U.S. Markets open in 3 hrs 7 mins

Edited Transcript of NVC.TO earnings conference call or presentation 21-Mar-19 8:30pm GMT

Q4 2018 Neovasc Inc Earnings Call

RICHMOND Apr 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Neovasc Inc earnings conference call or presentation Thursday, March 21, 2019 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Christopher Clark

Neovasc Inc. - CFO & Corporate Secretary

* Fredericus A. Colen

Neovasc Inc. - President & CEO

* Jeremy Feffer

LifeSci Advisors, LLC - MD

================================================================================

Conference Call Participants

================================================================================

* Danielle Joy Antalffy

SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst

* David Kenneth Rescott

Canaccord Genuity Limited, Research Division - Associate

* Destiny Alexandra Buch

Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Greetings. Welcome to the Neovasc Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to your host, Jeremy Feffer, Managing Director at LifeSci Advisors. Mr. Feffer, you may begin.

--------------------------------------------------------------------------------

Jeremy Feffer, LifeSci Advisors, LLC - MD [2]

--------------------------------------------------------------------------------

Thank you, Armir and welcome to our call today. I would like to remind everyone that today's discussion includes forward-looking statements within the meaning of applicable U.S. and Canadian securities laws that reflect Neovasc's current views with respect to future events, including the company's plans and expectations relating to its business, financial results, capital structure, litigation and other matters. Words such as expect, outlook, anticipate, exploring, may, might, will, should, estimate, continue, strategy, potential, intend, going to, believe, plan, opportunity, trend, growing, look forward and similar words or expressions are meant to identify forward-looking statements. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. For more information on risks and uncertainties related to these forward-looking statements, please refer to the cautionary statement regarding forward-looking statements in Risk Factors section of Neovasc's annual report on form 20F and the discussion in Neovasc's MD&A, which are available on SEDAR and EDGAR. Now I'd like to turn the call over to Fred Colen, President and Chief Executive Officer of Neovasc. Fred?

--------------------------------------------------------------------------------

Fredericus A. Colen, Neovasc Inc. - President & CEO [3]

--------------------------------------------------------------------------------

Thank you, Jeremy. Welcome, everyone, and with me, this afternoon is Chris Clark, our CFO. I will begin today's call with a quick update on our Tiara and Reducer programs, then provide more general comments on where we are before turning the call over to Chris for a quick summary of the financials for the fourth quarter and year ended December 31, 2018, as well as an update on our capital structure. We will then open the call up for your questions.

The last 12 months were a very productive period for Neovasc as we managed our way through several critical corporate events and achieved many significant therapy development milestones for both our Tiara and Reducer platforms. As a result, we have entered 2019 in a much stronger position to drive forward with our clinical and promotional programs for the Reducer and Tiara.

Regarding Tiara, at the forefront of this progress is both the clinical enrollment and outcome for the transapical Tiara, which we are reporting on regularly as well as the progress we have made and are continuing to make internally on the concept development of the transfemoral Tiara, which I will discuss in more detail later on this call.

As a result, we are generating positive attention for the Tiara as a leading option for minimally invasive mitral valve replacement for patients suffering from severe mitral regurgitation.

To exemplify this, on March 3rd, an overview of our most recent Tiara data was presented to the world's leading cardiologists at this year's CRT meeting in Washington, D.C. by Dr. Danny Dvir of the University of Washington Medical Center, which is a participating center in our TIARA-I study. The presentation included a review of the data from the 70 patients that had been treated with a Tiara mitral valve replacement device, which included 25 patients in the TIARA-II European clinical study, 23 patients in the TIARA-I early feasibility study and 22 patients that received the Tiara through special access or compassionate-use cases. Since then, we have treated an additional patient in our TIARA-II European CE Mark clinical study.

Dr. Dvir presented data on the successful use of Tiara in patients with previous aortic valve replacement and mitral ring. To date, Tiara has successfully been implanted in 16 patients with a previous aortic valve, including surgical mechanical, bio-prosthetic and TAVI valve. A recent article published in JACC Cardiovascular Interventions, describing the inability -- ineligibility rate for TMVR of 89%, noted that 14.2% was due to a prior aortic valve. We believe that our unique D-shaped device could significantly reduce the number of patients excluded for previous aortic valves, as we have never had to exclude patients specifically for a previous aortic valve nor have we had any incidences of LVOT obstruction with the use of Tiara.

Tiara truly is a leading-edge groundbreaking device, able to treat more patients with a larger amount of coexisting conditions.

