Neovasc revenue increases 60% for second quarter 2010

Aug 19 2010

Neovasc Inc. (TSXV: NVC), today announced financial results for the three and six months ended June 30, 2010.

"In this most recent quarter Neovasc continued to demonstrate robust year-over-year revenue growth from sales of our biological tissue and consulting services businesses," said Alexei Marko, chief executive officer of Neovasc. "We expect that these businesses will continue to experience good growth over the remainder of 2010 and that they will soon be generating positive cash flow. In addition, we anticipate that during the second half of the year we will initiate our COSIRA trial for Neovasc's Reducer product for the treatment of refractory angina. We expect that the results of this study will support our application for European regulatory approval for this potential breakthrough product."

Financial Results

Results for the three and six months ended June 30, 2010 and 2009 follow:

Revenues

Revenues increased 60% year-over-year from $600,324 for the quarter ended June 30, 2009 to $959,920 for the quarter ended June 30, 2010 and increased 112% from $955,808 for the six months ended June 30, 2009 to $2,025,761 for the six months ended June 30, 2010. These increases reflect increased revenues from our tissue products and services business.

Sales of products for the three months ended June 30, 2010 were $646,735, compared to $529,769 in the same quarter of 2009, representing an increase of 22%. Sales of products for the six months ended June 30, 2010 were $1,384,697 compared to $828,399 for the same period of 2009, representing an increase of 67%. The revenues in the first three months and six months of 2010 include sales of Peripatch tissue products and contract manufacturing revenues, while in the prior periods they included Peripatch, contract manufacturing and Metricath catheter product sales. The Company ceased manufacture of its Metricath product at the end of 2009.

Revenue from consulting services for the three months ended June 30, 2010 were $313,185, compared to $70,555 in the same quarter in 2009, representing an increase of 344%. Revenue from consulting services for the six months ended June 30, 2010 were $641,064, compared to $127,409 for the same period of 2009, representing an increase of 403%. Neovasc intends to seek further opportunities to expand its consulting services business.

Cost of Sales

The cost of sales for the three and six months ended June 30, 2010 was $612,626 and $1,195,571 respectively, compared to $277,265 and $427,025 in the comparable periods in 2010. The overall gross margin was 36% for the second quarter of 2010 and 41% for the first six months of 2010, compared to gross margins of 54-55% reported in the same periods in 2009.

The decline in gross margins during 2010 reflects the impact of sales volume discounts to customers, a shift in product mix and exchange rates. In the six months ended June 30, 2010, 96% of the company's sales were derived from customers in the United States and Europe and were denominated in U.S. and European Union currency.

Expenses

Total expenses for the three and six months ended June 30, 2010 were $1,279,931 and $2,165,140, respectively, as compared to $1,687,389 and $3,617,883 for the same periods in 2009, representing a decrease of $407,458 and $1,452,743, respectively.

Sales and marketing expenses declined 70% to $49,358 for the three months ended June 30, 2010, from $163,683 for the same period in 2009, and declined 80% to $94,249 for the six months ended June 30, 2010 from $466,568 for the same period in 2009. Neovasc terminated its direct sales force for its catheter products in the fourth quarter of 2008, while paying severance costs into the early part of 2009. The Company will continue to minimize sales and marketing costs while it focuses on continuing to grow its business-to-business revenue streams.

General and administrative expenses were $697,125 and $1,184,328 for the three and six months ended June 30, 2010, respectively, as compared to $659,004 and $1,409,833 in the comparable periods in 2009, representing an increase of six percent in the second quarter and a decrease of 16% during the first half of 2010. The $38,121 increase in general and administrative expenses in the second quarter reflects an increase in stock-based compensation charges of $147,860, and the decrease in the six-month period reflects the Company's tighter business focus and continued implementation of rigorous cost-cutting measures.

