Titan Medical Inc
TSX:TMD
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Titan Medical Inc
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Greetings, and welcome to Titan Medical's Second Quarter 2021 Earnings Results Call.[Operator Instructions]As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today. Kristen Galfetti, with Investor Relations. Thank you. You may begin.
Thank you, operator. Good morning, everyone, and thank you for joining us for Titan Medical's Second Quarter 2021 Earnings Conference Call.During our call, we will review Titan's second quarter 2021 financial results and key business highlights, which were summarized in our earnings press release issued earlier this morning. A copy of the release can be found in the Investor Relations section of our website at www.titanmedicalinc.com.As a reminder, certain statements made during this conference call constitute forward-looking statements that reflect management's current expectations of the company's future growth, results of operations, performance and business prospects and opportunities.Wherever possible, words such as may, would, could, will, anticipate, believe, plan, expect, intend, estimate, potential for, as planned and similar expressions have been used to identify these forward-looking statements.These statements, including statements with respect to projected development plans, milestones, timelines, budget, development status, anticipatory regulatory pathway, including the anticipated filing and receipt of marketing authorization, anticipated biocompatibility testing results and completion of GLP studies, anticipated license payments, anticipated loan repayment, the maintaining of worldwide rights to commercialize the technologies and intellectual property license to Medtronic, the status of our patent portfolio, the goals that Enos system is being designed to address.The features that the Enos system is being designed to include the medical outcomes that we expect the Enos system will improve, the advantages that we expect uses of the Enos system will receive, the anticipated market demand and patient motivation from embracing the Enos system and the belief that the market is underpenetrated, the potential future market expansion from the Enos system, anticipated product launch and plans to participate in certain investor conferences, reflect management's current beliefs with respect to future events and are based on information currently available to management.Forward-looking statements involve significant risks, uncertainties and assumptions. Many factors could cause the company's actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including without limitation, those listed in the Risk Factors section of the company's Annual Information Form and Form 40-F for the fiscal year ended December 31, 2020, which may be viewed at www.sedar.com and at www.sec.gov.Should one or more of these risks or uncertainties materialize or should something underlying the forward-looking statements provide incorrect, actual results, performance or achievements may vary materially from those expressed or implied by the forward-looking statements made during this conference call.These factors should be considered carefully and prospective investors should not place undue reliance on the forward-looking statements. Although the forward-looking statements made during this conference call are based upon what management currently believes to be reasonable assumptions, the company cannot assure current or prospective investors that actual results, performance or achievements will be consistent with these forward-looking statements.With that, I will turn the call over to David McNally, President and Chief Executive Officer of Titan Medical. David?
Thank you, Kristen. Good morning, and welcome to Titan Medical's Second Quarter 2021 Earnings Call. I want to thank our shareholders for their support as we continue to successfully develop the Enos robotic single access surgical system.As we look to the second half of 2021, we acknowledge the strong progress that Titan has made this year in all aspects of the business. Building upon accomplishments we discussed on our first quarter 2021 call, we are pleased to share with you today our details of another quarter of solid progress.Joining me on the call today is Stephen Lemieux, our newly appointed Chief Financial Officer, who brings to Titan more than 18 years of leadership experience in NASDAQ and TSX-listed companies focused in the health care industry. His wealth of knowledge and experience will be instrumental in helping us to evolve our financial systems, hone our capital market strategy, achieve upcoming milestones and execute our vision.Welcome, Stephen.The second quarter of 2021 was highly productive for Titan and marked by several notable achievements, including the receipt of a $10 million license payment under the development agreement with Medtronic.Key additions to the Board of Directors and substantial strengthening of our leadership team. Additionally, we increased Titan's cash position and grew our employee base in the Chapel Hill R&D center, enhanced our development capabilities and expanded our intellectual capital, adding to an expanding patent portfolio, which now comprises over 175 patents and patent applications.We believe our intellectual property portfolio to be a differentiator among potential new entrants to the soft tissue robotic-assisted surgery market, providing further evidence that we are an innovation leader in