In addition, Dr. Dvir discussed a patient that was implanted with a Tiara who recently celebrated her 5th anniversary since undergoing the procedure. In terms of how effective the Tiara was in treating this patient, I think it is worth noting that the severity of her disease heading into the procedure 5 years ago was very serious, as she was at NYHA Class IV prior to the Tiara implantation. This patient had a long history of ischemic cardiomyopathy with multiple heart-failure hospitalizations, and she was referred to the heart failure program at St. Paul Hospital in Vancouver, Canada. It was for a heart transplant evaluation.

During her discussions with the hospital's heart team, the choice of either going into the heart transplant list or receiving the Tiara was considered. She elected to undergo the Tiara procedure, and as of 2 months' follow-up, the patient demonstrated a marked improvement in symptoms compared to baseline with a NYHA Functional Class II.

Fast-forward to the 5-year anniversary of undergoing the Tiara implantation and this patient continues to report excellent prosthetic valve function and is currently a NYHA Class I to II with significant improvement in quality of life.

To top it off, not only has she experienced this quality of life improvement, but we also believe that she is the longest surviving transcatheter mitral valve replacement therapy recipient in the world.

The doctors that have treated her believed, and many of the physicians that have reviewed the case believe that this patient's outcome speaks directly to the potential long-term benefit that the Tiara offers to mitral regurgitation patients.

This is just one of the patient cases that we are referencing in our ongoing efforts to grow awareness around the Tiara through publications in prominent cardiovascular journals, Live Case demonstrations and presentations of clinical results at leading medical conferences. Through these mediums, we hope to further increase interest in this minimally invasive mitral valve replacement technology, and to show the medical community that this product has the potential to be a safe, effective and leading treatment option for individuals who have few, if any available alternatives.

Specific to the clinical activity for Tiara, the TIARA-I study is still ongoing, with the expectation to complete enrollment with 30 patients by the third quarter of this year. The TIARA-II study, which is an international multi-center, single-arm, prospective, non-randomized safety and performance clinical study, continues to enroll patients as well. The total enrollment goal for the study in all geographies is 115 implanted subjects.

In regards to enrolling sites, we have been focused on bringing on more sites over the past several months. We are slated to bring the number of clinical sites in the TIARA-II study to a maximum of the approved 20 sites overall. To date we have 16 active centers with several new sites being activated shortly.

As a reminder, we recently received approval in both Germany and the United Kingdom to proceed with Phase II of the TIARA-II study. This approval follows the clinical events committee adjudication of adverse events, data and safety monitoring board review of the data, and governmental regulatory and ethics committee reviews of the interim clinical report that we provided for 20 Tiara-implanted subjects. This approval will allow the TIARA-II study to proceed in these geographies with no further restrictions.

We reported recently that at one of the participating clinical centers, the local ethics committee had placed a temporary hold on enrollment at their site for the TIARA-II clinical study following a recent serious adverse event. And today I'm pleased to announce that this hold has been lifted.

As I have mentioned previously, the second part of our value-creation strategy for Tiara is the development of the transfemoral, trans-septal version of the Tiara mitral valve. I believe we are in a unique position to deliver the self-anchoring Tiara in an even less-invasive clinical manner, and to also put this device in the hands of the interventional cardiologists, which as we have seen on the minimally invasive aortic valve side, made a huge difference in the acceleration and acceptance of the therapy.

Our current transfemoral trans-septal development program has 2 critical deliverables. One, reducing the profile of the device and the delivery system to at least 30 French for all Tiara device sizes. And two, taking into account all learning from our own clinical experience, aiming at further improvement of the safety profile and most importantly to incorporating some minor but very meaningful changes to certain dimensions of the Tiara device, thereby dramatically improving the number of patients that can be treated with the device.

These further optimized Tiara devices can at some point in time also be made available in our transapical Tiara program.

Let me now go into a lot more detail on our current status and outlook for the transfemoral Tiara device. In the last 3 quarters of the year, the Neovasc's transfemoral trans-septal team has made significant progress with the development of the Tiara TF/TS concept. The goal of this project is not only to develop the TF version of the Tiara but also to learn from our overall and broad clinical experience to date and to look for ways to further improve the Tiara system in its totality. We have therefore performed extensive analysis around the key learnings that we and our major TMVR programs have struggled with, in particular, the many patients that are being rejected for the implant as well as some specific potential complications during implantation.

