Titan Medical Inc.

Good morning, ladies and gentlemen, and welcome to Titan Medical's first quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. After the presentation, there will be an opportunity for call participants to ask questions. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, today's conference is being recorded. I will now turn the conference over to Kristen Galfesi, Titan Medical Vice President of Investor Relations and Corporate Communications. Please proceed.

Thank you, Denae. Good morning, everyone, and thank you for joining us for Titan Medical's first quarter 2022 earnings conference call. Earlier this morning, we issued a press release summarizing Titan's first 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 risk, uncertainties, and assumptions. Many factors could cause the company's actual results, performance, or achievements to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements, including, without limitation, those listed in the Caution Regarding Forward-Looking Statements and Risk Factors section of the Companies and the Report on Form 20F for the fiscal year ended December 31, 2021, which may be viewed at cedar.com and at 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 content in making investment decisions or recommendations. The news release is available at www.titanmedicalinc.com. With that, I'll turn the call over to Paul Catterford, Titan's Interim President and Chief Executive Officer.

Paul? Thank you, Kristen. Good morning, everyone, and welcome to Titan Medical's first quarter 2022 financial update call. Also joining me today on the call is Stephen Lemieux, our Chief Financial Officer. Today, we'd like to share with you our recent accomplishments and discuss what we see on the horizon for Titan Medical. As many of you are familiar, we are a leading innovator in single-access robotic-assisted surgery, having designed our ENO surgical system from the ground up, utilizing proprietary technology that is protected by a broad patent portfolio, trade secrets, and know-how. Our ENO system has been designed and developed to make surgical procedures easier and more More comfortable and more effective for surgeons to 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 and to drive adoption at hospitals by lowering costs, decreasing the size of the equipment and increasing efficiency. We have developed our surgeon workstation with ergonomics in mind. We have created a workstation which allows the surgeon to openly interact with operating room team members. The surgeon interface, like pedals, hand controllers, and 3D HD screen for displaying images of the surgical site and graphical overlays are easy to learn and master. A dexterous and extendable 3D HD camera and precision instruments convert easy to learn and natural hand gestures to accurate surgical movements. The instruments have been designed to allow surgeons to operate close to the abdominal wall or entry point in a tight surgical volume. but also extend to increase versatility when required without having to reposition the patient cart. The InnoSystem patient cart is designed to deliver an integrated 2D HD camera with illumination in addition to a steerable 3D HD endoscope camera with illumination and two multi-articulating instruments through a single 25mm incision. Additionally, the patient cart is designed to offer a swift docking, multi-quadrant positioning, easy to load instruments, and easy draping. We believe these features will allow hospitals to turn over the surgical suites faster and more efficiently. The market for robotic-assisted surgical systems is robust and continues to grow. And while the install base for single access, like the ENO system, is somewhat small in comparison to multiport systems, we believe the opportunity for single access will eventually overtake the multiport install base. We're initially targeting gynecology indications where the benefits for single access are likely most impactful. We intend to follow up with urology and other indications upon regulatory clearance and launch of the ENOS. Based on a wide range of preclinical studies and discussions with leading surgeons, we are confident that the ENOS system will eventually be used in a number of procedures. Our Surgeon Advisory Board comprised of leading laparoscopic and robotic-assisted surgery surgeons continues to provide feedback, insight, and direction on where the ENOS system and underlying technology might be applied to address unmet needs and applications. We are proud of our team here at Titan, who, through tireless work, creativity, and commitment, remain on track with our project plan and regulatory approval path. We are also grateful to our many partners and collaborators who are all assisting in our mission to bringing Eno's system to market. During the first quarter of 2022 and the weeks leading up to today, Titan has accomplished quite a bit. We announced a purchase order with Medtronic that covers the purchase of instruments and cameras that will be used in pre-clinical activities and the evaluation of Titan Medical as a potential manufacturing and supplying partner for Medtronic. We believe that this purchase has strategic benefits for our company, highlighting the confidence of third parties in our technology and know-how in single-access surgery and providing further reason to build and expand on our in-house manufacturing capabilities. We completed another preclinical lab study, adding to the over 80 procedures already completed. These labs not only provide additional surgeon validation, but real-time feedback on some of the recent improvements we've made to the vision system and electrical energy instrumentation. In this most recent lab, new insights on how a traditional laparoscopic surgeon adapts to robotic surgery will be helpful as we develop training programs for our human clinical trials after our ID submission. Our interactions with the FDA continue to be productive and informative as we use the Q submission process. In