robotic single-access surgery.Importantly, during the second quarter, Dr. Ricardo Estape, one of the world's most experienced surgeons specializing in robotic-assisted surgery, successfully performed a preclinical porcine hysterectomy and simulated hernia repair using our Enos robotic single-access surgical system. His experience confirmed not only the progress that our team of engineers have made in improving instruments and camera system performance, but also the versatility of the Enos system across subspecialties.Among our key contributors is Titan's in-house software development team that has made significant contributions at lightning speed, including advancements in instrument and camera articulation, enhancements to the user interface and improvement of overall system stability.Titan remains focused on achieving milestones, both in regard to those established for our Enos system development and those under the Medtronic development program. The company continues to drive forward with its Enos system development program in preparation for a planned investigational device exemption or IDE submission in the first quarter of 2022.In support of our submission, we are planning to complete animal and human cadaver studies under good laboratory practice or GLP protocol in September. Titan and Medtronic currently operate under a development and license agreement that leverages Titan's technology and provides Medtronic access to a portion of our intellectual property portfolio in exchange for milestone payments.Importantly, Titan maintains perpetual royalty-free worldwide rights to commercialize the licensed technologies for use with the Enos system. And furthermore, we have our own independent and unlicensed patent portfolio that continues to grow as we continue to innovate in robotic surgery.Our collaboration with Medtronic under the development and license agreement continues to be productive as we approach completion of the final milestone. In view of limited availability of certain custom components associated with prototype deliverables, the joint steering committee of the companies has agreed to allow for deliverables under the final milestone by year-end.Following completion and acceptance of the deliverables, Titan expects to receive a final license payment of approximately $11 million, partially offset by repayment in full of the $1.5 million loan previously provided by Medtronic. The single-access robotic surgery environment is rapidly evolving with greater promise for market expansion than ever before. We believe that there is high demand in this underpenetrated market for a versatile single-access robotic platform, presenting an exciting opportunity for our system to make a difference in patients' lives.Improving patient outcomes are increasingly of interest to hospitals and surgeons with a focus on greater cost effectiveness and efficiency and improved functionality. We believe enhancing robotic-assisted surgery using innovative technology through a single access point will result in improved patient outcomes, lower operating room costs and greater patient throughput. Titan's innovative technology is being designed to be both effective and easy to use, enabling medical professionals to perform their best to improve patient outcomes.The Enos system is being designed to include the advantages of dual 3D and 2D high-definition vision systems for improved visualization, multi articulating instruments, allowing for a remarkable range of motion in a confined space that deliver the necessary dexterity and strength for common surgical tasks and an ergonomic surgeon workstation for surgeon comfort that imitates the real-life movements that surgeons regularly execute during minimally invasive surgery. The Enos system's initial clinical focus will include benign gynecologic surgery for the U.S. market. Our preliminary research indicates gynecologic surgery to potentially represent a $1 billion market opportunity in the U.S.With prospects of reducing trauma, hastening healing and minimizing scarring, we believe this patient population is particularly motivated to embrace our single access surgical solution. Additionally, based on our successful preclinical studies, we anticipate that the versatility of the Enos system could be very attractive for broad use in multiple subspecialties. We continue to work closely with leading surgeons that have provided us with excellent feedback and insights regarding opportunities for us to satisfy unmet needs across numerous procedures.As I mentioned earlier in this call, Dr. Ricardo Estape, the world's most experienced gynecologic surgeons specializing in robotic-assisted surgery, successfully completed a preclinical hysterectomy and the simulated hernia repair using the Enos system last month in an animal lab.This lab experience highlighted the detailed development work that the Titan team has completed in bringing the Enos system to a point where it was used successfully by Dr. Estape to perform not only a gynecologic procedure but also a common general surgery procedure in a live animal.The simulated hernia repair provides a glimpse of potential future market expansion for the Enos system, subject to regulatory clearance for that indication. The procedures demonstrated the dexterity and strength of Enos systems multi-articulating instruments, the 2 pairs of independent LED light sources, 1 pair within Titan's custom steerable 3D high-definition camera and another in the insertion tube with integrated 2D high-definition