We already have a significant competitive advantage over other major TMVR programs related to having no LVOT obstruction issues to date after implantation, while rejecting only a few patients for potential LV obstruction issues during the prescreening process. Furthermore, we have been able to implant Tiara in a number of patients with a previous aortic prosthetic device due to our unique D-shaped device.

Other large TMVR programs may find this to be more challenging, which could reduce the treatable MR mitral valve patient population substantially. Since we do not have these issues with our device, we are able to focus on other issues that can limit the treatable patient population. In particular, this relates to device size, optimization opportunities with the current Tiara, related to the annulus size as well as to what I call the ventricular footprint. Our analysis suggests that relatively minor, in the range of 10%, sizing optimization opportunities, and typically these are small-sized reductions as well as the introduction of a 1/3 of the device size, will lead to a much higher penetration into the treatable MR mitral valve population with the Tiara, while we are currently only seeing about a 20% penetration.

We choose to not only rely on our own substantial clinical database, but instead, and in the last few months, our team cooperated with a major clinic and together analyzed an extensive clinical library of the target patient population, specific to SMR and mixed mitral valve disease. Our overall analysis, therefore, not only rely on our own internal library of mitral anatomy, but also on a large real-world clinical database that encompasses a representative cross-section of the entire treatment population. This analysis forms the foundation for our approach to the TF/TS Tiara program. And with a 3-valve size implant portfolio, we should be able to cover a targeted treatment patient population of 70% or more.

This overall review and analysis has also allowed the TF/TS delivery approach to have a full and detailed understanding of the pre-procedural planning and associated challenges of navigating and visualizing the anatomy from the insertion locations through accurately aligning and anchoring within the mitral apparatus. Specific design features being targeted to achieve a TF/TS implantation of Tiara by way of a TF/TS delivery system with a maximum profile of 30 French are: multiple planes of [steerable] alignment, and a dual-stage deployment sequence from a collapsed to an expanded state.

In the last few months, we made another remarkable new discovery in that we now believe to be able to develop a new concept of full retrievability of the Tiara valve, up to the final point of release by the delivery system, which would allow for an even more and then completely controllable procedure with the additional option of a complete removal of a fully deployed Tiara valve, if clinically required, as long as the delivery system remains attached to the valve. And this, without any fundamental Tiara valve design changes, in other words, we believe that this feature can be added to the system without invalidating or impacting our clinical experience to date.

Additionally, minor Tiara valve modifications are being implemented on the TF/TS Tiara valve to not only dramatically increase the treatable patient population as described above, but also to reduce the overall valve profile in its collapsed and fully expanded states for a seamless integration within the mitral apparatus.

To date, we have evaluated 3 primary concepts around the TF/TS development approach. Through numerous evaluations within clinically based in vitro test methods like system trackability, deployment accuracy, hydrodynamic assessment and 4 small acute animal trials, the team has narrowed down the concept to 2 concepts that are showing strong potential. At this point in the development of the TF/TS program, we are officially kicking off the development pathway next week, based on a leading concept that allows for a very controlled and predictable implantation procedure similar to our Tiara transapical program.

To round up our portfolio and in parallel with the TF/TS development efforts, we are also developing the concept of full retrievability up to the final point of valve release by the delivery system for the transapical Tiara system as a future option. During 2019, the team will take the leading TF/TS concept and refine and reduce performance risks with input from key opinion leaders within the TMVR space. Along with these activities, we will continue to develop a robust IT portfolio around the technology, ramp up testing and development activity in Minnesota and Richmond to align with ISO 5840 testing standards, and continue to develop controlled manufacturing capabilities. Our target remains to enable a first-in-human clinical experience with the transfemoral trans-septal program just before the end of 2020, next year, as part of a small clinical feasibility study.

Moving on to the Reducer, which is our commercial-stage product that we are looking to develop as a standard of care for angina in Europe. In the fourth quarter, we reported an 83% increase in revenue compared to the fourth quarter of 2017, and Reducer revenue for the full year 2018, increased by 55% as compared to revenue for the full year of 2017. We are in the process of implementing a broader commercialization and therapy development approach in Europe and in Germany, in particular. Our goal is to keep building on our success, to keep accelerating our Reducer sales and to also start going one level deeper and educate and convince the referring physicians and general cardiologists who see the vast majority of these refractory angina patients. This is an ongoing process, and we are continually making progress.

