 to 2007. Mr. Clark was Director of Finance, One Person Health Services Inc. from 2004 to 2005. He is a resident of British Columbia, Canada.
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Mr. Clark has over 20 years finance and accounting experience in public practice and in public and private companies, most recently focused in the medical device sector. He received his designation as a Chartered Accountant from the Institute of Chartered Accountants of England and Wales and articled with KPMG before moving to Canada in 1998. He has an honors degree in Economics from Swansea University and a post graduate diploma from Keble College, Oxford.
Bill Little Chief Operating Officer
On November 7, 2019, Bill Little was appointed Chief Operating Officer of the Company. Mr. Little is an accomplished global marketing executive with more than two decades of experience in the medical device and technology spaces, specializing in interventional cardiology and structural heart disease.
Mr. Little joined Neovasc after serving as Abbott Laboratories' ("Abbott") Global Head of Customer and New Market Insights and Divisional Vice President of Global Marketing, where he led strategy for the company's $3B vascular business unit. He also led organizational integration during Abbott's $30B merger with St. Jude Medical, providing U.S. sales leadership for a 300-strong commercial field team. Prior to Abbott, Mr. Little was Vice President, Global Marketing at C.R. Bard, Inc. now part of Becton Dickson, where he executed on a marketing strategy for the company's $600M peripheral vascular franchise, completing 12 new product launches that generated total revenue in excess of $100M annually. He also spent over 13 years at Boston Scientific in a variety of domestic and international commercial roles. Mr. Little holds a Bachelor of Science in business administration and marketing from the University of Colorado.
Vicki Bebeau Vice-President of Clinical and Regulatory Affairs
In May 2014, Ms. Bebeau joined Neovasc as Vice-President of Clinical Affairs. Ms. Bebeau has more than 20 years of clinical research experience, fulfilling various leadership roles, which include multinational cardiovascular device firms such as St. Jude Medical, Boston Scientific, and Medtronic. Having planned and directed numerous successful clinical studies, including prosthetic heart valves and other cardiovascular devices in support of IDE, PMA, and post market programs to support regulatory approvals, Ms. Bebeau's efforts have contributed to the adoption of some of the industry's most novel devices in the United States, Canada, Europe, Australia, and Japan.
Ms. Bebeau is a Registered Nurse whose specific areas of clinical research have included heart valves (open heart and percutaneous), vascular access and closure devices, FFR, OCT, renal denervation, and hypothermia. Ms. Bebeau holds a Bachelor of Science in Nursing from Bethel College. She represents Canada on the ISO 5840 Committee as a clinical expert in heart valves. Ms. Bebeau is also a MedTech Industry Advisory Board Member for St. Cloud State University. She is a resident of White Bear Lake, Minnesota, USA.
Aaron Chalekian Vice-President, Product Development & Manufacturing Engineering
Aaron Chalekian has been in the medical device industry for nearly 15 years with a Bachelor of Science degree in Biomedical Engineering from Michigan Technological University, and a master's degree in Mechanical Engineering from the University of Wisconsin Madison. Mr. Chalekian's experience includes early and late stage product development cycles for coronary stenting systems, transcatheter heart valves, surgical heart valves & repair technologies, along with numerous other catheter based and imaging technologies. Prior to Neovasc, Aaron has served in various roles, including management roles within research & development and support of manufacturing activities at Oakriver Technology, Boston Scientific and St. Jude Medical. In addition to his role at Neovasc, Aaron has actively served on the ISO 5840 committee (Surgical and Transcatheter valves) for nearly a decade as a committee member and most recently, a leader of a task force as it relates to the transcatheter mitral valve replacements space.
John Panton Vice-President, Quality
John Panton has over 30 years of engineering experience spread over the Total Product Life Cycle, in small, medium and large organizations and across different industrial sectors; medical devices, semiconductor, oil and gas, telecommunications, consumer electronics and military avionics. In England, John held various engineering roles of increasing responsibility specializing in new product introduction in R&D, product and
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process design and development, manufacturing engineering, process engineering and product engineering. In 2005, John started his Canadian career as a Quality professional, as the Quality Assurance Manager of a start-up company serving semiconductor Fortune 500 customers. He then moved to a Class 2 reusable medical device company initially as Quality and Regulatory Manager and then later to Global Director of Quality Systems, where he had responsibility for sites in Canada, US, Europe and Australia. John joined Neovasc in May 2015 as Director of Quality Systems and moved to VP of Quality in November 2017. John holds a Post Graduate Diploma in Microelectronics Technology and Applications from Middlesex University, and a Higher National Diploma in physics from Portsmouth Polytechnic.
