PART I
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.
ITEM 3. KEY INFORMATION
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.
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Year Ended December 31,
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2019
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2018
(as restated)
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2017
(as restated)
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2016
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2015
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Revenues
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$
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2,092,032
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$
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1,749,133
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$
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5,389,014
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$
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9,512,796
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$
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9,929,940
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Loss
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(35,131,015
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)
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(107,983,475
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)
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(21,634,068
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)
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(86,494,893
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)
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(26,730,490
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Basic and diluted loss per share
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(5.40
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(76.26
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)
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(265.37
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)
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(1,280.00
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)
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(410.00
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)
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Total assets
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10,105,840
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13,327,340
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23,481,096
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98,809,503
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61,228,394
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Total long-term liabilities and damages provision
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9,830,047
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13,384,415
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32,577,647
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111,781,096
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Cash dividend declared per share
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$
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nil
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$
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nil
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$
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nil
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$
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nil
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$
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nil
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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:
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we experience more competition for our medical devices from other medical device companies or in more markets than
anticipated;
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we experience delays or unexpected increases in costs in connection with obtaining regulatory approvals for our products
in the various markets where we hope to sell our products;
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we experience unexpected or increased costs relating to preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims, or other lawsuits, brought by either us or our competition;
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we experience scientific progress sooner than expected in our discovery, research and development projects, if we expand
the magnitude and scope of these activities, or if we modify our focus as a result of our discoveries;
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we experience setbacks in our progress with pre-clinical studies and clinical trials are delayed;
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we are required to perform additional pre-clinical studies and clinical trials; or
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we elect to develop, acquire or license new technologies, products or businesses.
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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making it more difficult for us to satisfy our obligations with respect to our indebtedness;
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increasing our vulnerability to adverse changes in general economic, industry, and competitive conditions;
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-
requiring us to dedicate a significant portion of our cash flows from operations to make payments on our indebtedness,
thereby reducing the availability of our cash flows to fund working capital and other general corporate purposes;
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limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
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restricting us from capitalizing on business opportunities;
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-
placing us at a competitive disadvantage compared to our competitors that have less debt;
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limiting our ability to borrow additional funds for working capital, acquisitions, execution of our business strategy, or
other general corporate purposes; and
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limiting our ability to enter into certain commercial arrangements because of concerns of counterparty risks.
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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,
15
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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:
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safety, efficacy, convenience and cost-effectiveness of our products compared to products of our competitors;
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scope of approved uses and marketing approval; timing of market approvals and market entry;
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difficulty in, or excessive costs to, manufacture; infringement or alleged infringement of the patents or intellectual
property rights of others;
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availability of alternative products from our competitors;
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acceptance of the price of our products; and
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ability to market our products effectively at the retail level.
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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the federal Anti-Kickback Statute is a criminal statute that prohibits, among other things, soliciting, receiving,
offering or providing remuneration intended to induce the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare or Medicaid programs.
This statute has been interpreted broadly to apply to a number of practices by manufacturers in the medical device industry, manufacturer marketing practices, educational programs, pricing policies
and relationships with healthcare providers. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it to have committed a violation;
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federal civil and criminal false claims laws and civil monetary penalty laws, including civil whistleblower or qui tam
actions that prohibit, among other things, knowingly presenting, or causing to be presented, claims for payment or approval to the federal government that are false or fraudulent, knowingly making a
false statement material to an obligation to pay or transmit money or property to the federal government or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay
or transmit money or property to the federal government. The government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes
a false or fraudulent claim for purposes of the false claims statutes;
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the federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), and its implementing regulations, which
created federal criminal laws that prohibit, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, also imposes certain
regulatory and contractual requirements regarding the privacy, security and transmission of individually identifiable health information;
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federal "sunshine" requirements imposed by the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act, on device manufacturers regarding any "transfer of value" made or distributed to physicians and teaching hospitals; and
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state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may
apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require device companies to comply with the industry's voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state laws that require device manufacturers to
report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of certain
health information, many of which differ from each other in significant ways and often are not pre-empted by HIPAA.
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:
-
-
exposure to unknown liabilities of acquired companies and the unknown issues with any associated technologies or research;
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higher than anticipated acquisition costs and expenses;
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-
exposure to other companies' shares that shareholders could receive as consideration for our shares in a corporate
transaction;
-
-
the difficulty and expense of integrating operations, systems, and personnel of acquired companies;
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disruption of our ongoing business;
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inability to retain key customers, distributors, vendors and other business partners of the acquired company; and
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diversion of management's time and attention.
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:
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-
shareholders cannot amend our articles of incorporation unless at least two-thirds of the shares entitled to vote approve
the amendment; and
-
-
our board of directors can, without shareholder approval, issue preferred shares having any terms, conditions, rights and
preferences that the board determines.
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:
|
|
|
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|
Name:
|
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Date of Incorporation:
|
|
Jurisdiction of Incorporation:
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Neovasc Medical Inc. (formerly PM Devices Inc.)
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May 7, 1998
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British Columbia
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Neovasc Tiara Inc.
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March 11, 2013
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Canada (federal)
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Neovasc Medical Ltd.
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September 9, 2002
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Israel
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Neovasc (US) Inc. (formerly Medical Ventures (US) Inc.)
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July 2, 2007
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United States
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B-Balloon Ltd.(1)
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March 30, 2004
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Israel
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Neovasc GmbH
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August 14, 2017
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Germany
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Neovasc Management Inc.
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January 23, 2018
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United States
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(1)
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B-Balloon Ltd.
is in the process of being voluntarily wound up.
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
33
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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:
-
-
Tiara expanding the Company's clinical experience of the Tiara, continuing
enrollment in and expansion of the TIARA-II multi-center CE Mark clinical study, and applying for CE Mark approval in approximately 2020. Finalizing the TIARA-I study; enrollment in the TIARA-I study
was closed on November 15, 2019 with a total of 27 patients treated. Development of the Tiara transfemoral trans-septal system for preclinical bench and animal studies to successful
completion, followed by initiation of a first human feasibility clinical study by the end of 2020.
-
-
Reducer continuing therapy development of the Reducer, and supplementing the
successful COSIRA prospective, multicenter, randomized, double-blind, sham-controlled clinical study with additional clinical experience through the Company's targeted commercial launch of the Reducer
in Europe and enrollment in the REDUCER-I, real world post-market observational clinical study. Improving revenue growth in Europe by leveraging the renewed NUB 1 status in Germany and by
further accelerated therapy development. Seeking strategic alternatives and alliances to build on the growing enthusiasm in the market for, and adoption of, the Reducer, in order to broaden and deepen
therapy penetration in Europe and the Middle East. Continuing to execute on our U.S. strategy and work with the FDA to meet the requirements for entrance into the U.S. market. The
Company filed a PMA application for this Breakthrough medical device on December 30, 2019 with a request for an Advisory Panel meeting. The Company believes that the totality of clinical
evidence from the COSIRA study, REDUCER-I European Post-Market study (with interim results of over 200 of 400 patients enrolled), and multiple independent studies published in peer-reviewed
journals, will provide reasonable assurance of safety and effectiveness to support a PMA. 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 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 support the availability of this breakthrough medical device for the treatment of U.S. patients.
-
-
Financial and organizational restructuring to establish a lean and accountable organization with stable capitalization. We
are currently exploring additional financing options to bring additional capital into the Company and will provide public updates when appropriate.
34
Table of Contents
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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Table of Contents
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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Table of Contents
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
38
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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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Table of Contents
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.
42
Table of Contents
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
|
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
Table of Contents
|
|
|
|
|
|
|
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
Table of Contents
|
|
|
|
|
|
|
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
Table of Contents
|
|
|
|
|
|
|
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
Table of Contents
|
|
|
|
|
|
|
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
Table of Contents
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
|
|
|
|
|
|
|
TITLE
|
|
PATENT NUMBER
|
|
COUNTRY
|
|
STANDARD
EXPIRATION
DATES
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Austria
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Australia
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Belgium
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
2404330
|
|
Canada
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Switzerland
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
601 41 511.6
|
|
Germany
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
European Patent Office
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Spain
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
France
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
United Kingdom
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
151931
|
|
Israel
|
|
March 27, 2021
|
A REDUCER FOR INSERTION IN A BLOOD VESSEL AND A BLOOD VESSEL REDUCER DELIVERY KIT
|
|
208930
|
|
India
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Italy
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
4398131
|
|
Japan
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Liechtenstein
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Luxembourg
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Netherlands
|
|
March 27, 2021
|
NARROWING IMPLANT
|
|
EP1276437
|
|
Sweden
|
|
March 27, 2021
|
DEVICE AND METHOD FOR TREATING ISCHEMIC HEART DISEASE
|
|
6953476
|
|
United States of America
|
|
March 27, 2020
|
VASCULAR IMPLANT
|
|
2551081
|
|
Canada
|
|
November 18, 2024
|
VASCULAR IMPLANT
|
|
2823472
|
|
Canada
|
|
November 18, 2024
|
VASCULAR IMPLANT
|
|
60 2004 046 016.8
|
|
Germany
|
|
November 18, 2024
|
VASCULAR IMPLANT
|
|
60 2004 048 617.5
|
|
Germany
|
|
November 18, 2024
|
VASCULAR IMPLANT
|
|
EP1689324
|
|
European Patent Office
|
|
November 18, 2024
|
VASCULAR IMPLANT
|
|
EP2756821
|
|
European Patent Office
|
|
November 18, 2024
|
VASCULAR IMPLANT
|
|
EP3020377
|
|
European Patent Office
|
|
November 18, 2024
|
VASCULAR IMPLANT
|
|
EP1689324
|
|
France
|
|
November 18, 2024
|
48
Table of Contents
|
|
|
|
|
|
|
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
Table of Contents
|
|
|
|
|
|
|
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
|
-
(1)
-
B-Balloon Ltd.
is in the process of being voluntarily wound up.
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
Table of Contents
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
Table of Contents
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.
52
Table of Contents
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.
53
Table of Contents
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.
63
Table of Contents
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).
64
Table of Contents
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.
65
Table of Contents
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
|
)
|
|
|
|
|
|
|
|
|
|
|
66
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
67
Table of Contents
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.
68
Table of Contents
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.
69
Table of Contents
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.
70
Table of Contents
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.
71
Table of Contents
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.
72
Table of Contents
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.
73
Table of Contents
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:
-
-
the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified
by being identified at the time the asset is made available to the Company
-
-
the Company has the right to obtain substantially all of the economic benefits from use of the identified asset throughout
the period of use, considering its rights within the defined scope of the contract
-
-
the Company has the right to direct the use of the identified asset throughout the period of use. The Company assess
whether it has the right to direct 'how and for what purpose' the asset is used throughout the period of use.
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.
74
Table of Contents
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:
-
-
Most likely amount: single most likely amount in a range of possible outcomes;
-
-
Expected value: sum of the probability-weighted amounts in a range of possible outcomes.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
75
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
-
(b)
-
Foreign
Exchange Risk A portion of the Company's revenues are derived from product sales in Europe, denominated in
Euros. Management has considered the stability of the foreign currency and the impact a change in the exchange rate may have on future earnings during the forecasting process. The Euro represents
approximately 30% of the revenue for the year ended December 31, 2019 (year ended December 2018 and 2017: 23% and 65%, respectively). A 10% change in the foreign exchange rates for the Euro for
foreign currency denominated accounts receivable will impact net income as at December 31, 2019 by approximately $6,288 (as at December 30, 2018 and 2017: $6,000 and $50,000,
respectively), and a similar change in foreign currency denominated accounts payable, which are denominated in Canadian dollars and Euros will impact net income by approximately $80,654 and $176,569,
respectively, as at December 31, 2019 (as at December 30, 2018 $13,000 and $30,000 and as at December 31, 2017: $32,000 and $10,000). A similar change in foreign currency
denominated cash and cash equivalents, and restricted cash, which are denominated in Canadian dollars and Euros will impact net income by approximately $5,254 and $2,780, respectively, as at
December 31, 2019 (as at December 30, 2018 $4,837 and $5,855 and as at December 31, 2017: $7,011 and $44,792). The Company does not hedge its foreign exchange risk.
-
(c)
-
Interest
rate risk The Company is not exposed to material cash flow interest rate risk on fixed rate cash balances,
and short-term accounts receivable, accounts payable, 2017 Notes that do not accrue interest or 2019 Notes that have fixed interest terms.
76
Table of Contents
-
(d)
-
Liquidity
risk As at December 31, 2019, the Company had $5,292,833 in cash and cash equivalents as compared
to cash and cash equivalents of $9,242,809 at December 31, 2018. 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
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.
-
(e)
-
Credit
risk Credit risk arises from the possibility that the entities to which the Company sells products may
experience financial difficulty and be unable to fulfill their contractual obligations. This risk is mitigated by proactive credit management policies that include regular monitoring of the debtor's
payment history and performance. The Company does not require collateral from its customers as security for trade accounts receivable but may require certain customers to pay in advance of any work
being performed or product being shipped.
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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Table of Contents
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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Table of Contents
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
Florida,
USA
|
|
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
British Columbia,
Canada
|
|
48
|
|
Chief Financial Officer and Secretary, Neovasc Inc. (April 2007 Present)
|
Bill Little
Minnesota,
USA
|
|
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
Minnesota,
USA
|
|
68
|
|
Vice-President of Clinical and Regulatory Affairs, Neovasc Inc. (May 2014 Present)
|
Aaron Chalekian
Minnesota,
USA
|
|
40
|
|
Vice-President, Product Development & Manufacturing Engineering, Neovasc Inc. (March 2015 Present), Director, Research & Development, St Jude Medical (November
2007 March 2015)
|
John Panton
British Columbia,
Canada
|
|
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)
British Columbia,
Canada
|
|
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)
British Columbia,
Canada
|
|
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)
Georgia,
USA
|
|
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)
British Columbia,
Canada
|
|
50
|
|
Director, Neovasc Inc. (June 2005 Present); CEO, Northview Ventures (2012 Present); CEO, Aequus Pharmaceuticals Inc. (January 2013 Present)
|
Alexei Marko(3)
British Columbia,
Canada
|
|
50
|
|
Director (June 2003 Present), Former Chief Executive Officer Neovasc Inc. (July 2008 January 2018),
|
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Table of Contents
|
|
|
|
|
Name and Place of Residence
|
|
Age
|
|
Principal Occupations
|
Brian McPherson
British Columbia,
Canada
|
|
57
|
|
Former Chief Operating Officer, Neovasc Inc. (June 2009 January 2018)
|
Randy Lane
British Columbia,
Canada
|
|
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)
|
-
(1)
-
Member
of the Audit and Strategic Activities Committee.
-
(2)
-
Member
of the Compensation Committee.
-
(3)
-
Member
of the Governance and Nominating Committee.
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:
-
(a)
-
the
Chief Executive Officer ("CEO") of the Company;
-
(b)
-
the
Chief Financial Officer ("CFO") of the Company;
-
(c)
-
each
of the three most highly compensated Executive Officers, or the three most highly compensated individuals acting in a similar capacity, other than the
CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000. "Executive Officer" means the chairman, and any vice-chairman,
president, secretary or any vice-president and any officer of the Company or a subsidiary who performs a policymaking function in respect of the Company; and
-
(d)
-
each
individual who would be an NEO under paragraph (c) but for the fact that the individual was neither an executive officer of the Company, nor
acting in a similar capacity, at the end of that financial year.
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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Table of Contents
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:
-
(a)
-
amend,
modify or terminate the Option Plan with respect to all Common Shares in respect of Options which have not yet been granted hereunder;
-
(b)
-
to
make any amendment of a typographical, grammatical, clerical or administrative nature or clarification correcting or rectifying any ambiguity, immaterial
inconsistency, defective provision, mistake, or error or omission;
-
(c)
-
to
change the provisions relating to the manner of exercise of Options, including changing or adding any form of financial assistance provided by the
Company, or adding or amending provisions relating to a cashless exercise of Options which provisions so added or amended provide for a full deduction of the underlying common shares of the Company
from the maximum number reserved for issuance under the Option Plan;
-
(d)
-
to
change the terms, conditions and mechanics of grant, vesting, exercise and early expiry of Options, provided that no such change may extend an
outstanding Option's expiry date;
-
(e)
-
to
change the provisions for termination or cancellation of Options so long as the change does not permit the Company to grant an Option with an expiry date
of more than maximum allowable expiry date in the TSX Company Manual or to extend an outstanding Option's expiry date;
-
(f)
-
to
make any addition to, deletion from or alteration of the provisions of the Option Plan or any Option that are necessary to comply with applicable law or
the requirements of any regulatory or governmental agency or applicable stock exchange and to avoid unanticipated consequences deemed by the board of directors to be inconsistent with the purpose of
the Option Plan; and
-
(g)
-
to
change the transferability of Options to permit a transfer or assignment to a spouse or other family member, an entity controlled by the Option holder or
spouse or family member, an RRSP, TFSA, RRIF or managed investment account of the Option holder, spouse or family member, a trustee, custodian or administrator acting on behalf of, or for the benefit
of, the Option holder, spouse or family member, any person recognized as a permitted assign in such circumstances in securities or stock exchange regulatory provisions, or for estate planning or
estate settlement purposes.