For example, we recently were informed that the InEk in Germany renewed the NUB status 1 for the Reducer, which is effective for an additional 1-year period. While this is a very positive news on its own, in supporting the growth of the Reducer, we were excited to learn that in fact 159 German hospitals applied for the Reducer NUB 1 status as compared to 107 last year. This is nearly a 50% increase in the number of hospitals that actively applied for this status, and as a result, each of these hospitals can now negotiate reimbursement coverage for the Neovasc Reducer therapy under the German health insurance system. This might be one of the single most significant indicators of the progress we are making in driving market demand for the Reducer.

In order to support this expansion, our plan is to continue to expand our sales force in Germany as well during 2019. We believe demand for the Reducer will continue to grow in Germany, where we sell directly, and that Germany still represents the largest commercial opportunity for us in 2019. However, we also see increased demand from other European countries where we sell via distributors and we are actually planning to enter 3 more European countries during 2019.

In one of our most and more high-profile events, coming out of Italy, earlier this month, there was a Live Case performed by Dr. Francesco Giannini from the Maria Cecilia Hospital in Cotignola, Italy, which was broadcasted to an international audience of the leading cardiologists attending the recent CRT meeting in Washington, D.C. The 30-minute procedure was followed by a Q&A with Dr. Giannini and the CRT audience, which included comments on the procedure and curiosity about the Reducer's mechanism of action. We are very excited to have these types of opportunities and appreciate having such esteemed cardiologists work with us to educate their peers on the procedures and patient benefits offered by the Reducer.

The Reducer was also recently with -- the Reducer was also recently presented at the prestigious and very large U.S. ATC conference under Chapter 725, Refractory Angina, Option for Patients With No Options.

We've also leveraged several recent peer-reviewed articles to promote additional conversations with the cardiology community regarding new data on the Reducer. A couple of months ago, there was an article published in the JACC Cardiovascular Intervention on the use of dipyridamole stress perfusion cardiac magnetic resonance to assess the performance of the Reducer. The article points to objective evidence available via stress perfusion CMR, providing insight into the potential impact of the Reducer on the ischemic burden, suggesting a physiological rationale as to how the Reducer reduces a perfusion defect in this patient. We believe the use of a reliable, non-operator dependent imaging tool, such as stress perfusion CMR, will allow for greater insight into the potential impact of the Reducer on the ischemic burden of patients with refractory angina with coronary artery disease.

Our REDUCER-I postmarket observational study continues to enroll patients across Europe at 20 active centers. Enrollment has now reached 195 of 400. Data from this study, the COSIRA study as well as published data from several physician-initiated studies, continues to reflect the very positive safety profile and improvements in patients' angina, therefore improving patients' quality of life following Reducer implantation.

The second part of our strategy for the Reducer to generate value and growth is to finalize the clinical and regulatory strategy for the U.S. market. In December, we filed a comprehensive Q-Sub submission to FDA with all available Reducer clinical evidence, requesting a Sprint FDA discussion meeting. This was followed up by a meeting with the FDA on January 30, 2019, during which the Neovasc team, together with 2 top U.S. cardiologists proposed movement forward with a PMA submission using the available Neovasc clinical evidence, including the COSIRA study, which was a 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; the REDUCER-I study, a multi-center, multi-country, 3-arm observational postmarket study with 186 patients; as well as supportive safety and efficacy data from a number of peer-reviewed journals. The FDA review team has since followed up from this meeting and recommended that despite Breakthrough Device Designation, we collect additional premarket blinded data prior to PMA submission.

While we respect their current recommendation, we will continue to have discussions with the FDA and their senior management in attempts to bring this promising refractory angina device therapy, which has been available to patients in Europe since 2015 with demonstrated quality of life improvement and great safety profile, to U.S. patients as soon as possible.

In that same vein, we recently announced the second successful implantation of the Reducer in the United States under compassionate use. We have developed a clear value creation strategy for the company's patients, employees and investors alike. This will be achieved through our team's proven ability to deliver on the well-defined clinical future milestones we have established for our 2 product platforms, the Tiara and the Reducer.

Before I turn the call over to Chris to discuss our financial performance and the progress we have made in normalizing our capital structure, I would like to spend a minute discussing a slide we have made in clearing our outstanding litigation issue. We reached agreement with 3 parties during the year to considerably reduce the litigation overhang. In January, the patent infringement action claim brought by Edwards Lifesciences against us as a codefendant in Canada was dismissed with [pre-justice] (sic - "prejudice"). In August, we signed a license and collaboration agreement with the University of Pennsylvania. And after the year-end in February 2019, we signed a settlement agreement with Micro Interventional Devices and Endovalve.

