Titan Medical Inc. (NASDAQ:TMDI) Q2 2022 Earnings Conference Call August 11, 2022 8:30 AM ET
Kristen Galfetti - Vice President of Investor Relations
Cary Vance - President & Chief Executive Officer
Stephen Lemieux - Chief Financial Officer
Conference Call Participants
Suraj Kalia - Oppenheimer & Co.
Hello, and welcome to the Titan Medical Inc. Q2 2022 Financial and Business Update, Webcast and Live Call. All participants will be in listen only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note today's event is being recorded.
And now I'd like to turn the conference over to Kristen Galfetti, VP, Investor Relations. Kristen Galfetti, please go ahead.
Thank you, operator. Good morning, everyone. And thank you for joining us for Titan Medical’s Second Quarter 2022 Financial Update Conference Call. Earlier this morning we issued a press release summarizing Titan’s second quarter 2022 financial results 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 reflect 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 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, as listed in the caution regarding forward looking statements and risk factors sections of the company's annual report for the fiscal year ended December 31, 2021, which may be viewed at sedar.com and sec.gov. Please read all forward looking statements and risk cautions in these sections and in today's news release announcing our financial and operating results and be guided by their contents and making investment recommendations. This news release is available at www.titanmedicalinc.com.
With that I will turn the call over to Cary Vance, Titan’s newly appointed President and Chief Executive Officer. Cary?
Thank you, Kristen. Good morning, and welcome to Titan Medical’s second quarter 2022 financial update call. Also joining me on the call today is Stephen Lemieux, our Chief Financial Officer.
I'm very excited to join Titan as President and CEO. As many of , I've been member of Titan’s Board of Directors since September 2020. I have a passion for this space in a strong commitment to the company's mission to improve surgical outcomes. That is why I joined the board nearly two years ago and that is why I joined sadistically joined the company as CEO last month. Over the past month or so my belief in Titan innovation built into the Enos system. And the prospects for the company's future have never been stronger.
On today's call and I want to review the opportunity that we see for Titan in the robotic assisted surgery space. Specifically, our belief in the ability of our innovative, advanced single access robotic surgical technology to change the surgical paradigm for patients, surgeons and hospitals in positive ways. Head Medical as an innovation leader in single access robotic assisted surgery or RAS with over 215 patents and applications. Patents intellectual property provides the technological breadth and depth of coverage and wraps, including covering novel aspects of highly dexterous articulating instruments, high-definition surgery vision systems and ergonomic surgeon hand controllers. This portfolio includes patent families with early coverage dates that in tighten apart from newer entrants in RAS. Importantly, our IP portfolio provides the company with potentially valuable protection and defense from competitive technologies, restoring potential commercial gains and benefits including additional licensing opportunities.
The Enos system was designed with the potential to first improve outcomes for patients by reducing the number of incisions or access points, resulting in smaller and fewer scars, faster recovery and less pain and trauma to the body. Second, making surgical procedures easier, more comfortable and more effective for surgeons. And third, drive adoption at hospitals by lowering costs, decreasing the footprint required for the equipment to operate and increase efficiency between the surgeries.
We know systems ergonomic workstation enables the surgeon to interact openly with the operating room team members promoting ease of communication for the surgical team. Our surgeon interface consists of foot pedals and cam controllers and a 3D HD screen for displaying images of the surgical site in graphical overlays. In designing the Enos system, we have taken into account the feedback received from surgeons, including those that have interacted with prototypes of our system in order to designed a technology that meets their preferences and needs. Titan has heard repeatedly that no system is easy to learn and master.
Furthermore, the system's dexterous and extendable 3D HD camera and precision instruments convert easy to learn, and natural hand gestures into accurate surgical movements. We designed these instruments to allow surgeons to operate close to the abdominal wall or entry point in a tight surgical volume, as well as increased versatility when required without having to reposition the patient card. The Enos system patient card is designed to deliver an integrated 2D HD camera with illumination in addition to the dexterous and steerable 3D HD endoscope camera with additional illumination and two multi articulating instruments through a single 25-millimeter incision. Additionally, the patient cart is designed to offer swift docking, multi quadrant positioning, easy to load instruments and easy draping. We believe these features will allow hospitals to turn over the surgical suite faster and more efficiently.
The market to RAS systems is robust and continues to grow. Currently the market is dominated by multi-port surgical systems. While the current market for single access systems is somewhat small, our research suggests that an opportunity exists for an innovative single access systems such as the Enos system to comprise a more significant segment of the overall rest market.
During preclinical studies conducted by leading surgeons using the Enos system, we collected a wide range of data in support of several procedures including gynecology, urology, general surgery and colorectal surgeries. Based on this data, we believe that the Enos system may eventually with appropriate regulatory clearances be used for a range of procedures. We intend for the initial indication for the Enos system to be gynecology procedures for which the benefits of single access are likely most impactful. Upon regulatory clearance and launch of the Enos system, we intend to follow with urology and other indications for use.