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):
-
(a)
-
any
reduction in the exercise price of an Option previously granted to an Insider (as defined in the TSX Company Manual);
-
(b)
-
subject
to limited exceptions, any extension of the expiry date of an Option previously granted to an Insider (as defined in the TSX Company Manual);
-
(c)
-
any
amendment to remove or to exceed the Insider Participation Limit (as defined in the TSX Company Manual);
-
(d)
-
any
increase in the maximum number of securities issuable under the Option Plan, either as a fixed number or a fixed percentage of the Company's issued and
outstanding common shares; and
-
(e)
-
any
amendment to the amendment provisions described above.
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:
-
(a)
-
for
the purposes of making formal minor or technical modifications to any of the provisions of the RSU Plan;
-
(b)
-
to
correct any ambiguity, defective provision, error or omission in the provisions of the RSU Plan;
-
(c)
-
to
change the vesting provisions of RSUs;
-
(d)
-
to
change the termination provisions of RSUs or the RSU Plan that does not entail an extension beyond the original expiry date of the RSU;
-
(e)
-
to
preserve the intended tax treatment of the benefits provided by the RSU Plan, as contemplated therein; or
-
(f)
-
any
amendments necessary or advisable because of any change in applicable laws; provided, however, that:
-
(g)
-
no
such amendment of the RSU Plan may be made without the consent of each affected participant if such amendment would adversely affect the rights of such
affected participant(s) under the RSU Plan; and
-
(h)
-
Shareholder
approval shall be obtained in accordance with the requirements of the TSX for any amendment that results in:
-
(i)
-
an
increase in the maximum number of Common Shares issuable pursuant to the RSU Plan other than as already contemplated in the RSU Plan;
-
(ii)
-
an
extension of the expiry date for RSUs granted to insiders under the RSU Plan;
-
(iii)
-
other
types of compensation through Common Share issuance;
-
(iv)
-
expansion
of the rights of a participant to assign RSUs beyond what is currently permitted in the RSU Plan;
-
(v)
-
the
addition of new categories of participants, other than as already contemplated in the RSU Plan;
-
(vi)
-
an
amendment to the number of RSUs which may be granted to non-employee directors; or
-
(vii)
-
an
amendment to the amendment provisions of the RSU Plan.
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:
-
-
Upon termination without cause, Mr. Colen is entitled to receive his base salary for an additional 6-month period.
In addition, if such termination occurs within 12 months of a change of control, Mr. Colen will receive a cash payment equal to approximately 2 times his base salary and 2 times 3.75% of
his base salary as additional retirement plan contributions and 100% of his Options will immediately vest. Mr. Colen's employment agreement also provides for certain non-competition and
non-solicitation restrictions within 12 months of the termination of his employment, for any reason.
-
-
Assuming Mr. Colen was terminated on the last business day of the most recently completed financial year, he would
receive the following estimated payments:
-
-
Termination without cause: $215,914
-
-
Termination within 12 months following a change of control: $818,464
For
Mr. Chris Clark:
-
-
Upon termination without cause, Mr. Clark is entitled to receive the entirety of his compensation for an additional
16-month period. In addition, if such termination occurs within 12 months of a change of control, Mr. Clark will receive a cash payment equal to approximately 1.5 times his existing
compensation. Mr. Clark's employment agreement also provides for certain non-competition and non-solicitation restrictions within 16 months of the termination of his employment, for any
reason.
-
-
Assuming Mr. Clark was terminated on the last business day of the most recently completed financial year, he would
receive the following estimated payments:
-
-
Termination without cause: C$830,700
-
-
Termination within 12 months following a change of control: C$930,150
For
Mr. Bill Little:
-
-
Upon termination without cause, Mr. Little is entitled to receive the entirety of his compensation for an
additional 9-month period. In addition, if such termination occurs within 12 months of a change of control, Mr. Little will receive a cash payment equal to approximately 1.5 times his
existing compensation. Mr. Little's employment agreement also provides for certain non-competition and non-solicitation restrictions within 9 months of the termination of his employment,
for any reason.
-
-
Assuming Mr. Little was terminated on the last business day of the most recently completed financial year, he would
receive the following estimated payments:
-
-
Termination without cause: $412,500
-
-
Termination within 12 months following a change of control: $795,000
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For
Ms. Vicki Bebeau:
-
-
Upon termination without cause, Ms. Bebeau is entitled to receive the entirety of her compensation for one month's
notice for each complete year of service up to a maximum of 9 months. In addition, if such termination occurs within 12 months of a change of control. Ms. Bebeau will receive a
cash payment equal to approximately 1.25 times her existing compensation. Ms. Bebeau's employment agreement also provides for certain non-competition and non-solicitation restrictions within
12 months of the termination of her employment, for any reason.
-
-
Assuming Ms. Bebeau was terminated on the last business day of the most recently completed financial year, he would
receive the following estimated payments:
-
-
Termination without cause: $220,815
-
-
Termination within 12 months following a change of control: $607,810
For
Mr. Aaron Chalekian:
-
-
Upon termination without cause, Mr. Chalekian is entitled to receive the entirety of his compensation for one
month's notice for each complete year of service up to a maximum of 9 months. In addition, if such termination occurs within 12 months of a change of control, Mr. Chalekian would
receive a cash payment equal to approximately 1.25 times his existing compensation. Mr. Chalekian's employment agreement also provides for certain non-competition and non-solicitation
restrictions within 9 months of the termination of his employment, for any reason.
-
-
Assuming Mr. Chalekian was terminated on the last business day of the most recently completed financial year, he
would receive the following estimated payments:
-
-
Termination without cause: $120,971
-
-
Termination within 12 months following a change of control: $391,265
For
Mr. John Panton:
-
-
Upon termination without cause, Mr. Panton is entitled to receive the entirety of his compensation for an
additional 9-month period. In addition, if such termination occurs within 12 months of a change of control, Mr. Panton receives a cash payment equal to approximately 1.25 times his
existing compensation. Mr. Panton's employment agreement also provides for certain non-competition and non-solicitation restrictions within 9 months of the termination of his employment,
for any reason.
-
-
Assuming Mr. Panton was terminated on the last business day of the most recently completed financial year, he would
receive the following estimated payments:
-
-
Termination without cause: C$256,151
-
-
Termination within 12 months following a change of control: C$411,033
93
Table of Contents
Summary Compensation Table
Neovasc's key management personnel include Fred Colen, CEO, Chris Clark, CFO, Bill Little, COO, Vicki Bebeau, VP,
C&R, Aaron
Chalekian, VP, PD&E and John Panton, VP, Quality. Compensation paid to key management personnel was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(USD$)
|
|
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
|
|
-
(1)
-
The
Company uses the Black-Scholes option pricing model to calculate the fair value of option-based awards. The model requires six key inputs: risk free
interest rate, exercise price, market price at date of issue, expected dividend yield, expected life and expected volatility, all of which, other than the exercise price and market price, are
estimates by management of the Company. The Black-Scholes model was used to compute option fair values because it is the most commonly used option pricing model and is considered to produce a
reasonable estimate of fair value.
-
(2)
-
Amounts
equal to RRSP or 401(k) monthly payments by the Company. See "Defined Contribution Plans".
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
|
|
|
|
|
Name and
Principal Position
|
|
Year
|
|
Salary ($)
|
|
Share-
Based
Awards
($)
|
|
Option-
Based
Awards
($)
|
|
Annual
Incentive
Plans
($)
|
|
Long-term
Incentive
Plan
($)
|
|
Pension
Value
($)(4)
|
|
All Other
Compensation
($)
|
|
Total
Compensation
($)
|
|
Fred Colen
|
|
|
2019
|
|
$
|
401,700
|
|
|
N/A
|
|
$
|
765,489
|
(1)
|
$
|
369,641
|
|
|
N/A
|
|
$
|
8,400
|
|
|
NIL
|
|
$
|
1,545,230
|
|
President & CEO
|
|
|
2018
|
|
$
|
390,000
|
|
|
N/A
|
|
$
|
679,401
|
(2)
|
$
|
349,500
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
$
|
1,418,901
|
|
Chris Clark
|
|
|
2019
|
|
C$
|
351,000
|
|
|
N/A
|
|
C$
|
404,782
|
(1)
|
C$
|
221,130
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
976,912
|
|
CFO & Secretary
|
|
|
2018
|
|
C$
|
351,000
|
|
|
N/A
|
|
C$
|
294,885
|
(2)
|
C$
|
208,845
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
854,730
|
|
|
|
|
2017
|
|
C$
|
80,719
|
|
|
N/A
|
|
C$
|
149,310
|
(3)
|
C$
|
52,500
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
552,960
|
|
Bill Little
|
|
|
2019
|
|
$
|
300,000
|
|
$
|
455,809
|
|
|
N/A
|
|
$
|
23,746
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
$
|
779,555
|
|
COO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vicki Bebeau
|
|
|
2019
|
|
$
|
263,680
|
|
|
N/A
|
|
$
|
156,471
|
(1)
|
$
|
186,440
|
|
|
N/A
|
|
$
|
6,449
|
|
|
NIL
|
|
$
|
624,279
|
|
VP, C&R
|
|
|
2018
|
|
C$
|
335,216
|
|
|
N/A
|
|
$
|
137,252
|
(2)
|
$
|
92,288
|
|
|
N/A
|
|
C$
|
6,704
|
|
|
NIL
|
|
$
|
499,669
|
|
|
|
|
2017
|
|
C$
|
129,823
|
|
|
N/A
|
|
C$
|
298,620
|
(3)
|
C$
|
50,282
|
|
|
N/A
|
|
C$
|
4,439
|
|
|
NIL
|
|
C$
|
694,123
|
|
Aaron Chalekian
|
|
|
2019
|
|
$
|
214,958
|
|
|
N/A
|
|
$
|
161,027
|
(1)
|
$
|
61,241
|
|
|
N/A
|
|
$
|
6,449
|
|
|
NIL
|
|
$
|
455,893
|
|
VP, R&D
|
|
|
2018
|
|
$
|
190,200
|
|
|
N/A
|
|
$
|
140,959
|
(2)
|
$
|
33,000
|
|
|
N/A
|
|
$
|
4,063
|
|
|
NIL
|
|
$
|
395,366
|
|
|
|
|
2017
|
|
C$
|
238,280
|
|
|
N/A
|
|
$
|
98,512
|
(3)
|
$
|
55,350
|
|
|
N/A
|
|
C$
|
4,596
|
|
|
NIL
|
|
$
|
348,125
|
|
John Panton
|
|
|
2019
|
|
C$
|
209,167
|
|
|
N/A
|
|
C$
|
209,950
|
(1)
|
C$
|
64,336
|
|
|
N/A
|
|
C$
|
5,229
|
|
|
NIL
|
|
C$
|
517,162
|
|
VP, Quality
|
|
|
2018
|
|
C$
|
170,393
|
|
|
N/A
|
|
C$
|
184,121
|
(2)
|
C$
|
48,300
|
|
|
N/A
|
|
C$
|
4,265
|
|
|
NIL
|
|
C$
|
446,816
|
|
|
|
|
2017
|
|
$
|
401,700
|
|
|
N/A
|
|
C$
|
114,615
|
(3)
|
C$
|
50,182
|
|
|
N/A
|
|
$
|
8,400
|
|
|
NIL
|
|
C$
|
339,454
|
|
Alexei Marko
|
|
|
2019
|
|
C$
|
234,000
|
|
|
N/A
|
|
C$
|
57,971
|
(1)
|
|
NIL
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
273,971
|
|
Former CEO(5)
|
|
|
2018
|
|
C$
|
432,000
|
|
|
N/A
|
|
C$
|
203,278
|
(2)
|
|
NIL
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
437,278
|
|
|
|
|
2017
|
|
C$
|
351,000
|
|
|
N/A
|
|
C$
|
186,638
|
(3)
|
C$
|
64,800
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
683,438
|
|
Brian McPherson
|
|
|
2019
|
|
C$
|
149,906
|
|
|
N/A
|
|
C$
|
205
|
(1)
|
|
NIL
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
80,924
|
|
Former COO
|
|
|
2018
|
|
C$
|
267,750
|
|
|
N/A
|
|
C$
|
5,580
|
(2)
|
|
NIL
|
|
|
N/A
|
|
|
NIL
|
|
|
NIL
|
|
C$
|
155,486
|
|
|
|
|
2017
|
|
$
|
273,173
|
|
|
N/A
|
|
C$
|
74,655
|
(3)
|
C$
|
41,513
|
|
|
N/A
|
|
$
|
8,195
|
|
|
NIL
|
|
C$
|
392,918
|
|
Randy Lane
|
|
|
2019
|
|
C$
|
280,890
|
|
|
N/A
|
|
C$
|
4,891
|
(1)
|
|
NIL
|
|
|
N/A
|
|
C$
|
10,533
|
|
|
NIL
|
|
C$
|
139,153
|
|
Former VP, R&D
|
|
|
2018
|
|
C$
|
283,250
|
|
|
N/A
|
|
C$
|
105,017
|
(2)
|
|
NIL
|
|
|
N/A
|
|
C$
|
10,622
|
|
|
NIL
|
|
C$
|
396,440
|
|
|
|
|
2017
|
|
$
|
226,820
|
|
|
N/A
|
|
C$
|
223,965
|
(3)
|
C$
|
42,487
|
|
|
N/A
|
|
$
|
6,804
|
|
|
NIL
|
|
C$
|
560,324
|
|
-
(1)
-
The
Company uses the Black-Scholes option pricing model to calculate the fair value of option-based awards. The model requires six key inputs: risk free
interest rate, exercise price, market price at date of issue, expected dividend yield, expected life and expected volatility, all of which, other than the exercise price and market price, are
estimates by management of the Company. The fair value
94
Table of Contents
was
computed using the Black-Scholes option pricing model with the following assumptions: a) average risk-free interest rate of 1.51%; b) expected life of 4 years; c) the
price of the stock on the grant date of $4.30; d) expected volatility of 141%; and e) no expected dividend payments. The Black-Scholes model was used to compute option fair values
because it is the most commonly used option pricing model and is considered to produce a reasonable estimate of fair value.
-
(2)
-
The
Company uses the Black-Scholes option pricing model to calculate the fair value of option-based awards. The model requires six key inputs: risk free
interest rate, exercise price, market price at date of issue, expected dividend yield, expected life and expected volatility, all of which, other than the exercise price and market price, are
estimates by management of the Company. The fair value was computed using the Black-Scholes option pricing model with the following assumptions: a) average risk-free interest rate of 2.24%;
b) expected life of 4 years; c) the price of the stock on the grant date of $30.03; d) expected volatility of 72%; and e) no expected dividend payments. The
Black-Scholes model was used to compute option fair values because it is the most commonly used option pricing model and is considered to produce a reasonable estimate of fair value.
-
(3)
-
These
numbers are calculated in accordance with IFRS 2 Share-based Payment (pre and post adoption of IFRS) and are the same numbers as used in the
Company's financial statements.
-
(4)
-
Amounts
equal to RRSP or 401(k) monthly payments by the Company. See "Pension Plan Benefits".
-
(5)
-
Mr. Marko
did not receive any compensation related to his services as a director of the Company. Mr. Marko resigned as CEO in January 2018.