On top of all this, today, we received a decision of the German appeals court that overturned the lower court's decision that CardiAQ be named as co-inventor of one of the European patent applications for Tiara, and granted full patent rights for the Tiara to Neovasc. This is a key strategic decision in our favor.

This leaves us with only one currently active litigation issue concerning certain U.S. patents that are in the same patent family as the patents the United States court determined we coinvented with CardiAQ. This claim does not seek monetary damages or prevent the company from practicing these patents. We hope to be able to resolve this matter in the near term so that we can finish the first half of the year with no active litigation matters outstanding. I will now turn the call over to Chris to describe the actions we have taken to remove the capital structure overhang.

--------------------------------------------------------------------------------

Christopher Clark, Neovasc Inc. - CFO & Corporate Secretary [4]

--------------------------------------------------------------------------------

Thank you, Fred. Good afternoon, everybody. I'll start by discussing our capital structure and then move on to discuss our financial highlights 2018.

2018 was a difficult year that required us to take a number of steps to counterbalance the impact of the 2017 financings. The terms of the 2017 financings were onerous. But having exhausted other options, management and the Board of Directors elected to accept the 2017 financings on very difficult terms in order to pay the $42 million remaining of the $112 million damages we owed to CardiAQ rather than seek bankruptcy protection.

Throughout 2018, and in the early part of this year, the holders of the Series C Warrants exercised their warrants for additional proceeds of $15 million, which allowed us to continue operations without a further dilutive financing in 2018. In 2018, after notices from the NASDAQ that we were in breach of the $1 minimum bid price rule, we were able to extend the grace period in order to effect a 1-for-100 reverse split -- stock split to remain listed on NASDAQ. We have received notice in 2019 that we are once again in breach of the $1 minimum bid price rule, and we'll work again to regain compliance in 2019.

In the last month, we have been able to effect an exchange of all the 58 million warrants remaining outstanding for approximately 500,000 shares. And in the last quarter, we've been able to raise $10 million in gross proceeds from 2 financings in share-only deal structures to give the company operating capital on the least diluted terms available to the company.

Today, we have no warrants outstanding from the 2017 financings and $10.8 million of the original $32.75 million debt notes remain outstanding. $8.8 million of the debt notes are held by holders who have not converted any debt notes to date, so there can't be any assurance that they won't convert their debt notes in the future. The other $2 million is held by debt note holders who have converted the large majority of their $24 million debt notes into shares.

Our issued and outstanding share capital is approximately 62 million common shares and our fully diluted share capital, assuming all remaining debt notes are converted using the alternative conversion price, is approximately 94.9 million common shares. We believe that we have made significant progress in our efforts to restructure the capitalization table and we'll continue to work towards a fixed capital structure that will attract long-term fundamental value investors. We will also continue to look for additional opportunities to fund the company through equity, debt or other alliances, collaborations or partnerships, and we will update you as necessary on these future events.

I will now briefly discuss the company's financial performance over the last year. I will remind everyone that our financial results are in US dollars and prepared in compliance with IFRS. To keep my comments brief, we will refer you to our full disclosure filed in SEDAR and EDGAR, for a more fulsome review of our fourth quarter and year-end 2018 results.

Starting with Reducer commercialization. We reported a 55% increase in revenue from Reducer sales to $1.75 million for the year ended December 31, 2018, compared to $1.13 million last year. And we reported an 83% increase in Reducer sales for the 3 months ended December 31, 2018, compared to the same period last year, from $286,000 to $523,000. This increase is mostly attributable to the progress we continue to make in penetrating the German market.

As a reminder, we ceased operations of our consulting services and contract manufacturing revenues in 2017, so total revenue for the year ended December 31, 2018, decreased from $5.5 million in 2017 to $1.7 million in 2018, a decrease of 68% year-over-year. Our margins for the year ended December 31, 2018, reflect, and are expected to reflect going forward, the margins on the Reducer only, which were 79% or $1.38 million compared to the blended gross margin rate for all revenue segments of 35% or $1.91 million for 2017.

Our departmental expenses for the year ended December 31, 2018, decreased by $200,000 from $34.1 million in 2017 to $33.9 million in 2018. Contributing to this decrease were a $5.5 million reduction in financing expenses, as the 2017 financing costs were charged to the income statement in 2017; and a $1.9 million reduction in litigation expenses, as the amount of litigation the company is involved in has decreased; and a $1.4 million reduction in product development clinical trial costs, as the company was restructured at the beginning of the year.