the quarter, we completed another conference call with the FDA after submitting a Q submission at the end of last year. The company anticipates submitting another Q submission later this year. Transfer to manufacturing continues as we continue with our product development. The company completed the final design transfer to benchmark of capital equipment, a surgeon workstation and patient cart, and is working to finalize selection for contract manufacturers for draping and consumables. The permanent CEO search is progressing well. The board's ad hoc CEO selection committee has now met with a number of qualified candidates, with a few moving to a leadership assessment analysis. We continue to evaluate options to address the NASDAQ notification regarding minimum bid price deficiency. Finally, Stephen and I participated in the Bloom Burton & Company Healthcare Investor Conference in Toronto, on May 2, 2022, where I had the opportunity to present, and we encourage you all to listen to the webcast, which is available on our website. Our timeline to commercialization remains unchanged, and we continue to evaluate this timeline on a regular basis and mitigate against uncontrollable items. As previously outlined, we are proceeding with plans for marketing authorization utilizing the de novo classification request pathway. communications with the FDA have been informative and productive. We currently plan to file the IDE application with the FDA in the first quarter of 2023 and anticipate 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 trial or human clinical study in the second half of 2023. We anticipate, given what we know today, that our IDE clinical study will include total laparoscopic hysterectomies performed on 30 to 40 patients at three to four clinical sites. Upon completion of the clinical study, we plan to submit a de novo classification request with the FDA in 2024. Commercial launch of the ENO system is scheduled to begin upon receipt of marketing authorization from the FDA anticipated in early 2025. I've got to tell you, it's a privilege to work with such a committed and talented team. Our capital equipment manufacturing partner, Benchmark, continues to perform. Our engineering, procurement, regulatory, and quality management team are fully integrated with their team and working well with their benchmark counterparts. While we all remain concerned about the ongoing Ukraine-Russia conflict, market instability, COVID variants, supply chain issues, and a tightening labor market, we continue to diligently monitor these factors, trying to mitigate risk and impact where we are able. We remain optimistic as we look at the long-term opportunity for our company and our shareholders. We believe that our innovative and differentiated single-access robotic-assisted neurosurgical platform, once cleared by the FDA, will be well-received by surgeons and hospitals. Our intellectual property portfolio, our knowledge and experience, and our talented team all continue to grow. Partnerships with companies like Medtronic tell us we're on the right path, and our role and contribution to single-access robotic-assisted surgery technology industry is meaningful and needed. Steve and I look forward to participating in additional investor conferences and meeting with current and new institutional investors as market conditions improve and in-person meetings come back into favor. Our increased investor outreach activities and focus on developing Titan's narrative for the Eno system have resulted in increased coverage by health technology journalists. Our story on how the Eno system is positioned to positively impact patient outcomes, provide performance benefits to surgeons, and improve hospital economics is resonating. I'll 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 March 31, 2022, we had cash and cash equivalents of $30.1 million, a $2.2 million decrease from $32.3 million at December 31, 2021. In the quarter, an operational cash burn of $10.2 million was partially offset by the $8.3 million received from Medtronic in January. We continue to anticipate that our cash on hand will fund operations into Q1 2023. Total expenses were $12.1 million in the quarter, a slight increase from $11.8 million in Q1 2021. Research and development expenses were 78% of total operating expenses compared to 65% in the comparative period. This shows an effort by the company to focus more resources on the development of the ENO system. R&D expenses were $9.4 million in the first quarter of 2022 compared to $7.6 million for the three months ended March 31, 2021. In the quarter, the company's R&D expenses were focused on finishing product development and transferring key components of the ENO system to manufacturing. In the comparative period, R&D expenses related to the development of the ENO system and the development work required to achieve the milestones under the development agreement with Medtronic. G&A expenses decreased to $2.5 million for the first quarter of 2022 compared to $4.1 million for the comparative period. The decrease in G&A expenses in the quarter is related to a decrease in professional and consulting fees of 0.9 million and a decrease in stock-based compensation of 0.2 million. Our team has been diligently improving and streamlining our processes that have resulted in efficiencies and savings across the company, as evident in our financial statements this quarter. We have and will continue to resource programs that support reaching our corporate goals. We also continue to investigate capital market options that will support financing the ENO system through the de novo regulatory pathway. We plan to share the results of this work in the coming quarters. Titan's accomplishments are significant and support our continued shift from product development to working with manufacturing partners and in-house talent to build the ENO system for planned use in IDE clinical trials and ultimately commercialization. With that, I will turn the call back over to Paul.