Steven Rubin Chairman of the Board and Director
Mr. Rubin is Chairman of the Board. He has served as Executive Vice President Administration of OPKO since May 2007 and as a director of OPKO since February 2007. Mr. Rubin currently serves on the board of directors of Red Violet Inc. (NASDAQ:RDVT), a leading provider of information and analytical solutions, Non-Invasive Monitoring Systems, Inc. (OTCBB:NIMU), a medical device company, Cocrystal Pharma, Inc. (NASDAQ: COCP), a biotechnology company developing new treatments for viral diseases, Chromadex Corporation (NASDAQ: CDXC), an integrated, global nutraceutical company devoted to improving the way people age and Eloxx Pharmaceuticals, Inc. (Formerly Sevion Therapeutics, Inc.) (NASDAQ:ELOX), a clinical stage company which discovers and develops next-generation biologics for the treatment of cancer and immunological diseases. Mr. Rubin previously served as a director of Dreams, Inc., a vertically integrated sports licensing and products company, Safestitch Medical, Inc. prior to its merger with TransEnterix, Inc., SciVac Therapeutics, Inc. prior to its merger with VBI Vaccines, Inc., Tiger X Medical, Inc. prior to its merger with BioCardia, Inc., and PROLOR Biotech, Inc., prior to its acquisition by OPKO in August 2013. Mr. Rubin was elected to the Company's board of directors on July 1, 2008. He is a resident of the state of Florida, United States. Mr. Rubin is also a member of the Company's Audit and Strategic Activities Committee and the Company's Compensation Committee.
Paul Geyer Director
Mr. Geyer resigned as President and Chief Executive Officer of the Company on July 1, 2008. Mr. Geyer has served on the Company's Board since November 2, 2000 and is a resident of British Columbia, Canada. In addition, Mr. Geyer is a member of the Company's Audit and Strategic Activities Committee and the Company's Compensation Committee.
From June 2009 to January 2019, Mr. Geyer was Executive Chair of the board of directors of LightIntegra Technology Inc., a private medical device company focused on the development of the ThromboLux technology, used as a point of care device to determine platelet quality for blood transfusions. From June 2009 to March 2017, Mr. Geyer was Chief Executive Officer of LightIntegra Technology Inc.
Mr. Geyer is currently the Chief Executive Officer of Discovery Parks and Nimbus Synergies, focused on investment in the growth of Health Technology companies in BC. He is also an active angel investor and supporter of local technology and life sciences firms. Mr. Geyer is on the board of directors of several private Health Technology companies. Mr. Geyer is also a Board member and past Chairman of BC Social Venture Partners. In April 2011, Mr. Geyer was awarded the LifeSciences BC Leadership Award.
Norman Radow Director
On September 16, 2019, Norman Radow, Managing Partner at Strul, a leading investment firm, was appointed to the Company's Board of Directors. In addition to his duties as a Managing Partner at Strul, Mr. Radow founded the RADCO Companies, an opportunistic real estate investment group specializing in the acquisition and repositioning of multifamily assets, in 1994. In 2006, RADCO became a nationally recognized workout company and then oversaw much of the Lehman bankruptcy estate residential portfolio from 2008 through 2010. Today, RADCO owns approximately 17,000 apartment units in 13 cities across 8 states with an asset value in excess of $2 billion and has approximately 500 employees. In both 2017 and 2018, RADCO was named one of the fastest growing private companies in Atlanta by the Atlanta Business Chronicle, one of the fastest growing mid-market companies in the state of Georgia by the Association for Corporate Growth, and one
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of the fastest growing companies in the nation by Inc. 5000. In 2018, Norman was recognized as one of the Most Admired CEOs in the commercial real estate industry by the Atlanta Business Chronicle. Prior to founding RADCO, Mr. Radow practiced law. He was awarded a Juris Doctor by New York Law School in 1981 and currently serves on its board. Mr. Radow also received a Bachelor of Arts degree from SUNY Plattsburgh in 1978. Mr. Radow is a member of the Company's Governance and Nominating Committee.