95
Table of Contents
Options to Purchase Securities
No share-based awards were granted to the NEOs in the most recent financial year. The following table sets out all
option-based awards
as at December 31, 2019, for each NEO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based Awards
|
|
|
Option-based Awards
|
|
|
|
|
Market or
payout value
of share-
based
awards that
have not
vested
($)
|
|
Market or
payout value
of vested
share-based
awards not
paid out or
distributed
($)
|
Name and
Principal
Position
|
|
Number of
securities
underlying
unexercised
options
|
|
Option
exercise
price
($)
|
|
Option
expiration date
|
|
Value of
unexercised
in-the-
money
options
($)(1)
|
|
Number of
shares or
units of
shares
that have
not vested
|
Fred Colen
|
|
|
2,000
|
|
$
|
630.00
|
|
January 24, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
President & CEO
|
|
|
250
|
|
$
|
60.00
|
|
March 31, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
60,000
|
|
$
|
27.20
|
|
September 30, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
25,000
|
|
$
|
8.80
|
|
December 3, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
100,000
|
|
$
|
4.10
|
|
March 26, 2027
|
|
$
|
40,250
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
12,500
|
|
$
|
5.00
|
|
May 31, 2027
|
|
$
|
2,219
|
|
N/A
|
|
N/A
|
|
N/A
|
Chris Clark
|
|
|
100
|
|
C$
|
1,900.00
|
|
March 31, 2022
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
CFO & Secretary
|
|
|
300
|
|
$
|
630.00
|
|
January 24, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
125
|
|
$
|
60.00
|
|
March 31, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
30,000
|
|
$
|
27.20
|
|
September 30, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
10,000
|
|
$
|
8.80
|
|
December 3, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
50,000
|
|
$
|
4.10
|
|
March 26, 2027
|
|
$
|
20,125
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
5,000
|
|
$
|
5.00
|
|
May 31, 2027
|
|
$
|
888
|
|
N/A
|
|
N/A
|
|
N/A
|
Bill Little
|
|
|
Nil
|
|
|
N/A
|
|
N/A
|
|
|
NIL
|
|
94,406
|
|
$281,330
|
|
Nil
|
COO
|
|
|
Nil
|
|
|
N/A
|
|
N/A
|
|
|
NIL
|
|
58,550
|
|
$174,479
|
|
Nil
|
Vicki Bebeau
|
|
|
50
|
|
C$
|
11,760.00
|
|
March 27, 2020
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
VP, C&R
|
|
|
200
|
|
C$
|
1,900.00
|
|
March 31, 2022
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
300
|
|
$
|
630.00
|
|
January 24, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
125
|
|
$
|
60.00
|
|
March 31, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
10,000
|
|
$
|
27.20
|
|
September 30, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
5,000
|
|
$
|
8.80
|
|
December 3, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
25,000
|
|
$
|
4.10
|
|
March 26, 2027
|
|
$
|
10,063
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
7,500
|
|
$
|
5.00
|
|
May 31, 2027
|
|
$
|
1,331
|
|
N/A
|
|
N/A
|
|
N/A
|
Aaron Chalekian
|
|
|
75
|
|
C$
|
11,111.00
|
|
April 16, 2020
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
VP, PD&E
|
|
|
27
|
|
C$
|
5,190.00
|
|
December 28, 2020
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
50
|
|
C$
|
1,900.00
|
|
March 31, 2022
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
200
|
|
$
|
630.00
|
|
January 24, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
75
|
|
$
|
60.00
|
|
March 31, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
10,000
|
|
$
|
27.20
|
|
September 30, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
5,000
|
|
$
|
8.80
|
|
December 3, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
25,000
|
|
$
|
4.10
|
|
March 26, 2027
|
|
$
|
10,063
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
7,500
|
|
$
|
5.00
|
|
May 31, 2027
|
|
$
|
1,331
|
|
N/A
|
|
N/A
|
|
N/A
|
John Panton
|
|
|
50
|
|
C$
|
8,430.00
|
|
June 1,2020
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
VP, Quality
|
|
|
25
|
|
C$
|
7,920.00
|
|
July 31, 2020
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
21
|
|
C$
|
5,190.00
|
|
December 28, 2020
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
50
|
|
C$
|
1,900.00
|
|
March 31, 2022
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
200
|
|
$
|
630.00
|
|
January 24, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
75
|
|
$
|
60.00
|
|
March 31, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
10,000
|
|
$
|
27.20
|
|
September 30, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
5,000
|
|
$
|
8.80
|
|
December 3, 2026
|
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
25,000
|
|
$
|
4.10
|
|
March 26, 2027
|
|
$
|
10,063
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
7,500
|
|
$
|
5.00
|
|
May 31, 2027
|
|
$
|
1,331
|
|
N/A
|
|
N/A
|
|
N/A
|
-
(1)
-
Value
of unexercised in-the-money options is calculated based upon the difference between the market value of the Company's common shares as at
December 31, 2019 ($5.41 closing price on the Nasdaq) and the exercise price of the options.
96
Table of Contents
Director Compensation
In 2019, the directors of the Company (excluding any executive officers) were paid an annual retainer of $50,000,
without any meeting
fees. The chairman of the board and the chairman of the audit committee were paid an annual retainer of $60,000.
Summary Director Compensation Table
During the Company's most recently completed financial year of December 31, 2019, the compensation paid to
each director, who
was not a NEO, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
|
|
|
|
|
Name and
Principal Position
|
|
Salary
($)
|
|
Share-
Based
Awards
($)
|
|
Option-
Based
Awards
($)
|
|
Annual
Incentive
Plans
($)
|
|
Long-term
Incentive
Plan
($)
|
|
Pension
Value
($)
|
|
All Other
Compensation
($)
|
|
Total
Compensation
($)
|
|
Steven Rubin
|
|
$
|
60,000
|
|
|
N/A
|
|
$
|
42,847
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
102,847
|
|
Chairman and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Geyer
|
|
$
|
60,000
|
|
|
N/A
|
|
$
|
42,847
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
102,847
|
|
Former Chairman and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norman Radow
|
|
$
|
14,583
|
|
|
N/A
|
|
|
Nil
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
14,583
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas Janzen
|
|
$
|
50,000
|
|
|
N/A
|
|
$
|
44,593
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
94,593
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexei Marko
|
|
|
NIL
|
|
|
N/A
|
|
$
|
44,593
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
44,593
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jane Hsiao
|
|
$
|
35,417
|
|
|
N/A
|
|
$
|
42,847
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
78,264
|
|
Former Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William O'Neill
|
|
$
|
25,000
|
|
|
N/A
|
|
$
|
42,847
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
$
|
67,847
|
|
Former Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
Table of Contents
Share-based Awards and Option-based Awards
No share-based awards were granted to the directors in the most recent financial year. The following table sets
out all option-based
awards as at December 31, 2019, for each director who was not an NEO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based Awards
|
|
|
Option-based Awards
|
|
|
Number
of shares
of units or
shares
that have
not vested
|
|
Market or
payout value
of share-based
awards that
have not
vested
($)
|
|
Market or
payout value of
vested share-
based awards
not paid out or
distributed
($)
|
Name and
Principal Position
|
|
Number of
securities
underlying
unexercised
options
|
|
Option
exercise
price
($)
|
|
Option
expiration
date
|
|
Value of
unexercised
in-the-money
options
($)(1)
|
Steven Rubin
|
|
|
15
|
|
C$
|
11,176.00
|
|
March 27, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Chairman
|
|
|
30
|
|
C$
|
1,900.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
50
|
|
$
|
630.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
10,000
|
|
$
|
27.20
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
20,000
|
|
$
|
4.10
|
|
March 26, 2027
|
|
$8,050
|
|
N/A
|
|
N/A
|
|
N/A
|
Paul Geyer
|
|
|
15
|
|
C$
|
11,176.00
|
|
March 27, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Director
|
|
|
30
|
|
C$
|
1,900.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
50
|
|
$
|
630.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
10,000
|
|
$
|
27.20
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
20,000
|
|
$
|
4.10
|
|
March 26, 2027
|
|
$8,050
|
|
N/A
|
|
N/A
|
|
N/A
|
Norman Radow
|
|
|
Nil
|
|
|
N/A
|
|
N/A
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Director
|
|
|
Nil
|
|
|
N/A
|
|
N/A
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Douglas Janzen
|
|
|
15
|
|
C$
|
11,176.00
|
|
March 27, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Director
|
|
|
30
|
|
C$
|
1,900.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
70
|
|
$
|
630.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
10,000
|
|
$
|
27.20
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
20,000
|
|
$
|
4.10
|
|
March 26, 2027
|
|
$8,050
|
|
N/A
|
|
N/A
|
|
N/A
|
Alexei Marko
|
|
|
125
|
|
C$
|
1,900.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Director
|
|
|
70
|
|
$
|
630.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
10,000
|
|
$
|
27.20
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
20,000
|
|
$
|
4.10
|
|
March 26, 2027
|
|
$8,050
|
|
N/A
|
|
N/A
|
|
N/A
|
Jane Hsiao
|
|
|
15
|
|
C$
|
11,176.00
|
|
March 27, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Former Director
|
|
|
30
|
|
C$
|
1,900.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
50
|
|
$
|
630.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
10,000
|
|
$
|
27.20
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
20,000
|
|
$
|
4.10
|
|
March 26, 2027
|
|
$8,050
|
|
N/A
|
|
N/A
|
|
N/A
|
William O'Neill
|
|
|
15
|
|
C$
|
11,176.00
|
|
March 27, 2020
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
Former Director
|
|
|
30
|
|
C$
|
1,900.00
|
|
March 31, 2022
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
50
|
|
$
|
630.00
|
|
January 24, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
10,000
|
|
$
|
27.20
|
|
September 30, 2026
|
|
NIL
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
20,000
|
|
$
|
4.10
|
|
March 26, 2027
|
|
$8,050
|
|
N/A
|
|
N/A
|
|
N/A
|
Notes:
-
(1)
-
Value
of unexercised in-the-money options is calculated based upon the difference between the market value of the Company's common shares as at
December 31, 2019 ($5.41 closing price on the TSX) and the exercise price of the options.
98
Table of Contents
The following table summarizes the value vested or earned under incentive plans for the most recently completed
financial year, for each NEO:
|
|
|
|
|
|
|
Name and Principal Position
|
|
Option-Based Awards Value
Vested During the Year
($)(1)
|
|
Share-Based Awards Value
Vested During the Year
($)
|
|
Non-Equity Incentive Plan
Compensation Value Earned
During the Year
($)
|
Fred Colen
|
|
NIL
|
|
N/A
|
|
N/A
|
President & CEO
|
|
|
|
|
|
|
Chris Clark
|
|
NIL
|
|
N/A
|
|
N/A
|
CFO & Secretary
|
|
|
|
|
|
|
Brian Little
|
|
NIL
|
|
N/A
|
|
N/A
|
COO
|
|
|
|
|
|
|
Vicki Bebeau
|
|
NIL
|
|
N/A
|
|
N/A
|
VP, C&R
|
|
|
|
|
|
|
Aaron Chalekian
|
|
NIL
|
|
N/A
|
|
N/A
|
VP, PD&E
|
|
|
|
|
|
|
John Panton
|
|
NIL
|
|
N/A
|
|
N/A
|
VP, Quality
|
|
|
|
|
|
|
-
(1)
-
All
options are granted at market price.
The
following table sets out the burn rate of the Existing Option Plan for the three most recently completed financial years:
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Options Granted
|
|
Weighted Average
Securities Outstanding
(000,000)
|
|
Burn Rate
|
|
2019
|
|
|
697,150
|
|
|
6,511,672
|
|
|
10.71%
|
|
2018
|
|
|
366,053
|
|
|
1,416,011
|
|
|
25.85%
|
|
2017
|
|
|
1,844
|
|
|
81,524
|
|
|
2.26%
|
|
C. Board Practices
Item 6.A. "Directors, Senior Management and Employees Directors and
Senior
Management" above sets out each directors' and officers' date of expiration of their current term of office, as applicable, and the period during which such person has served
in that office.
For
specific termination and change-of-control provisions for the Company's NEOs, see Item 6.B "Compensation."
As
of March 27, 2020, all NEOs are engaged in a contract providing for benefits upon termination of employment with the Company.
Board Committees
The Board believes that its proper governance and effectiveness in carrying out its duties is greatly enhanced by
the use of
committees. To assist in the discharge of its responsibilities, the Board has designated three standing committees: the Audit and Strategic Activities Committee (the "Audit and Strategic Activities
Committee"), the Compensation Committee (the "Compensation Committee") and the Corporate Governance and Nominating Committee (the "CGNC"). The written mandates governing each of these committees
require that the committees be comprised of independent directors.
The
Board has from time to time designated and may in the future designate ad hoc committees to assist in the discharge of its responsibilities. During the most recently completed
financial year, the Company designated a pricing committee in relation to the 2017 Financings.
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Audit and Strategic Activities Committee
The Audit and Strategic Activities Committee is comprised of Paul Geyer (Chair), Steve Rubin and Douglas Janzen,
all of whom are
"financially literate" as defined in National Instrument 52-110 Audit Committees ("NI 52-110") and the rules of the Nasdaq. Each member of the
Audit and Strategic Activities Committee is considered independent pursuant to NI 52-110, Rule 10A-3 under the U.S. Exchange Act and the rules of the Nasdaq. Douglas Janzen served as the
Audit and Strategic Activities Committee's financial expert for the 2018 fiscal year. A description of the education and experience of each Audit and Strategic Activities Committee member that is
relevant to the performance of his responsibilities as an Audit and Strategic Activities Committee member may be found above under the heading "Directors, Senior Management and
Employees Directors and Senior Management".
The
Audit and Strategic Activities Committee is responsible for reviewing the Company's financial reporting procedures, internal controls and the performance of the financial management
and the Auditor. The Audit and Strategic Activities Committee also reviews the annual audited financial statements and makes recommendations to the board. A copy of the Audit and Strategic Activities
Committee's charter is set out below.
Audit and Strategic Activities Committee Charter
I. Purpose
The
Audit and Strategic Activities Committee is responsible for assisting the Board of Directors (the "Board") in fulfilling its oversight responsibilities in relation
to:
-
-
the integrity of Medical Ventures Corp. (the "Corporation") financial statements;
-
-
the Company's compliance with legal and financial regulatory requirements;
-
-
the qualifications and independence of the Company's auditor;
-
-
the adequacy and effectiveness of internal controls over financial reporting and disclosure controls;
-
-
the performance of the Company's internal audit function and independent auditor;
-
-
preparing an audit committee report to be included in the Company's management information circular; and
-
-
any additional matters delegated to the Audit and Strategic Activities Committee by the Board.
-
II.
-
Members
The
Board must appoint a minimum of three directors to be members of the Audit and Strategic Activities Committee. All of the members of the Audit and Strategic Activities Committee
will meet the criteria for independence contained in applicable laws and stock exchange rules and regulations and at least a majority must be residents of Canada (so long as this is required under
applicable law). In addition, every member of the Audit and Strategic Activities Committee will be Financially Literate and at least one member will have accounting or related financial management
expertise, as the Board interprets such qualification in its business judgment. "Financially Literate" means the ability to read and understand a set of financial statements that present a breadth and
level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company's financial statements.
-
III.
-
Responsibilities
The
auditor is ultimately accountable to the Audit and Strategic Activities Committee and reports directly to the Audit and Strategic Activities Committee. Accordingly, the Audit and
Strategic Activities
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Committee
will evaluate and be responsible for the Company's relationship with the auditor. Specifically, the Audit and Strategic Activities Committee
will:
-
-
select, evaluate and nominate the auditor to be proposed for appointment or reappointment, as the case may be, by the
shareholders;
-
-
review and approve the auditor's engagement letter;
-
-
after seeking and taking into account the opinions of senior management and the officer in charge of internal audit,
review the independence, experience, qualifications and performance of the auditor, including the lead audit partner, in recommending its appointment or reappointment, including considering whether
the auditor's quality controls are adequate and the auditor's provision of any permitted non-audit services is compatible with maintaining its independence;
-
-
oversee the auditor's work, including resolving any disagreements between management and the auditor regarding financial
reporting;
-
-
at least annually, obtain and review a report by the auditor describing its internal quality-control procedures, any
material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits carried out by the auditor and any steps taken to deal with any such issues; and
-
-
where appropriate, terminate the auditor.
At
least annually, and before the auditor issues its report on the Company's annual financial statements, the Audit and Strategic Activities Committee
will:
-
-
confirm that the auditor has submitted a formal written statement describing all of its relationships with the Company
that in the auditor's professional judgment may reasonably be thought to bear on its independence;
-
-
discuss with the auditor any disclosed relationships or services that may affect its independence;
-
-
obtain written confirmation from the auditor that it is independent with respect to the Company within the meaning of the
Rules of Professional Conduct adopted by the Chartered Professional Accountants of British Columbia to which it belongs and that it is an independent public accountant with respect to the Company
within the meaning of federal securities legislation; and
-
-
confirm that the auditor has complied with applicable laws with respect to the rotation of certain members of the audit
engagement team for the Company.
The
Audit and Strategic Activities Committee will pre-approve the appointment of the auditor for any non-audit service to be provided to the Company or its subsidiaries, provided that
it will not approve any service that is prohibited under applicable laws, rules and regulations. The Audit and Strategic Activities Committee may establish policies and procedures, that may be revised
from time to time, which pre-approve the appointment of the auditor for certain non-audit services. In addition, the Audit and Strategic Activities Committee may delegate to one or more independent
members the authority to pre-approve the appointment of the auditor for any non-audit service to the extent permitted by applicable law, provided that any pre-approvals granted pursuant to such
delegation shall be reported to the full Audit and Strategic Activities Committee at its next scheduled meeting following such pre-approval.