These were offset by a $2.4 million charge for collaboration and service expenses, as we reached the collaboration and license agreements with the University of Pennsylvania; and a $2.7 million charge for settlement expenses, which we accrued for a settlement agreement with Endovalve reached after year-end; and $1.1 million increase in share-based employee expenses, as options were issued during the year; and a $1.4 million increase in other expenses, principally related to an increase in legal costs as we've dealt with significant issues during the year.

Our operating loss for the year ended December 31, 2018, was $32.5 million compared to $32.1 million in 2017, an increase of $400,000, substantially explained by a reduction in gross margin as we ended our contract manufacturing and consulting services revenues at the end of 2017. The loss for the year ended December 31, 2018, was $108 million compared to $22.9 million in 2017, an increase of $85.1 million. That could be substantially explained by the derivative accounting treatment of warrants and notes in the 2017 financings.

In 2017, there was income of $2.74 million booked. And in 2018, there was a loss of $75.7 million charged to the income statement, resulting in a net change of $83.1 million. These accounting charges for the 2017 financing are best explained in the financial statements, but they do not impact the cash flow expectations in the coming quarters.

Our basic and diluted loss per share for 2018 was $7.63 per share compared to a loss of $28.10 for the same period in 2017. From a cash flow perspective, we started the year with $17.5 million. We spent approximately $23.9 million on operations and had a net cash inflow from investing and financing activities of $1.8 million due to balance sheet movements from the sale of a building. So to offset this expenditure, we received $13.8 million from the proceeds of the exercise of C Warrants and ended the year with $9.2 million in cash balances.

As previously announced, in February and March, we've closed 2 underwritten public fund -- public offerings of common shares at a price of $0.45 per share, the net proceeds of approximately $4.05 million and $4.25 million, respectively, providing us sufficient funds on our budgeted burn rate until September 2019.

As previously discussed, management will continue to look for opportunities to raise additional capital and extend our runway further into the future. We will continue to update you as we continue to execute our strategy to drive future growth opportunities for the Tiara and Reducer.

With that, we will be happy to answer your questions. Operator, please open the call to questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from Danielle Antalffy, SVB Leerink.

--------------------------------------------------------------------------------

Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [2]

--------------------------------------------------------------------------------

Congrats on the great news regarding the litigation. That was very good to see, so I'm sure you guys are relieved as are we. So one quick question on -- wanted to get your views on -- obviously, at TCT last year, we had the COAPT data in mitral -- very strong data for the MitraClip in mitral repair. So can you talk about how you guys are thinking now going forward about the market? Has there been any change in your view as it relates to repair versus replacement? And how this might inform -- once Tiara does get to the point of a pivotal trial, how this might inform clinical trial design?

--------------------------------------------------------------------------------

Fredericus A. Colen, Neovasc Inc. - President & CEO [3]

--------------------------------------------------------------------------------

Yes, thanks, Danielle, this is Fred. So we appreciate your comments. We are equally excited about the outcome of the Munich Appeals Court today, and we believe it's a really important strategic outcome as well for us. It certainly underscores the value of our intellectual property in the space of mitral valve replacement. And I think that's very important element of our value creation here.

So as it relates to your question, so keep in mind, Danielle, that most of our critical clinical activities are happening in Europe, and the COAPT trial certainly was a very good thing for the mitral valve space in general, and certainly from that we benefit in terms of demonstrating there is really a potential benefit investing in this space overall. However, in the European market, the repair procedures that were really elevated by the COAPT trial were already in place. We were already -- had been years in Europe competing against a broad utilization of the clipping procedures not just for degenerative, but also for functional MR. And as such, I can say that we really have not seen a lot of change in interest, either going down or going up. It has been pretty steady for us.

I would say, even on the contrary, if anything, we have seen more interest in our products. And that's basically demonstrated by the fact that we have been able to increase the amount of clinical sites that are now active not only in Italy and Germany and the U.K., but also in some new countries like in Spain and Israel and soon to be in the Netherlands. So we actually are seeing more interest in this -- in our device and not really any negative influence because of the COAPT trial. And I think that was the first part of your question.

I think in terms of value creation, we have basically determined that the best way for Neovasc to create value is to indeed get to a CE Mark for the transapical Tiara device and, at the same time, demonstrate in a small clinical feasibility study that we are going to be able to deliver this device in a slightly modified fashion in the transfemoral way as well. And we believe that, that is the very best value creation strategy for us as a company in the next couple of years.

