Vicarious Surgical Inc

NYSE:RBOT

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon, and welcome to Vicarious Surgical's, Second Quarter 2023 Earnings Conference Call. My name is Sara, and I’ll be your operator for today's call. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Kaitlyn Brosco with Vicarious Surgical for a few introductory comments.

[Kaitlyn Brosco, Investor Relations]

Thank you, Sara, and thank you all for participating in today's call. Earlier today Vicarious Surgical released financial results for the three months ended June 30, 2023. A copy of the press release is available on the company's website.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements.

All forward-looking statements, including without limitation, those relating to obtaining approval for the Vicarious Surgical System and timing for any such approval, our operating trends and future financial performance, expense management, market opportunity and commercialization are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.

For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors set forth in our Securities and Exchange Commission filings, including our most recent Form 10-K and Form 10-Q.

This conference call contains time-sensitive information that is accurate only as of the live broadcast today, July 27, 2023. Vicarious Surgical disclaims any intention or obligation, except required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

With that, I'll now turn the call over to Adam Sachs, Chief Executive Officer.

[Adam Sachs, Chief Executive Officer]

Good afternoon, and thank you for joining us today. We've been looking forward to today's earnings call, as we have a number of important updates to share.

First, we are making strong progress as we advance from design freeze towards manufacturing and testing of our Version 1.0 System. Second, based on a series of meetings with the FDA, we now have clarity and reassurance on our path to complete both our clinical and regulatory submission plans. With this clarity, we are excited to announce that we intend to perform our first ventral hernia procedure in a patient mid-next year. Finally, we are proud to have signed a fourth major U.S. Hospital System as a partner, bringing the total number of hospitals represented by our partners to over 250.

Starting with system progress, in April we froze design of our Version 1.0 System, the system we anticipate deploying in our clinical trial next year. Informed by surgeon and hospital system insights, our V1.0 design incorporates a number of enhancements relative to our previous version, the Beta 2 system.

These changes enable a further refined motion profile, higher image quality and optimized system safety for surgeons and patients. Positive surgeon feedback from several members of our Surgeon Luminary Board over the recent months has reaffirmed our immense excitement around the potential of our system and the future ahead.

With our V1.0 System design freeze, we are continuing to the next phase in our development cycle, with a focus on manufacturing units in preparation for verification and validation. To ensure a coordinated and focused effort on deliverables for V&V in our clinical trial, we recently promoted John Mazzola to Chief Operating Officer.

John joined our team in March of 2022 and was previously SVP of Operations. And in the past year, he has led strategic manufacturing for our robotics system, overseeing both the operations and quality organizations. In the newly created COO role, John's scope has expanded to include product development and clinical and regulatory affairs.

With over 35 years of medical device industry experience and direct involvement in over 25 Class 2 and Class 3 medical device product launches, we know John is the right leader to drive our transition from an R&D organization to a company prepared for clinical trial and then commercial launch. As such, the integration and build of the Version 1.0 System remains on track for this fall.

Moving to regulatory clarity, we are grateful for the collaboration with the FDA, and as such we’ve had several pre-submission meetings, where they have provided guidance and clarity on the authorization process. Based on direct guidance and input from the FDA, we plan to complete a clinical trial with 30 to 60 patients total, including patients from outside the United States.

We are pleased with the agency's suggestion to include OUS clinical study data, as this will allow us to capture clinical data across a larger population and meaningfully facilitate our ability to enroll patients in our study and be in a position to complete patient procedures within the next year.

With this clarity, we plan to pursue our first ventral hernia procedure in a clinical patient mid-next year. And driven by our system progress and these developments in clinical plans, we now anticipate filing a de novo submission in early 2025.

As expected, we will need to show strong preclinical data prior to patient procedures, in addition to demonstrating our ability to safely and reliably manufacture our system as part of verification and validation testing. This will be our focus over the coming quarters.

Additionally, we continue to work closely with our hospital system partners to confirm surgeon and site participation in our clinical trial and establish the detailed clinical steps for use in the trial.

These plans are now informed by a clear understanding of the processes needed to meet our two clinical objectives, safety and efficacy. After discussion with the FDA, our primary endpoint will be the ability of the surgeon to complete the intended ventral hernia repair. And our safety endpoint will be adverse event rates through a 30-day post-surgery follow-up as compared to existing laparoscopic data.

