Titan Medical Inc.

Good evening, ladies and gentlemen, and welcome to Titan Medical's year-end 2020 earnings conference call. If callers should require operator assistance during the conference, please press star zero on your telephone keypad. After the presentation, there will be an opportunity for call participants to ask questions. As a reminder, today's conference is being recorded. I will now turn the conference over to Kristen Galfetti, Titan Medical's investor relations consultant. Please proceed.

Thank you, Operator. Good evening, everyone, and thank you for joining us for Titan Medical's year-end 2020 earnings conference call. During our call, we will review Titan's year-end 2020 financial results and key business highlights, which were summarized in our earnings press release issued earlier today. 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 in 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 the use of net proceeds of offering, projected development plans and milestones, timelines and budgets, regulatory pathways and anticipated license payments, preparation for light assembly and manufacturing, development of manufacturing processes and advancing our in-house know-how, our exciting innovation pipeline, our expectation to close with gross proceeds of approximately $20 million by the end of February 2021, robust remediation plans to improve our internal controls over financial reporting, 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 a company's actual results, performance, or achievements to be material 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 report on Form 20F, dated March 30, 2020, which may be viewed at www.cedar.com and at www.sec.gov. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove 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 prospective investors that actual results, performance, or achievements will be consistent with those forward-looking statements. With that, I will turn the call over to David Nally, Chairman, President, and Chief Executive Officer of Titan Medical. David?

Thank you, Kristen. Good evening and welcome to Titan Medical's fourth quarter and year-end 2020 earnings call. I want to thank our supportive shareholders who are familiar with Titan Medical, and I'd like to welcome our new shareholders who are new to the Titan story. Most importantly, I want to thank everyone for their support and belief in our work to develop our ENOS robotic single access surgical system. Joining me on the call today will be Perry Genova, Senior Vice President, Research and Development and President of Titan Medical USA, and Monique Delorme, Titan Medical's new Chief Financial Officer. Titan made great strides forward in 2020, a year that proved challenging for individuals and organizations all around the world. We hope that our listeners are able to appreciate that in spite of COVID-19, Titan Medical has made substantial forward progress during the past year, and we wish all good health and rising spirits as we move forward together in 2021. Despite the challenges of last year, Titan has emerged stronger than any time in our history. Frankly, for any that have known Titan in the past, this is a completely different company. Progress in 2020 resulted in the addition of new members of our management team, an enriched board of directors, including three new experienced industry veterans as independent directors representing a majority of the board, improved governance practices and policies, the establishment of our U.S. subsidiary in Chapel Hill, North Carolina, focused on development activities, the execution of development and license agreements with Medtronic and the receipt of license payments under those agreements, a rapidly growing intellectual property portfolio, and multiple successful fundraising activities providing a strengthened financial position. With all of these accomplishments and with our new leadership team and substantial financial resources, we believe we're in a solid position to execute on our milestones. As many of you know, there is high demand for robotic assisted technologies for a versatile single access platform intended to perform abdominal surgery, which may result in improved clinical performance and operating room efficiency, better patient care, and less trauma and scarring, allowing faster recovery times and shorter hospital stays. Especially relevant today is the observation that COVID-19 has shown us that patients and caregivers alike are looking to reduce the time in hospital. Titan is developing the inosurgical system, aiming to become the new standard of care for single access robotic surgery with dual 3D and 2D high-definition vision systems for improved visualization, multi-articulating instruments for increased dexterity, and an ergonomic surgeon workstation for surgeon comfort. Based on this unique combination of clinically relevant features and early validation from experts in minimally invasive robotic surgery, we believe that our ENOS robotic single-access surgical system is well differentiated from single port and multiport robotic surgical systems currently on the market. Our initial clinical focus upon appropriate regulatory clearances is expected to include benign gynecologic surgery for the U.S. market. Although based on our preclinical success, we anticipate that ultimately with the appropriate regulatory clearances, the versatility of the ENO system could be found attractive for use in multiple subspecialties. In that regard, we believe our single-access surgical system has potential for application in numerous global procedures, resulting in a share of the millions of robotic procedures that are projected to be performed annually and which continue to grow over the coming years. As we shared on December 30th, Communications with the US FDA indicate that the regulatory pathway for our ENOS robotic single access surgical system is expected via the de novo process reserved for novel medical devices. Based on our communications with the FDA to date and input from expert consultants, it is our understanding that the FDA's guidance towards the de novo pathway is likely not specific to Titan but all Robotically Assisted Surgical Devices, or RASD, applicants. We plan to continue our correspondence and conversations with the FDA in order to clarify expectations for our planned clinical study and application for marketing authorization. As we do, we will continue to communicate our progress on getting the ENOS system cleared for marketing and into the hands of surgeons. 2020 was an exciting year from an intellectual property perspective as we continue to expand the breadth and depth of our robotic surgery focused intellectual property portfolio, which now includes over 150 global patents and patent applications pending. We also leveraged a portion of our portfolio to enter into a strategic relationship with Medtronic through the execution of development and license agreements to progress the development of robot-assisted surgical technology. Under those agreements, certain Titan technology and intellectual property representing about one-third of our portfolio has been licensed to Medtronic in exchange for license payments to date. Titan retains worldwide rights to commercialize all of the technology and intellectual property for use with the ENO surgical system. including incorporation of the developed technologies into future generations of the ENOS surgical system. The agreements with Medtronic resulted in an initial license payment of $10 million for access to about one-third of our IP portfolio at the time, and an additional $10 million milestone payment received in October 2020 pursuant to the ongoing development and license agreement. We believe that based on our progress to date, we are well positioned to meet the remaining two milestones under the Development and License Agreement in 2021, which are expected to be reached in approximately May and September, resulting in payments of $10 million and approximately $11 million, respectively, for a total of $21 million in 2021. Separately from anticipated Medtronic milestone payments, Titan has already raised well over $20 million since the beginning of 2021, with $11.5 million having been raised through a bought deal offering with Bloom Burton and Company, plus $10 million from the exercise of warrants. We also announced a subsequent bought deal offering with Bloom Burton earlier this month and expect to close the offering for gross proceeds of $20 million later this week. Additional accomplishments in 2020 included increased stakeholder communications involving continuous enhancements to our website for ease of navigation and communication with investors, launching Titan Living Labs, which via our website provides the opportunity for investors to engage in our journey through product development, and updated corporate governance policies based on robust input from our board of directors. Please see our website for details. I'm now proud to turn the call over to Dr. Perry Genova, Senior Vice President of R&D for Titan Medical and President of Titan Medical USA, who will provide insight into the team and operations we're building in Chapel Hill and details on development activities relating to the ENO surgical system and those being carried out pursuant to the ongoing development and licensing agreement with Medtronic.