Product development and clinical trial expenses were $533,448 and $886,563 for the three and six months ended June 30, 2010 as compared to $864,702 and $1,741,482 for the same period of 2009, representing a decrease of 38% and 49% respectively, over the same periods in 2009. The decrease in product development and clinical trial expenses primarily reflected expense reductions at Neovasc's Israel operation. During the first six months of 2010, product development expenditures were focused on activities supporting initiation of the Reducer COSIRA trial.

Amortization and Other Expenses

Amortization and other expenses for the three and six months ended June 30, 2010 were $4,252 and $73,068, respectively, as compared to amortization and other income of $33,879 and $12,409 for the same periods in 2009. In the first six months of 2010 the Company experienced a foreign exchange loss of $9,816 compared to a $70,421 gain in the same period of 2009.

Net Losses

The consolidated net loss for the three and six months ended June 30, 2010 was $936,889 and $1,408,180 or $0.03 and $0.04 basic loss per share, respectively, as compared with a net loss of $1,330,451 and $3,076,691 or $0.05 and $0.14 basic loss per share for the comparable periods in 2009.

Liquidity and Capital Resources

Neovasc finances its operations and capital expenditures with cash generated from operations, lines of credit, long-term debt and equity financings. At June 30, 2010, the Company had cash and cash equivalents of $1,412,271, as compared to cash and cash equivalents of $111,368 at December 31, 2009. In addition, at June 30, 2010 the Company had restricted cash related to a security on long-term debt of $50,000 (December 31, 2009 - $50,000) included in long-term assets.

At June 30, 2010 Neovasc had working capital of $1,804,417 as compared to a negative working capital of $28,502 at December 31, 2009. The increase in working capital during the first six months of 2010 was predominantly due to the net impact of an increase in cash from completion of a non-brokered private placement in February 2010 and an exercise of warrants in April 2010, as well as an increase in inventory, as levels of tissue raw material were increased in anticipation of upcoming sales; and a decrease in accounts payable as the Company continues to pay down its prior debts.

Cash used in operations was $736,831 and $1,563,307 for the three and six months ended June 30, 2010, as compared to $1,593,864 and $3,108,346 for the same periods in 2009. The decrease in cash usage for the three and six months ended June 30, 2010 as compared to same periods of 2009 is primarily the result of the Company's increased sales and decreased operating expenses.

Net cash derived from investing activities was $3,287 on property plant and equipment for the three months ended June 30, 2010 due to the proceeds received from the sale of equipment and net cash used in investing activities was $27,568 for the six months ended June 30, 2010, compared to net cash used of $574 and $8,545, respectively, for the same periods in 2009. The Company made minimum purchases of equipment in both periods of 2009 and has undertaken some minor improvements to software and facilities in 2010.

Net cash provided by financing activities was $1,386,992 and $2,891,778 for the three and six months ended June 30, 2010, compared to cash provided of $1,962,399 and $1,958,923 in the same periods of 2009.

On April 23, 2009, Neovasc completed a non-brokered private placement of 9,523,810 units at the price of $0.21 per unit for aggregate gross proceeds of $2,000,000. Each unit consisted of one common share of Neovasc stock and one-half of one common share purchase warrant of Neovasc stock. Each whole warrant entitles the holder to purchase one common share of Neovasc stock at the exercise price of $0.30 per share for a period of one year after the closing date of the offering. Share issue costs were $20,314.

On February 19, 2010, the Company completed a non-brokered private placement of 5,691,658 units at the price of $0.27 per unit for aggregate gross proceeds of $1,536,748. Each unit consists of one common share of Neovasc stock and one-half of one common share purchase warrant of Neovasc stock. Each whole warrant will entitle the holder thereof to purchase one common share of Neovasc stock at the exercise price of $0.40 per share for a period of one year after the closing date of the offering. Share issue costs were $22,015.

On April 23, 2010, Neovasc issued 4,635,114 common shares upon the exercise of warrants issued as part of the Company's April 2009 financing. Proceeds from the exercise of the 4,635,114 warrants amounted to $1,390,534. The remaining 126,788 warrants expired on April 23, 2010.

SOURCE Neovasc Inc.