Given the design of our device is focused on patient outcomes and surgeon usability, and given our preclinical success to-date, we believe that we can meet these objectives and clearly prove the safety and efficacy of the Vicarious Surgical System. Needless to say, we are thrilled to enter this next transformational phase of our company, with the necessary clarity to best position ourselves to capitalize on the numerous milestones along our pathway to market.

With that, I will turn the call over to Bill Kelly, our Chief Financial Officer. Bill?

[Bill Kelly, Chief Financial Officer]

Thank you, Adam, and thank you all for joining us today. Total operating expenses for the second quarter of 2023 were $21.5 million, a 12% increase from $19.1 million in the second quarter of 2022. R&D expenses for the second quarter of 2023 were $12.7 million, compared to $10.1 million in the prior year.

General and administrative expenses were $7.1 million in the second quarter of 2023, compared to $7.8 million in the second quarter of 2022. And sales and marketing expenses for the second quarter of 2023 were $1.7 million, compared to $1.3 million in the prior year.

GAAP net loss for the second quarter of 2023 was $15.3 million, according to a net loss of $0.12 per share. This compares to a net loss of $1.5 million or a net loss of $0.01 per share respectively, for the same period in the prior year.

Adjusted net loss for the second quarter of 2023 was $20.4 million, equating to an adjusted net loss of $0.16 per share, as compared to an adjusted net loss of $19.1 million, or an adjusted net loss of $0.16 per share for the same period in the prior year. For a reconciliation of all non-GAAP measures to GAAP, please refer to our earnings press release.

At the end of the second quarter, cash, cash equivalents, and short-term investments were approximately $83 million, representing a cash burn of $14.9 million. As we move into the second half of the year, and our focus shifts to building clinical system units, we expect certain design and development costs to drop off and be replaced by increases in manufacturing and preclinical expenses. As such, we believe the Q2 cash burn rate is a fairly indicative run rate for the remainder of the year, and we continue to expect our full-year 2023 cash burn to be between $55 million to $65 million.

As always, we remain committed to disciplined spending and investment in only high-value generating initiatives that advance our development and regulatory processes.

And with that, I'll turn the call back over to Adam for closing remarks. Adam?

[Adam Sachs, Chief Executive Officer]

Thank you, Bill. At Vicarious Surgical, we envision a future where exceptional surgical outcomes are possible for every patient and by every surgeon. So far this year, we have taken several important development and regulatory steps toward realizing this vision, and we remain confident in the potential that our innovative approach will allow us to transform the standard of care in surgical robotics.

We look forward to providing meaningful updates in the quarters to come, as we continue to work to achieve this vision through integration of our V1.0 System this fall, our first patient procedures next summer, and filing of our de novo submission in early 2025.

With that, I will turn the call over to our operator for questions. Sara?

[Operator]

Thank you. [Operator Instructions]. Our first question comes from Adam Maeder with Piper Sandler. Please proceed.

[Simran Kaur, Piper Sandler]

Hi, Adam. Hi, Bill. This is Simran on for Adam. Thank you for taking the question. It was good to hear the update with regards to the FDA and your clinical trial. So I guess I'll start off there. Are you able to share the number of sites that you are planning to activate for the trial and whether or not you're able to leverage your centers of excellence as a part of that trial? And then, have you identified centers for your OUS patients? And then just wrapping up thoughts there, any initial thoughts on trial costs?

[Adam Sachs, Chief Executive Officer]

Yes, I'll take the first two questions. So yes, we're incredibly pleased with the ability to include OUS clinical data. It’ll meaningfully provided a huge tailwind to enrollment, frankly, giving us the ability to work in a country where they have good clinical practices and at the same time, don't have the same access to, frankly, to healthcare and excellent surgical services. And we would be able to fill an unmet need and therefore we’d have to tailwind for patient enrollment that simply don't exist in the US.

That being said, we absolutely are able to use our centers of excellence. Our agreements with HCA, UH and UPMCM, this fourth hospital system, all provide for access. And we are in the process of working with our hospital system partners to select surgeons and specific sites based on patient and surgeon criteria.

We haven't selected the OUS site at this time, so we're not quite ready to share the exact number of sites that we'll be using in this clinical trial. Bill, do you want to touch on costs?

