Here's Our Take On The Recent Neovasc Inc (US) (NASDAQ:NVCN) Call

Earlier this month, we published this piece, focusing on Neovasc Inc (US) (NASDAQ:NVCN). The crux of our coverage was this: that the company was about to report its fourth quarter and full year 2016 financials, and that alongside these financials we would get a conference call. Importantly, that this conference call would give us a degree of insight with which we could base a near tem valuation decision.We sat in on the call, and here's what we learned.For those new to this company, it's a bit of a rollercoaster stock. The company has a device called TIARA, which is an implantable medical device that's designed to treat a condition called mitral regurgitation (MR), a condition that is often severe and can lead to heart failure and death. TIARA is currently implanted in a number of patiets in North America as part of a compassionate use program and by way of a proof of concept type study called TIARA 1, and is currently under investigation in Europe as part of a trial called TIARA 2, which the company expects will provide the data necessary to underpin a CE mark in Europe and – subsequently – a commercial rollout.The data in hand suggests the product works, and there's a real unmet need in the market both in North America and in Europe, so if Neovasc can get it on shelves, the company should be able to generate considerable and consistent revenues from its sale.That's only half the story, however.Neovasc has spent the last couple of years embroiled in litigation surrounding the device, on the back of another company accusing it of stealing the design for the device when the two entities worked together previously.The courts have initially ruled against Neovasc, and while there's an appeal that should start to play out in August (this is something we just learnt on the call), as things stand, Neovasc is on the hook for $111.8 million in damages, $17 million in initial damages and $21 million in enhanced damages, and $20.8 million in pre and post judgment interest (again, this is something we just got clarification on).There's $70 million in an escrow right now that management is hoping will cover the damages total post-appeal, and that Neovasc picked up on the back of a sale of its tissue processing technology and facilities to Boston Scientific Corporation (NYSE:BSX).The pertinent points on the call were these:

• That if the trial outcome results in a higher than $70 million award (post-appeal), then dilution is inevitable (at best) and bankruptcy is a possibility (at worst).
• That the TIARA device continues to work, and that the TIARA 2 trial is enrolling and adding centers to increase the rate of enrollment as we speak.
• That said enrollment is currently pretty slow (a couple of patients a month, with somewhere around 115 patients necessary to underpin an application).

Cash on hand isn’t great ($23 million at the end of last year), but far from terminal. The litigation costs that have weighed so heavily on balance over the last twelve months are reducing considerably, and so this is allowing for allocation towards clinical advance, as opposed to money pit trial allocation.That's good news in our opinion.So how does all this play into our thesis going forward? Well, in all honesty, things are a little more precarious than we initially forecast. The total damages far exceeds the previously reported figures, and that paints the possibility for chapter 11 – something that we had pretty much written off previously given the $70 million escrow pot (it was assumed that this would cover damages).With that said, the clinical side of things is progressing, and if the company can successfully mitigate the damages to below the magic $70 million level, or even get the initially required payout below this level and agree to fund the rest over time (this is a real possibility) then there's a large upside on current price when the litigation pressures lift.Bottom line, it remains a risky play, and it seems the risk has amplified somewhat of late, but if the legal issues lift favorably, and there's a real possibility that they will when the appeal process closes, then there's a lot of run room for the stock heading into the end of this year, and into early next.The company is trading up a bit running into the weekend, and this looks to be representative of speculative allocation ahead of a revaluation.We will be updating our subscribers as soon as we know more. For the latest updates on NVCN, sign up below!Disclosure: We have no position in NVCN and have not been compensated for this article.