You are certainly right that it is going to be more difficult to get to a pivotal trial in the U.S., given the fact that the bar has been raised. Although, I would say it's not going to make it impossible, because we know that in the repair procedures there is a reduction in MR and we see with the implantation of a complete valve replacement that the MR is completely eliminated. And there is a lot of clinical data out there that shows that MR is directly related to mortality rate. So it will probably drive the size of the clinical trials to a bigger number, but I don't think that it will actually diminish the feasibility and the importance of the mitral valve replacement device.

--------------------------------------------------------------------------------

Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [4]

--------------------------------------------------------------------------------

Great. I tend to agree. And last question for me, upcoming clinical data points that we could expect to see. Specifically, we have EuroPCR. That's usually a meeting that's generally heavy on mitral. Anything of note coming there for Tiara and then also actually for Reducer?

--------------------------------------------------------------------------------

Fredericus A. Colen, Neovasc Inc. - President & CEO [5]

--------------------------------------------------------------------------------

Yes. And we are actually in active discussions at the moment with some of the organizers of the PCR conference in Paris on both the Tiara and the Reducer side, and we believe that there's going to be a broader overview of both of those products in a presentation. And outside of that, we will also have our dedicated Reducer symposium that we organize. We organized it last year as well and the room was completely overfull. So this year, we are actually going to have an even larger room available for our own Reducer symposium. So there are certainly lots of opportunities around PCR to learn more about -- or both our product platforms.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Our next question comes from Jason Mills, Canaccord Genuity.

--------------------------------------------------------------------------------

David Kenneth Rescott, Canaccord Genuity Limited, Research Division - Associate [7]

--------------------------------------------------------------------------------

Hey, it's David, on for Jason. Can you, guys, hear me all right?

--------------------------------------------------------------------------------

Fredericus A. Colen, Neovasc Inc. - President & CEO [8]

--------------------------------------------------------------------------------

Yes, Jason, I can hear you well.

--------------------------------------------------------------------------------

David Kenneth Rescott, Canaccord Genuity Limited, Research Division - Associate [9]

--------------------------------------------------------------------------------

Hey, to start, it's David, on for Jason.

--------------------------------------------------------------------------------

Fredericus A. Colen, Neovasc Inc. - President & CEO [10]

--------------------------------------------------------------------------------

Okay. Oh, David. Yes.

--------------------------------------------------------------------------------

David Kenneth Rescott, Canaccord Genuity Limited, Research Division - Associate [11]

--------------------------------------------------------------------------------

So I guess, first off, could you provide any kind of commentary or any highlights around kind of the positive conversations you had during the CRT presentation, kind of what broader type of excitement you've seen around the platform and as far as the data side per se?

--------------------------------------------------------------------------------

Fredericus A. Colen, Neovasc Inc. - President & CEO [12]

--------------------------------------------------------------------------------

Yes, yes, so basically since the live case was transferred into the CRT conference in Washington, D.C., it was a great opportunity for the European colleagues to share their experience with the Reducer in Europe. We are certainly getting more and more known in the European countries as it relates to the potential for the treatment of refractory angina with our Reducer device. That knowledge is really not there yet in the United States. There still is a lot of education work to be done in the U.S. As I said, we have, by now, 2 compassionate use cases for the Reducer in the United States. The experience and just knowledge about what Reducer does, how it works, all still needs to be expanded in the United States.

There was a -- just a lot of basic education at CRT around what this device does, where it gets implanted, how does it work, so what is the mechanism of action, and then a sharing of the very positive safety profile and outcomes for the patients. So it was really a fundamental discussion about the Reducer therapy and a basic understanding of what it can do. And we will certainly need to keep doing these kinds of things, and we are very grateful to the European physicians who many, many times have, just from their side, without even our engagement, signed up for these kinds of educational events. And that's how Reducer is spreading not just in Europe, but also we're starting now to get more knowledge developed in the United States.

Similarly, at ACC, which we just had a few weeks -- a couple of weeks ago, there was a session on the Reducer, again from some European physicians that educated the patients there -- or the cardiologists there about how the Reducer works and the results that have been achieved. So there is a need to continued education for physicians, in particular, in the United States.

--------------------------------------------------------------------------------

David Kenneth Rescott, Canaccord Genuity Limited, Research Division - Associate [13]

--------------------------------------------------------------------------------

Great. And then regarding the trans-septal way for Tiara. Could you provide some more detail at least around kind of what the steps or milestones you'll need to hit kind of between that? I think you said, next week starting the development pathway of the delivery system, kind of what milestones you think you need to hit at least between now and then getting that delivery system working by the end of 2020?