[Bill Kelly, Chief Financial Officer]

Yes, in terms of cost, obviously we're not disclosing the actual cost. But I will say, I think first of all, a 30 to 60 patient sample size is well within the expectations that we had and we've been planning these steps for a long time. So it's within our cash burn guidance. Again, to reiterate that we're keeping our cash burn guidance at $55 million to $65 million. And we're excited about these next steps and looking forward to the next phase.

[Simran Kaur, Piper Sandler]

Okay, perfect. And then maybe just a follow-up. It sounds like so the initial manufacturing and production process will begin in the fall. It hasn't started yet. Can you just walk us through what the steps from now to the final stages of initial manufacturing look like? And are you able to share how many systems you need to build for the clinical trial?

[Adam Sachs, Chief Executive Officer]

So we actually are well underway for initial manufacturing. It'll be that the first systems are fully integrated, tested and in use internally in the fall, rather than we'll be starting in the fall. For the total number of systems that we'll need for the clinical trial, it'll depend on the exact number of sites. It's in the ballpark of a dozen though.

[Simran Kaur, Piper Sandler]

Okay, perfect. That's it for me. Thank you.

[Operator]

Our next question comes from Ryan Zimmerman with BTIG. Please proceed.

[Ryan Zimmerman, BTIG]

Hey, good afternoon. Thanks for taking the questions and nice to hear that you guys got the clarity here. So I guess I'm curious, as we think about a de novo application, Adam, and the submission in ‘25, I don't want to put the cart before the horse here, but I guess I just want to think about the timeline that you're thinking about. The FDA has about 15 days to accept the submission and then I think there's about a 180-day period after that. So just trying to put some timelines around when commercialization can occur, can begin, assuming everything, goes well with the trial and so forth.

[Adam Sachs, Chief Executive Officer]

Yes, a fair question. So that number is – for de novo submission its 150 days, and it is you know, statutory limit. The key to ensuring that we hit that is that we work with the agency really closely. It's part of why we've had, frankly, a pretty drawn-out process over the last year. And we'll continue to work closely with the agency to make sure that, you know, we're not messing around at all. We're providing them simply exactly what they're asking for, so that there are not that many questions during that review period, and that we can get a swift clearance.

So, I don't want to provide, especially at this time, formal guidance, especially on when the agency is going to respond to us, but we're pretty optimistic in the timing.

[Ryan Zimmerman, BTIG]

Okay, fair enough. And, with the trial design, again, it's nice to see it's pretty in line with I think, what people are expecting in terms of patient size and follow-up and all that. But just give us a little color about your discussions with the FDA; if you're comfortable, in terms of their comfort with the system, things that you feel like you really have nailed down, where you see risk. I mean, this was kind of a discussion we had, last quarter around kind of including risk in our thinking based on the FDA's comments and what you get back and so.

Now that we have that clarity, kind of where do you see risk now between now and trial completion? And just what things we need to consider between now and then?

[Adam Sachs, Chief Executive Officer]

Yes, I think it's kind of two separate questions, where there's risk from now until the trial and commentary along the way, at least that's how I'm hearing it.

So as far as the conversation back and forth with the agency, we've really just been digging as deep as we can and taking full advantage of their willingness to spend a lot of time on this and to provide us feedback, so that they can understand where the risks are across our system, so that we don't have any surprises during the approval process or at least absolutely minimize the chance that we have any surprises.

And that's how we got to the OUS opportunity, because we were working together with the agency to be able to prove – you know looking at the question of how can we thoroughly prove safety and efficacy of our system, while also truly following that least burdensome standard and minimizing risk and timeline throughout the process. And that's how we ended up at OUS to thoroughly de-risk the patient enrollment process, which is often one of the bigger risks of a clinical trial.

As far as risks from now to the clinical trial, it really comes down to the verification and validation process. So through that process, there's a lot of rigorous testing and standards that we have to meet, and any hiccups along the way and that will require some remediation. We have a decent amount of time planned in there for that remediation. But that being said, anything beyond it would be an issue that would come up.

I do want to clarify though, that we are doing a ton of pretesting. We've designed our system to meet those standards and do a lot of work in that area. So we're confident in our system and the process.

[Ryan Zimmerman, BTIG]

Okay. No, it's very helpful Adam. I appreciate the color, and it's good to have the update today. Thank you.

[Adam Sachs, Chief Executive Officer]

Thanks for the question.

[Operator]

Our next question comes from Josh Jennings with TD Cowen. Please proceed.