The
Audit and Strategic Activities Committee has the authority to communicate directly with the auditor and will meet privately with the auditor as frequently as the Audit and Strategic
Activities Committee feels is appropriate to fulfill its responsibilities, which will not be less frequently than annually, to discuss any items of concern to the Audit and Strategic Activities
Committee or the auditor, including, without limitation:
-
-
planning and staffing of the audit;
-
-
any material written communications between the auditor and management, such as any management letter or schedule of
unadjusted differences;
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-
-
whether or not the auditor is satisfied with the quality and effectiveness of financial recording procedures and systems;
-
-
the extent to which the auditor is satisfied with the nature and scope of its examination;
-
-
any instances of fraud or other illegal acts involving senior management of the Company;
-
-
whether or not the auditor has received the full co-operation of senior management and other employees of the Company and
whether the auditor has encountered any audit problems or difficulties in the course of its audit work, including any restrictions on the scope of the auditor's work or access to required information
and any significant disagreements with management (along with management's response);
-
-
the auditor's opinion of the competence and performance of the Chief Financial Officer and other key financial personnel;
and
-
-
the items required to be communicated to the Audit and Strategic Activities Committee under the Canadian authoritative
guidance or under Canadian generally accepted auditing standards.
The
Audit and Strategic Activities Committee will discuss with the auditor the nature of an audit and the responsibility assumed by the auditor when conducting an audit under Canadian
generally accepted auditing standards. The Audit and Strategic Activities Committee will review a summary of the auditor's audit plan for each audit.
The
Audit and Strategic Activities Committee will determine the auditor's fee and the terms of the auditor's engagement. In determining the auditor's fee, the Audit and Strategic
Activities Committee will consider, among other things, the number and nature of reports to be issued by the auditor, the quality of the internal controls of the Company, the size, complexity and
financial condition of the Company and the extent of internal audit and other support to be provided to the auditor by the Company.
The
Audit and Strategic Activities Committee will review and discuss with management and the auditor the annual audited financial statements, together with the auditor's report thereon,
and the interim financial statements, before recommending them for approval by the Board. The Audit and Strategic Activities Committee will also review and discuss with management and the
auditor:
-
-
management's discussion and analysis relating to the annual audited financial statements and interim financial statements;
-
-
all critical accounting policies and practices used or to be used by the Company; and
-
-
all alternative treatments of financial information within generally accepted accounting principles that have been
discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the auditor.
The
Audit and Strategic Activities Committee may also engage the auditor to review the interim financial statements and any reconciliation of the Company's financial statements prior to
the Audit and Strategic Activities Committee's review of such financial statements or reconciliation.
The
Audit and Strategic Activities Committee will:
-
-
review annual and interim earnings press releases prior to their public release, as well as financial information and
earnings guidance provided to analysts and rating agencies. The Audit and Strategic Activities Committee will also review the type and presentation of information to be included in such press releases
and guidance (including the use of "pro forma" or "adjusted" non-GAAP financial measures);
-
-
ensure that adequate procedures are in place for management's review of all other financial information extracted or
derived from the Company's financial statements that were previously reviewed by the Audit and Strategic Activities Committee before such information is released to the public, including, without
limitation, financial information or statements for use in prospectuses or other offering or public disclosure documents and financial statements required
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The
Audit and Strategic Activities Committee members will meet privately with senior management as frequently as the Audit and Strategic Activities Committee feels is appropriate to
fulfill its responsibilities, which will not be less frequently than annually to discuss any areas of concern to the Audit and Strategic Activities Committee or senior management.
The
Audit and Strategic Activities Committee will review with senior management the controls and procedures that have been adopted by the Company to confirm that material information
about the Company and its subsidiaries that is required to be disclosed under applicable law or stock exchange rules is disclosed within the required time periods. The Audit and Strategic Activities
Committee will also review disclosures made to it by the Chief Executive Officer and Chief Financial Officer during their certification process for applicable securities law filings about any
significant deficiencies and material weaknesses in the design or operation of the Company's ICFR which are reasonably likely to adversely affect the Company's ability to record, process, summarize
and report financial information required to be disclosed by the Company in the reports that it files or submits under applicable Canadian federal and provincial legislation and regulations within the
required time periods, and any fraud, whether or not material, involving management or other employees who have a significant role in the Company's ICFR.
The
Audit and Strategic Activities Committee will review with the Company's legal counsel any legal or regulatory matters that could have a significant effect on the Company's financial
statements. It will also review with legal counsel material inquiries received from regulators and governmental agencies and advise the Board accordingly.
The
Audit and Strategic Activities Committee will review periodically with senior management the Company's guidelines and policies with respect to risk assessment and risk management,
including the steps and process taken to monitor and control risks.
The
Audit and Strategic Activities Committee will periodically review with senior management the status of significant taxation matters of the Company.
The
Audit and Strategic Activities Committee has established and will continue to maintain and monitor compliance with policies for hiring partners and employees and former partners and
employees of the auditor.
-
IV.
-
Complaints
Procedure
The
Audit and Strategic Activities Committee has established, and will continue to maintain, procedures for the receipt, retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls, auditing matters and disclosure controls and procedures for the confidential, anonymous submission of concerns by employees of the Company regarding
questionable accounting or auditing matters or disclosure controls.
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-
V.
-
Reporting
The
Audit and Strategic Activities Committee will regularly report to the Board on:
-
-
the auditor's independence;
-
-
the performance of the auditor and the Audit and Strategic Activities Committee's recommendations regarding its
reappointment or termination;
-
-
the performance of the internal audit function;
-
-
the adequacy of the Company's internal controls and disclosure controls;
-
-
its recommendations regarding the annual and interim financial statements of the Company and any reconciliation of the
Company's financial statements, including any issues with respect to the quality or integrity of the financial statements;
-
-
its review of the annual and interim management's discussion and analysis;
-
-
any issues that arise with respect to the Company's compliance with legal and regulatory requirements; and
-
-
all other significant matters it has addressed and with respect to such other matters that are within its
responsibilities.
-
VI.
-
Review
and Disclosure
The
Audit and Strategic Activities Committee will review this Charter at least annually and submit it to the Board together with any proposed amendments. The Board will review the
Charter and approve such further amendments as it deems necessary and appropriate.
-
VII.
-
Assessment
At
least annually, the Corporate Governance Committee will review the effectiveness of the Audit and Strategic Activities Committee in fulfilling its responsibilities and duties as set
out in this Charter and in a manner consistent with the corporate governance guidelines adopted by the Board.
-
VIII.
-
Chair
Each
year, the Board will appoint one member to be Chair of the Audit and Strategic Activities Committee. If, in any year, the Board does not appoint a Chair, the incumbent Chair will
continue in office until a successor is appointed.
-
IX.
-
Removal
and Vacancies
Any
member may be removed and replaced at any time by the Board, and will automatically cease to be a member as soon as the member ceases to meet the qualifications set out above. The
Board will fill vacancies on the Audit and Strategic Activities Committee by appointment from among qualified members of the Board. If a vacancy exists on the Audit and Strategic Activities Committee,
the remaining members will exercise all of its powers so long as a quorum remains in office.
-
X.
-
Access
to Independent Counsel and Other Advisors
In
carrying out its duties, the Audit and Strategic Activities Committee may retain independent counsel and any other outside advisor at the expense of the Company without Board
approval at any time and has the authority to determine any such counsel's or advisor's fees and other retention terms. The Company shall also provide appropriate funding, as determined by the Audit
and Strategic Activities Committee, for the payment of the compensation of the auditor, independent counsel and outside advisors and any ordinary
administrative expenses of the Audit and Strategic Activities Committee that are necessary or appropriate in carrying out its duties.
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Audit and Strategic Activities Committee Oversight
Since the commencement of the Company's most recently completed financial year, the Audit and Strategic Activities
Committee has not
made any recommendations to the Board to nominate or compensate any auditor other than Grant Thornton LLP.
Reliance on Certain Exemptions
The Company's auditor, Grant Thornton LLP, has not provided any material non-audit services during the
financial year ended
December 31, 2019.
Since
the effective date of NI 52-110, the Company has not relied on the exemptions contained in section 2.4 or Part 8 of NI 52-110. Section 2.4
provides an exemption from the requirements that the Audit and Strategic Activities Committee must pre-approve all non-audit services to be provided by the auditor, where the total fees related to the
non-audit services are not expected to exceed 5% of the total fees payable to the auditor in the fiscal year in which the non-audit services were provided. Section 8 permits a company to apply
to a securities regulatory authority for an exemption from the requirements of NI 52-110, in whole or in part.
Pre-Approval Policies and Procedures
The Audit and Strategic Activities Committee will pre-approve the appointment of the auditor for any non-audit
service to be provided
to the Company or its subsidiaries, provided that it will not approve any service that is prohibited under applicable laws, rules and regulations. The Audit and Strategic Activities Committee may
establish policies and procedures, that may be revised from time to time, which pre-approve the appointment of the auditor for certain non-audit services. In addition, the Audit and Strategic
Activities Committee may delegate to one or more independent members the authority to pre-approve the appointment of the auditor for any non-audit service to the extent permitted by applicable
law, provided that any pre-approvals granted pursuant to such delegation shall be reported to the full Audit and Strategic Activities Committee at its next scheduled meeting following such
pre-approval.
External Auditor Service Fees by Category
The Audit and Strategic Activities Committee has reviewed the nature and amount of the non-audited services
provided by Grant
Thornton LLP to the Company to ensure auditor independence. Fees incurred with Grant Thornton LLP for audit and non-audit services in the last three fiscal years for audit fees are
outlined in the table below. "Audit Fees" means all services performed by Grant Thornton LLP in connection with the review of annual consolidated financial statements of the Company including
services performed to comply with generally accepted auditing standards. "Audit Related Fees" means all services performed by Grant Thornton LLP in connection with: the review of quarterly
financial statements in accordance with generally accepted standards for a review; equity due diligence required by underwriters, regulators and other parties in connection with raising capital for
the Company and internal control reviews. "Tax Fees" means all services performed by Grant Thornton LLP in connection with tax planning, compliance and advice. "Other Fees" means all services
performed by Grant Thornton LLP outside of the services described above.
|
|
|
|
|
|
|
|
|
Financial Year Ending
|
|
Audit Fees
|
|
Audit-Related Fees
|
|
Tax Fees
|
|
All Other Fees
|
December 31, 2019
|
|
C$151,500
|
|
C$196,300
|
|
C$nil
|
|
C$nil
|
December 31, 2018
|
|
C$158,880
|
|
C$57,250
|
|
C$nil
|
|
C$nil
|
December 31, 2017
|
|
C$87,084
|
|
C$90,200
|
|
C$nil
|
|
C$nil
|
Compensation Committee
The Compensation Committee of the Company is composed of Doug Janzen (Chair), Steve Rubin and Paul Geyer, all of
whom are independent
directors of the Company. For a detailed description of the relevant experience of each member of the Compensation Committee, please see the section "Election of
Directors Director Biographies" above. The Compensation Committee provides, on behalf of the Board,
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detailed
review, oversight and approval of the Company's policies, practices and procedures relating to human resources to ensure ongoing, long-term development and deployment of high-caliber senior
management resources. The Compensation Committee:
-
-
reviews and makes recommendations to the Board about the objectives, performance and compensation of the CEO;
-
-
reviews the recommendations of the CEO regarding:
-
-
compensation of the senior executive officers of the Company that report to the CEO;
-
-
the compensation policy of the Company (the "Executive Compensation Program"), including internal structure, annual review
and relationship to market levels and changes to ensure the relationship between senior management performance and compensation is appropriate;
-
-
significant changes in the Company's benefit plan and human resources policies with emphasis on overall strategy and
programs relating to the recruitment, development and retention of personnel; and
-
-
issuance of stock options to employees, consultants, and directors; and
-
-
reviews overall compensation programs.
Governance and Nominating Committee
The Corporate Governance and Nominating Committee of the Company ("CGNC") is composed of Alexei Marko (Chair)
Norman Radow and Paul
Geyer, of whom Norman Radow and Paul Geyer are independent directors of the Company. Alexei Marko (an executive officer of the Company in the last three years) is deemed not to be an independent
director of the Company. For a detailed description of the relevant experience of each member of the Compensation Committee, please see the section "Election of
Directors Director Biographies" above. The CGNC is responsible for making recommendations to the Board concerning governance matters pertaining to the
shareholders and the Board. Such matters include the establishment and review of the Company's corporate governance principles and guidelines, orientation and education of directors and the nomination
of new directors. The CGNC has a written mandate, which requires that the CGNC:
-
-
ensure that a process is established for the orientation and education of new directors, to both the nature and operation
of the Company's business and their responsibilities and duties as directors (including the contribution individual directors are expected to make and the commitment of time and resources that the
Company expects from its directors); and
-
-
ensure that the directors receive adequate information and continuing education opportunities on an on-going basis to
enable them to maintain their skills and abilities as directors and to ensure their knowledge and understanding of the Company's business remains current.
Statement of Corporate Governance Practices
Corporate governance refers to the policies and structure of the board of directors of a corporation, whose
members are elected by and
are accountable to the shareholders of the corporation. Corporate governance encourages establishing a reasonable degree of independence of the board of directors from executive management and
adoption of policies to ensure the board of directors recognizes the principles of good management. The Board is committed to sound corporate governance practices, as such practices are both in the
interests of shareholders and help to contribute to effective and efficient decision-making.
The
Board believes that good corporate governance improves corporate performance and benefits all shareholders. The Canadian Securities Administrators (the "CSA") have adopted National
Policy 58-201 Corporate Governance Guidelines, which provides non-prescriptive guidelines on corporate governance practices for reporting issuers
such as the Company. In addition, the CSA have implemented National
Instrument 58-101 Disclosure of Corporate Governance Practices ("NI 58-101"), which prescribes certain disclosure by the Company of its
corporate governance practices. This section sets out the Company's approach to corporate governance and addresses the Company's compliance with NI 58-101.
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The
Company's approach to corporate governance is set forth below.
Mandate of the Board
The Board approved a board mandate on April 29, 2014 (the "Board Mandate"). The Board Mandate requires that
the Board meet as
required, but at least once a quarter. In addition, management provides updates to the Board as needed between Board meetings. Depending on the level of activity, the Board will meet on an ad hoc
basis where necessary to provide input and guidance to management. In general, management consults with the Board frequently and the Board is well informed regarding the Company's affairs.
The
Board Mandate requires that the Board be comprised of a majority of "independent" directors. Paul Geyer, Doug Janzen and Steven Rubin are independent directors as defined in
NI 58-101 and National Instrument 52-110 Audit Committees ("NI 52-110"). Alexei Marko (an executive officer of the Company) is deemed not to be an independent director of the
Company.
The
Board Mandate requires that the independent directors meet as required without non-independent directors and management, but at least once quarterly. Additionally, where necessary,
the Board strikes special committees of independent directors to deal with matters requiring independence. The Board Mandate requires that the Board maintain a supervisory role over management, and
requires that the Board will:
-
(a)
-
to
the extent feasible, satisfy itself as to the integrity of the Chief Executive Officer ("CEO") and other executive officers and that all such executive
officers are creating a culture of integrity throughout the Company;
-
(b)
-
ensure
that the CEO is appropriately managing the business of the Company;
-
(c)
-
ensure
appropriate succession planning is in place;
-
(d)
-
establish
corporate objectives for the CEO annually and evaluate the performance of the CEO against these corporate objectives;
-
(e)
-
consider
and approve major business initiatives and corporate transactions proposed by management; and
-
(f)
-
ensure
the Company has internal control and management information systems in place.
Composition
of the Board is such that a majority of the independent directors have significant experience in corporate affairs. As a result, these Board members are able to provide
significant and valuable independent supervision over management.
Attendance
The table below shows the number of Board meetings each director attended in 2019.
|
|
|
|
|
|
|
Name of Director
|
|
Number of
Meetings Attended
|
|
Percentage
Attendance
|
|
Steve Rubin
|
|
4
|
|
|
100
|
%
|
Paul Geyer
|
|
4
|
|
|
100
|
%
|
Douglas Janzen
|
|
4
|
|
|
100
|
%
|
Alexei Marko
|
|
4
|
|
|
100
|
%
|
Fred Colen
|
|
4
|
|
|
100
|
%
|
Norman Radow
|
|
1
|
|
|
100
|
%
|
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Table of Contents
Directorships
The following directors of the Company are also directors of other reporting issuers as set out below:
|
|
|
|
|
Name of Director
|
|
Name of Reporting Issuer
|
|
Name of Exchange Listed On
|
Steven Rubin
|
|
Cocrystal Pharma, Inc.
