Titan Medical Inc.

greetings and welcome to the titan medical inc fourth quarter and year end 2021 financial results conference call and webcast at this time all participants are on a listen-only mode a question and answer session will follow the formal presentation if anyone should require operator assistance during the conference please press star 0 on your telephone keypad 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 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 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 on the Caution Regarding Forward-Looking Statements and Risk Factors section of 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 from the company's recent MD&A, each of which may be viewed at CDER.com and at the 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 in making investment decisions or recommendations. The release is available at www.titanemedicalinc.com. With that, I will turn the call over to Paul Catafort, 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 Eno 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 ENO system using a de novo pathway is a multi-step 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 timeline 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 the 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 carts delivered over the summer. These units will be leveraged with our proprietary cameras and multi-articulating instruments and loaded up with 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 and 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 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 to 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 Siebert, 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 at innovations in advanced software. Finally, I presented and participated in the H.C. Wainwright & Company BioConnect 2022 Investor Conference in January and in Oppenheimer's 32nd Annual Investor Conference earlier this month. Both presentations are available on our website. Our timeline to marketing authorization of the ENO system remains unchanged since we updated investors last fall. As we progress on our timeline, 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 information currently available to us, that our IDE study will include total laparoscopic hysterectomies performed on 30 to 40 patients at three to four 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 e-mail system, oh, I'm sorry, commercial launch of the e-mail system will begin upon receipt of marketing authorization from the FDA anticipated in early 2025. Our timelines remain unchanged. from what we have previously disclosed during our Q3 2021 update, and I am 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 being 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 email 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 EnoSystem US market opportunity, Titan's initial clinical focus will include benign gynecology surgery for the US 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 and 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 a 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 our wide range of preclinical studies, we anticipate that the versatility of the ENO 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 e-mail 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 US 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 ENO 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 agreements 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 ENO system and conducted market research. Adjusting for non-cash stock-based compensation expenses and one-time 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 three months ended December 31, 2021, compared to $1.4 million for the three 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 remediated material deficiencies in our financial controls. We clarified the regulatory process and realigned our product development timeline. 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 ENO 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 the ENO 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 ENO surgical system will address a high-demand segment of the robotic-assisted surgical device market. We remain committed to our current timeline to file an IDE submission for the ENO system in Q1 2023. We believe the Eno 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?

Thank you. The floor is now open for questions. If you would like to ask a question on the phone, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. Once again, that is star one to register a question at this time. Our first question is coming from Siraj Kalia of Oppenheimer. Please go ahead.

Good morning, Paul. Stephen, can you hear me all right? I can hear you great. Thanks, Siraj. Perfect.

Hope everyone is safe and healthy. Hey, Paul, so when do you expect the design freeze? What is the weakest link for achieving this milestone, and is it a function of the R&D resources being put in, or is there a more fundamental issue at hand?

Yeah, 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 sub components, subsystems and so forth, and they go through various stages of design freeze, um, and, and so forth. So, I mean, you could have some findings in your, your B and 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, uh, we've got now a dedicated project management office, um, with three people on it now, and they're running through all the various components and subsystems. Um, but, uh, yeah, you know, 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 pop back in queue. You mentioned, you know, 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 SPE 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 it would be greatly appreciated. Gentlemen, thank you for taking my questions.

All right, well, thank you for the call. Yeah, we, you know, 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 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 capabilities, Raj, but they were telling us that the way the system has multi-articulating instruments at small volume for 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 as we start to build out our commercialization plan. Fair enough.

Thank you.

Thank you. 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 questions regarding the original Medtronic Development and License Agreements. We know that Titan met the milestones and Medtronic licensed probably one-third of the patents. We don't know what the co-development was and what the development agreement included. Could you expand on that?

Yeah, I mean, obviously the agreements with Medtronic are all bound by confidentiality and so forth. I could share that point. co-development and so forth really was related to the patient cart technologies and components connected to the patient cart.

Okay, great. Next question. Is the company currently entertaining the option of a reverse split?

Yeah, as we've disclosed to the market, we have a NASDAQ stock price deficiency issue that needs to be remedied by June the 28th. We're looking at a number of alternatives to remedy this stock price deficiency issue, which also include a reverse stock split, but we're looking at all alternatives.

And does Medtronic still have a non-voting member on the board? If not, when did that person leave?

Yeah, 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?

Yeah, so, I mean, we just, you know, 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 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 that we are sourcing components from local vendors and so forth. So we're doing a lot of final assembly packaging testing at our Chapel Hill facility.

And as a follow-on to that, will you have the ability to produce elements for other companies that have licensed your technology?

Absolutely. The instruments... at the distal end are unique and so forth, but at the CD, whether the central drive unit end, the part that connects into the patient cart, that could be open-ended. 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?

Yeah, we actually have Deepak Basra, our VP of 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?

Yeah, we're considering all people for that position. We have a top-tier recruiting firm that's conducting the 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, experience, and 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?

Yeah, it's absolutely. So we have, 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 a number of senior executives are also taking some of their component of their compensation long-term and short-term in these restricted share units. If you monitor the CDI site, S-E-D-I, for insiders, you'll see that the acquisition of these RSUs, they're all documented as they're required. 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 competitive environment, can you put into context how Titan with its development timeline and other single access RAS focused companies are aligned? It seems as though you are ahead of the others.

Yeah. I mean, it's, um, you know, we haven't looked at specific timelines or specific timelines haven't been produced for, for some of our competitors. I mean, you know, the intuitive SP platform has been out in the market, you know, for, for a number of periods already. Um, and, uh, 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. We've got a bit of a jump start on them. We have that timeline properly resourced now. We have a project plan that gets us to the ID submission in Q1 2023. I talked about the other steps after that. we've got heads down and we're focused on driving that project plan and that timeline. 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.

Well, 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.