Neovasc Inc.

Management's

Discussion and Analysis

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2021 AND 2020

(Expressed in U.S. Dollars)

Q3

2021

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") covers the unaudited condensed interim consolidated financial statements of Neovasc Inc. (the "Company", "Neovasc", "we", "us", or "our") for the three and nine months ended September 30, 2021 and 2020.

This MD&A should be read in conjunction with the unaudited condensed interim consolidated financial statements and notes thereto for the three and nine months ended September 30, 2021 and 2020 (included as part of Neovasc's quarterly filing) as well as the audited consolidated financial statements and notes thereto, the MD&A for the years ended December 31, 2020, 2019 and 2018, the Company's Annual Information Form and Annual Report on Form 40-F.

The Company has prepared this MD&A with reference to National Instrument 51-102 - Continuous Disclosure Obligations of the Canadian Securities Administrators.

The names TiaraTM ("Tiara"), and Neovasc ReducerTM ("Reducer") are our trademarks; other trademarks, product names and Company names appearing herein are the property of their respective owners.

All financial information is prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. The Company presents its consolidated financial statements in U.S. dollars.

Additional information about the Company, including the Company's audited consolidated financial statements and Annual Information Form, is available on SEDAR at www.sedar.com and in the Company's Annual Report on Form 40-F filed with the U.S. Securities and Exchange Commission (the "SEC") at www.sec.gov.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This MD&A contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. The words "expect", "anticipate", "plan", "may", "will", "estimate", "continue", "intend", "believe", "target", "potential", "seek", "explore" and other similar words or expressions are intended to identify such forward-looking statements. Forward-looking statements are necessarily based on estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as the factors we believe are appropriate. Forward- looking statements in this MD&A include, but are not limited to, statements relating to:

  • our ability to continue as a going concern;
  • our need for significant additional financing and our estimates regarding our capital requirements and future revenues, expenses and profitability;
  • our intended use of the net proceeds from the February 2021 offering (the "February 2021 Offering") of units comprised of one Common Share and one common share purchase warrants (the "February 2021 Units");
  • our anticipation that the proceeds from the February 2021 offering could be sufficient to extend operations of the Company until June 2024 at the current burn rate and our anticipation that we will likely initiate programs that will require additional significant expenditures and that the cash needs of the Company will likely increase, shortening the time the proceeds will meet the requirements of the Company;
  • our estimates regarding our fully diluted share capital and future dilution to shareholders;
  • our expectation that our remediation of our material weakness in internal control over financial reporting ("ICFR") as of December 31, 2019, and 2018 will be sufficient;
  • our intention to monitor the Company's share price on the Nasdaq and our expectation that the Common Shares will continue to be listed and traded on the Nasdaq;
  • our intention to expand the indications for, and markets in which we may market the Tiara (which does not have regulatory approval and is not commercialized) and the Reducer (which has CE Mark approval for sale in the European Union);
  • our clinical development of our products, including the results of current and future clinical trials and studies;
  • our anticipation that the Tiara TA and Tiara TF (if and when Tiara TF development is restarted) will receive CE Mark approval in Europe under the Medical Device Regulation ("MDR");
  • the ongoing pause in enrollment of, and the anticipated timing of additional implantations in the TIARA-II trial;
  • our plans to develop and commercialize products, including the Tiara and the Reducer, and the timing and cost of these development programs;
  • our plans to indefinitely pause the development and commercialization of the Tiara transfemoral trans-septal system, including our ability to improve current prototypes, until the Company is in a financial position to restart the development, if at all;
  • our ability to grow reimbursements and revenues from the Reducer in a timely manner;
  • whether we will receive, and the timing and costs of obtaining, regulatory approvals;
  • our belief that the U.S. Food and Drug Administration (the "FDA") approval for Reducer in the United States will not happen in the near future following the 'not approvable' letter for the Reducer received on January 15, 2021 and that a new application to obtain FDA PMA approval for the Reducer will be filed with data from the Investigational Device Exemption ("IDE") study which may take three years or more to complete;