Chromadex Corporation
Non-Invasive Monitoring Systems, Inc.
OPKO Health, Inc.
Eloxx Pharmaceuticals, Inc.
Red Violet, Inc.
|
|
Nasdaq
Nasdaq
OTCBB
Nasdaq
Nasdaq
Nasdaq
|
Douglas Janzen
|
|
Aequus Pharmaceuticals Inc.
Lexington Biosciences Inc.
|
|
TSXV
TSXV
|
Orientation and Education
The Board Mandate requires the Board to develop a process for the orientation and education of new members of the
Board, and support
continuing education opportunities for all members of the board. In addition, the Company's CGNC has a written Mandate (the "CGNC Mandate"), which requires that the CGNC:
-
(a)
-
ensure
that a process is established for the orientation and education of new directors, to both the nature and operation of the Company's business and
their responsibilities and duties as directors (including the contribution individual directors are expected to make and the commitment of time and resources that the Company expects from its
directors); and
-
(b)
-
ensure
that the directors receive adequate information and continuing education opportunities on an on-going basis to enable them to maintain their skills
and abilities as directors and to ensure their knowledge and understanding of the Company's business remains current.
Most
Board meetings are held by conference call, often including presentations by various functional areas, to give Board members additional insight into the business.
Ethical Business Conduct
Neovasc has adopted a Code of Business Conduct and Ethics (the "Code") applicable to all of its directors and
employees, including its
Chief Executive Officer and Chief Financial Officer, which is a "code of ethics" as defined in Item 16B of Form 20-F promulgated by the SEC and which is a "code" under National
Instrument NI 58-101. The Code governs directors, executive officers and employees of the Company and its subsidiaries, setting forth basic standards of ethical and legal behavior, and
provides mechanisms for known or suspected ethical or legal violations. A copy of the Code was filed on the Company's SEDAR profile at www.sedar.com on May 15, 2014. The Board monitors
compliance with the Code by ensuring that all employees have read and understood the Code and by charging management with bringing to the Board's attention any issues that arise with respect to the
Code.
In
addition, the Board has adopted a Whistleblower Policy and process, which allows for anonymous submission of complaints or issues relating to the Code or to any accounting or
financial improprieties that may arise.
The
Company also has a Disclosure Policy (the "Disclosure Policy") that is required to be followed by members of the Board, executive officers, and employees. The Disclosure Policy
seeks to ensure that material information about the Company is communicated in a timely, factual and accurate manner, and broadly disseminated in accordance with applicable legal and regulatory
requirements. The Disclosure Policy also establishes trading restrictions and blackout periods applicable to the Company's directors, executive officers, employees, and certain other persons as
described in the Disclosure Policy.
The
Company has also adopted a Harassment Policy which seeks to provide a safe and respectful work environment that is free from harassment by, among other things, providing mechanisms
through which harassing behavior may be reported, investigated and addressed.
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Table of Contents
Under Item 16B of the SEC's Form 20-F, if a waiver or amendment of the Code of Business Conduct applies
to the Company's principal executive
officer, principal financial officer, principal accounting officer or controller and relates to standards promoting any of the values described in Item 16B(b) of such Form 20-F, Neovasc
will disclose such waiver or amendment on its website in accordance with the requirements of Instruction 4 to such Item 16B.
Nomination of Directors
The process of nominating new directors to the Board involves the CGNC, the Board and management. The Board
Mandate requires that
appointments to the Board be reviewed on an annual basis. The CGNC Mandate requires that the CGNC identify, in consultation with the CEO, and recommend new directors with appropriate skills to the
Board. The CGNC must assess whether each of the
candidates so identified will be an independent director. In making its recommendations, the CGNC is required to consider:
-
(a)
-
the
competencies and skills considered necessary for the Board as a whole to possess;
-
(b)
-
the
competencies and skills that each existing director possesses; and
-
(c)
-
the
competencies and skills each new nominee will bring to the Board.
In
addition, the CGNC considers whether each new nominee can devote sufficient time and resources to his or her duties as a member of the Board. Recommendations made by the CGNC are
considered and discussed, and if a candidate looks promising, the CGNC, the Board and management will conduct due diligence on the candidate. If the results are satisfactory, the candidate is invited
to join the Board.
The
Company currently has two women serving as executive officers or directors of the Company. The Company has not adopted a formal policy for the identification and nomination of
female directors on a going forward basis nor has the Company imposed any formal targets for representation on its Board. The Company annually considers the experience and qualifications of its
existing directors before nominating directors for re-election but at this time does not have a formal policy that imposes director term limits. When vacancies arise on its Board, the Company
thoroughly considers the Board's current composition, the Board's needs on a going forward basis, as well as the experience and qualifications of potential nominees. The Company will continue to
review its nomination procedures and will consider updating those procedures as necessary.
Assessments
The CGNC Mandate requires that the CGNC be responsible for establishing systems and ensuring that the Board and
its committees are
performing effectively. At present, the CGNC assesses the effectiveness of the Board and its committees on an ongoing basis.
D. Employees
As of March 17, 2020, Neovasc had a total of 110 employees and consultants on a full-time or part-time basis.
Neovasc has in the past, and may in the
future, retain additional expert consultants on an ad-hoc basis if required in connection with the Company's development program. None of Neovasc's employees are represented by a union. The following
table sets forth the total number of Neovasc's employees at December 31,
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Table of Contents
2019,
2018 and 2017, respectively, and a breakdown of persons employed by category of activity and geographic location for the corresponding periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Employees and consultants by category of activity:
|
|
|
|
|
|
|
|
|
|
|
Management
|
|
|
6
|
|
|
5
|
|
|
3
|
|
Administration and quality systems
|
|
|
16
|
|
|
18
|
|
|
21
|
|
Research
|
|
|
83
|
|
|
71
|
|
|
30
|
|
Commercial
|
|
|
5
|
|
|
4
|
|
|
56
|
|
Total number of employees and consultants
|
|
|
110
|
|
|
98
|
|
|
110
|
|
Employees and consultants by geographic location:
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
76
|
|
|
68
|
|
|
91
|
|
United States
|
|
|
27
|
|
|
24
|
|
|
17
|
|
Europe
|
|
|
7
|
|
|
6
|
|
|
2
|
|
Total number of employees and consultants
|
|
|
110
|
|
|
98
|
|
|
110
|
|
E. Share Ownership
As at March 27, 2020, as a group, the Company's directors and executive officers beneficially owned, directly
or indirectly, or exercised control over
80,018 Common Shares being 7.2% of the 11,133,319 Common Shares issued and outstanding.
The
following table states the number of Common Shares beneficially owned by each person, directly or indirectly, or over which each person exercised control or direction as at
March 27, 2020. The persons listed below are deemed to be the beneficial owners of Common Shares underlying stock options or other securities that are exercisable or convertible within
60 days from the above date.
|
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Common
Shares(1)
|
|
Percent of
Common Shares(2)
|
|
Fred Colen
CEO
|
|
|
11,111
|
|
|
0.0
|
%
|
Chris Clark
CFO & Secretary
|
|
|
271
|
|
|
0.0
|
%
|
Bill Little
COO
|
|
|
nil
|
|
|
nil
|
|
Vicki Bebeau
VP, C&R
|
|
|
10
|
|
|
0.0
|
%
|
Aaron Chalekian
VP, PD&E
|
|
|
nil
|
|
|
nil
|
|
John Panton
VP, Quality
|
|
|
nil
|
|
|
nil
|
|
Steven Rubin
Chairman
|
|
|
207
|
|
|
0.0
|
%
|
Paul Geyer
Director
|
|
|
33,783
|
|
|
3.0
|
%
|
Norman Radow
Director
|
|
|
34,515
|
|
|
3.1
|
%
|
Douglas Janzen
Director
|
|
|
121
|
|
|
0.0
|
%
|
Alexei Marko
Director
|
|
|
nil
|
|
|
nil
|
|
-
(1)
-
These
numbers include Common Shares underlying stock options or other securities that are exercisable or convertible within 60 days from
March 27, 2020.
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-
(2)
-
Based
on an aggregate total of 11,133,319 Common Shares, being the 11,133,319 Common Shares issued and outstanding as at March 27, 2020 plus the nil
Common Shares underlying stock options or other securities that are exercisable within 60 days from March 27, 2020.
Item 6.B.,
"Directors, Senior Management and Employees Compensation" above sets out
information regarding options granted to members of the Board of Directors and describes arrangements for involving employees in the capital of the Company.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table shows the name and information about Neovasc's voting securities owned by each person or
company which, as at December 31, 2019, owned
of record, or which, to Neovasc's knowledge, owned beneficially, directly or indirectly, more than 5% of any class or series of the Company's voting securities:
|
|
|
|
|
|
|
|
|
Name
|
|
Number and Type of Securities
|
|
Type of
Ownership
|
|
Percentage of
Class
on a Diluted
Basis(1)
|
|
Magnetar Financial LLC(2)
|
|
1,102,198 Common Shares
|
|
Beneficial
|
|
|
9.9%
|
|
Strul Medical Group LLC.(3)
|
|
1,102,198 Common Shares
|
|
Beneficial
|
|
|
9.9%
|
|
-
(1)
-
Based
on 11,133,319 outstanding Common Shares as of March 27, 2020. The Common Shares issuable upon conversion of the 2017 Notes are calculated using
the conversion price or exercise prices of such 2017 Notes as of March 27, 2020.
-
(2)
-
Magnetar
Financial LLC, Magnetar Capital Partners LP, Supernova Management LLC and Alec N. Litowitz share beneficial ownership
to these Common Shares. This consists of 480,926 Common Shares and 2,676,471 Common Shares issuable upon conversion 2017 Notes subject to the Ownership Limitation. Accordingly, Magnetar
Financial LLC, Magnetar Capital Partners LP, Supernova Management LLC and Alec N. Litowitz disclaim beneficial ownership of the Common Shares issuable upon conversion of such 2017
Notes to the extent that upon such exercise the number of shares beneficially owned by them would exceed the Ownership Limitation.
-
(3)
-
Strul
Medical Group LLC beneficial ownership to these Common Shares. This consists of 334,951 Common Shares and 1,533,333 Common Shares
issuable upon conversion 2019 Notes subject to the Ownership Limitation. Accordingly, Strul Medical Group LLC disclaim beneficial ownership of the Common Shares issuable upon conversion of such
2017 Notes to the extent that upon such exercise the number of shares beneficially owned by them would exceed the Ownership Limitation.
The
information in the table above was supplied by Computershare Trust Company of Canada, the Company's registrar and transfer agent, and by the individuals themselves.
No
major shareholders have different voting rights.
As
of March 27, 2020, the number of registered shareholders of record (and the number and percentage of shares held by such shareholders) is as follows:
|
|
|
|
|
|
|
|
|
|
|
Location:
|
|
Number of registered
shareholders of record
|
|
Number of Common
Shares
|
|
Percentage of
total Common
Shares
|
|
Canada
|
|
|
13
|
|
|
193,145
|
|
|
1.73%
|
|
United States
|
|
|
19
|
|
|
10,939,421
|
|
|
98.25%
|
|
Other
|
|
|
19
|
|
|
753
|
|
|
0.02%
|
|
Total
|
|
|
51
|
|
|
11,133,319
|
|
|
100%
|
|
The
Company is not aware that it is directly owned or controlled by another corporation, any foreign government or any other natural or legal person(s) severally or jointly.
Given
the potential dilutive effect of future conversions of the Company's 2017 Notes issued pursuant to the 2017 Private Placement, it is possible that the aggregate conversion of
these 2017 Notes and subsequent sale of the Common Shares issued could effect a change in control of the Company. For greater detail about the 2017 Notes issued pursuant to the 2017 Private Placement,
the Common Shares issued to date
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Table of Contents
pursuant
to such conversions, and aggregate principal amount of 2017 Notes remaining outstanding, see Item 10.A "Share Capital" of this Annual
Report.
B. Related Party Transactions
In addition to the compensation arrangements discussed under Item 6.B "Compensation," the following is a
description of the material terms of those transactions with related parties to which Neovasc is a party and which it is required to disclose pursuant to the disclosure rules of the SEC and the
British Columbia Securities Commission.
Agreements with Directors and Officers
Indemnity Agreements
Neovasc has entered into indemnity agreements with its directors and certain officers which provide, among other
things, that it will
indemnify him or her to the fullest extent permitted by law from and against all liabilities, costs, charges and expenses incurred as a result of his or her actions in the exercise of his or her
duties as a director or officer.
Employment Agreements
Neovasc has entered into employment agreements with its officers. For more information regarding certain of these
agreements, see
"Compensation" in Item 6.B of this Annual Report.
Consulting Agreements
Neovasc has not entered into consulting agreements with any directors or officers.
Equity Awards
Since Neovasc's inception, it has granted equity awards to certain of its directors and officers. Neovasc
describes its equity plans
under "Executive Compensation" in Item 6 of this Annual Report.
Indebtedness
Included in accounts payable and accrued liabilities at December 31, 2019 is $571,298 (compared to $360,576
and $nil on
December 31, 2018 and December 31, 2017, respectively) due to related parties with respect to the transactions described under "Executive
Compensation" in Item 6 of this Annual Report and expense reimbursements. Amounts due to related parties are non-interest bearing, with no fixed terms of repayment.
Included
in accounts payable and accrued liabilities at December 31, 2017 was $nil due to related parties with respect to the transactions described under
"Executive Compensation" in Item 6 of this Annual Report and expense reimbursements. Amounts due to related parties are non-interest bearing,
with no fixed terms of repayment.
Indebtedness of Directors, Executive Officers and Employees
None of Neovasc's directors, executive officers, employees, former directors, former executive officers or former
employees, and none
of their associates, is indebted to Neovasc or another entity whose indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar agreement or understanding provided
by Neovasc, except for routine indebtedness as defined under applicable securities legislation.
Significant Influence
On December 2, 2016, the Company and Boston Scientific entered into a definitive agreement for Boston
Scientific 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. Under the terms of the
approximate
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Table of Contents
$68 million
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. Under the terms of the equity
investment, Boston Scientific acquired 11,817,000 Common Shares in the capital of Neovasc at a price of $0.60 per share, for gross proceeds of $7,090,200. Boston Scientific no longer exercises
significant influence over the Company.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
The Company's audited consolidated financial statements as at and for the years ended December 31, 2019, 2018
and 2017, as required under this
Item 8, are attached hereto and found immediately following the text of this Annual Report. The audit report of Grant Thornton LLP is included herein immediately preceding the
consolidated financial statements and schedules.
Legal Proceedings
The Company is engaged as a defendant and appellant in certain lawsuits, as further described below. Litigation
resulting from third
party claims has been, and is expected to be, costly and time-consuming and could divert the attention of management and key personnel from our business operations. Although we intend to vigorously
defend ourselves against the remaining claims, we cannot assure that we will succeed in appealing and defending any of these claims and that judgments will not be upheld against us. If we are
unsuccessful in our appeal and defense of these claims or unable to settle the claims in a manner satisfactory to us, we may be faced with significant loss of intellectual property rights that could
have a material adverse effect on the Company and its financial condition.
Claims by CardiAQ in Germany
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. There are no monetary awards associated with these matters and no damages award has been
recognized. 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. Both parties have in the meantime substantiated their respective appeals. The oral hearing of the appeal before the Appeals Court of Munich was held on November 8, 2018.
During that hearing CardiAQ dropped its affirmative appeal of the underlying decision, while maintaining its opposition to Neovasc's appeal. The decision of the Appeals Court of Munich was rendered on
March 21, 2019, wherein it amended the decision of the German Court and dismissed the complaint of CardiAQ in full.
Claims by CardiAQ in the United States
On March 24, 2017, CardiAQ filed a related lawsuit in the U.S. District Court for the District of
Massachusetts, 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. On April 17, 2019, by agreement of the parties, the court entered judgment ordering the changes to
inventorship of these patents that CardiAQ sought. No damages were awarded, and each side bore its own costs and fees in the matter. This judgment does not prevent the Company from practicing these
patents.
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Between
June 2016 and November 2017, Neovasc was engaged in litigation with CardiAQ in the U.S. District Court for the District of Massachusetts (the "Court") and, upon appeal, in the
United States Court of Appeals for the Federal Circuit (the "Appeals Court"). This litigation concerned intellectual property rights ownership, unfair trade practices and breach of contract relating
to Neovasc's transcatheter mitral valve technology, including the Tiara. Following a trial in Boston, Massachusetts, a jury found in favor of CardiAQ and awarded $70 million on the trade secret
claim for relief, and no damages on the contractual claims for relief. The Court later awarded CardiAQ $21 million in enhanced damages on the trade secret claim for relief and $20,675,154 in
pre-judgment interest and $2,354 per day in post judgment interest from November 21, 2016. Neovasc and CardiAQ each appealed on various grounds, and 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.