camera.We're pleased to share this experience and interview with Dr. Estape with you through the Titan Living Labs vignette that has been posted on our website. During the second quarter, we advanced product development in preparation to file our IDE application with the FDA early next year, as I mentioned earlier.In addition, we expanded our intellectual capital through the recruitment of engineering talent and expanded our footprint at our Chapel Hill R&D facility to facilitate our growing team and accommodate continued innovation and in-house manufacturing of instruments and cameras. We have expanded our footprint at this Class A facility, which now includes more than 15,000 square feet to accommodate our growing R&D quality and regulatory and operations teams and soon clinical support.In June, Titan commenced biocompatibility testing of instruments, camera systems and accessories in preparation for our IDE submission. We expect to have the results of these tests later this month.Next, we expect to complete our GLP studies in September in support of the upcoming IDE application. We have also commenced IRB or Institutional Review Board preparations. An IRB is a group designated by the Office of Health and Human Services to review proposals before an investigator can begin a clinical study to determine if it follows ethical principles and federal regulations.Each of the prospective hospitals that are to be involved in our IDE studies will require IRB approval before clinical studies may commence. In addition to meeting with the surgeons that will perform surgeries, it is important that we engage early with the IRB committee of each hospital to expedite their approval as soon as our IDE is approved by the FDA.As we shared previously, communications with the FDA have indicated that the regulatory pathway for our Enos single access surgical system is expected via the de novo process reserved for novel medical devices. We plan to finalize product development of the Enos surgical system this year and upon approval of our application for an IDE, we anticipate commencing IDE clinical studies in 2022.Upon completing the studies, we expect to file for marketing authorization with the FDA in the first half of 2023 with possible product launch in the second half of 2023, upon successful receipt of authorization from the FDA.We will continue our dialogue with the FDA as we finalize details for the clinical study with the goal of getting the Enos system cleared for marketing and into the hands of surgeons.During the second quarter and in recent weeks, we substantially strengthened our leadership team and Board of Directors. In addition to Stephen Lemieux's appointment as CFO, we are delighted to welcome Tammy Carrea as Vice President of Quality and Regulatory Affairs.Tammy comes to us with deep experience in developing and implementing clinical and regulatory strategies in the medical device industry, including robotic-assisted surgery. Specifically, Tammy has been responsible for product submissions and registrations, including de novo applications.Less than 2 weeks in, Tammy is already utilizing her skills and expertise to support Titan's success. During the second quarter, Deepak Basra joined us as Vice President, Strategy and Business Development. Deepak has a strong background in business development and strategic partnerships that will be instrumental in growing Titan and evaluating opportunities for value creation.As announced following our Annual and Special Meeting of Shareholders, Director, Paul Cataford, was named Chairman of the Board and Heather Knight and Cathy Steiner were elected directors of the company. Paul joined the Titan Board last fall as our Lead Independent Director and brings strong leadership skills and corporate governance experience to Titan.Heather has nearly 25 years of proven health care commercial experience and Kathy brings over 20 years of investment banking and financial and capital markets experience in dealings with public and private health care companies. We're pleased to be able to attract such talented professionals to our company and to the Board of Directors of Titan Medical.During the second quarter, Stephen and I participated in the AGP Virtual MedTech Summer Conference with the day of investor meetings and I presented a corporate overview of Titan at the Oppenheimer Medtech Summit Investor Conference and participated in investor meetings.Planned participation in upcoming virtual investor conferences include the HC Wainwright 23rd Annual Global Investment Conference September 13 through 15. The Oppenheimer & Company Fall Healthcare Life Sciences and MedTech Summit September 20 through 23, and the Cantor Global Healthcare Conference scheduled for September 27 to 30.Looking forward, we are focused on conducting our GLP studies next month in support of the upcoming IDE application in the first quarter of 2022, clarifying expectations with the FDA for human clinical studies and any related special controls currently planned to commence in the first half of 2022, completion of the final milestone associated with the Medtronic development and license agreement anticipated by year-end and continuing our site preparation work for human studies to be performed under IDE.Our recent progress and planned actions are bringing our vision of providing our Enos robotic single-access surgical system in an underserved market closer to being achieved. I will now turn the call over to Stephen Lemieux, our CFO, to review our financial results. Stephen?