Thank you, David. And it is a pleasure to be addressing all of you this evening. As David mentioned, we had many successes during the past year, despite the challenging environment. We established our U.S. subsidiary based in Chapel Hill and significantly augmented our technical expertise in the areas of software, electrical, and mechanical engineering, quality assurance, and program management. The strength of our technical competencies has risen to a level unprecedented for Titan Medical and continues to drive innovation in robotic surgery at an exciting pace. Additionally, the advancement of the ENOS surgical system continues as we improve instrument and camera designs for enhanced performance and invest in tooling and process development as we prepare for light assembly and manufacturing. Notably, we are developing manufacturing processes and advancing our in-house know-how to manage the innovative technologies that are key to our multi-articulated instruments and 2D and 3D high-definition camera systems. In short, the technical team has created an exciting pipeline of innovation. Our product evaluation strategy has evolved with respect to increased simulation labs and continued KOL input even within the restrictions imposed by COVID-19 precautions. Our location in Chapel Hill is ideal based on proximity to independent evaluation laboratories and some of the United States top thought leading hospitals. Our software development team has already made substantial progress developing hardware simulation and test systems, identifying opportunities to improve robot kinematics, electromechanical system response times and reliability and implementing display overlays for augmented reality informatics to improve the surgical experience for surgeons. We have also continued with our implementation of a robust simulation training suite. Our development program under the Medtronic Development and License Agreement continues to proceed according to plan as programs are regularly coordinated through a joint steering committee comprised of an equivalent number of members from each company. We are presently on track to achieve the next planned milestone for the program in May of this year. Lastly, we now have 71 U.S. and international patents issued and 86 patent applications pending, a portion of which is licensed to Medtronic and all of which are available for use with the ENOS surgical system. I am very pleased with our accomplishments over the past year and look forward to sharing additional updates with you going forward via press updates, as well as the recently launched Titan Living Labs, which provides the opportunity to join our team of motivated expert engineers on our journey of innovation. With that, I will turn the call to Monique Delorme, our CFO, to review our financial results. Monique?