Other Matters
By way of Amended Statement of Claim in Federal Court of Canada Action T-1831-16 (the "Action"), the Neovasc
Defendants were added as
defendants to an existing action commenced by Edwards Lifesciences PVT, Inc. and Edwards Lifesciences (Canada) Inc. (collectively the "Edwards Plaintiffs") against Livanova Canada Corp.,
Livanova PLC, Boston Scientific and Boston Scientific Ltd. (collectively, the "BSC/Livanova Defendants"). The Action was first filed in October 2016 and first concerned an allegation by
the Edwards Plaintiffs that the manufacturing, assembly, use, sale and export of the Lotus Aortic Valve devices by the BSC/Livanova Defendants infringes on the Edwards Plaintiffs' patents. In February
2017, the Neovasc Defendants were added to the Edwards Plaintiffs' claim making related allegations. In summary, the Edwards Plaintiffs make three types of allegations as against the Neovasc
Defendants: (a) indirect infringement claims; (b) direct infringement claims; and (c) claims of inducement. The Edwards Plaintiffs seek various declarations, injunctions and
unspecified damages and costs. The Neovasc Defendants filed their Statement of Defence in November 2017. The other defendants filed their Statement of Defence and Counterclaim against the Edwards
Plaintiffs on April 30, 2018. 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
September 7, 2018, Endovalve filed a complaint in the United States District Court for the District of New Jersey against 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. 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. See the Material Change Report and Settlement Agreement filed on SEDAR at www.sedar.com and furnished to the SEC on Form 6-K at www.sec.gov on February 20, 2019.
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.
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Table of Contents
Dividend Policy
Neovasc has never declared or paid any dividends on its securities. Neovasc does not have any present intention to
pay cash dividends
on its Common Shares and it does not anticipate paying any cash dividends on its Common Shares in the foreseeable future. Neovasc currently intends to invest its future earnings, if any, to fund its
growth. However, any future determination as to the declaration and payment of dividends will be at the discretion of Neovasc's board of directors and will depend on its financial condition, operating
results, contractual restrictions, capital requirements, business prospects and other factors its board of directors may deem relevant.
B. Significant Changes
There have been no significant changes in the Company's financial condition since the most recent consolidated
financial statements for the fiscal year ended
December 31, 2019, except that:
-
i.
-
On
January 6, 2020, the Company completed the 2020 Financing for net proceeds of approximately $8.9 million.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
As at March 27, 2020, the Company had 11,133,319 Common Shares outstanding. Our Common Shares began trading
under the symbol "NVCN" on the Nasdaq on
May 21, 2014 and on the TSX on June 23, 2014.
B. Plan of Distribution
Not applicable.
C. Markets
The Company's Common Shares are listed under the symbol "NVCN" on the Nasdaq and the TSX. The Company's Common
Shares trade in U.S. dollars on the Nasdaq and in
Canadian dollars on the TSX. On March 27, 2020, the closing prices of the Company's Common Shares on the Nasdaq and the TSX were $1.66 and C$2.30, respectively.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Common Shares
The Company is authorized to issue an unlimited number of Common Shares without par value. As of March 27,
2020, there were
11,133,319 Common Shares issued and outstanding, 2,426,490 Common Shares issuable upon exercise of outstanding the 2020 Warrants, 1,509,990 Common Shares issuable upon exercise of outstanding stock
options, 482,956 Common Shares issuable upon exercise of restricted stock units and 302,165 Common Shares issuable upon exercise of the 2019 and 2020 Broker Warrants.
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Table of Contents
Taking
into account the total principal amount of the 2019 Notes outstanding and assuming full conversion of the 2019 Notes at their lowest conversion price of $7,50 per Common Share,
the maximum number of Common Shares issuable would be 1,533,333 representing approximately 13.8% of Neovasc's current issued and outstanding number of Common Shares.
Taking
into account the total principal amount of the 2017 Notes remaining outstanding, and assuming full conversion of the 2017 Notes if the Market Price (as defined below) of the
Common Shares remained at $1.72 per Common Share (being the closing price of the Common Shares on March 27, 2020) on the date of conversion, assuming conversion of the outstanding 2017 Notes
using the Alternate Conversion Price (as defined below) mechanism, the maximum number of Common Shares issuable would be 2,676,471 representing approximately 26.5% of Neovasc's current issued and
outstanding number of Common Shares. If the Market Price of the Common Shares on the date of exercise reduces to a point lower than the closing price of the Common Shares on March 27, 2020, the
future-priced conversion provisions contained in the 2017 Notes would result in a further increase in the number of shares issuable.
The
Common Shares all have equal voting rights and are entitled to receive notice of any shareholders meeting at which they have the right to vote. Subject to the rights of any other
class of shares, upon any liquidation, dissolution, winding-up or other distribution of the Company's assets, the holders of Common Shares are entitled to participate equally.
The
history of our share capital is described in more detail above in Item 5.A "Operating Results".
Preferred Shares
The Company is also authorized to issue an unlimited number of preferred shares, which do not have voting rights
and are not entitled
to receive notice of any shareholders' meetings. Upon liquidation, dissolution, winding-up or other distribution of the Company's assets, the holders of preferred shares are entitled to participate in
priority to the holders of Common Shares. The preferred shares may be issued in series and the Company's board of directors may attach special rights, privileges, restrictions or conditions to any
preferred shares. There were no preferred shares issued and outstanding as of March 27, 2020.
Senior Secured Convertible 2017 Note
Pursuant to the 2017 Private Placement, the 2017 Notes were issued in an aggregate principal amount of
$32,750,000. 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. For a more fulsome description of the terms of the 2017 Notes, see the Form of Note previously filed on SEDAR and furnished to the SEC on Form 6-K and the prospectus supplement
previously filed on SEDAR and with the SEC.
The
2017 Notes were issued at an original issue price of $850 per $1,000 principal amount of notes. Interest on the 2017 Notes commenced accruing on the date of issuance at the 0%
interest rate, computed on the basis of a 360-day year and twelve 30-day months and payable in cash on January 1, 2018 and on the first day of each calendar quarter thereafter up to, and
including the date of maturity on which the principal of the 2017 Notes is repayable. The 2017 Notes were initially granted with an 18-month term, however the maturity date was extended to
May 17, 2020 pursuant to certain waiver agreements between the Company and the holders of the 2017 Notes, as described above. 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. Upon an event of default, the interest rate shall automatically be increased to 15% per annum. The 2017 Notes are senior to all other
indebtedness and secured by all assets of the Company. Any portion of the outstanding and unpaid amount remaining under the 2017 Notes are convertible into Common Shares (the "Note Conversion
Shares"). The conversion rate will be the number of Common Shares issuable upon conversion of any conversion amount determined by dividing (x) the sum of the portion of the principal to be
converted, redeemed or otherwise with respect to which this determination is being made and all accrued and unpaid interest with respect to such portion of the principal amount and accrued and unpaid
late charges with respect to such portion of such principal and any such interest by (y) $1.46 (the "Note Conversion Price"), subject to certain adjustments. The 2017 Notes contain a
future-priced conversion mechanism upon the earlier of (x) the later of (i) upon the occurrence of an event of default,
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the
twentieth day following the cure of such event of default and (ii) the twentieth day following the holder of the Note having received notice of such event of default and (y) the
fourth month anniversary of the closing of the sale of the 2017 Notes.
The
2017 Notes are subject to full ratchet anti-dilution provisions in certain circumstances. Pursuant to these provisions, if the Company issues or sells any Common Shares for a
consideration per share (the "Note Issuance Price") less than the Note Conversion Price then immediately after such dilutive issuance, the Note Conversion Price then in effect shall be reduced to the
Note Issuance Price. If the Company issues options or convertible securities, the holder of a Note may elect to replace the Note Conversion Price with the variable price of such option or convertible
security in accordance with the terms of the Note. If there is a stock split, stock dividend, stock combination or similar transaction and the market price of the Common Shares at the time of the
event is lower than the Note Conversion Price, then on the sixteenth trading date following such event, the Note Conversion Price will be reduced to the Event Market Price (as defined in
the 2017 Notes). Simultaneously with any adjustment to the Note Conversion Price as described above, the Note Conversion Shares issuable upon conversion of the 2017 Notes shall be increased or
decreased proportionately so that after such adjustment the Note Conversion Price payable upon such conversion is equal to the Note Conversion Price in effect immediately prior to the Note Conversion
Price. With effect from and after 5:00 p.m. New York City time on August 17, 2018, the Conversion Price (as defined in the 2017 Notes) will be adjusted to be the lower of (x) the
then-current Conversion Price and (y) the greater of (i) the amount in USD equal to the VWAP (as defined in the 2017 Notes) for the Common Stock on the Conversion Price Reset Date (or,
if the Conversion Price Reset Date is not a Trading Day (as defined in the 2017 Notes), the immediately following Trading Day) and (ii) $0.50.
The
holder of any Note may, in its sole discretion, convert the Note at an alternate conversion price ("Alternate Conversion Price") rather than the Note Conversion Price, where the
Alternate Conversion Price equals 85% of the lowest VWAP of the Common Shares during the ten consecutive trading day period ending and including the date of delivery or deemed delivery of the
applicable conversion notice. The effect of the Alternate Conversion Price mechanism is that the number of Common Shares issued upon conversion of the Note increases as the market price falls. As an
example, if as of the conversion date the lowest VWAP of the Common Shares during the prior ten-day trading period (including the conversion date) is $1.72, then, if the holders exercise all of the
2017 Notes remaining issued and outstanding as at March 27, 2020 at the Alternate Conversion Price, a total of 20,064,724 Common Shares will be issued pursuant to such conversion.
The
terms of the 2017 Notes prohibit a holder from converting its 2017 Notes if doing so would result in such holder (together with such holder's affiliates) beneficially owning more
than 9.99% of the number of Common Share outstanding immediately after giving effect to the conversion, as such percentage ownership is determined in accordance with the terms of the 2017 Notes. The
Company shall not issue any fraction of a share issued upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Shares, the Company shall round such
fraction of a share of Common Shares up to the nearest whole share. Upon a change of control of the Company, the portion of the Note subject to redemption shall be redeemed by the Company in cash at
the premium price equal to the Change of Control Redemption Price (which is 125%). The Note holders are entitled to participate in any dividends or other distributions by the Company and the sale, by
the Company, of any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the holders of Common Shares as if they had converted their 2017
Notes and were holders of the Note Conversion Shares. The Company shall not enter into or be party to a Fundamental Transaction (as described under the risk factor entitled
"The 2017 Notes issued pursuant to the 2017 Financings contain provisions that restrict the Company's ability to enter into Fundamental Transactions")
unless the Successor Entity assumes in writing all of the obligations of the Company under the Note and it delivers to each holder of 2017 Notes in exchange for such 2017 Notes a security of
the successor entity evidenced by a written instrument substantially similar in form and substance to the 2017 Notes. Under the 2017 Notes, an event of default triggers a redemption right with a
redemption premium regardless of whether the event of default is cured. Under the 2017 Notes, a change of control triggers a redemption right with a redemption premium.
The
2017 Notes contain certain covenants, which include restricted payments upon an event of default, restrictions on distributions, and restrictions on asset transfers (other than
ordinary course of business). The 2017 Notes and any Common Shares issued upon conversion of the 2017 Notes may be offered, sold, assigned or transferred by the holder without the consent of the
Company.
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The
Note is secured by a general security agreement dated as of November 17, 2017 granted by the Company to and in the favor of Bio IP Ventures II LLC, as collateral agent
for the benefit of the Noteholders over all of the Company's present and after-acquired personal property, which includes all of its assets in the U.S., Canada and Israel related to Tiara and Reducer.
Secured Convertible 2019 Note
In connection with the May 2019 Financing, the 2019 Notes were issued in an aggregate principal amount of
$11,500,000. As of
March 27, $Nil aggregate principal amount of the 2019 Notes had been converted for Nil Common Shares and $11,500,000 aggregate principal amount of the 2019 Notes remained outstanding. For a
more fulsome description of the terms of the 2019 Notes, see the Form of Note previously filed on SEDAR and furnished to the SEC on Form 6-K.
The
2019 Notes were issued at an original issue price of $850 per $1,000 principal amount of notes. The 2019 Notes will mature four years from the date of issuance. For the first year
after the closing date, the interest rate is 8%, of which 5% is payable in cash on or about May 17, 2020 (when the existing convertible 2017 Notes issued by the Company mature). The remainder
is deferred and will be due on maturity of the 2019 Note. After the first year and until maturity, the interest rate is 10%, of which 7% is payable in cash on the last business day of May and November
each year. The remainder is deferred and will be due on maturity of the 2019 Note.
Upon
an event of default, and subject to the terms of the Intercreditor Agreement, the whole of the Principal and Interest remaining unpaid will, at the option of the holder, become
immediately due and payable.
The
2019 Note are convertible into common shares of the Company at the option of the holder. The holder, however, may not own >19.99% of the total outstanding common shares of the
Company as a result of the conversion. The 2019 Notes are be convertible at the option of the holder at a conversion price of US$0.75 per Common Share for the first two years, US$0.85 per Common Share
for the third year and US$0.97 per Common Share for the last year of the term. The conversion price of the 2019 Notes may also be altered subject to certain anti-dilution provisions. Pursuant to these
provisions, if the Company issues Common Shares or securities exchangeable for or convertible into Common Shares; subdivides or re-divides its outstanding Common Shares into a greater number or
shares; or consolidates its outstanding Common Shares into a smaller number of shares (a "Common Share Reorganization"), the conversion price will be adjusted by multiplying the conversion price by a
fraction, the numerator of which is the number of Common Shares outstanding on such effective date or record date before giving effect to such Common Share
Reorganization and the denominator of which is the number of Common Shares outstanding immediately after giving effect to such Common Share Reorganization.
The
Company has a prepayment option whereby it may voluntarily prepay the 2019 Notes prior to maturity. Prepayment penalties of 3% (if prepaid prior to the first anniversary of
issuance), 2% (if prepaid between the first and second anniversaries of issuance) and 1% (if prepaid after the second anniversary) apply. The Company shall not issue any fraction of a share issued
upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Shares, the Company shall round such fraction of a share of Common Shares down to the nearest whole
share. Upon a change of control of the Company, the holder shall have five business days to elect that the Company prepay the outstanding principal and interest.
The
2019 Notes are secured by a general security agreement dated as of May 16, 2019 granted by the Company and its subsidiaries to and in favor of SMG over all of the Company's
present and after-acquired personal property, which includes all of its assets in the U.S., Canada and Israel related to Tiara and Reducer. The obligations of the Company under the 2019 Notes and the
security granted in support of the 2019 Notes are subordinate to and rank behind the obligations of the Company under the 2017 Notes and the security granted in support of the 2017 Notes pursuant to
the terms of a subordination agreement dated May 16, 2019 amongst the Company, SMG as the subordinated creditor and Bio IP Ventures II LLC, as collateral agent for the holders of 2017
Notes, as the senior creditor.
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2019 Broker Warrants
In connection with the 2019 Financings, the Company issued the Broker Warrants to purchase up to 144,444 Common
Shares at an exercise
price of $5.625 per Common Share to the underwriter in the 2019 Financings. The Broker Warrants are exercisable immediately and for three years from their dates of issuance. Pursuant to FINRA
Rule 5110(g), the Broker Warrants and any common shares issued upon the exercise of the Broker Warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of
any hedging, short sale, derivate, put or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following
the date of effectiveness of, or commencement of sales under, the relevant 2019 Financing pursuant to which such Broker Warrants were issued, except the transfer of any security: (i) by
operation of law or by reason of our reorganization; (ii) to any FINRA member firm participating in such 2019 Financing and the officers or partners thereof, if all securities so transferred
remain subject to the Lock up restriction set forth below for the remainder of the time period; (iii) if the aggregate amount of our securities held by the underwriter in the relevant 2019
Financing or related persons does not exceed 1% of the securities being offered in the relevant 2019 Financing; (iv) that is beneficially owned on a pro rata basis by all equity owners of an
investment fund, provided that no participating member manages or otherwise directs investments by the fund and the participating members in the aggregate do not own more than 10% of the equity in the
fund; or (v) issued upon the exercise or conversion of any security, if all securities remain subject to the lock up restriction set forth below for the remainder of the time period.
2020 Units
In connection with the 2020 Financing, the Company issued 1,185,000 Series A Units and 1,241,490
Series B Units at a
price of US$4.1351 per Series A Unit and US$4.135 per Series B Unit. Each Series A Unit is comprised of (i) one Unit Share and (ii) one Warrant. Each Series B
Unit is comprised of (i) one Pre-Funded Warrant and (ii) one Warrant.
