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Biotech

Neovasc Inc (US) (NASDAQ:NVCN) Can Finally Get On With Its Run

Neovasc Inc (US) (NASDAQ:NVCN) ran up to the tune of 45% on Friday, having just announced the outcome of a long drawn out litigation process and doing so favorably.

We highlighted this one last year as being a stock to watch in the biotechnology space and, again, earlier this year, we pointed out that the litigation was waiting on share price and, in doing so, was the root of what we believed to be an undervaluation.

It’s taken a little longer than we might’ve hoped to resolve, but now that it has, and as the latest action hints at, we could be at the start of a longer-term comeback for Neovasc and the shareholders.

By way of a brief introduction to the situation, the company has a product on its books called Tiara, which is a type of 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.

However, there is no company, called CardiAQ, that accused Neovasc of stealing the design and took the latter to court in an attempt to prove its case. It did so successfully and Neovasc was ordered to pay somewhere in the region of $112 million to CardiAQ as reimbursement.

NVCN Daily Chart

NVCN Daily Chart

That doesn’t sound like a great outcome, but it could be a lot worse. The complete has $70 million in an escrow account meaning a large portion of the outlay is already accounted for.

Further, and perhaps more importantly, as per the judgment outcome, Neovasc remains the joint inventor of the ‘964 patent, one of the patents in the Tiara patent family, along with two employees of CardiAQ.

Additionally, as a result of the dual holding status of the patent, both parties have freedom to use the patent without an obligation to pay royalties to the other.

That’s a big deal for Neovasc as a large portion of its future revenues potential rests in the Tiara device.  If the judge had ruled that the patent revert to CardiAQ in whole, Neovasc wouldn’t have been able to complete its developer program for the asset (or, alternatively, would have been able to complete it, but would need to pay royalties to CardiAQ for the privilege).

As such, while $112 million is a considerable outlay, the outcome of the litigation ring-fences the situation and removes a large risk overhang that almost certainly served as prohibitive to pulling the trigger on an exposure to Neovasc and the Tiara program for a fairly substantial portion of potential shareholders.

So what is next?

The company mentioned in the press release detailing the latest outcome that it is yet to make a decision as to whether to pursue further appellate review of the panel’s decisions on the other issues presented by the judgment. This leaves things open-ended, but we don’t expect that the company will drag out the litigation any further.

As such, we are looking for a successful outcome on the ongoing Tiara development program as a major near-term catalyst for the company. We should see an update before the end of the year and, as and when it hits, we expect speculative volume to flow towards Neovasc and drive up its share price.

Keep in mind that there is around $42 million that still needs to be accounted for as per the litigation outcome, so a near term capital raise is far from out of the question. With that said, however, there was a little over $11.5 million on hand as of June 30 which serves to take the edge off the dilution any such raise will bring with it.

Bottom line: this one has a dilution risk rooted in the $112 million payment but, with the litigation now complete, this dilution risk is outweighed by the potential for upside going forward.

Check out our previous coverage of NVCN here.

We will be updating our subscribers as soon as we know more. For the latest updates on NVCN, sign up below!

Image courtesy of Brian Turner via Flickr

Disclosure: We have no position in NVCN and have not been compensated for this article.

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Neovasc Inc (US) (NASDAQ:NVCN) Can Finally Get On With Its Run
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