Titan Medical Inc
TSX:TMD
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Titan Medical Inc
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Greetings, and welcome to the Titan Medical Inc. Fourth Quarter and Year End 2021 Financial Results Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kristen Galfetti, Vice President of Investor Relations. Thank you. Please go ahead.
Thank you, operator. Good morning, and thank you for joining us for Titan Medical's year-end earnings conference call. Earlier this morning, we issued a press release summarizing Titan's fourth quarter and year-end financial results for 2021 and business highlights. 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 reflects management's current expectations of the company's future growth, results of operations, performance and business prospects and opportunities. 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 limitations, those listed on the caution regarding forward-looking statements in Risk Factors section and the company's annual report for the fiscal year ended December 31, 2021, as well as the assumptions discussed under the section titled Development Plan and the company's recent MD&A, each of which may be viewed at sedar.com and/or at www.sec.gov.
Please read all forward-looking statements and risk cautions in the section in today's news release announcing our financial and operating results, and be guided by their contents in making investment decisions or recommendations. The release is available at www.titanmedicalinc.com.
With that, I will turn the call over to Paul Cataford, Titan's Interim President and Chief Executive Officer. Paul?
Thank you, Kristen. Good morning, and welcome to Titan Medical's Fourth Quarter and Year End 2021 Financial Update Call. Also joining me on the call today is Stephen Lemieux, our Chief Financial Officer. Building upon accomplishments we discussed on prior quarterly calls, we are pleased to share with you today details of our progress and updates on what we see on the horizon for Titan. The past several months, we have had our heads down focused on getting the Enos single access robotic-assisted surgical platform ready for an investigational device exemption application with the FDA. As discussed in recent presentations, the FDA marketing authorization of the Enos system using a de novo pathway is a multistep process. We are confident in our understanding of the process and have resourced and partnered with Benchmark with productive effect. We remain on track with our previously disclosed time line and are looking to file the IDE application in Q1 2023 and commence human clinical trials after approval.
In anticipation of clinical trials beginning mid-2023, we have started reaching out to clinical trial sites. Our employees and partners have worked hard to deliver on our mission to bring this innovative, proprietary and differentiated platform to market. Our company goal of improving patient outcomes and meeting the demands of surgeons and hospitals to the interaction of Enos single-access robotic-assisted surgical platform drives all of us.
During the fourth quarter of 2021 and over the past few months, Titan has achieved several accomplishments that put us steps ahead -- steps closer to our goal, including the receipt of a final payment for Medtronic after completion of the last milestone in Q4. A portion of the proceeds were used to retire a senior secured loan with Medtronic. We announced Benchmark as our capital equipment manufacturing partner, and are now in the process of having first production surgeon workstations and patient cards delivered over the summer. These units will be leveraged with our proprietary cameras and multi-articulating instruments and loaded up with a software prior to system validation and verification testing at our Chapel Hill, North Carolina operations facility.
We are currently building out our camera and instrument manufacturing capability and look to announce a new head of manufacturing operations before the beginning of the summer. We have expanded our patent portfolio to more than 200 patents in applications. This IP portfolio continues to grow. We're continuing to evaluate options for geographical expansion and revenue-generating opportunities with third parties. The company's comprehensive robotic surgery intellectual property portfolio includes coverage in the United States, Europe, Canada, China, Japan, Korea and Australia. To be clear, while we have licensed some of our IP third parties, we retain the rights to the entire IP portfolio for our own use and our own products and services.
With respect to the NASDAQ notification regarding minimum bid price deficiency, we continue to evaluate all available options to resolve this deficiency. We also announced the CEO transition, where I have taken the role of Interim President and CEO. We have already started a formal CEO search process using a top-tier recruiting firm and are hopeful for a transition later on this year. In addition, Deepak Basra, our VP, Strategy and Business Development; and Chris Seibert, our VP Upstream Marketing, attended the Society of American Gastrointestinal and Endoscopic Surgeons, SAGES, annual meeting last week. In addition to updating surgeons on our latest advancements, they looked in innovations in advanced software.
Finally, I'd presented and participated in the H.C. Wainwright & Company BioConnect 2022 Investor Conference in January and an Oppenheimer's 32nd Annual Investor Conference earlier this month. Both presentations are available on our website.