In meetings with members of the Surgeon's Advisory Board, we've gained valuable insight on what surgeons are looking for in the next generation of single access surgical robotics. Their intake continues to be a critical part of our Innovation Pathway and will influence not only how the Enos system can address current unmet needs, but also provide a roadmap for applications and capabilities that might be added to enhance our technology to meet future surgical needs.
Although it is early days for me at Titan one theme rings clear. The team is committed to our project plan, working tirelessly and creatively to overcome challenges to get our proprietary technology in the hands of surgeons to benefit patients. We are fortunate to be collaborating with partners who share in our mission to get the Enos system authorized and on the market. We appreciate the role that all contributors have in our success and value those collaborations as we accomplish our goals.
In addition to my recent announcements, Titan has shared several accomplishments during the second quarter and the weeks following, including we were granted an additional 180-day extension by NASDAQ to regain compliance with the minimum bid price rule. And we'll continue to evaluate options to address price deficiency to regain compliance prior to the December 26, 2022 deadlines. We continued communications with the FDA utilizing the Q-Submission process as part of our ongoing plan to obtain additional guidance from the FDA, regarding a De Novo clinical submission for the Enos system. We expect to hear back from the FDA on the skew submission in the second half of this year.
We participated in the 2022 Society of Robotic Surgery Annual Meeting, Chris Seibert, our VP of Upstream Marketing participated on a panel featuring executives from companies recognized for their promising technology platforms in robotic surgery. He also provided an overview of tightening in the Enos system during the plenary session. We announced an agreement with Netia Medical Technologies for the manufacture of surgical consumables. These single use surgical components will be used for verification and validation testing, and in preclinical and clinical studies of the Enos robotic single access surgical system. We held an Annual Discussion Special Meeting of the Shareholders on June 8, all nominees were elected as directors of the company by shareholders. The shareholders approved the renewal and amendment of the company share unit plan and deferred share unit plan and adoption of the employee share purchase plan.
We welcome Bill Fahey to the team as Vice President, Manufacturing and Operations. He previously served as SVP of Engineering at Precision Spine and as Senior Director of Engineering for Orthotics Blackstone Medical. Bill brings development manufacturing commercialization experience to Titan and will be responsible for both in house and contract manufacturing relationships. We're excited to have him on board
The path to manufacturing Enos continues as we finalize design transfers the benchmark for capital components of the Enos system, including the surgeon workstation and patient card. Manufacturing units of the Enos system are expected later this year. Finally, we participated in the HC Wainwright Global Investment Conference in Miami on May 25, and met with investors. We encourage you to listen to the webcast which is available on our website.
As previously communicated, we are proceeding with plans for marketing authorization utilizing the De Novo classification request pathway for communications with the FDA continues to be constructive.
On June 28, we announced the multiple disruptions would result in an IDE submission expected in mid-2023, versus the first quarter of next year. We noted that supply of certain key components and materials would affect production of instruments and cameras, which in turn delays our verification validation testing process. Additionally, slow recruitment and resourcing of software engineers and developers delays unit testing and documentation. Finally, the delayed procurement of disposable and consumable components postponed cleaning and disinfecting testing and the GLP study required for the IDE submission.
With a watchful eye on these issues, we expect our human clinical trials to start next year. We're planning to perform total laparoscopic hysterectomy on approximately 40 patients at three to four clinical sites during our IDE clinical study. Upon completion of the clinical study, we plan to submit a De Novo classification request with the FDA in 2024. Commercial launch of the Enos system is scheduled to begin upon receipt of marketing authorization from the FDA anticipated in early 2025.
We will continue to carefully monitor and execute on our project plan. Additionally, we are monitoring economic and geopolitical factors including the ongoing Ukraine-Russia conflict, market instability, COVID variants, supply chain issues in a tightening labor market, trying to anticipate and mitigate risk and impact where we are able.
We will continue to grow our intellectual property portfolio. Our knowledge and experience and our talented team to strengthen the company and promote our position within the industry. Additionally, we intend to leverage our industry partnerships to provide a product that we believe will make meaningful improvements to single access robotic assisted surgery technology. We remain optimistic as we look at the long-term opportunity for our company and for our shareholders. We strongly believe that our innovative and differentiated single access robotic assisted Enos surgical platform, when cleared by the FDA, will be well received by surgeons and hospitals.
I'm excited to engage with multiple audiences to continue developing Titan’s narrative for the Enos system in share the effect we believe the system will have on improving surgical outcomes. We plan to meet with shareholders, physicians, members of the media and others to share the exciting prospects of the Enos system and how it is uniquely positioned to positively impact patient outcomes, provide performance benefits to surgeons and improve hospital economics.