2020 Warrants
In connection with the 2020 Financing, the Company issued Warrants, which entitle the holder to acquire, subject
to adjustment as
summarized below, one Warrant Share at an exercise price of US$4.1351 per share on or prior to 5:00 p.m. (New York time) on January 6, 2024, after which time the Warrant will be void and
of no value. The Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to the Company a duly executed notice of exercise, thereby canceling all or a portion of
such holder's Warrants. The Warrants may be exercised on a "net" or "cashless" basis to the extent that the Company does not have an effective registration statement registering (or the related
prospectus is not available) the shares issuable upon exercise of the Warrants.
The
Warrant Certificate will provide that the number of underlying shares and exercise price of the Warrants will be subject to adjustment in the event of certain share dividends or
distributions or of a subdivision or consolidation of the Common Shares or similar events.
The
Warrant Certificate will also provide that, during the period in which the Warrants are exercisable, it will give notice to holders of Warrants of certain stated events, at least
20 days prior to the record date or effective date, as the case may be, of such events.
In
connection with certain specified mergers, sales, business combinations, recapitalizations or similar events (a "Fundamental Transaction"), holders of the Warrants will have the
right to receive, upon exercise, the same consideration as holders of Common Shares in respect of the Common Shares that would be issuable upon exercise of the Warrants immediately prior to such
Fundamental Transaction, in addition to any additional consideration receivable by holders of Common Shares in connection with such Fundamental Transaction. Holders of the Warrants will also have the
option, within 30 days of the closing of a Fundamental Transaction, to require the Company (or its successor) to repurchase their Warrants in cash or, if the Fundamental Transaction is not in
the Company's control, in the consideration received by other holders of Common Shares in respect of such Fundamental Transaction, at a value determined by using the Black-Scholes option pricing
model.
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There
is currently no market through which the Warrants may be sold, and purchasers may not be able to resell the Warrants purchased under this prospectus supplement. The Warrant
Certificate will also contain restrictions on the number of Common Shares that may be acquired by a holder of Warrants upon any exercise of the Warrants that would result in the holder and its
affiliates holding in excess of 4.99% (or, at the election of the holder, 9.99%) of the number of Common Shares outstanding immediately after giving effect to the issuance of Common Shares upon
exercise of such Warrants, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to us, provided that any increase in the beneficial ownership limitation shall
not be effective until 61 days following notice to us. No fractional Warrant Shares will be issuable upon the exercise of any Warrants. Holders of Warrants will not have any voting or
pre-emptive rights or any other rights which a holder of Common Shares would have, except as set forth in the Warrants.
2020 Pre-Funded Warrants
In connection with the 2020 Financing, the Company issued the Pre-Funded Warrants, which entitle the holder to
acquire, subject to
adjustment as summarized below, one Pre-Funded Warrant Share at any time until the Pre-Funded Warrants are exercised in full. The exercise price will be pre-funded except for a nominal exercise price
of US$0.0001 per Pre-Funded Warrant. The Pre-Funded Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to the Company a duly executed notice of exercise,
thereby canceling all or a portion of such holder's Pre-Funded Warrants. The Pre-Funded Warrants may be exercised on a "net" or "cashless" basis at any time.
The
Pre-Funded Warrant Certificate will provide that the number of underlying shares and exercise price of the Pre-Funded Warrants will be subject to adjustment in the event of certain
share dividends or distributions or of a subdivision or consolidation of the Common Shares or similar events.
The
Pre-Funded Warrant Certificate will also provide that, during the period in which the Pre-Funded Warrants are exercisable, it will give notice to holders of Pre-Funded Warrants of
certain stated events, at least 20 days prior to the record date or effective date, as the case may be, of such events.
In
connection with a Fundamental Transaction, holders of the Pre-Funded Warrants will have the right to receive, upon exercise, the same consideration as holders of Common Shares in
respect of the Common Shares that would be issuable upon exercise of the Pre-Funded Warrants immediately prior to such Fundamental Transaction, in addition to any additional consideration receivable
by holders of Common Shares in connection with such Fundamental Transaction.
There
is currently no market through which the Pre-Funded Warrants may be sold, and purchasers may not be able to resell the Pre-Funded Warrants purchased under this prospectus
supplement. The Pre-Funded Warrant Certificate will also contain restrictions on the number of Common Shares that may be acquired by a holder of Pre-Funded Warrants upon any exercise of the Pre-Funded
Warrants that would result in the holder and its affiliates holding in excess of 4.99% (or, at the election of the holder, 9.99%) of the number of Common Shares outstanding immediately after giving
effect to the issuance of Common Shares upon exercise of such Pre-Funded Warrants, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to us, provided that any
increase in the beneficial ownership limitation shall not be effective until 61 days following notice to us. No fractional Pre-Funded Warrant Shares will be issuable upon the exercise of any
Pre-Funded Warrants. Holders of Pre-Funded Warrants will not have any voting or pre-emptive rights or any other rights which a holder of Common Shares would have, except as set forth in the Pre-Funded
Warrants.
2020 Broker Warrants
In connection with the 2020 Financing, the Company issued the Broker Warrants to purchase up to 157,721 Common
Shares at an exercise
price of $5.1689 per Common Share to the underwriter in the January 2020 Financing. The Broker Warrants are exercisable immediately and for three years from their dates of issuance. Pursuant to FINRA
Rule 5110(g), the Broker Warrants and any common shares issued upon the exercise of the Broker Warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of
any hedging, short sale, derivate, put or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following
the date of effectiveness of, or commencement of sales under, the relevant 2020 Financing pursuant to which such Broker
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Warrants
were issued, except the transfer of any security: (i) by operation of law or by reason of our reorganization; (ii) to any FINRA member firm participating in such 2019 Financing
and the officers or partners thereof, if all securities so transferred remain subject to the Lock up restriction set forth below for the remainder of the time period; (iii) if the aggregate
amount of our securities held by the underwriter in the relevant 2020 Financing or related persons does not exceed 1% of the securities being offered in the relevant 2020 Financing; (iv) that
is beneficially owned on a pro rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund and the participating
members in the aggregate do not own more than 10% of the equity in the fund; or (v) issued upon the exercise or conversion of any security, if all securities remain subject to the lock up
restriction set forth below for the remainder of the time period.
B. Memorandum and Articles of Association
Incorporation
The Company was incorporated on November 2, 2000 under the Business Corporations
Act (British Columbia) and was continued under the Canada Business Corporations Act (the "Act") on April 19, 2002.
Neovasc's federal incorporation number is 404811-3.
Objects and Purposes of Our Company
The articles and by-laws do not contain a description of the Company's objects and purposes.
Voting on Certain Proposal, Arrangement, Contract or Compensation by Directors
Under the Company's articles and by-laws, any director who is in any way, directly or indirectly, interested in an
existing or
proposed contract or transaction with the Company or who holds any office or possesses any property whereby, directly or indirectly, a duty or interest might be created that conflicts with his or her
duty or interest as a director shall declare the nature and extent of his or her interest in such contract or transaction or of the conflict or potential conflict with his or her duty and interest as
a director, as the case may be, in accordance with the provisions of the Act. A director cannot vote in respect of any such contract or transaction in which he or she is interested and if he or she
does, the vote will not be counted, although the director will be counted in the quorum present at the meeting at which such vote is taken. Subject to the provisions of the Act, these prohibitions do
not apply to:
-
1.
-
any
contract or transaction relating to a loan to the Company, the repayment of all or part of which a director or a specified corporation or a specified
firm in which he or she has an interest has guaranteed or joined in guaranteeing;
-
2.
-
any
contract or transaction made, or to be made, with or for the benefit of an affiliated corporation of which a director is a director or officer;
-
3.
-
any
contract by a director to subscribe for or underwrite shares or debentures to be issued by the Company or a subsidiary of the Company, or any contract,
arrangement or transaction in which a director is, directly or indirectly interested if all the other directors are also, directly or indirectly interested in the contract, arrangement or transaction;
-
4.
-
determining
the remuneration of the directors in that capacity;
-
5.
-
purchasing
and maintaining insurance to cover directors against liability incurred by them as directors; or
-
6.
-
the
indemnification of any director by the Company.
The
directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine, or, if the directors so decide, as determined by the
shareholders. Such remuneration may be in addition to any salary or other remuneration paid to any director in his or her capacity as officer or employee of the Company. The directors shall be
reimbursed for reasonable travelling, hotel and other expenses they incur in and about the business of the Company and if any director shall perform any
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professional
or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director or shall otherwise be specially occupied in or about the Company's
business, he or she may be paid a remuneration to be fixed by the board, or, at the option of such director, by the Company in general meeting, and such remuneration may be either in addition to, or
in substitution for any other remuneration that he or she may be entitled to receive.
Every
officer of the Company who holds any office or possesses any property whereby, whether directly or indirectly, duties or interests might be created in conflict with his or her
duties or interests as an officer of the Company shall, in writing, disclose to the President the fact and the nature, character and extent of the conflict in accordance with the provisions of the
Act.
Borrowing Powers of Directors
The Company's articles and by-laws provide that, subject to the provisions of the Act, the directors may from time
to time authorize
the Company to:
-
-
borrow money on the credit of the Company;
-
-
issue, resell, sell or pledge debt obligations of the Company;
-
-
give a guarantee on behalf of the Company to secure performance of an obligation of any person;
-
-
mortgage, charge, hypothecate, pledge or otherwise create a security interest on all or any property of the Company, owned
or subsequently acquired to secure any obligation of the Company; and
-
-
give financial assistance to any person, directly or indirectly, by way of loan, guarantee, the provision of security or
otherwise.
The
directors may authorize the issue of any bonds, debentures or other debt obligations of the Company at a discount, premium or otherwise and with special or other rights or
privileges as to redemption, surrender, drawings, allotment of or conversion into or exchange for shares, attending and voting at general meetings of the Company and otherwise as the directors may
determine at or before the time of issue.
Qualifications of Directors
Under the articles and by-laws, a director is not required to hold a share in the Company's capital as
qualification for his or her
office but shall be qualified as required by the Act to become or act as a director. Any director who is not a shareholder shall be deemed to have agreed to be bound by the provisions of the articles
and by-laws of the Company to the same extent as if he or she were a shareholder of the Company.
There
are no provisions under our by-laws or the Act that specify the retirement or non-retirement of directors under an age limit requirement. Our directors are also not required to
own any of our shares to qualify as director. The Act requires that 25% of the directors of a corporation must be resident Canadians.
Share Rights
The Company is authorized to issue an unlimited number of Common Shares and an unlimited number of preferred
shares, issuable in
series, with rights, privileges, restrictions and conditions attached thereto as set out in the articles of continuance.
All
of the Common Shares are of the same class and, once issued, have the right to: vote at all meetings of shareholders of the Company except meetings at which only holders of a
specified class of shares are entitled to vote; receive, subject to the rights of the holders of another class of shares, any dividends declared by the Company (less any tax required to be deducted
and withheld by the Company); and receive, subject to the rights of the holders of another class of shares, the remaining property of the Company on the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary. No Common Shares have been issued subject to call or assessment. The Common Shares contain no preemptive or conversion rights and have no provisions for
redemption or purchase for cancellation, surrender, or sinking or purchase funds. Provisions as to the modification, amendment or variation of such rights or provisions are contained in our articles
and
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by-laws
and in the Act. The holders of the Common Shares are entitled to receive notice and to attend all meetings of the shareholders of the Company and shall have one vote for each Common Share held
at all meetings of the shareholders of the Company, except meetings at which only holders of another specified class or series of shares of the Company are entitled to vote separately as a class or
series. There are no limitations on the rights of holders to own Common Shares.
Preferred
shares may be issued by the Board at any time and from time to time in one or more series without shareholder approval. The Board may, by resolution passed before the issue of
any preferred shares of any particular series, fix the number of preferred shares in, and determine the designation and the special rights, privileges, restrictions and conditions to be attached to
the preferred shares of that series, but without in any way limiting or restricting the generality of the foregoing, the rate or amount of dividends, whether cumulative, non-cumulative or partially
cumulative; the dates, places and currencies of payment thereof; the consideration for, and the terms and conditions of, any purchase for cancellation or redemption thereof, including redemption after
a fixed term or at a premium; conversion or exchange rights or rights of retraction; the terms and conditions of any share purchase plan or sinking fund; and voting rights and restrictions.
Holders
of preferred shares shall be entitled, on the distribution of assets of the Company or on the liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary, or on any other distribution of assets of the Company among its shareholders for the purpose of winding-up its affairs, to receive before any distribution to be made to holders of Common
Shares or any other shares of the Company ranking junior to the preferred shares with respect to repayment of capital, the amount paid up with respect to each preferred share held by them, together
with the fixed premium (if any) thereon, all accrued and unpaid cumulative dividends (if any and if preferential) thereon, and all declared and unpaid non-cumulative dividends (if any and if
preferential) thereon. After payment to holders of preferred shares of the amounts so payable to them, such holders shall only be entitled to share in any further distribution of the property or
assets of the Company if specifically provided in the special rights and restrictions attached to any particular series of the preferred shares.
Except
for such voting rights as may be attached to any series of preferred shares by the Board, holders of preferred shares shall not be given notice of, and shall not be entitled as
such to vote at, any general meeting of shareholders of the Company.
Subject
to the Act, the articles and the special rights and restrictions attached to any class of shares of the Company, the Company may, by a resolution of the directors and in
compliance with the Act, purchase any of its shares in accordance with the special rights and restrictions attached thereto. No such purchase or redemption shall be made if the Company is insolvent at
the time of the proposed purchase or redemption or if the proposed purchase or redemption will render the Company insolvent. Subject to the Act, any shares purchased or redeemed by the Company may be
sold or, if cancelled, reissued by it, but while such shares are held by the Company, it shall not exercise any vote in respect of such shares and no dividend or other distribution shall be paid or
made thereon. If the Company proposes at its option to redeem some but not all of the shares of any class or series, the directors may, subject to the special rights and restrictions attached to such
shares, decide the manner in which the shares to be redeemed shall be selected and such redemption may or may not be made pro rata among every shareholder holding any such shares as the directors may
determine.
Procedures to Change the Rights of Shareholders
Provision as to modification, amendment or variation of the rights attached to the shareholders are contained in
the Company's
articles and by-laws and the Act. Generally speaking, the Company may, by special resolution (at least two-thirds of the votes cast):
-
1.
-
change
any maximum number of shares that the Company is authorized to issue;
-
2.
-
create
new classes of shares;
-
3.
-
reduce
or increase its stated capital, if its stated capital is set out in the articles;
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-
4.
-
change
the designation of all or any of its shares, and add, change or remove any rights, privileges, restrictions and conditions, including rights to
accrued dividends, in respect of all or any of its shares, whether issued or unissued;
-
5.
-
change
the shares of any class or series, whether issued or unissued, into a different number of shares of the same class or series or into the same or a
different number of shares of other classes or series;
-
6.
-
divide
a class of shares, whether issued or unissued, into series and fix the number of shares in each series and the rights, privileges, restrictions and
conditions thereof;
-
7.
-
authorize
the directors to divide any class of unissued shares into series and fix the number of shares in each series and the rights, privileges,
restrictions and conditions thereof;
-
8.
-
authorize
the directors to change the rights, privileges, restrictions and conditions attached to unissued shares of any series; or
-
9.
-
add,
change or remove restrictions on the issue, transfer or ownership of shares.
Meetings
Each director holds office until our next annual general meeting or until his or her office is earlier vacated in
accordance with the
articles or with the provisions of the Act. A director appointed or elected to fill a vacancy on the Board also holds office until our next annual general meeting.
The
directors have the power to convene general meetings of the shareholders of the Company and to set the record date for such meetings to determine the shareholders of record entitled
to receive notice of and attend and vote at such meetings. Pursuant to the Company's articles and by-laws and the Act, our annual meetings of shareholders must be held at least once in each calendar
year, not more than 15 months after holding the last annual meeting but no later than six months after the end of the Company's preceding financial year. The annual meeting may be held at any
place within Canada as the Board may, from time to time, determine, or, if all of the shareholders entitled to vote at such meeting so agree, outside of Canada. Notice of the time and place of each
meeting must be provided not less than 21 days, or more than 50 days, before the day of the meeting.
Pursuant
to the Act, shareholders who hold not less than five per cent of the issued shares of a corporation that carry the right to vote at a meeting sought to be held may requisition
the directors to call a meeting of shareholders for the purposes stated in the requisition.
Under
the articles and by-laws, the quorum for the transaction of business at a meeting of shareholders is two shareholders, or two proxyholders representing shareholders, or any
combination thereof, holding not less than one-twentieth of the issued shares entitled to be voted at the meeting. If there is only one shareholder the quorum is one person present and being, or
representing by proxy, such shareholder.