Thank you, Perry. And it's my pleasure to be addressing all of you on my first earnings call in the capacity of Chief Financial Officer. I'm very pleased with what Titan has accomplished to date, and I'm proud to be a member of the executive team. During the year ended December 31, 2020, Titan generated its first ever revenue of $10 million from a license agreement and $10 million from a development and license agreement, both with Medtronic. In 2020, Titan raised aggregate net proceeds of approximately $23.3 million from equity financing, and $2.7 million from the exercise of warrants. The company also received a loan from an affiliate of Medtronic in the amount of $1.5 million, evidenced by an 8% senior secured promissory note. At December 31, 2020, the company had cash and cash equivalent on hand of approximately $25.5 million, compared to $0.8 million at December 31, 2019. Since December 31, 2020, the company has received $10 million from the exercise of warrants and net proceeds of an additional $10.2 million from a bought deal financing, which closed on January 26, 2021, with full exercise of over-allotment option. Based on these additional proceeds, the company's cash position had increased to approximately $42.5 million as of January 31, 2021. The company also announced a subsequent bot deal offering, which it expects to close with gross proceeds of approximately $20 million by the end of February 2021. As David and Perry have noted earlier, during the past year, the company has established a U.S. subsidiary, tripled our workforce, and secured important agreements with Medtronic, which have generated our first-ever revenue in the form of license payments. As the new CFO guiding the company through this period of remarkable change, the responsibility is not lost on me. Together with management and the Audit Committee of the Board of Directors, we've been working to bolster our accounting systems and resources to address the rapidly changing needs of both our Canadian and U.S. operations. This includes accounting for dual currency and country operations, complex financial transactions, including derivative financial accounting related to our stock options and warrants, and maintaining compliance with listing requirements of both the TSX and NASDAQ. As we noted in our MD&A, during preparation of our year-end audit, we identified material weaknesses in our internal controls over financial reporting. In particular, in the valuation for non-cash derivatives, such as warrants, and a large accrual relating to a subcontractor expense as we performed cut-off procedures at year-end. All corrections relating to the non-cash errors identified were made prior to today's filing and release of our financial statements and MD&A for the year ended December 31, 2020. In view of these identified weaknesses, management has been developing, with full support of the Audit Committee, robust remediation plans to improve our internal controls over financial reporting, as noted in our MD&A. Our three primary remediation activities include engaging outside subject matter consultants to assist with more complex accounting transactions, adopting an ERP and other relevant business information systems, and adding capacity to our team. Management fully expects these remediation activities to correct the material weaknesses recently identified as well as provide the company with a solid foundation to build upon as it progresses through its journey of growth. In summary, our recent financing activities further strengthen our balance sheet to support continued development on the ENOS surgical system as we prepare for human clinical studies. With that, I will turn the call back over to David.

Thank you, Monique. Despite headwinds that 2020 brought, It has not impacted our fundamental goal to become the global standard of care for robotic single-access surgery. We look forward to keeping you apprised of progress toward the significant milestones ahead, including those related to our ENOS robotic single-access surgical system and the development and license agreement with Medtronic. We believe that the ENOS surgical system will address an under-penetrated 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 and ambulatory surgical centers. We remain committed to corporate governance and investor outreach, and we will continue to communicate through news releases our website, and participation in virtual investor conferences. Currently, we plan to participate in several upcoming virtual healthcare-focused investor conferences, including HC Wainwright, Roth Capital Partners and Oppenheimer in March, and Bloombergton in April. We will be publicly announcing our participation in these conferences via press release in advance. Thank you for your support. We will now open up the line for questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

Thank you.

Our first question comes from David Martin with Bloomberg. Please proceed with your question.

Hi there. I was just wondering if you could give us an idea of how final the design of the ENOS is at this point and when you think you'll be able to start the clinical trial.

Thank you, David. This is David McNally here. So, we've made many improvements to our system, focusing particularly on the multi-articulating instruments, the camera systems, and the sterile interface to the central unit of the patient cart. That has been the focus of the refinements based on KOL input that we've received. We're also doing some work with software in expanding the use of overlays for augmented reality. to provide surgeons more real-time information related to the operation of the system. How that relates to our march forward toward planned commercialization is that we expect to complete the refinements this year, including the validation that Dr. Genova spoke of. With respect to our plan for FDA market authorization and how fast we can get to market, The FDA has indicated that they would expect us to pursue the de novo pathway for device classification and subsequent clearance to market for the ENOS surgical system. We expect to continue to engage with the FDA to further define the investigational device exemption study requirements. Those are the clinical study requirements that are going to be very important for our application for marketing approval. Our current plan is after completing product development this year and following FDA approval of our application for the investigational device exemption, we expect to proceed with human surgeries under the IDE next year in 2022. Following successful completion of the IDE studies and requisite follow-up, we intend to submit the de novo application. And from where we are today based on our current estimates, we could potentially achieve clearance to launch commercially in 2023. Okay. Thank you.

One other question, and I'm not sure if it's been answered, but if Medtronic develops their own robot with the IP that they've licensed from you, are there royalties that you would stand to receive beyond the milestone payments?

There are no provisions for royalty payments under the existing agreements. They are royalty-free license payments associated with the technologies that we are developing under the development and license agreements.

Okay. But Medtronic, their intention is to build their own robot. Is that correct?

Yes, it is public information that Medtronic is developing its own Hugo robotic platform, and they have a vision that we believe is a vision that diverges in certain ways from Titan's platform, and therein we see the relationship as synergistic.

Got it. Thank you. Following along with that, we have a couple questions from the webcast.