1

  • our ability to enroll patients in the new COSIRA II Reducer IDE study at a sufficiently high rate, that the study will meet its
  • endpoint, that the study will be successful and that we will be able to file a new PMA to FDA with the COSIRA II clinical
  • study results;
  • our ability to obtain US FDA approval for the Reducer, based on the COSIRA II IDE clinical study;
  • the cost of post-market regulation and commercialization if we receive necessary regulatory approvals and if we decide to commercialize;
  • our ability to enroll patients in our clinical trials and studies in Canada, the United States, Europe, Israel and other markets;
  • our ability to advance and complete a potential COSIRA-II IDE pivotal clinical trial in the event that we restart the Tiara TF program;
  • our belief that the full PMA application pathway, while costly and likely to take many years, brings the best chance of success for Tiara in the U.S. and that this pathway is currently indefinitely paused;
  • our belief that the TIARA-I Early Feasibility study demonstrates the safety of the Neovasc transcatheter mitral valve replacement ("TMVR") system;
  • our belief that clinical evidence already available or that may be developed in the future will be sufficient to support the availability of Tiara for the treatment of patients in Europe;
  • our intention to continue directing a significant portion of our resources into sales expansion;
  • our plans to increase Reducer implants in Europe in 2021;
  • our expectation that in 2021 more German clinics will negotiate and finalize reimbursement negotiations with German insurance companies relating to the Reducer;
  • our estimates of the size of the potential markets for our products including the anticipated market opportunities for the Reducer and the Tiara;
  • our ability to get our products approved for use;
  • the benefits and risks of our products as compared to others;
  • our ability to find strategic alternatives for adoption of the Reducer, including potential alliances in order to broaden and deepen therapy penetration and potentially advance the COSIRA-II study;
  • our potential relationships with distributors and collaborators with acceptable development, regulatory and commercialization expertise and the benefits to be derived from such collaborative efforts;
  • sources of revenues and anticipated revenues, including contributions from distributors and other third-parties, product sales, license agreements and other collaborative efforts for the development and commercialization of products;
  • our ability to meet our financial and organizational restructuring goals to establish a lean and accountable organization with stable capitalization;
  • our ability to meet our cash expenditure covenants;
  • our creation of an effective direct sales and marketing infrastructure for approved products we elect to market and sell directly;
  • the rate and degree of market acceptance of our products;
  • the timing and amount of reimbursement for our products;
  • the composition and compensation of our management team and board of directors;
  • the composition and compensation of our board of directors and senior management team in the future: and
  • the impact of foreign currency exchange rates.

Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate in the circumstances. Many factors could cause the Company's actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation:

  • risks around our ability to continue as a going concern;
  • risks around our history of losses and significant accumulated deficit;
  • risks related to the recent COVID-19 coronavirus outbreak or other health epidemics, which could significantly impact our operations, sales or ability to raise capital or enroll patients in clinical trials and complete certain Tiara TA development milestones on our expected schedule;
  • risks relating to our need for significant additional future capital and our ability to raise additional funding;
  • risks relating to the sale of a significant number of Common Shares;
  • risks relating to the Company's conclusion that it did have an effective ICFR as of September 30, 2021 and December 31, 2020, but not December 31, 2019 and 2018;
  • risks relating to the possibility that our Common Shares may be delisted from the Nasdaq or the TSX, which could affect their market price and liquidity
  • risks relating to our Common Share price being volatile;
  • risks relating to our significant indebtedness, and its effect on our financial condition;
  • risks relating to the influence of significant shareholders of the Company over our business operations and share price;
  • risks relating to lawsuits that we are subject to, which could divert our resources and result in the payment of significant damages and other remedies;
  • risks relating to claims by third-parties alleging infringement of their intellectual property rights;
  • risks relating to our ability to establish, maintain and defend intellectual property rights in our products;
  • risks relating to results from clinical trials of our products, which may be unfavorable or perceived as unfavorable;

2

  • risks associated with product liability claims, insurance and recalls;
  • risks relating to use of our products in unapproved circumstances, which could expose us to liabilities;
  • risks relating to competition in the medical device industry, including the risk that one or more competitors may develop more effective or more affordable products;
  • risks relating to our ability to achieve or maintain expected levels of market acceptance for our products, as well as our ability to successfully build our in-house sales capabilities or secure third-party marketing or distribution partners;
  • risks relating to our ability to convince public payors and hospitals to include our products on their approved products lists;
  • risks relating to new legislation, new regulatory requirements and the efforts of governmental and third-party payors to contain or reduce the costs of healthcare;
  • risks relating to increased regulation, enforcement and inspections of participants in the medical device industry, including frequent government investigations into marketing and other business practices;
  • risks relating to the extensive regulation of our products and trials by governmental authorities, as well as the cost and time delays associated therewith;
  • risks relating to post-market regulation of our products;
  • risks relating to health and safety concerns associated with our products and our industry;
  • risks relating to our manufacturing operations, including the regulation of our manufacturing processes by governmental authorities and the availability of two critical components of the Reducer;
  • risks relating to the possibility of animal disease associated with the use of our products;
  • risks relating to the manufacturing capacity of third-party manufacturers for our products, including risks of supply interruptions impacting the Company's ability to manufacture its own products;
  • risks relating to our dependence on limited products for substantially all of our current revenues;
  • risks relating to our exposure to adverse movements in foreign currency exchange rates;
  • risks relating to the possibility that we could lose our foreign private issuer status under U.S. federal securities laws;
  • risks relating to the possibility that we could be treated as a "passive foreign investment company" ("PFIC");
  • risks relating to breaches of anti-bribery laws by our employees or agents;
  • risks relating to future changes in financial accounting standards and new accounting pronouncements;
  • risks relating to our dependence upon key personnel to achieve our business objectives;
  • risks relating to our ability to maintain strong relationships with physicians;
  • risks relating to the sufficiency of our management systems and resources in periods of significant growth;
  • risks relating to consolidation in the health care industry, including the downward pressure on product pricing and the growing need to be selected by larger customers in order to make sales to their members or participants;
  • risks relating to our ability to successfully identify and complete corporate transactions on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances;
  • risks relating to conflicts of interests among the Company's officers and directors as a result of their involvement with other issuers;
  • risks relating to future issuances of equity securities by us, or sales of Common Shares or conversions of convertible notes by our existing security holders, causing the price of our securities to fall;
  • risks relating to the broad discretion in our use of proceeds from an offering of our securities;
  • risks relating to our intention to not pay dividends in the foreseeable future;
  • risks relating to future issuances of equity securities by us, or sales of Common Shares or conversions of convertible notes, and exercise of warrants, options and restricted stock units by our existing security holders, causing the price of our securities to fall;
  • risks relating to anti-takeover provisions in our constating documents which could discourage a third-party from making a takeover bid beneficial to our shareholders.