Douglas Janzen Director
Mr. Janzen has been involved in the life sciences industry for the past 20 years. He is currently the CEO of Northview Ventures, an entity which invests in, and provides strategic advisory services to, a number of technology companies predominately in the life sciences industry. Mr. Janzen has also been Chairman of Lexington Biosciences., a company listed on the TSXV, since January 2017. Most Recently, Mr. Janzen has taken the position of CEO of Aequus Pharmaceuticals Inc., which listed on the TSXV on March 17, 2015. Mr. Janzen was originally elected to the Company's Board of Directors on June 2, 2005 and is a resident of British Columbia, Canada. In addition, Mr. Janzen is a member of the Company's Audit and Strategic Activities and Compensation Committees.
Previously, he was President and CEO of Cardiome Pharma Corp. (Cardiome), a Nasdaq-listed drug development company that completed an C$800 million licensing deal with subsidiaries of Merck & Co. and saw its lead product approved in Europe in 2010. Prior to his involvement with Cardiome, Mr. Janzen was an investment banker with Cormark Securities Inc., a Toronto-based investment bank, acting as Managing Director of Life Sciences. Mr. Janzen is the past Chairman of Life Sciences British Columbia, has served as a director of Biotech Canada, and sits as a director on a number of public and private boards. Mr. Janzen is a past winner of Vancouver's "Top 40 under 40" award.
Alexei Marko Director
Alexei Marko's almost 25 years of experience in the medical device field spans product development, sales and marketing and executive management. Mr. Marko held management positions with Neovasc's predecessor companies since 1999 and assumed the role of CEO in 2008 in conjunction with the company's expansion and restructuring. Mr. Marko was appointed to the Company's board of directors on June 12, 2003 and is a resident of British Columbia, Canada. Mr. Marko resigned from his position as Chief Executive Officer of Neovasc in January 2018. He is a member of the Company's Governance and Nominating Committee.
In October 2007, Mr. Marko was appointed President and Chief Operating Officer of Medical Ventures Corp. (MEV), a predecessor company. Previously, Mr. Marko was the Vice President and Chief Operating Officer and Vice President, Development and Engineering of MEV.
Mr. Marko is a listed inventor on a number of issued or pending patents related to medical technologies. He is also a registered professional engineer and sits on the board of directors for the Medical Device Development Centre in Vancouver. In 2005, he was named one of Business in Vancouver's "Top Forty Under 40" in recognition of his achievements.
Mr. Marko completed his B.A.Sc. (Hons) at Queen's University and M.A.Sc. in electrical engineering at the University of British Columbia, specializing in medical device development.
Brian McPherson Former Chief Operating Officer
In June 2009, Mr. McPherson was appointed Chief Operations Officer of the Company. Prior to that Mr. McPherson was Director of Operations from 2008 to 2009. Mr. McPherson resigned from his position as Chief Operating Officer of Neovasc in January 2018.
Mr. McPherson was Operations Manager for Pyng Medical from 2003 to 2006, where he also served on the board of directors. Prior to its acquisition by Medtronic, he was a Senior Operations Manager and served on the board of directors of Arterial Vascular Engineering Canada from 1995 to 1999. Mr. McPherson has more than 25 years' experience in medical device manufacturing and operations. He holds two diplomas in technology from the British Columbia Institute of Technology, with the most recent in Biomedical Engineering. He is a resident of British Columbia, Canada.
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Randy Lane Former Vice-President, New Concept Development & Intellectual Property
In July 2007, Mr. Lane joined Neovasc, and in May 2014 he was promoted to the position of Vice-President, Research and Development. His title was changed to "Vice-President, New Concept Development & Intellectual Property" in February 2018. Mr. Lane resigned from his position of Vice-President, New Concept Development & Intellectual Property in September 2018. Prior to joining the Company, Mr. Lane held senior roles at global cardiovascular device firms, including 10 years in product development and manufacturing with Sorin Group Canada Inc.
Mr. Lane has more than 20 years' experience in the medical device industry. Possessing expertise in prosthetic heart valve design and testing, Mr. Lane represents Canada on the ISO 5840 Committee as a technical expert in heart valves and has led teams throughout the complete development program, including the development of process improvements, product development and regulatory testing.
Mr. Lane holds a Bachelor of Science degree from McGill University, Montreal, Quebec, and is a resident of British Columbia, Canada.
B. Compensation
Executive Compensation
Compensation Discussion and Analysis
For the purposes of this Annual Report, a named executive officer ("NEO") of the Company, using the definition contained in applicable Canadian securities laws, means each of the following individuals:
Each of Fred Colen, President and CEO, Chris Clark, Chief Financial Officer ("CFO") and Secretary, Bill Little, Chief Operating Officer ("COO"), Vicki Bebeau, Vice-President of Clinical and Regulatory Affairs ("VP, C&R"), Aaron Chalekian, Vice-President, Product Development & Manufacturing Engineering ("VP, PD&E"), John Panton, Vice-President, Quality is an NEO of the Company for purposes of this disclosure.