I will now turn the call to Stephen Lemieux, our Chief Financial Officer to review our financial results. Stephen?
Thank you, Cary. I want to extend my welcome to you from the Titan team. We are pleased to you joined us and look forward to working with you on our common goal to bring the innovative Enos system to market.
Turning to our quarterly financial results. Please note in the following discussion all numbers are in US dollars. As of June 30, 2022, we had cash and cash equivalents of $20.2 million compared to $32.3 million at December 31, 2021, representing a decrease of $12.1 million. We continue to anticipate that our cash on hand will fund operations into the first quarter of 2023.
For the three months ended June 30, 2022, total expenses were $12.7 million, a slight increase from $12 million in Q2, 2021. For the six months ended June 30, 2022, total expenses were $24.8 million, compared to $23.9 million for the same period in 2021.
R&D expenses were 75% of total operating expenses for the second quarter of 2022 compared to 70% in the comparative period of 2021. This shows the continued effort by the company to focus more financial resources on the development of the Enos system, while keeping the overall expenses relatively unchanged. R&D expenses were $9.5 million in the second quarter of 2022 compared to $8.4 million for the three months ended June 30, 2021. For the six months ending June 30, 2022, R&D expenses were $19.1 million versus $17.6 million for the same period in 2021. R&D expenses for the three-month and six-month period ending June 30, 2022 were related to the development of the Enos system. And an increase in labor costs at the company continues to add the required resources to its engineering, regulatory and quality teams to advance the Enos system.
During the six-month period, the company's focus was on completing product development, and transferring key components of the Enos system to our external manufacturing partners. During the second quarter, the company transferred substantially all of these components to his manufacturing partner.
G&A expenses decreased to $3.1 million for the quarter ending June 30, 2022, compared to $3.6 million for the three months ended June 30, 2021. The decrease in G&A expenses in the quarter is related to a decrease in stock-based compensation of $1.1 million partially offset by an increase in salaries, costs and public company costs. For the six months ended June 30, 2022 G&A, expenses were $5.7 million versus $6.2 million for the comparable period in 2021. The decrease in G&A expenses in the six-month period is primarily related to a decrease in stock-based compensation of $1.4 million, an increase in professional consulting fees partially offset by an increase in severance costs and public company costs.
We continue to improve our processes and streamline activities expected to result in efficiency and generate savings to create a company that is efficient and supports efforts to reach our corporate goal and bring the Enos system to market. We also continue to investigate capital market options that will support financing Enos system through the De Novo regulatory pathways, and eventual commercialization. Our discussions with interested parties continue and we plan to show results of this work in the coming months.
Tightening shift from product development to the collaboration between our manufacturing partners, an in-house expertise to build units of the Enos system continues successfully. We remain focused on our IDE submission, building units for use in plan IDE clinical trials and ultimately, commercialization of the Enos system. Our driving purpose is to improve outcome for patients. Again, a solid progress and we'll continue our hard work to see our goals through.
With that I will now turn the call back over to Cary.
Thank you, Stephen. We would like to thank our board, our partners, our employees, and most importantly, our patient shareholders. We will continue on our mission to get the Enos system in the market as safely and as soon as possible.
We will now open the line for questions. Operator?
Yes, thank you. At this time, we will begin the question-and-answer session. [Operator Instructions] Ms. Kristen, Cary, any other any questions?
Yes, thank you, Keith. We have a couple of questions regarding the benchmark relationship. And they're asking when will benchmark be delivering completed units? And how many will they be building? Cary?
Yes, thank you, Kristen. Good question. I mean, last quarter, we announced the completion of the transfer of design specification for the Enos workstation and patient card to benchmark for the manufacture of six units. To while this process moves slowly, we had to factor in also supply chain shortages, delayed software engineering, hires, and slow procurement of disposable materials. We expect to have a completed unit later this year, which allows us to complete safety and verification testing on the system. Now I will say as noted by others in the field, we've seen supply chain disruptions in recent months. And if these challenges continue, they may present a risk to our timeline.
Thank you. We have another question. Will this version of the Enos system have any enhancements we haven't seen on the advanced prototypes which are shown on the website.
Thank you. The manufacturing units will be consistent with those previously disclosed by the company, including those shown on the website and they'll facilitate the use of our 3D HD endoscope and to multi articulating instruments. Thanks.
There are a couple of questions regarding Medtronic. They would like an update on the person this quarter and they're asking what platform will be will be supplied instruments used for.
Other person. So, we announced the purchase order with Medtronic in May, where we will produce instruments and cameras for Medtronic evaluation and testing. In addition to producing inserts and cameras for her own RAS platform the Enos system, we're able to do this because of our manufacturing team and the capabilities that we continue to expand that our operations in Chapel Hill. At this time, we cannot provide any guidance as to Medtronic’s use of any of the instruments or cameras that we will be producing under this purchase order.