Our time line to marketing authorization of the Enos system remains unchanged since we updated investors last fall. As we progress on our time line, we continue to mitigate against risks. We are proceeding with plans for marketing authorization, utilizing the de novo classification request pathway as a result of discussions with the FDA using the productive and informative Q-submission facility. As mentioned, the company plans to file the IDE application with the FDA in the first quarter of 2023 and anticipates receiving a response on the IDE from the FDA in the first half of 2023.
Following IDE approval, we expect to start the IDE human clinical study in the second half of 2023. We anticipate, given the information currently available to us, that our IDE study will include total laparoscopic hysterectomies performed on 30 to 40 patients at 3 to 4 clinical sites. Upon completion of the clinical trials, we plan to submit a de novo classification request with the FDA in 2024. Commencing launch of the Enos system -- I'm sorry, commercial launch of the Enos system will begin upon receipt of marketing authorization from the FDA anticipated in early 2025.
Our time lines remain unchanged from what we have previously disclosed during our Q3 2021 update, and I'm happy to report the team is executing extremely well. They are focused, properly resourced and driven. Our partnership with Benchmark, our capital equipment contract manufacturer, is going well and on track to have the first production workstations and patient carts built this summer. We will run these systems through extensive verification and validation testing with results all be incorporated into our IDE application. We continue to build out our in-house manufacturing facility in Chapel Hill, where we will assemble our proprietary cameras and instruments.
Although we are not currently impacted by world events, including the Ukraine-Russia conflict, COVID variants and supply chain issues, we continue to monitor this rapidly changing environment and put contingency plans and mitigations in place. The long-term outlook for our company and our shareholders remains positive and optimistic. We believe that the proprietary and highly differentiated single-access robotic-assisted Enos surgical platform will be a game changer. Our intellectual property portfolio continues to grow and partnerships, like the recently concluded Medtronic development and licensing program, independently validate our role as a leading innovator in single access robotic-assisted surgery.
Looking at the Enos system U.S. market opportunity, Titan's initial clinical focus will include benign Gynecology surgery for the U.S. market. We believe this patient population is particularly motivated to embrace our single-access surgical solution as it aligns with the patient's needs and demands, reduce trauma to the body, faster healing, minimize scarring and fewer pain medications. We anticipate the next area of clinical focus will be Urology, a natural extension.
As you see on this slide, based on independent market research conducted in 2021 and company estimates, there are approximately 900,000 RAS and non-RAS Gynecology and Urology procedures performed in the U.S. annually. We are targeting to capture 5% market share, expecting 225 annual procedures per Enos system per year, and we calculate the long-term value or LTV of approximately $4 million per system. Based on recently completed market research and our own financial calculations, we believe we'll offer investors a risk-weighted return on their capital investment.
Moreover, based on a wide range of preclinical studies, we anticipate that the versatility of the Enos system could be very attractive for broad use in multiple subspecialties. We plan to work closely with our Surgeon Advisory Board and other leading surgeons to obtain feedback and insights regarding opportunities for us to satisfy other unmet needs.
Stephen and I will continue to participate in investor conferences and meet with institutional investors as part of our increased investor outreach activities. We have strengthened our relationships with health technology journalists developing Titan's narrative for the Enos system and how we see it positively impacting patient outcomes, providing a heightened ergonomic alternative to surgeons, and improving hospital economics.
I will now turn the call over to Stephen Lemieux, our Chief Financial Officer, to review our financial results. Stephen?
Thank you, Paul. In the following discussion of results, please note that all numbers are in U.S. dollars. As of December 31, 2021, we had cash of $32.3 million. Subsequent to the year-end, we received $8.3 million from Medtronic for the achievement of the final milestone and we retired our debt. Including this payment from Medtronic, our cash balance at year-end would have been $40.6 million. We anticipate that our cash on hand will fund operations into Q1 2023. Our operating cash burn was $36.6 million in 2021, approximately $9 million per quarter.
In 2021, the company raised $44.2 million in cash from the equity offerings completed in January and February from the sale of common shares to Aspire Capital under the terms of a common share purchase agreement and from the exercise of warrants. We have the ability to raise additional capital with Aspire by issuing 2.7 million common shares as per the terms of the share purchase agreement.
R&D expenses were $10.8 million in the quarter and $37.9 million for the full year in 2021 compared to $5.5 million in Q4 2020 and $7.9 million for the full year in 2020. R&D expenses in 2021 were related to the development of the Enos system and the development activities under the agreements with Medtronic. Comparatively, in the first half of 2020, the company temporarily suspended R&D activities, and then following the execution of the Medtronic agreement in June, initiated the establishment of in-house development capabilities in Chapel Hill, North Carolina.