Compensation Philosophy and Objectives
The Executive Compensation Program is set to attract and retain the best available talent while efficiently utilizing available resources. The Company compensates executive management with a package typically including a base salary, an incentive compensation plan and equity compensation designed to be competitive with comparable employers and to align management's compensation with the long-term interests of the Company's shareholders. Incentive compensation is used as a short-term incentive to achieve Company objectives and equity compensation is designed to allow the participants to enjoy the benefits of any increase in Company valuation and share price, should such an increase occur.
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The base salary, incentive compensation and equity compensation for the Company's NEOs were determined by the Compensation Committee. Each of the Compensation Committee members has direct experience that is relevant to his or her responsibilities in executive compensation. The Compensation Committee set the compensation of the NEOs using their combined industry experience. The Compensation Committee delegated to the NEOs the responsibility to set the compensation packages for all other senior management and staff. Given the evolving nature of the Company's business, the Board continues to review and redesign the overall compensation plan for senior management so as to continue to address the objectives identified above.
Elements of Compensation
Base Salary The Base Salary is set in comparison to the comparable positions in the market and in the industry. In considering the Base Salary, as well as the other components of executive management's compensation, the Board takes into consideration the financial condition of the Company. The base salaries for NEOs of Neovasc during the financial year ended December 31, 2019 were:
NEO
|
BASE SALARY | |||
---|---|---|---|---|
Fred Colen (President & CEO) |
$ | 401,700/year | ||
Chris Clark (CFO) |
C$ | 351,000/year | ||
Bill Little (COO) |
$ | 300,000/year | ||
Vicki Bebeau (VP, C&R) |
$ | 273,173/year | ||
Aaron Chalekian (VP, PD&E) |
$ | 226,820/year | ||
John Panton (VP, Quality) |
C$ | 238,280/year |
Stock-Based and Cash-Based Bonuses For the years ended December 31, 2017, 2018 and 2019, the Compensation Committee implemented a cash-based bonus whereby cash awards up to a maximum of 30% of each NEO's Base Salary were paid based on objectives pertaining to the development of the Tiara and Reducer. The NEOs were awarded 50% of their potential cash-based award for 2017 based on their achievements against the objectives. Under the terms of Mr. Colen's employment agreement, cash awards up to a maximum of 100% of his Base Salary may be paid based on the achievement of certain objectives. For the year ended December 31, 2018, the Compensation Committee implemented a cash-based bonus whereby cash awards up to a maximum of 100% of Fred Colen's, 70% of Chris Clark and Vicki Bebeau's and 30% of each the remaining NEO's Base Salary were paid based on objectives pertaining to the development of the Tiara and Reducer and on certain corporate objectives. For the year ended December 31, 2019, , the Compensation Committee implemented a cash-based bonus whereby cash awards up to a maximum of 100% of Fred Colen's, 70% of Chris Clark, Bill Little and Vicki Bebeau's and 30% of each the remaining NEO's Base Salary were paid based on objectives pertaining to the development of the Tiara and Reducer and on certain corporate objectives.