We have a question about the clinical trial for asking where those trials will be conducted and which service surgeons will be managing the trials.
Okay, thank you. We anticipated clinical trial, trials in the trial sites are all located in the US. And I think, importantly, they belong to major hospital systems. If you also incorporate the facilities that are affiliated with our SAP members, there are total of just under 300 hospitals affiliated with our efforts there.
Any question on Paul Cataford compensation? Why was Paul compensated financially after being replaced by you, Cary as President And CEO, Cary?
Even though so, Paul's contract provided for a 30-day transition period to allow for a smooth transition from Paul to the new CEO who was Cary. So accordingly, per the terms of his agreement, he was compensated during that period, which ended on July 31, 2022. Yes, I will say I'm very grateful for those 30 days, I think it has been a very smooth transition. I'm really grateful for Paul's proposed efforts and for his continued efforts now as he moves back to Chair of the Board, and it's a great partnership that we have going forward as well.
Kind of a related question. Why did Paul recently Interim President and CEO now Board Chair, sell shares, and follow on what is increasingly being done to increase insider holdings?
Sure, all big that person's role. So the company uses RSUs as a compensation tool in lieu of cash payments, and that's offered to directors, officers and some employees. So restricted stock units, they provide a contract the ownership, there's no rights or tax obligations until the RSUs are settled. Paul settled his RSUs, which triggered a tax event. And it's common practice to sell shares to cover the tax obligations. So Paul is left holding the net amount of shares after the tax piece with respect to increasing insider holdings. So the board has put in a number of mechanisms in place, so including granting of RSUs to pay employees. The management team has also taken RSUs instead of cash bonuses at the last round. And we have the employee share purchase plan now which we are rolling out to employees, which was approved at our annual general meeting. So with all these tools this provides opportunities for all the executives and for the board members to increase their share ownership in the company.
Good. Switching gears a little bit, is it possible that Medtronic would be involved in a future financing? And what about other large medical device companies in strategic?
Yes, thank you. So we have and I have personally, and we'll continue to reach out to several strategic partners to discuss mutual interests and working together and that will, that will continue and we look forward to that.
And regarding financing, what activities are you considering to fund the company to the FDA IDE submission, and then commercialization.
So we're looking at a number of options. So we engage with an investment bank, to help us look at different ways to raise capital through the capital markets or through other potential transaction. So we're, our goal is to raise capital this year to continue to fund those through the development program. And we will keep you updated as we make progress on this project.
And then, where are you with regard to the NASDAQ delisting process? Will you conduct the reverse split?
Thanks, Kristen. So everyone knows we weren't granted an extension through to December 28, to September 26 2022, from the NASDAQ. Our goal is to remain compliant with the NASDAQ. So we're going to continue to work on that through delivering on milestones and continue to develop the Enos system. A reverse split is one of the tools that we can be used can be used during in compliance, and we're going to continue we continue to evaluate this on a monthly basis as we approach to this effort.
And then, a question about training and commercialization sites will Chapel Hill be used as a training and commercialization site?
Yes, thank you, Kristin. So, my plan, and our plan is to do this in combination. So, we'll do some training commercialization efforts here in Chapel Hill. We'll also do those at the clinical sites in the hospitals. And we also use remote training methods, which is becoming more and more popular and efficient. And so we'll be incorporating all three of those over the course of the next few years as we do our commercialization and training efforts.
In where do you see, Enos, as compared to other single assets, access systems in development? What will make, standout as differentiated in the what timeline? Are you expecting? Anything you could comment on, like, competitive environment?
Okay, that's a lot of questions. Thank you. We see other entrance and we see the changes to their timeline. And we currently find ourselves ahead of them from a timeline perspective, as we go into the RAS market, and assuming all things stay the same. That will be the case. We can we focus on our own timelines, we have plenty to do. And so we know there are things outside of your control that could affect those timelines. But we're focused on what we're doing. And we feel like we have both a timeline and competitive advantage.
And just referencing a prior contract that we had with a spire, there's a question asking, did it expire? And what happened to the remaining firms that were to the best available?
Yes, so that would be sort of Enos that we hadn't agreed with expires Equity Line of Credit where they could acquire shares from the company at a discounted price. That agreement did expire, and the company did not draw any remaining financing from that contract.
I think that is all of the questions. Cary, did you want to have any closing remarks?
Yes, I want to thank you, everyone. I want to thank everyone for joining the call this morning. I do appreciate everyone's support, particularly as we start in this new role. I look forward to sharing updates on the progress of the company over the next several months. We're very excited about Titan’s future. And we remain focused on bringing the Enos system to the market for the patients and surgeons and hospitals. And so, thank you, and have a great day, everyone.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.