Very good, Kristen. Is the company considering FDA breakthrough designation status for ENO?

We have run that to ground with our in-house regulatory executive leadership and determined that it is unlikely that we will meet breakthrough designation based on the requirements of achieving a breakthrough designation, including that there would be no cleared alternatives. On a positive note, the fact that there already exists a single port system and accessory for single port surgery in the market, we view that as positive in that the market acceptance of single-port surgery appears to be robust and growing, and we're very excited to have the opportunity to serve that growing need.

And following along with that, is Titan planning to take ENOS to the market themselves?

Presently, our plan is to launch the ENOS surgical system ourselves with focus particularly in the U.S., However, we believe that based on the market potential and our value proposition, as well as the simplicity of the ENOS surgical system, are ideal for partnering with established global distribution companies. We'll continue to assess strategic partnering opportunities as we move forward, and we're free to do so.

Great. Could you cover what advantages the ENO system offers compared to other robotic systems in the same surgical space?

First, the ENO surgical system is based on a single access architecture, meaning that it enters the body through a single incision or a natural orifice. This distinguishes our system from most other robotic assisted surgical devices in the market today. as well as those contemplated for market entry in the coming years. Next, our multi-articulated instrument technology provides a unique combination of dexterity and ease of movement with appropriate force for performing surgical tasks and maneuvers that include suturing, tissue approximation, cutting, coagulation, and other tasks. Finally, our dual-view HD camera system provides a new element of safety and visualization during initial exploration for surgery with a two-dimensional camera in the camera insertion tube, as well as our 3D HD endoscopic camera, which provides a clear view of target anatomy during surgery, and our heads-up flat panel display, which allows for situational awareness in the operating room.

Great. Another question. Is it possible that site and medical could be sold to Medtronic?

It would certainly be premature to think about any sort of, I'll call it, strategic move of that level. I can say, however, that even under the Medtronic development and license agreements, we are free to pursue all strategic options for the company.

Another question. How long do you expect the cash balance to be able to fund the company? I'd like to turn that one over to Monique de Lorme. Monique?

Sorry, David, I'm just getting off my mute button here as I'm listening. Thank you very much for that question, Kristen. You know, in 2021, after a successful January raise of $11.5 million, Titans also received $10 million of proceeds from the exercise of warrants since year end. So our current cash is approximately $40 million. and the financing that's expected to close later this week will bring in another 20. Anticipating that we'll meet the deliverables related to the next two Medtronic milestones this year, our current cash on hand plus the Medtronic license payments and including the proceeds of the current offering that is going to close at the end of this week should really fund our operations through to 2022. So we're in good shape. Thank you.

A little different question. Can you talk about the importance of ENOS's ergonomic benefits for the surgeons in regards to enhancing surgeons' dexterity as well as reducing their fatigue?

I'd like to turn that one over to Perry. And Dr. Genova has spent a great deal of time with our KOLs in both dry and wet labs. And he's been able to gain firsthand the feedback of their experience with respect to the ergonomics of the system. And Perry, I'll turn it over to you.

Yeah, thank you, David. And thank you, Kristen. Well, first, you know, the system is a very comfortable system to use. We have a provided chair, which is unusual, I understand, for robotic surgery. And it's a heads-up system, so the surgeon does not have to lean into anything. a box and observe in that manner. So they're familiar with this technology, the 3D visualization technology, as well as being able to stay in touch with what's going on around them in their periphery. The ergonomics provide not only surgeon comfort, but longevity for surgical careers as we're seeing in the literature and so forth. So I'm very excited to bring new people, new surgeons into assess and use our system. Another thing that we found universally popular with our system is the simplicity and the natural orientation of the hand pieces. Surgeons seem to not need any explanation about what the features and benefits of these pieces are and they're very comfortable using these hand pieces and therefore the entirety of the surgeon console for surgeries that can last up to several hours. So thank you for the question.

I hope I've addressed it appropriately. Hi, and that's my opportunity to say and see more at Titan Living Labs on the hand pieces. Yeah, true. I think we've addressed most of the questions coming from the web. I'm just seeing if there's any more that we didn't cover. I think that's good. I'd like to turn it back over to David for closing.

Well, I'm delighted to be here in Chapel Hill today, feeling the buzz of what's going on among our engineering team here. It is thrilling to see the evolution, the refinements that are coming together here. So in closing, I'd like to thank you all again for joining us today and for your support of Titan Medical. We believe that Titan is on solid footing to validate our vision of providing a leading-edge robotic single-access surgical system for the benefit of surgeons and patients. We are proud of our progress and recognize that our success is a direct result of the commitment and hard work of our employees, strong governance and leadership of our board of directors, and the support of our shareholders. We're very excited about the future and look forward to keeping you informed of our progress. Thank you again, and have a great evening all.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.