[Unidentified Participant]

Hi, this is Eric on for Josh. Thanks for taking the question. I was hoping to ask about the robotic system itself. Since you've had design freeze of version 1.0 in place, what level of surgeon experimentation or trialing have you had on that finalized system, and what sort of feedback have you received from those folks?

[Adam Sachs, Chief Executive Officer]

So, surgeons come in and use various subcomponents of the system, and we've done a ton of beta 2 testing along the way. But the full v1.0 system is still in actually kind of those final integration stages right now. So we haven't been able to do any cadaveric testing with it quite yet. We're really excited to bring it in this fall. And overall, you know this year we've had a ton of surgeons give total feedback on the system overall, including two dozen in just Q1 alone.

[Unidentified Participant]

Okay, understood. And then maybe just another one on the new hospital partner that you're announcing here, I was just hoping to hear a little bit more about how that opportunity came about and any chance that your program could expand even further.

[Adam Sachs, Chief Executive Officer]

Yes, so every one of these potential new partners, we evaluate these relationships based on, frankly, a combination of things, including what it'll provide to us, both in system development, in V&V clinical trials, and when we're on market and commercial. This particular system provides a pretty significant additional footprint that we're really excited about.

And then the other thing that we really carefully look at is our own bandwidth. So that's why we've been taking these, kind of since the original Q, one by one, really thoughtfully and carefully in making sure that we can actually support these relationships, because they are a potential incredible positive for our company that's really unprecedented in this industry. But of course, if we don't have the bandwidth to work with these system partners, that positive could turn into a negative, and we want to ensure that that doesn't happen.

So, it's not really an answer to your second question. There is, I'd say, an opportunity for it, but we do it really thoughtfully and carefully.

[Unidentified Participant]

Okay. Yeah, that makes sense. Thank you for taking the questions.

[Operator]

Our next question comes from Kyle Rose with Canaccord Genuity. Please proceed.

[Unidentified Participant]

Hey, this is George on for Kyle. Congrats on the progress you guys have made. Just a couple for me. The first one being, you guys mentioned that the Q2 run rate should be indicative of kind of the cash burn for the rest of the year. Is there -- so how many units, around rough figures should that convert to in terms of systems? And how much leeway does it give you guys, because I think you said you're looking at about 1,000 systems for the clinical trials right now, but wondering what are your thoughts.

[Adam Sachs, Chief Executive Officer]

You said a dozen systems for the clinical trials? Yes. No, I think the one of the thing to keep in mind obviously, is given the decoupled actuators and the design of our system, the cost to build such systems is probably a much lower burden than others might have. So we'll be looking to start the build of about a dozen systems through this year and into next year as we kick off the clinical trial next year and so yes, hopefully that answers your question.

[Unidentified Participant]

Yes, great. And then I was just wondering in terms of, like, hospital partners, kind of touched on this with the other question, but I'm just wondering if you guys are trying to proactively look – to add onto your possible partners or you're kind of in a comfortable spot in terms of where you are in getting the clinical data necessary in the trial sites?

[Adam Sachs, Chief Executive Officer]

I'd say, the same answer to the kind of previous question there from Eric. For adding hospital system partners, the way we think about it is just being really sure that they provide additional value and that we can actively support those partners. So, is there something I'm missing in the question there?

[Unidentified Participant]

No, I was just wondering if – I think you guys answered it pretty well. I was just wondering if you guys are still, like proactively looking or if you're complacent with the amount of partners you have right now and going to the next – into 2024?

[Adam Sachs, Chief Executive Officer]

Yes, I mean we're certainly happy with the number that we have right now. We've been receiving a lot of inbound interest for potential partners, but that's how we really think about it cautiously, as we move forward with any potential partner, because we want to make sure that we can really support those hospital systems and partners to make sure that their relationships are positive, as positive as they can be, rather than us not having the bandwidth to support it as a small company. So that's why we take this sort of so thoughtfully and one step at a time.

[Unidentified Participant]

Okay, thanks.

[Operator]

Thank you for your questions. There are currently no questions registered. [Operator Instructions] There are currently no questions waiting in queue, so I will pass the conference back to the management team for any further remarks.

[Adam Sachs, Chief Executive Officer]

Thank you everybody so much for joining today's call. That concludes the call. Have a good evening.

[Operator]

That will conclude today's conference call. Thank you all for your participation. You may now disconnect your line.