Thank you, David.It's my pleasure to be joining Titan at such a pivotal time, and I look forward to being part of the success that lies ahead.In the following discussion of results, please note that all numbers are in U.S. dollars. As of June 30, 2021, we had cash of $55 million, an increase from $53.4 million at March 31, 2021, and $25.5 million at December 31, 2020. The increase from Q1 was due to the receipt of $10 million from the completion of the Medtronic milestone that David mentioned earlier and the receipt of $2.5 million resulting from the common share purchase agreement with Aspire Capital Fund.The company has the ability to issue another 2.7 million common shares under the terms of the agreement with Aspire. The company continues to carry a loan from an affiliate of Medtronic in the amount of $2.1 million, including accrued interest evidenced by an 8% senior secured promissory note on our books. Research and development expense totaled $7.1 million for the 3 months ended June 30, 2021 compared to $0.1 million for the 3 months ended June 30, 2020.R&D expenses are related to the development of the Enos system and the development work required to achieve the milestones under the development agreement with Medtronic. In the comparative period, R&D was temporarily suspended. Following the execution of the Medtronic agreements in June 2020, Titan made the strategic decision to move a significant portion of its R&D in-house at our new R&D center in Chapel Hill, North Carolina, to advance both the development of the Enos system and complete the development work required to achieve the Medtronic milestones.General and administrative expenses were $4.8 million for the 3 months ended June 30, 2021, compared to $2.4 million for the 3 months ended June 30, 2020. The increase in G&A is related to an increase in cost related to expanding the leadership team to support the development of the Enos system, an increase in stock-based compensation of $1.2 million and $0.2 million in severance costs. The company uses adjusted G&A as a non-IFRS measure to adjust for noncash items and onetime charges to provide a more transparent view of the normal G&A cash burn.Adjusted G&A was $3.2 million for the 3 months ended June 30, 2021, compared to $2.2 million for the 3 months ended June 30, 2020. Adjusted G&A was $6.5 million for the 6 months ended June 30, 2021, compared to $3.6 million for the 6 months ended June 30, 2020. The growth our company has experienced over the past year has been incredible, augmenting the management team, establishing our U.S. subsidiary, tripling our workforce and achieving milestones internally for our Enos system and delivering on those in our development and license agreement with Medtronic have been great accomplishments for Titan.Meanwhile, we continue to hone our financial reporting processes and increase the efficiency with which we deliver our finance solutions. Working together with members of senior management and the Audit Committee of our Board of Directors, we continue to evolve our accounting systems and judiciously apply resources to address the rapidly changing needs of both our Canadian and U.S. operations.As we noted during our year-end earnings call, we had identified material weaknesses in our internal controls over financial reporting as we completed preparation of our annual financial filings resulting in noncash adjustments to our statements. All corrections were made prior to the approval of the annual financial statements by our Board and prior to the release of the year-end financial statements. Since that time, we have taken several remedial actions, including engaging additional human resources to assist with the preparation of financial reports, engaging the services of third-party financial experts to assist in the preparation and review of more complex financial transactions and leveraging systems and technology to reduce the risk of errors.Beginning with the addition of Chien Huang, our Vice President of Finance earlier this year, we have continued to build our finance team to meet the growing needs of our thriving company. Based on our assessment, we have concluded that the 2021 first quarter and second quarter financial statements are fairly presented in accordance with IFRS.In summary, our balance sheet remains strong and is expected to support the completion of the Medtronic development program and the continued progress of the Enos surgical system through 2022 as we prepare for regulatory filings and surgeons perform human clinical studies upon receipt of an anticipated IDE approval from the FDA.With that, I will now turn the call back over to David.
Thank you, Stephen. We believe that the Enos surgical system will address an underpenetrated but high demand segment of the robotic-assisted surgical device market, promising less patient trauma and faster recovery times and savings on capital equipment, service and procedure costs for hospitals. We look forward to keeping you apprised on Titan's progress toward the exciting milestones ahead, including advancing our Enos single access robotic surgical system toward commencing human clinical studies and meeting the final milestone under the Medtronic development program.We hope you will join us virtually for our planned upcoming investor events in September that includes the H.C. Wainwright 23rd Annual Global Investment Conference, the Oppenheimer Fall Healthcare Life Sciences and MedTech Summit and the Cantor Global Healthcare Conference. We will now open the line up for questions. Operator?