The bonuses available and paid to the NEOs during the financial year ended December 31, 2019 were:
NEO
|
BONUS
AVAILABLE |
BONUS PAID | |||||
---|---|---|---|---|---|---|---|
Fred Colen (President & CEO) |
$ | 401,700 | $ | 369,461 | |||
Chris Clark (CFO) |
C$ | 245,700 | C$ | 221,130 | |||
Bill Little (COO) |
$ | 24,231 | $ | 23,746 | |||
Vicki Bebeau (VP, C&R) |
$ | 191,221 | $ | 186,440 | |||
Aaron Chalekian (VP, PD&E) |
$ | 68,046 | $ | 61,241 | |||
John Panton (VP, Quality) |
C$ | 71,484 | C$ | 64,336 |
Option-Based Awards The Board maintains the authority to award Equity Compensation, including stock options pursuant to the Company's stock option plan (the "Option Plan"), to the Company's NEOs in such amounts and on such terms as the Board determines in its sole discretion. As discussed elsewhere herein, the Company may reserve up to 15% of the Common Shares issued and outstanding at any time
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pursuant to the exercise of options under the Option Plan. In determining NEOs' option-based Equity Compensation, the Compensation Committee reviews each executive's contribution to the Company's strategic goals periodically and makes recommendations to the Board. The Board will take factors such as changes in control provisions, performance criteria and previous grants into account in granting these executives' options. The CEO and CFO were consulted on the grant of Equity Compensation and made recommendations on the grant of stock options, but the actual compensation amount was recommended by the Compensation Committee and approved by the Board. The stock options granted to the Company's NEOs as at December 31, 2019 were:
NEO
|
OPTIONS | |
---|---|---|
Fred Colen (President & CEO) |
2,000 ($630.00 exercise price per Common Share, expiring January 24, 2026), 250 ($60.00 exercise price per Common Share, expiring March 31, 2026), 60,000 ($27.20 exercise price per Common Share, expiring September 30, 2026), 25,000 ($8.80 exercise price per Common Share, expiring December 3, 2026), 100,000 ($4.10 exercise price per Common Share, expiring March 26, 2027), 12,500 ($5.00 exercise price per Common Share, expiring May 31, 2027) | |
Chris Clark (CFO) |
100 (C$1,900.00 exercise price per Common Share, expiring March 31, 2022) 300 ($630.00 exercise price per Common Share, expiring January 24, 2026), 125 ($60.00 exercise price per Common Share, expiring March 31, 2026), 30,000 ($27.20 exercise price per Common Share, expiring September 30, 2026), 10,000 ($8.80 exercise price per Common Share, expiring December 3, 2026), 50,000 ($4.10 exercise price per Common Share, expiring March 26, 2027), 5,000 ($5.00 exercise price per Common Share, expiring May 31, 2027) |
|
Vicki Bebeau (VP, C&R) |
50 (C$11,760.00 exercise price per Common Share, expiring March 27, 2020) 200 (C$1,900.00 exercise price per Common Share, expiring March 31, 2022) 300 ($630.00 exercise price per Common Share, expiring January 24, 2026), 125 ($60.00 exercise price per Common Share, expiring March 31, 2026), 10,000 ($27.20 exercise price per Common Share, expiring September 30, 2026), 5,000 ($8.80 exercise price per Common Share, expiring December 3, 2026), 25,000 ($4.10 exercise price per Common Share, expiring March 26, 2027), 7,500 ($5.00 exercise price per Common Share, expiring May 31, 2027) |
|
Aaron Chalekian (VP, PD&E) |
75 (C$11,110.00 exercise price per Common Share, expiring April 16, 2020) 27 (C$5,190.00 exercise price per Common Share, expiring December 18, 2020) 50 (C$1,900.00 exercise price per Common Share, expiring March 31, 2022) 200 ($630.00 exercise price per Common Share, expiring January 24, 2026), 75 ($60.00 exercise price per Common Share, expiring March 31, 2026), 10,000 ($27.20 exercise price per Common Share, expiring September 30, 2026), 5,000 ($8.80 exercise price per Common Share, expiring December 3, 2026), 25,000 ($4.10 exercise price per Common Share, expiring March 26, 2027), 7,500 ($5.00 exercise price per Common Share, expiring May 31, 2027) |
|
John Panton (VP, Quality) |
50 (C$8,430.00 exercise price per Common Share, expiring June 1, 2020) 25 (C$7,920.00 exercise price per Common Share, expiring July 31, 2020) 21 (C$5,190.00 exercise price per Common Share, expiring December 18, 2020) 50 ($C1,900.00 exercise price per Common Share, expiring March 31, 2022) 200 ($630.00 exercise price per Common Share, expiring January 24, 2026), 75 ($60.00 exercise price per Common Share, expiring March 31, 2026), 10,000 ($27.20 exercise price per Common Share, expiring September 30, 2026), 5,000 ($8.80 exercise price per Common Share, expiring December 3, 2026), 25,000 ($4.10 exercise price per Common Share, expiring March 26, 2027), 7,500 ($5.00 exercise price per Common Share, expiring May 31, 2027) |
Restricted Stock Units The Board maintains the authority to award Equity Compensation, including restricted stock units ("RSUs") pursuant to the Company's restricted stock unit plan (the "RSU Plan"), to the Company's NEOs in such amounts and on such terms as the Board determines in its sole discretion. As discussed elsewhere herein, the Company may reserve up to 5% of the Common Shares issued and outstanding at any time pursuant to the exercise of RSUs under the RSU Plan. In determining NEOs' RSU-based Equity Compensation, the Compensation Committee reviews each executive's contribution to the Company's strategic goals periodically and makes recommendations to the Board. The Board will take factors such as changes in control provisions, performance criteria and previous grants into account in granting these
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executives' options. The CEO and CFO were consulted on the grant of Equity Compensation and made recommendations on the grant of RSUs, but the actual compensation amount was recommended by the Compensation Committee and approved by the Board. The RSUs granted to the Company's NEOs as at December 31, 2019 were:
NEO
|
RSUs | |
---|---|---|
Bill Little (COO) |
94,506 RSUs granted under inducement exemptions, 68,450 RSUs granted subject to shareholder approval |
Compensation Risks
The Compensation Committee Mandate tasks the Compensation Committee with reviewing the Company's compensation policies on an annual basis to determine whether they are aligned with the Company's risk management principles and whether they might or are reasonably likely to encourage executives and employees to take excessive risks. In doing so, the Compensation Committee assesses whether the compensation policy would likely give rise to material risks to the Company. The Company has not identified any risks arising from the compensation policy that are reasonably likely to have a material adverse effect on the Company.