--------------------------------------------------------------------------------

Fredericus A. Colen, Neovasc Inc. - President & CEO [14]

--------------------------------------------------------------------------------

Yes, so we have spent about 3 quarters of the year to really look at what we call concept development and looking at the different ways of how to make the most promising system. That concept development stage is coming to an end, and we are now starting the formal development process next week for this system. We will go through the typical development process on that. So you have the formal development steps in developing some [belt] modifications and, in parallel to that, the development of the delivery system with the sale of our catheters. And then, after that, we were going to a whole host of bench tests, followed by animal implants. And so the animal implants should be happening towards the end of this year, early next year. And then after that, we were going to be -- going into filing of a first human clinical feasibility study, that then should result in a very first implant just before the end of 2020.

There's, obviously, regulatory review time following that process as well. So that's the basic overall schedule. It's -- I would say, a pretty realistic, but also aggressive schedule to start with this next week and to get a first implant done by the end of next year. But we have a strong team working on this normally in a good cross-functional manner. And we are confident they're moving into the next steps for this device. Having spent quite a bit of time on really understanding the challenges and issues that need to be resolved, which, I always say, you first have to understand the problems before you can come up with the solutions. And I think we've spent an appropriate amount of time on really understanding what the problems are so that we can come up with the right solution.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Our next question comes from Jeffrey Cohen, Ladenburg Thalmann.

--------------------------------------------------------------------------------

Destiny Alexandra Buch, Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst [16]

--------------------------------------------------------------------------------

This is actually Destiny, on for Jeff. I just wanted to ask about -- a couple of questions about some international efforts. So I thought you mentioned that you were expanding your sales force this year. Could you remind us the number of representatives you have now and what your goal is for the end of 2019?

--------------------------------------------------------------------------------

Fredericus A. Colen, Neovasc Inc. - President & CEO [17]

--------------------------------------------------------------------------------

Yes, so all the sales numbers that we went through in terms of 2018 were essentially accomplished with one salesperson in Germany, and we are expanding that now. And towards, I would say, the fall of 2019, we are going to have 3 salespeople in Germany. So in the next half to 3 quarters of the year, we're going to essentially triple our capacity over what we had in 2018. So it's still a rather small sales force. But given that we are expanding it over the year, we are going to see quite a bit of growth coming out of Germany in 2019.

In parallel, we have distributors in the other key countries. The next largest country in Europe in terms of implants is Italy and we have a strong distributor, GADA, in Italy that is doing a great job in keeping implantations of Reducer as well as the educational events going. So it's a combination of the direct sales growth in Germany combined with distributors in Europe. Also on the distributor side, we are going to go into 3 additional countries with new distributors in some new European countries as well in 2019. So this growth in terms of penetrating further into the market, but also we have been contacted by some new countries that are very interested in starting sales activities as well.

--------------------------------------------------------------------------------

Destiny Alexandra Buch, Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

Okay, great. That's incredibly helpful. And then within the U.S., I know you mentioned that the FDA had asked you to gather a bit more data prior to another -- to a PMA submission. Can you tell us where you stand on that now? And are you able to give us a bit more color on when you expect to submit?

--------------------------------------------------------------------------------

Fredericus A. Colen, Neovasc Inc. - President & CEO [19]

--------------------------------------------------------------------------------

Yes, so you stated it correctly. And basically, what we are now in the process of doing is organizing the next meeting with the FDA to talk again about all the clinical data that we have and understand better why they want the additional data, because we believe we have essentially a lot of the data that they would like to see for an approval. But then, if they clarify to us why they want to see additional data, we would also like to understand what kind of a size of clinical study they are thinking about. So there's more clarification required as to why they're asking for this, and then once we understand that, what kind of size we're going to say they are thinking about. And I think that, that will -- we will understand all that a lot better in the next month or 2. We - through the breakthrough designation, we do have relatively quick access to FDA officials, but it still takes time to get it all scheduled, et cetera.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

We have reached the end of the question-and-answer session. And I would now turn the call back over to Fred Colen for closing remarks.

--------------------------------------------------------------------------------

Fredericus A. Colen, Neovasc Inc. - President & CEO [21]

--------------------------------------------------------------------------------

Well, in closing, we wish to thank you all for your participation, and we certainly look forward to updating you again in the future regarding our progress. So thank you very much, and goodbye.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.