A
special meeting of the shareholders may be convened by order of the Board at any date and time and at any place within Canada or, if all the shareholders entitled to vote at such
meeting so agree, outside Canada.
Limitations on Ownership of Securities
Except as provided in the Investment Canada Act (Canada), there are
no limitations
specific to the rights of non-Canadians to hold or vote the Common Shares under the laws of Canada or British Columbia, or in the Company's charter documents.
Change in Control
There are no provisions in the articles and by-laws or in the Act that would have the effect of delaying,
deferring or preventing a
change in the Company's control, and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company or the its subsidiaries.
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Ownership Threshold
The articles of continuance, by-laws and the Act do not contain any provisions governing the ownership threshold
above which
shareholder ownership must be disclosed. Securities legislation in Canada, however, requires that the Company disclose in its information circular for our annual general meetings, holders who
beneficially own, directly or indirectly, or control or direct, voting securities of the Company carrying 10% or more of the voting rights attached to any class of outstanding voting securities. Most
state corporation statutes do not contain provisions governing the threshold above which shareholder ownership must be disclosed. Upon the effectiveness of this Form 20-F, we expect that the
United States federal securities laws will require us to disclose, in an annual report on Form 20-F, holders who own 5% or more of the Company's issued and outstanding shares.
C. Material Contracts
Except for contracts entered into in the ordinary course of business, the only contracts entered into by Neovasc
within two years immediately preceding this
Annual Report that are still in effect, which may be regarded as material, are as follows:
-
1.
-
Securities
Purchase Agreement, dated January 1, 2020, between the Company and the purchasers listed therein.
-
2.
-
Subscription
Agreement, dated May 13, 2019, between the Company and Strul Medical Group LLC.
-
3.
-
Underwriting
Agreement, dated March 13, 2019, between the Company and H.C. Wainwright & Co., LLC.
-
4.
-
Underwriting
Agreement, dated February 26, 2019, between the Company and H.C. Wainwright & Co., LLC.
-
5.
-
Settlement
Agreement, dated February 19, 2019, by and between the Company, Neovasc Tiara Inc., Endovalve Inc. and Micro Interventional
Devices Inc.
-
6.
-
Waiver
Agreement, dated September 11, 2018, between the Company and the Holders of Senior Convertible 2017 Notes.
-
7.
-
License
and Collaboration Agreement, dated August 3, 2018, between the Company and the Trustees of the University of Pennsylvania.
-
8.
-
Employment
Agreement, dated January 22, 2018, between the Company and Fred Colen.
D. Exchange Controls
There is currently no law, governmental decree or regulation in Canada that restricts the export or import of
capital, or which would affect the remittance of
dividends, interest or other payments by us to non-resident holders of our Common Shares, other than withholding tax requirements, as discussed below under
"Taxation Certain Material Canadian Federal Income Tax Considerations".
There
is currently no limitation imposed by Canadian law or our notice of articles or articles that will be in effect prior to closing on the right of non-residents to hold or vote our
Common Shares, other than those imposed by the Investment Canada Act and the Competition Act (Canada). These acts generally will not apply to the above except where control of an existing Canadian
business or company that has Canadian assets or revenues over a certain threshold is acquired or to trading of securities listed on a stock exchange.
E. Taxation
Certain U.S. Federal Income Tax Considerations
The following is a summary of certain U.S. federal income tax considerations generally applicable to a "U.S.
Holder" of the ownership
and disposition of Common Shares. This summary addresses only holders who hold Common Shares as capital assets (generally, property held for investment purposes). This summary does
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not
address all potentially relevant U.S. federal income tax matters, and unless otherwise specifically provided, it does not address any state, local, non-U.S., alternative minimum, unearned income
"Medicare" contribution, estate or gift tax consequences of holding or disposing of Common Shares.
As
used herein, the term "U.S. Holder" means any beneficial owner of Common Shares, who, for U.S. federal income tax purposes, is: (i) a citizen or individual resident of the
United States; (ii) a corporation (or other entity classified as a corporation for U.S. federal tax purposes) organized under the laws of the United States or of any state thereof or the
District of Columbia, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source, and (iv) a trust (A) if a U.S. court is able to exercise
primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (B) that has elected to be treated
as a U.S. person under applicable U.S. Treasury Regulations.
If
a partnership (or other entity or arrangement treated as a partnership for U.S. federal tax purposes) holds Common Shares, the tax treatment of a partner will generally depend upon
the status of the partner and the activities of the partnership. Partnerships (or other entities or arrangements classified as a partnership for U.S. federal tax purposes) holding Common Shares, and
their partners and other owners, should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.
This
summary is based on the Canada-United States Income Tax Convention (1980), as amended, the U.S. Internal Revenue Code, administrative pronouncements and rulings of the IRS,
judicial decisions and existing and proposed U.S. Treasury Regulations, changes to any of which subsequent to the date hereof may affect the tax consequences described herein, possibly on a
retroactive basis. This summary is for general guidance only and does not address the consequences applicable to certain categories of shareholders subject to special treatment under the U.S. Internal
Revenue Code, including tax-exempt organizations, pass-through entities, certain financial institutions, insurance companies, qualified retirement plans, individual retirement accounts or other
tax-deferred accounts, persons that hold Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale or other arrangement involving more than one position,
persons that acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services, dealers in securities or foreign currencies, traders in
securities that elect to use a mark-to-market method of accounting, U.S. persons whose functional currency (as defined in the U.S. Internal Revenue Code) is not the U.S. dollar, former citizens or
permanent residents of the United States, or persons that own directly, indirectly or constructively 10% or more of our Common Shares by voting power or by value. Holders should consult their own tax
advisors with regard to the application of the income tax laws of the United States and any other taxing jurisdiction to their particular circumstances.
Distributions with respect to the Common Shares
Subject to the PFIC rules discussed below, a U.S. Holder will generally recognize, to the extent out of our
current and accumulated
earnings and profits (determined in accordance with U.S. federal income tax principles), dividend income on the receipt of distributions on Common Shares (including amounts withheld to pay Canadian
withholding taxes). We do not intend to calculate our earnings and profits under U.S. federal income tax rules. Accordingly, U.S. Holders should expect that a distribution will generally be treated as
a dividend for U.S. federal income tax purposes.
The
amount of any dividend paid to a U.S. Holder in Canadian dollars (including amounts withheld to pay any Canadian withholding taxes) will be includible in income in a U.S. dollar
value amount by reference to the exchange rate between the U.S. dollar and the Canadian dollar in effect on the date of receipt of such
dividend by the U.S. Holder, regardless of whether the Canadian dollars so received are in fact converted into U.S. dollars. A U.S. Holder will have a tax basis in the Canadian dollars equal to their
U.S. dollar value on the date of receipt. If the Canadian dollars received are converted into U.S. dollars on the date of receipt, the U.S. Holder should generally not be required to recognize foreign
currency gain or loss in respect of the dividend. If the Canadian dollars received are not converted into U.S. dollars on the date of receipt, a U.S. Holder may recognize foreign currency gain or loss
on a subsequent conversion or other disposition of the Canadian dollars. Such gain or loss will generally be treated as U.S. source ordinary income or loss.
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We
believe that we are a "qualified foreign corporation" and therefore, distributions treated as dividends and received by certain non-corporate U.S. Holders will be taxed at
preferential rates, provided applicable holding period and certain other requirements are satisfied, including that we are not treated as a PFIC for the year of the distribution or for the prior
taxable year. Any amount of such distributions treated as dividends will generally not be eligible for the "dividends received" deduction ordinarily available to certain U.S. corporate shareholders.
Distributions
on Common Shares that are treated as dividends will generally constitute income from sources outside the United States and will generally be categorized for U.S. foreign
tax credit purposes as "passive category income." A U.S. Holder may be eligible to elect to claim a U.S. foreign tax credit against its U.S. federal income tax liability, subject to applicable
limitations and holding period requirements, for Canadian tax withheld, if any, from distributions received in respect of Common Shares. A U.S. Holder that does not elect to claim a U.S. foreign tax
credit may instead claim a deduction for Canadian tax withheld, but only for a taxable year in which the U.S. Holder elects to do so with respect to all non-U.S. income taxes paid or accrued in such
taxable year. The rules relating to U.S. foreign tax credits are complex, and each U.S. Holder should consult its own tax adviser regarding the application of such rules.
Sale, Exchange or Other Taxable Disposition of Common Shares
Subject to the PFIC rules discussed below, upon a sale, exchange or other taxable disposition of a Common Share, a
U.S. Holder will
generally recognize a capital gain or loss equal to the difference between the amount realized on such sale, exchange or other taxable disposition (or, if the amount realized is denominated in
Canadian dollars, its U.S. dollar equivalent, generally, for U.S. Holders that use the cash method and for electing U.S. Holders that use accrual method, determined by reference to the spot rate of
exchange on the date of settlement) and the holder's tax basis of such Common Share. Such gain or loss will be a long-term capital gain or loss if the Common Share has been held for more than one year
and will be short-term capital gain or loss if the holding period is equal to or less than one year. Such gain or loss will generally be considered U.S. source gain or loss for U.S. foreign tax credit
purposes. Long-term capital gains of non-corporate taxpayers are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company Rules
A foreign corporation will be considered a PFIC for any taxable year in which (i) 75% or more of its gross
income is "passive
income" or (ii) 50% or more of the average quarterly value of its assets produce (or are held for the production of) "passive income." For this purpose, "passive income" generally includes
interest, dividends, rents, royalties and certain gains. We currently do not believe that we were a PFIC in the preceding taxable year nor do we anticipate that we will be a PFIC in the current
taxable year or in future taxable years. However, 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 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. If we were classified as a PFIC in any taxable year during which a U.S. Holder
owns our Common Shares, certain adverse tax consequences could apply to such U.S. Holder. Certain elections may be available to U.S. Holders of Common Shares that may mitigate some of the adverse
consequences resulting from our treatment as a PFIC. U.S. Holders should consult their own tax advisors regarding the application of the PFIC rules to their investments in Common Shares and whether to
make an election or protective election.
Required Disclosure with Respect to Foreign Financial Assets
Certain U.S. Holders are required to report information relating to an interest in Common Shares, subject to
exceptions (including an
exception for Common Shares held in accounts maintained by certain financial institutions), by attaching a completed IRS Form 8938, Statement of Specified Foreign Financial Assets, with their
tax return for each year in which they hold an interest in Common Shares. U.S. Holders should
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consult
their own tax advisors regarding information reporting requirements relating to their ownership of Common Shares.
Certain Material Canadian Federal Income Tax Considerations
The following is a summary, as of today's date, of the principal Canadian federal income tax considerations under
the Income Tax Act (Canada) ("Tax Act") that generally apply to an investor who acquires Common Shares, who, for the purposes of the Tax Act and at all
relevant times, deals at arm's length, and is not affiliated with the Company and who acquires and holds Common Shares, as capital property (a "Holder"). Generally, Common Shares will be considered to
be capital property to a Holder provided that the Holder does not use Common Shares in the course of carrying on a business of trading or dealing in securities and such Holder has not acquired them or
been deemed to have acquired them in one or more transactions considered to be an adventure or concern in the nature of trade.
This
summary is based upon the current provisions of the Canada United States Income Tax Convention
(1980) ("Treaty"), the Tax Act and its regulations and the current published administrative policies and assessing practices of the Canada Revenue Agency ("CRA"). This summary
takes into account all specific proposals to amend the Tax Act and its regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the "Tax Proposals")
and assumes that the Tax Proposals will be enacted in the form proposed, although no assurance can be given that the Tax Proposals will be enacted in their current form or at all. This summary does
not otherwise take into account any changes in law or in the administrative policies or assessing practices of the CRA, whether by legislative, governmental or judicial decision or action, nor does it
take into account or consider any provincial, territorial or foreign income tax considerations, which considerations may differ significantly from the Canadian federal income tax considerations
discussed in this summary.
This
summary only applies to Holders who (i) for the purposes of the Tax Act, have not and will not be resident in Canada at any time, (ii) do not and is not deemed to use
or hold the Common Shares in carrying on a business in Canada, (iii) are resident solely in the United States for income tax purposes and entitled to benefits under the Treaty, and
(vi) are not "specified shareholders" (as defined in subsection 18(5) of the Tax Act). Special rules, which are not discussed in this summary, may apply to a United States Holder that is
an insurer that carries on business in Canada and elsewhere.
This
summary is of a general nature only, is not exhaustive of all possible Canadian federal income tax considerations and is not intended to be, nor should it be construed to be, legal
or tax advice to any particular Holder. Holders should consult their own tax advisors with respect to their particular circumstances.
Currency
For purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of Common Shares must
be expressed in
Canadian dollars. Amounts denominated in any other currency must be converted into Canadian dollars using the daily exchange rate of the Bank of Canada on the particular day, or such other rate of
exchange as is acceptable to the CRA.
Dividends
Dividends paid or credited or deemed to be paid or credited to a Holder by the Company are subject to Canadian
withholding tax at the
rate of 25% on the gross amount of the dividend unless such rate is reduced by the terms of the Treaty. The rate of withholding tax on dividends paid or credited to a Holder who is resident in the
U.S. for purposes of the Treaty, entitled to benefits under the Treaty, and is the beneficial owner of the dividend is generally limited to 15% of the gross amount of the dividend (or 5% in the case
of such a Holder that is a company beneficially owning at least 10% of the Company's voting shares). Holders should consult their own tax advisors regarding the application of the Treaty to dividends
based on their particular circumstances.
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Dispositions of Common Shares
A Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the
disposition or deemed
disposition of Common Shares, nor will capital losses arising therefrom be recognized under the Tax Act, unless Common Shares constitute "taxable Canadian property" to the Holder for purposes of the
Tax Act, and the gain is not exempt from tax pursuant to the terms of the Treaty.
Provided
Common Shares are listed on a "designated stock exchange", as defined in the Tax Act (which currently includes the TSX and the Nasdaq), at the time of disposition, the Common
Shares generally will not constitute taxable Canadian property of a Holder at that time, unless at any time during the 60 month period immediately preceding the disposition the following two
conditions are met concurrently:
-
(i)
-
the
Holder, persons with whom the Holder did not deal at arm's length, and partnerships in which the Holder or such non-arm's length person holds a
membership interest (either directly or indirectly through one or more partnerships), or the Holder together with all such persons, owned 25% or more of the issued shares of any class or series of the
capital stock of the Company; and
-
(ii)
-
more
than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of real or immovable property
situated in Canada, "Canadian resource properties" (as defined in the Tax Act), "timber resource properties" (as defined in the Tax Act) or an option, an interest or right in such property, whether or
not such property exists.
Notwithstanding the foregoing, a Common Share may otherwise be deemed to be taxable Canadian property to a Holder for purposes of the Tax Act in particular
circumstances.
Even
if Common Shares constitute "taxable Canadian property" to a Holder, under the Treaty, such a Holder will not be subject to tax under the Tax Act on any capital gain realized by
such holder on the disposition of such Common Shares, provided the value of such Common Shares is not derived principally from real property situated in Canada (within the meaning of the Treaty).
Holders whose Common Shares are taxable Canadian property should consult their own tax advisors.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
The consolidated financial statements as of December 31, 2019, 2018 and 2017, and the related consolidated
statements of loss and comprehensive loss,
changes in shareholders' equity, and cash flows for the years ended December 31, 2019, 2018 and 2017, and a summary of significant accounting policies and other explanatory information included
in this Annual Report have been audited by Grant Thornton LLP, Chartered Professional Accountants, 1600 333 Seymour St., Vancouver, BC, V6B 5A6,
an independent registered public accounting firm, as stated in their report appearing herein. Such financial statements are included in reliance upon the report of such firm given upon their consent
and authority as experts in accounting and auditing.
H. Documents on Display
This Annual Report and the related exhibits are available for viewing at the offices of Neovasc,
13562 Maycrest Way, Suite 5138, Richmond, British
Columbia, Canada V6V 2J7, telephone: (604) 248-4138. Copies of Neovasc's financial statements and other continuous disclosure documents required under the Securities Act (Ontario) are
available for viewing on SEDAR at www.sedar.com. All of the documents referred to are in English.
Electronic
SEC filings with reports, proxy and information statements and other information regarding Neovasc are available at www.sec.gov. Further information about the Company is
available at www.neovasc.com.
I. Subsidiary Information
Not applicable.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks associated with its underlying assets, liabilities and anticipated
transactions. Refer
to Item 18, "Financial Statements Note 5. Financial Risk Management" of the Company's audited
consolidated financial statements as at and for the years ended December 31, 2019, 2018 and 2017, for a qualitative and quantitative discussion of the Company's exposure to these market risks.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.