General Equity-Compensation Arrangements
Option Plan
The shareholders of the Company approved the Option Plan at the annual general meeting of shareholders held on June 12, 2012, subsequently at the annual general meetings held on June 18, 2013, June 18, 2014 and June 13, 2017. The Board subsequently amended the Option Plan on April 12, 2018 and on November 7, 2019. Pursuant to the Option Plan, up to a maximum of 15% of the Common Shares issued and outstanding at any time may be reserved for issuance pursuant to the exercise of Options. The Option Plan does not contain any provisions that would restrict an NEO or director from purchasing financial instruments that are designed to hedge or offset a decrease in market value of the Common Shares granted to such individuals.
In accordance with the term of the Option Plan, as administered by the Board, the Board may grant options to directors, executive officers, employees and consultants of the Company and its affiliates. The Option Plan was adopted to offer incentives to directors, executive officers, employees, management and others who provide services to the Company or any subsidiary, to act in the best interests of the Company. The Board, in consultation with the Company's Compensation Committee, has the discretion to determine to whom options will be granted, the number and exercise price of such options and the terms and time frames in which the options will vest and be exercisable.
The Option Plan provides that the Company can reserve for issuance up to 15% of the Common Shares issued and outstanding at any time as options (each, an "Option"). As of March 27, 2020, there were 1,509,990 options issued and outstanding, this number represents 13.6% of the Company's issued and outstanding Common Shares. As of March 27, 2020, there were 160,007 Common Shares reserved for issuance upon the exercise of outstanding Options, representing 1.4% of the Company's issued and outstanding Common Shares. Accordingly, as of March 27, 2020 there were 1,669,997 Common Shares available for issuance under the Option Plan representing 15% of the Company's issued and outstanding Common Shares.
The Option Plan also contains a replenishment feature, which provides that the maximum number of Common Shares that may be issued as Options does not increase, provided that the number of Common Shares reserved for issuance under the Option Plan will automatically be replenished by an amount equal to the number of Common Shares issued upon the exercise of any Options under the Option Plan.
The exercise price for Options issued under the Option Plan will be set by the Board; however, the exercise price of an Option cannot be less than the Market Price (as defined therein) at the time of such grant of Options. The Market Price is defined as the closing price of the Common Shares on the TSX on the trading day immediately preceding the grant date. To exercise their Options, participants must either provide a certified cheque, wire transfer or bank draft, or may utilize the net settlement feature of the Option Plan. Upon a net
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settlement exercise, the Company will deliver to such participant that number of Common Shares equal to the following formula:
That number of fully paid and non-assessable Common Shares ("X") equal to the number of options ("Y") multiplied by the quotient obtained by dividing the result of the Market Price of one Common Share ("B") less the Exercise Price per Common Share ("A") by the Market Price of one Common Share ("B"). Expressed as a formula, such conversion shall be computed as follows:
The Option Plan provides that a holder may exercise their options in cash, or by providing a written notice to the Company pursuant to which the holder agrees to transfer and dispose of a specified number of options to the Company in exchange for Common Shares having a fair market value equal to the fair market value of such options disposed of and transferred to the Company.
The Option Plan provides that the maximum number of Common Shares issuable to insiders under such plan cannot exceed the "Insider Participation Limit", which means the number of Common Shares: (i) issued to Insiders within any one year period; and (ii) issuable to Insiders at any time; under the Option Plan, or when combined with all of the Company's other security based compensation arrangements, cannot exceed 10% of the Company's total issued and outstanding Common Shares, respectively.
