Neovasc Inc (US) (NASDAQ:NVCN) recent price decline looks quite compelling as a value investor. Tuesday was quite the roller-coaster ride for shareholders of Neovasc (NVCN). The findings of the Federal District Court, in regards to the post-trial motions back in May of 2016 were announced.
The Judge ruled in favor of CardiAQ for the inventor-ship of Neovasc’s ‘964 Patent and ruled against the injunction that would have shut down Neovasc’s development of their Tiara. Thus, the company can continue to develop and commercialize their Tiara, but the company cannot motion for a new trial. The worst part, Neovasc will have to pay $70 million in damages and another $21 million in enhanced damages.
Neovasc Inc (US) (NASDAQ:NVCN) was dealt a heavy blow no doubt. After the announcement earlier today, shares of the company plummeted on more than four times the normalized volume. This is a significant drop and has piqued the interests of myself and many others.
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So who is Neovasc and what do they do?
Neovasc Inc is a specialist medical device company that develops, manufacturers and markets products in the cardiovascular market. The products include the Tiara – for trans-catheter treatment – and the Neovasc Reducer – for the treatment of refractory angina. The company also sells biological tissue products for third-party medical devices such as trans-catheter heart valves.
The results from the trial don’t look to hot – especially considering the recent price action. However, it should be kept in the back of the mind that the judge said no to any injunctions, no to any future royalty payments to CardiAQ and no for the ability of CardiAQ to collect the damages during the one-year appeal. With around $34 million on the balance sheet and no debt, the current valuation actually looks quite compelling with a market cap around $68 million.
On a go-forward basis, the company is in a decent spot – considering where they were prior to the announced results. The company has increased the number of patients in the Tiara clinical program, added new centres, introduced the 40 mm Tiara and refined inclusion criteria. In the most recent quarter there have been 19 patients treated with Tiara.
But what really matters are the results of the trial. When you think about it, the only real change is that Neovasc Inc has to pay $21 million more in damages. On the other hand, the company can continue the development of their products – which is actually quite bullish for long-term business developments. The worst case scenario is that the company would have to quit the development and commercialization of the Tiara – along with the other results. With these results, the company can now focus on long-term development of its core products; Tiara and Reducer.
In regards to financials, revenues have taken a decent dip down Y/Y. The company is focusing its business away from its traditional revenue sources and more into the development and commercialization of its own products; Reducer and Tiara. Sales for the Reducer started in the first quarter of 2015 and the company is intent on continuing its launch further into European countries.
In regards to the Reducer, sales have increased from $134,607 to $246,122. This is a remarkable 83% increase. What’s better, the company has seen steady quarter over quarter growth since the launch of the product in 1Q15.
The company’s consulting service revenues continue to decrease – 28% in the most recent quarter. The secular decline is the result of consulting customers continuing to transition to becoming contract manufacturing customers. Moreover, some customers are ceasing to become customers completely as they move manufacturing in house.
Again, what is important is the company’s ability to continue development and commercialization of its Tiara product. Remember, back in 2014, the company successfully implanted its first-in-human Tiara in a 73-year-old man. Here is an excerpt of the news release:
“This 73-year-old male patient had severe functional mitral regurgitation and was considered an extremely high risk candidate for conventional valve repair or replacement surgery. The transapical implantation of the Tiara valve was completed quickly and without complications. It resulted in a well-functioning bioprosthetic valve with no significant paravalvular leak or residual MR.”
Dr. Cheung added:
“We are very pleased that this first implantation went so smoothly and that the patient’s outcome to date is so positive. His recovery has been uneventful and we will continue to follow him closely over the coming months. The ability to implant a prosthetic mitral heart valve using a transcatheter, minimally-invasive approach instead of conventional open chest, open heart surgery would provide a much-needed alternative for the many patients who are considered at high risk for conventional surgery.”
It is huge that Neovasc Inc can continue to develop and sell this product. The product is game changing and if it reaches the point where it can be produced on a scale basis…well I think you get the point. Overall, the company represents a compelling risk/reward profile for any investor who can endure the volatility of the share price. With the lawsuit off the table and the ‘go’ announcement from the judge for its Tiara product, there could be meaningful upside once the damages are paid for. On the other hand, the company looks quite compelling from an acquisition standpoint and could be a quick buy-out target. For continuing coverage on shares of $NVCN stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!