[Operator Instructions]Our first question comes from Suraj Kalia with Northland Securities.
David, can you hear me all right?
Yes.
Sorry about that. So David and team, congrats on the progress. a bunch of questions. David, the preclinical hysterectomy and simulated hernia repair by Dr. Estape, was there any GAAP analysis as you all went through that led you to believe, some incremental work is still needed on the Enos or was it per expectations?
Thank you, Suraj. Great question. The -- we were looking to close the gaps that we had observed over a year ago in some other preclinical work we had done. And we are delighted with the performance of the system, the dexterity and the strength delivered by the multi articulating arms was better than we have ever achieved with the system. And according to Dr. Estape fully satisfactory, if not exceptional. The visualization was excellent. It's the best our cameras have performed and the stability of the system is the best that we've seen. So we checked all of those boxes with great enthusiasm. And the real litmus test is we have the most experienced gynecologic surgeon, robotic surgeon that is, in the world, operating the system and providing us feedback. So we've come out of that study with great confidence that we are on track with system performance.
Got it. David, Medtronic's Hugo was recently touted as having performed the first benign hysterectomy case, OUS. Can you walk us through the decision tree as you see it currently for multiport versus single port as a general rule? And more specifically, are there any carve-outs between Medtronic system and what you'll have worked on with Medtronic versus Enos? I'm curious just in terms of the competitive landscape a couple of years or so down the line?
Very good. Of course, I have to be measured for confidentiality with what I talk about with respect to our collaboration. Of course, the -- what we have licensed to Medtronic is a subset, a portion of our portfolio, and we maintain all of the rights for our use. So -- and it relates particularly to our multi articulating technology and camera systems. But again, it's a subset, and we have full rights to utilize that technology for our Enos system. When we think about the pathway for benign hysterectomy, we've studied this and actually had primary research conducted as well on our behalf. And our indications are, one, it's a measured hurdle from a regulatory perspective in terms of being able to enroll patients in our planned IDE studies; two, we have a patient population that we believe are ideal candidates for single access surgery.And the reason for that is these candidates are typically younger and will likely be very focused on less reduced trauma and reduce scarring in the body. So we think that, combined with the ability for us as a beachhead set of procedures in benign hysterectomy and oophorectomy and Salpingoophorectomy, as it's a mini umbrella procedure, we'll call it, provides us a substantial number of procedures. As a matter of fact, we view it alone in the U.S. as a potentially $1 billion opportunity for our market penetration. So for those reasons, we've landed on benign hysterectomy. I can't speak for Medtronic with their Hugo system, only that it's exciting to see another company coming into the marketplace that, of course, the world's largest med device company, believing in robotic surgery is buoyant, I believe, for the entire market and market expansion, and we view single access surgery as an opportunity to expand the market.
David, the final question, and I'll let others jump in then. More higher level, David. Obviously, the delta variant, everyone is monitoring it. The worldwide supply chains are screwed up. That's -- but that factor is affecting everyone. If I strip out some of these more systemic issues, what is the weakest link you currently see in your product development time line? And congrats on the progress.
Thank you, Suraj. And thank you for your excellent questions and joining us on the call today. So when we look at the supply chains, we've anticipated this with the initial COVID outbreak and started ordering long lead time parts for our needs for our systems as we view them from global sources. We didn't have that foresight benefit, frankly, with the Medtronic program, and we're fortunate the impact of the program has been weeks or a couple of months versus much longer due to the nimbleness of the teams working together. But for Titan Medical Enos system, we anticipated challenges in the supply chain and jumped on it early ordering long lead time parts. No doubt supply chains are affecting almost every industry. We look at the delta variant as something that we certainly need to keep a pulse on as we drive toward our IDE studies. We've not seen anything yet that causes us to deter our plans as those studies are expected following FDA approval of an IDE application, expected to proceed call it, second quarter of next year. So when we think about the challenges ahead for us and what you raised as what's our potential greatest weakness. The one that we're really focused on right now is clarifying with the FDA exactly what is expected for the IDE studies. As our new VP of Quality and Regulatory phrased it yesterday on a call together, Tammy mentioned that, look, we need to really focus on derisking the IDE studies. And so those communications with the FDA, which are ongoing, are key to that. So I'd say, I wouldn't call it a weakness, I'd call it an opportunity for us to derisk and make certain that we stay on our cadence for moving into human surgeries. Thank you again, Suraj.