An option is personal to the grantee of the option and is non-transferable and non-assignable. The Option Plan does not provide for or contemplate the provision of financial assistance to facilitate the exercise of options and the issuance of Common Shares. If the employment or appointment of an option holder with the Company or its affiliates is terminated by either party for any reason other than termination for cause or death, the options held by such option holder must be exercised within 120 days of the date of termination of the option holder's employment or appointment with the Company. If terminated for cause, the options held by such option holder terminate and are cancelled upon the holder ceasing to be a director, executive officer or employee of the Company or its affiliates. In the case of the death of a holder, any vested option held by him at the date of death will become exercisable by the holder's lawful personal representatives, heirs or executors until the earlier of one year after the date of death of such holder and the date of expiration of the term otherwise applicable to such option.
In the normal course of business, there are times when the Company's directors, executive officers and employees are party to material undisclosed information about the Company. Such periods are referred to as a "Blackout Period". During a Blackout Period, securities laws prohibit such persons from trading in the Company's securities, including exercising any option they may hold. Blackout Periods can be put into effect at any time but are scheduled to occur prior to the release of the Company's financial statements. The Option Plan provides that if the expiry date for any Option should fall within a Blackout Period, or within nine days of the expiration of a Blackout Period, such expiry date shall be automatically extended for a period of ten days beyond the expiration of the Blackout Period.
The Option Plan contains standard adjustment and anti-dilution provisions for changes in the capital structure of the Company. The Option Plan also includes provisions pursuant to the recent amendments to the Income Tax Act (Canada) which requires the Company to withhold and remit to Canada Revenue Agency, the estimated tax on the deemed benefit arising from the exercise of a stock option. The Option Plan also provides that in the event of a change of control of the Company, or in the event of a sale of all or substantially all of either the Tiara or Reducer assets, all previously granted options will immediately vest and become exercisable.
In order to comply with certain provisions of Section 422 of the Internal Revenue Code of 1986, as amended, of the United States (the "U.S. Internal Revenue Code"), in the granting of Options to eligible participants who are citizens or residents of the United States (including its territories, possessions and all areas subject to its jurisdiction), the Option Plan provides that subject to certain conditions, such Options may be granted as incentive stock options (within the meaning of the U.S. Internal Revenue Code) ("ISOs"). The Option Plan limits the aggregate total of ISOs available to grant to 500,000 of the maximum number of Options available for issuance.
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The Board may, subject to the requirements of the TSX Company Manual, at any time and from time to time, amend any of the provisions of the Option Plan without consent or approval from shareholders, including without limitation:
The above amendment provisions are also subject to, among other things, the following restricted amendment provisions (which will require Disinterested Shareholder Approval as such term is defined in the TSX Company Manual):
RSU Plan
The RSU Plan was adopted by the Board on December 2, 2019, amended on February 20, 2020, and requires shareholder approval at the Company's next annual general meeting of shareholders. The Company's
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RSU Plan was adopted to assist the Company in the recruitment and retention of highly qualified employees, directors and eligible consultants by providing a means to reward performance, to motivate participants under the RSU Plan to achieve important corporate and personal objectives and, through the proposed issuance by the Company of Common Shares under the RSU Plan, to better align the interests of participants with the long-term interests of shareholders.
Since the value of RSUs increases or decreases with the price of the Common Shares, RSUs reflect a philosophy of aligning the interests of executives with those of the Shareholders by tying compensation to share price performance. In addition, RSUs assist in the retention of qualified and experienced executives by rewarding those individuals who make a long term commitment.
The RSU Plan is administered by the Compensation Committee or such other committee of the Board as may be designated by the Board. Employees, directors and eligible consultants of the Company and its designated subsidiaries are eligible to participate in the RSU Plan. In accordance with the terms of the RSU Plan, the Company, under the authority of the Board through the Committee, will approve those employees, directors and eligible consultants who are entitled to receive RSUs and the number of RSUs to be awarded to each participant. RSUs awarded to participants are credited to them by means of an entry in a notional account in their favour on the books of the Company. Each RSU awarded conditionally entitles the participant to receive one Common Share upon attainment of the RSU vesting criteria.
The vesting of RSUs is conditional upon the expiry of time-based vesting conditions, performance-based vesting conditions or a combination of the two. The duration of the vesting period, performance criteria and other vesting terms applicable to the grant of the RSUs will be determined at the time of the grant by the Committee.