G&A expenses were $12.4 million for the year ending December 31, 2021, compared to $7.6 million in the comparative period. The increase in G&A expenses in 2021 compared to 2020 was primarily related to an increase in stock-based compensation costs of $2.6 million and $0.7 million in severance costs. In 2021, we also expanded the senior leadership team to support the development and commercialization of the Enos system and conducted market research. Adjusting for noncash stock-based compensation expenses and onetime severance expenses, G&A expenses for 2021 were $8.1 million compared to $6.5 million in 2020.
G&A expenses increased to $2 million for the 3 months ended December 31, 2021, compared to $1.4 million for the 3 months ended December 31, 2020. The increase in G&A expenses was related to $0.5 million in severance costs and an increase in stock-based compensation.
Titan's accomplishments in 2021 were remarkable. We added experienced professionals to the management team. We've remediated material deficiencies in our financial controls, we clarified the regulatory process and realigned our product development time line. We have added employees with excellent experience, strengthening our engineering departments. We have resourced our regulatory affairs team and our quality assurance group. The finance team has instituted controls, processes and software programs to streamline and improve accounting procedures to be more efficient.
We continue to focus on the financial health of Titan to finance the Enos system through the de novo regulatory pathway. These are all significant accomplishments for Titan and support our continued growth as we shift from product development to manufacturing Enos systems for use in the planned human clinical trials and commercialization.
With that, I will now turn the call over to Paul.
Thank you, Stephen. We believe that the Enos surgical system will address a high-demand segment of the robotic-assisted surgical device market. We remain committed to our current time line to file an IDE submission for the Enos system in Q1 2023. We believe the Enos single-access robotic-assisted surgical platform will offer a differentiated solution to what is available today. We look forward to keeping you informed on Titan's progress.
We will now open the line for questions. Operator?
[Operator Instructions] Our first question is coming from Suraj Kalia of Oppenheimer.
Can you hear me all right?
I hear you good.
Paul, so when do you expect the design freeze? What is the weakest link for achieving this milestone? And [ is there an assumption ] that the R&D resources being [ recorded ] or is there a more fundamental issue at hand?
Yes. Okay. So I mean design freeze for the whole system, that won't occur until just before we file the IDE. We have a number of subcomponent, subsystems and so forth, and they go through various stages of design freeze and so forth. So I mean you could have some findings in your B&B testing, that you might have to make some modifications to software, for example. So you have to keep some doors open. But I would say that we've got now a dedicated project management office with 3 people on it now, and they're running through all the various components and subsystems. But yes, complete design freeze sometime in the fall and subsystem design freeze throughout the whole process.
Got it. One additional question from my side, Paul, and I'll come back in the queue. You mentioned you have 5% share in Urology, forgive me if I got that wrong. And also the Enos, the idea is to have it differentiated to what's out there today. So presumably you're referring to the [ SP ]. And I'm curious, if you could just parse out your comments in terms of what specific differentiation are you honing in on patient cohorts, geographies? Just the next level of detail to the extent that you can talk about that would be greatly appreciated.
All right. Well, thank you for the call. Yes, we -- just soon after joining the Board in October of 2020, we commissioned a study with a well-known, well-regarded independent consultant. And they had looked at all the various different markets and so forth. And then working with Perry Genova and some of our senior executives, defined certain markets and certain areas where our system was optimized. We targeted hysterectomies, Gynecology type of procedures, followed by Urology procedures. And the feedback from that came really from some of our Surgeon Advisory Board members and so forth.
They were telling us that -- and I mean, it's just beyond my capability, Suraj, but they were telling us that the way the system has multi-articulating instruments at small volume for operating in, et cetera, the camera positioning and camera are just all optimized for those types of procedures. And the market sizing information came out of this study that was completed for the Board of Directors. I hope that answers your question. We'll have more detail on market and market opportunities and how our system is specifically optimized for those procedures and those markets in the next -- as we start to build out our commercialization plan.
At this time, I'd like to turn the floor over to Ms. Galfetti for web submitted questions.
Thank you, Donna. We have a couple of questions. Regarding the original Medtronic development license agreement, we know that Titan met the milestones and Medtronic licensed to probably 1/3 of the patents. We don't know what the co-development was and what the development agreement included. Could you expand on that?
Yes. I mean obviously, the agreements with Medtronic are all bound by confidentiality and so forth. I could share that co-development and so forth really was related to the patient cart technologies and a component connected to the patient cart.