[Operator Instructions] There are no audio questions at this time. Do we have any web questions?
Yes. Thank you. We do have a couple regarding the raise of Aspire Capital. Investors are wondering with our solid cash position, what was the strategy behind embracing this process? And with the dilution that might happen to existing shareholders?
Thanks, Kristen. I'll take that one. This is Stephen. Yes, we're very fortunate today we do have a strong cash position with the company, and we continue to bolster that and the Aspire line of credit is one of the mechanisms we have. This is a facility that we put in place in 2019 and paid commitment fees for upfront. We utilize this facility to help us raise additional capital with our hope is to extend our runway into 2023. We currently have cash on our books that will help us get through the development of Enos, work through the IDE and get through the human clinical. We are looking to put an employee share purchase plan in place where employees can start participating in buying the stock through on a kind of a consistent basis under the terms of the plan. We're working to get that in place over the next few months, but it will require -- most likely require shareholder approval in 2022.
Great. Another question. Just regarding when will -- to expect more clarity on maybe any future engagement with Medtronic?
I'll be happy to take that one, Kristen. This is David. And number one, we're really focused on the final Medtronic milestone at this time. And the final milestone was originally envisioned for delivery in September with payment expected in the fourth quarter, providing for the review process for acceptance followed by time allowed for payment. This was before the deliverables were even developed, acknowledging limited availability of custom parts, some from overseas. The joint steering committee comprised of an equal number of representatives from Titan and Medtronic has accommodated delivery of the final milestone by year-end.Our engineering team has done an outstanding job of delivering on the Medtronic milestones while maintaining focus on the development and preparations toward regulatory clearance of the Enos system. The change in the schedule is actually beneficial to our focus on our GLP studies planned for September. So with all of this going on, our focus remains on completing the current program. We haven't ruled out anything for the future, but we're focused on closing out this year end and completing the Medtronic milestone while maintaining focus on our Enos system.
Great. And another excellent question. Could you describe the competitive landscape for single port robotics and where Enos stands?
I'll be happy to take that one as well. So we view the move of Intuitive Surgical in the single-port surgery as a great indication of the potential for opportunity in the single port space. They're the only, I would say, player with a versatile system for single-port surgery as we view it in the space. Now we are aware of some other new entrants to the market, one having just cleared a system for transvaginal hysterectomy.But when we view a comprehensive single access system, we look for the ability to deliver visualization along with the articulation technology required to perform surgery with our IP portfolio of over 175 patents pending or issued and the experience that we have in the preclinical projects that we have performed over 60 procedures have been performed in live animals or human cadaver. We believe that we're positioned to be the next great company in single-port surgery, and we continue to drive forward as an innovation leader in the space based on our IP portfolio and our preclinical experience. That's our view. No doubt, as the space heats up, we're going to see other entrants to the market. But we have been down the road of development to understand what works, what doesn't work, and we're driving forward with our plan toward commercialization.
Great. I believe we've covered the questions from the webcast. I'll turn it back over to David.
Thank you, Kristen. In closing, I want to thank you for joining us on this call this morning to review our accomplishments to date and for your support of Titan Medical. We remain focused on bringing our robotics single-access surgical system to the market for the benefit of patients and surgeons. Our achievements to date are the direct results of the commitment and hard work of our employees, the leadership of our Board of Directors and the support of you, our shareholders. We remain very excited about what lies ahead for Titan, and we look forward to keeping you informed of our progress. Thank you again, and have a great day.
Thank you. This does conclude today's teleconference and webcast. You may disconnect your lines at this time, and thank you for your participation, and have a great day.