Forward-looking statements reflect our current views with respect to future events and are subject to risks and uncertainties and are necessarily based upon a number of estimates and assumptions that, while considered reasonable by us, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies, many of which, with respect to future events, are subject to change. The material factors and assumptions used by us to develop such forward-looking statements include, but are not limited to:

  • our ability to continue as a going concern;
  • our regulatory and clinical strategies will be successful;
  • our current positive interactions with regulatory agencies will continue;
  • our recruitment to clinical trials and studies will continue, specifically once COVID-19 is properly managed;
  • our estimates of the time required to enroll, analyze and report the results of our clinical studies will be consistent with projected timelines;
  • our current and future clinical trials and studies will generate the supporting clinical data necessary to achieve approval of marketing authorization applications;
  • our current regulatory requirements for approval of marketing authorization applications will be maintained;
  • our current good relationships with our suppliers and service providers will be maintained;
  • our estimates of market size and reports reviewed by us are accurate;
  • our efforts to develop markets and generate revenue from the Reducer will be successful;
  • our expectation that genericization of markets for the Tiara TA and the Reducer will develop over time;

3

  • our ability to raise additional capital on terms that are favorable to us;
  • our ability to retain and attract key personnel, including members of our board of directors and senior management team; and
  • our estimates and assumptions about the impact that the COVID-19 crisis will have on the Company.

By their very nature, forward-looking statements or information involve known and unknown risks, uncertainties and other factors that may cause our actual results, events or developments, or industry results, to be materially different from any future results, events or developments expressed or implied by such forward-looking statements or information. In evaluating these statements, prospective purchasers should specifically consider various factors, including the risks outlined herein, under "Risk Factors" in our most recent Annual Information Form, which is available on SEDAR at www.sedar.com and as filed with the SEC at www.sec.gov. These factors should be considered carefully, and readers should not place undue reliance on the Company's forward-looking statements. Should one or more of these risks or uncertainties or a risk that is not currently known to us materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein. These forward-looking statements are made as of the date of this MD&A and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law. Investors are cautioned that forward-looking statements are not guarantees of future performance and investors are cautioned not to put undue reliance on forward-looking statements due to their inherent uncertainty.

The Company advises that these cautionary remarks expressly qualify in their entirety all forward looking statements attributable to the Company or persons acting on its behalf.

Date: November 9, 2021

OVERVIEW

Description of the Business

Neovasc is a specialty medical device company that develops, manufactures and markets products for the rapidly growing cardiovascular marketplace. Its products include the Reducer, for the treatment of refractory angina, which is not currently commercially available in the United States and has been commercially available in Europe since 2015, and Tiara, for the transcatheter treatment of mitral valve disease, which is currently under clinical investigation in the United States, Canada, Israel and Europe.

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: Neovasc Medical Ltd. ("NML") and B- Balloon Ltd. ("BBL"). NML developed and owned intellectual property related to the Reducer. 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.

Throughout the years 2014 to 2019, the Company announced a number of developments pertaining to litigation, all as more fully discussed under the heading "Trends, Risks and Uncertainties" and "Contractual Obligations and Contingencies" herein.

In late 2016, Neovasc sold its tissue processing technology and facility for $67,909,800 to Boston Scientific Corporation ("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 Common Shares of Neovasc at a price of $600 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. $70 million of the proceeds were placed in escrow to fund the damages and interest awards in its litigation with Edwards Lifesciences CardiAQ LLC ("CardiAQ") formerly known as CardiAQ Valve Technologies Inc.

In November 2017, Neovasc completed the 2017 underwritten public offering (the "2017 Public Offering") and a private placement (the "2017 Private Placement" and collectively with the 2017 Public Offering, the "2017 Financings") 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 from the proceeds of the sale of the tissue processing technology to Boston Scientific), with remaining funds being used

4

Attachments

  • Original document
  • Permalink

Disclaimer

Neovasc Inc. published this content on 09 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 November 2021 21:29:18 UTC.