Okay. Great. Next question. Is the company currently entertaining the option of a reverse split?
Yes. So as we've disclosed to the market, we have a NASDAQ stock price deficiency issue that needs to be remedied by June 28. We're looking at a number of alternatives to remedy this stock price deficiency issue and -- which also include our reverse stock split. But we're looking at all alternatives.
And does Medtronic still have a nonvoting member on the Board? If not, when did that person leave?
Yes. So the Medtronic Board observer rights were linked with the Medtronic loan, and so the observer rights were terminated with the repayment of the NDT loan in early January.
And you've talked about your building and assembling cameras and instruments in North Carolina. Just wondering why Benchmark wouldn't be building everything.
Yes. So I mean, we just -- the original statement of work and so forth was for capital equipment with Benchmark. And we've already developed some proprietary manufacturing techniques and so forth related to the instruments -- the proprietary instruments and camera. We just find we're more nimble and agile to be able to do it in-house. And we've got a pretty solid manufacturing team and capability at Chapel Hill to make that happen. Let's be clear though, we are sourcing components from local vendors and so forth. So we're doing a lot of assembly -- final assembly packaging testing at our Medtronic -- at our Chapel Hill facility.
And as a follow-on to that, will you have the ability to produce elements for other companies that has licensed your technology?
Absolutely. The instruments at the distal end are unique and so forth. But at the CDU end or the central drive unit end, the part that connects into the patient cart, that could be open ended and so we're looking at -- we could easily adapt our instruments and cameras to other types of interfaces.
Excellent. What is the strategy for attracting new licensing deals? Is there a team dedicated to selling the marketing and IP portfolio to increase the chances of securing another agreement?
Yes. We actually have Deepak Basra, our VP, Corporate Development and Business Development, he's looking at a number of alternatives. And I think I mentioned that in our preamble call.
As you search for a new CEO, what qualities must he or she possess? And are you considering anyone that you have worked with before?
Yes. We're considering all people for the position. We have a top-tier recruiting firm that's conducting a search on our behalf, really targeting a -- and we've mentioned this before at the CEO transition call way back in the late fall. We're targeting somebody that has knowledge and experience in go-to-market. So we're looking for somebody that can move million-dollar-plus capital equipment into hospitals in the U.S. So that would be the best profile.
And is there a plan in place to encourage management and Board of Director members to increase their holdings of the stock?
Yes. It's -- absolutely. So we put in place -- soon after joining the Board, we put in a Board mandatory stock ownership policy in place, and we're looking now at putting in a senior executive stock ownership policy in place. We've also created a restricted share unit plan. And the nice thing about a restricted share unit plan is it gives senior executives, officers and directors, the ability to acquire stock outside of stock blackouts. And so a number of directors -- all of the directors take all of their long-term incentives in restricted share units and we've -- a number of senior executives are also taking some of their -- a component of their compensation, long term and short term, in these restricted share units.
If you monitor the SEDI site, S-E-D-I, for insiders, you'll see that the acquisition of these RSUs, they're all documented as they're acquired. And we'll be putting together some specific disclosure relating to RSU ownership in the company's stock at our information circular when that gets published.
And regarding the competitive environment, can you put into context how tightened with this development time line and other single-access RAS focused companies are aligned? It seems as though you are ahead of the others.
Yes. I mean, it's -- we haven't looked at specific time lines or specific time lines haven't been produced for some of our competitors. I mean the intuitive SP platform has been out in the market for a number of periods already. And so right now, it looks like from the emerging group of competitors, that we are ahead. But part of that was we committed to the de novo pathway earlier than some of our competitors. So we've got a bit of a jump start on them. And we have that time line properly resourced now, and we have a project plan that gets us to the IDE submission in Q1 2023. And I talked about the other steps after that.
But we've got heads down, and we're focused on driving that project plan and that time line. I'm not sure what the competitors are doing or how they've resourced it. But I can tell you that we're going to make this happen.
That wraps up questions from the webcast. Paul, back to you.
Great. Well, thank you, Kristen. Thank you, operator. In closing, I want to thank you for joining us on this call this morning. We remain focused on bringing our robotic single-access surgical system to the market for the benefits of patients, surgeons and hospitals. We remain very excited about the opportunity that lies ahead for Titan, and we look forward to sharing our progress and information with you over the next few months.
Thank you, everyone, and have a great day.
Ladies and gentlemen, thank you for your participation. This does conclude today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.