Once the RSUs vest, the participant is entitled to receive the equivalent number of underlying Common Shares. RSUs will be settled through the issuance of the Common Shares from treasury. The RSUs may be settled on the payout date, which will be determined by the Committee at the time of the grant, which in any event will be no later than the expiry date for such RSUs. The expiry date of RSUs will be determined by the Committee at the time of grant. However, the maximum term for all RSUs is two years after the participant ceases to be an employee or eligible consultant of the Company. All unvested or expired RSUs are available for future grants.
The maximum number of Common Shares which may be reserved, set aside and made available for issuance under the RSU Plan will not exceed 5% of the number of issued and outstanding shares. As of March 27, 2020, there were 482,956 RSUs outstanding (of which 388,550 RSUs are subject to shareholder approval), representing 4.3% of the Company's issued and outstanding common shares, leaving 73,709 RSUs available for grant, representing 0.7% of the Company's issued and outstanding common shares.
All outstanding RSUs will become vested RSUs on any Change of Control (as defined in the RSU Plan) and the payout date in connection with such participant's vested RSUs will be accelerated to the date of such Change of Control and the Company will issue Common Shares to participants as soon as practicable following such Change of Control.
Unless otherwise determined by the Company in accordance with the RSU Plan, RSUs which have not vested on a participant's termination date shall terminate and be forfeited. If a participant who is an employee ceases to be an employee as a result of termination of employment without cause, in such case, at the Company's discretion (unless otherwise provided in the applicable grant agreement), all or a portion of such participant's RSUs may be permitted to continue to vest, in accordance with their terms, during any statutory or common law severance period or any period of reasonable notice required by law or as otherwise may be determined by the Company in its sole discretion. All forfeited RSUs are available for future grants.
RSUs are not assignable or transferable other than by operation of law, except, if and on such terms as the Company may permit, to a spouse or minor children or grandchildren or a personal holding company or family trust controlled by a participant, the sole shareholders or beneficiaries of which, as the case may be, are any combination of the participant, the participant's spouse, minor children or minor grandchildren, and after the participant's lifetime shall ensure to the benefit of and be binding upon the participant's designated beneficiary, on such terms and conditions as are appropriate for such transfers.
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The Board may, without notice, at any time and from time to time, without shareholder approval, amend the RSU Plan or any provisions thereof in such manner as the Board, in its sole discretion, determines appropriate including, without limitation:
NEO Compensation
As of December 31, 2019, Neovasc had six NEOs: Fred Colen, President and CEO, Chris Clark, Secretary and CFO, Bill Little, COO, Vicki Bebeau, VP, C&R, Aaron Chalekian, VP PD&E and John Panton, VP, Quality.
Defined Benefits Plans
Neovasc currently does not intend to have a defined benefits pension plan.
Defined Contribution Plans
The Company matches 50% of the contributions paid by certain NEOs into their Registered Retirement Savings Plans or 401(k) plans in the United States ("RRSP"). The NEOs each contribute 7.5% of their salaries to their respective RRSPs and receive a benefit of a 3.75% contribution paid by the Company.
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Deferred Compensation Plans
Neovasc currently does not intend to have a deferred compensation plan.
Termination and Change of Control Benefits
Except as follows, the Company has not entered into any contracts, agreements, plans or arrangements that provide payments to a NEO at, following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement, a change in control of the Company or a change in a NEO's responsibilities:
For Mr. Fred Colen:
For Mr. Chris Clark:
For Mr. Bill Little:
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For Ms. Vicki Bebeau:
For Mr. Aaron Chalekian:
For Mr. John Panton:
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Summary Compensation Table
Neovasc's key management personnel include Fred Colen, CEO, Chris Clark, CFO, Bill Little, COO, Vicki Bebeau, VP, C&R, Aaron Chalekian, VP, PD&E and John Panton, VP, Quality. Compensation paid to key management personnel was as follows:
|
Year Ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(USD$)
|
2019 | 2018 | 2017 | |||||||
Salaries and consulting fees |
1,398,367 | 1,346,527 | 1,294,710 | |||||||
Cash-based awards |
836,652 | 698,166 | 194,207 | |||||||
Share-based awards |
455,809 | | | |||||||
Option-based awards(1) |
1,555,858 | 1,308,686 | 850,641 | |||||||
Pension value(2) |
32,434 | 35,960 | 15,952 | |||||||
Total compensation |
3,823,311 | 3,389,339 | 2,355,510 |
The compensation paid to the NEOs during the Company's three most recently completed financial years ended December 31, 2017, 2018 and 2019 is summarized as follows and expressed in Canadian dollars unless otherwise noted: