Third-quarter fiscal 2009 results announced by Neovasc

NEOVASC INC.Oct 28 2009

Neovasc Inc. (TSXV: NVC), today announced financial results for the three and nine months ended September 30, 2009.

"During the third quarter, our successes in achieving substantial growth in our biological tissue business coupled with our ongoing initiatives aimed at streamlining operations, tightly managing expenses and concentrating resources on our most promising product lines are continuing to produce positive results and to put Neovasc on track for solid growth into 2010," said Alexei Marko, chief executive officer of Neovasc.

Mr. Marko continued, "The robust growth in our tissue business partly reflects our growing success in supplying industry partners developing next generation minimally invasive heart valves, a sector where we see the potential for major growth and where we believe we have a strong competitive position. At the same time we have also continued to move forward with development of our Reducer(TM) technology, a minimally invasive device that has the potential to be a significant advance in the treatment of refractory angina, a disabling condition that affects millions of patients worldwide each year. We are seeing very strong initial clinical interest in this product and are optimistic that we will receive approval to market Reducer in Europe in 2010. Neovasc is already assessing a range of strategic options to ensure the successful launch and commercialization of this important new product."

Mr. Marko concluded, "We believe that the strategic refocusing and rebuilding of Neovasc are proceeding well, and we look forward to further updating our shareholders as we complete 2009 and prepare for what we expect to be an eventful and positive 2010."

Financial Results

Results for the three and nine months ended September 30, 2009 follow. All amounts are in Canadian dollars.

Revenues

Revenues increased 70% year-over-year to $1,000,367 for the quarter ended September 30, 2009 from $587,884 for the same period in 2008. For the nine months ended September 30, 2009, revenues increased 34% to $1,956,175 from $1,454,430 for the same period in 2008. These increases primarily reflect increased revenues from our tissue products and services business.

Cost of Sales

The cost of sales for the three and nine months ended September 30, 2009 were $465,565 and $892,590, respectively, as compared to $283,070 and $711,674 in the comparable periods in 2008. The overall gross margin for the first nine months of 2009 increased to 54%, as compared to 51% in 2008. The improvement in gross margin reflects the company's strategic shift to certain contract and specialty tissue patch products with higher margins.

Expenses

Total expenses for the three and nine months ended September 30, 2009 were $1,188,672 and $4,806,555, respectively, as compared to $3,201,046 and $7,184,796 for the same periods in 2008. Total expenses declined by 63% year-over-year for the three-month period and 33% year-over-year for the nine-month period.

Sales and marketing expenses declined 88% to $94,412 for the three months ended September 30, 2009, from $816,421 for the same period in 2008, and they declined 76% to $560,980 for the nine months ended September 30, 2009 from $2,351,416 for the same period in 2008. The Company terminated its direct sales force for its catheter products in the fourth quarter of 2008 and will continue to minimize sales and marketing costs while it focuses on growing its business-to-business revenue streams.

General and administrative expenses were $576,804 and $1,986,637 for the three and nine months ended September 30, 2009 as compared to $1,297,333 and $2,614,981 for the three and nine months ended September 30, 2008, representing a decrease of 56% and 24% over the same periods of 2008. These decreases reflect the Company's tighter business focus and the implementation of rigorous cost-cutting measures.

In the third quarter of 2009 the Company booked an additional accrual of $98,212, increasing its Medsurg settlement provision to $400,000. Medsurg was the former distributor of the Company's Peripatch biologic products. The distribution agreement was terminated in the fourth quarter of 2008. As part of the termination, Neovasc was required to partially reverse revenue reported in 2008 and also to receive back into inventory all product returned by Medsurg, the value of which was disputed. In an agreed settlement, Neovasc will pay 12 monthly instalments of US$30,000 each to Medsurg for the returned inventory. The payments began in September 2009.

Despite this one-time expense, the Company has been able to streamline its administrative expenses by minimizing administrative staff and curtailing its US listing and investor relations activities to achieve significant year-over-year reductions in administrative expenses.

Product development and clinical trial expenses were $517,456 and $2,258,938 for the three and nine months ended September 30, 2009 as compared to $1,087,292 and $2,123,995 for the same periods of 2008, representing a decrease of 52% for the three months and an increase of 6% for the nine months over the same periods in 2008. In the first nine months of 2009, product development expenditures were focused activities supporting the CE mark submission for the Neovasc Reducer device. Also included in product development and clinical trial expenses in the third quarter was an accrual of $65,000 for the costs associated with the suspension of certain research and development activities at the Israeli facility.