Thank you, Stephen. In summary, we remain on track with our timeline to market. Our team is engaged, committed, and performing. Our product is designed to address clearly understood market needs and requirements and will provide the economic benefits hospitals demand. Our single access surgical technology is innovative and protected by a broad portfolio of patents. We'd like to thank our board, our partners, our employees, and most importantly, our patient shareholders. We will continue on our mission to get the email system to market as safely and as soon as possible.

We will now open the line for questions. Operator?

Thank you, sir. At this stage, we will be conducting a question and answer session.

If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then 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 key. The first question we have is from Siraj Kalia from Oppenheimer & Co. Please go ahead.

Morning, everyone. Paul, can you hear me all right? I can hear you great. Thanks. Perfect. Hey, Paul, so the Q-Sub, If I got your comments right, there was another Q-Sub filed, and I'm curious to know more about that. Our understanding is if, let's say, the Q-Sub lasts 75 days, at least when the FDA has to give you some response as to the next steps. So I'm curious, what happened in the first Q-Sub? Why is the second Q-Sub needed, especially if you're going down a de novo 510k route?

Yeah, no, thanks for the questions, Raj. What we're doing is the last Q-Sub was filed in December, and then, as you point out, there's a time limit when they need to respond, and then they set up a one-hour conference call. What we typically do with these Q-Submissions is, We pose a number of questions and we put together some responses and we look for reassurance or comfort from the FDA or an answer to the question. The questions that we targeted in December were related to the clinical trial protocol and a few other issues as it relates to new usage for the human clinical trials. The next set of Q-subs, and by the way, you're allowed to do as many Q-subs as you like. It's the mechanism that the FDA uses to encourage questions and clarifications. The next set of Q-subs relates to some of our validation verification testing, which will begin after receipt of the capital equipment at the end of July, early August. And so we've posed a number of questions, making sure that our verification validation techniques are are valid, and so we'll be using that queue submission process again.

Got it. Well, one additional question. In terms of being a potential manufacturing and supply partner for Medtronic, I'd love to get some perspective. Is this for a separate Medtronic platform? Is this for the Hugo? Or any additional color would be greatly appreciated. Thank you for taking my questions.

Thanks again for the follow-up question. We don't know, because Medtronic have been giving us what platform or what their commercialization strategy is, but really the supply of instruments and cameras and the evaluation of these instruments and cameras really is a follow-on from the last engagement we had with Milestone running through most of 2021. So, yeah, I mean, the short answer is we don't know what platform they intend to commercialize on, but it's just the evaluation of those instruments and cameras.

Thank you. Thank you, Sal.

Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one now.

We'll pause a moment to see if we have any further questions from the conference. Danae, we have a couple questions from the webcast that I can share. Please go ahead, ma'am.

So the first question is, with the rebooting of Titan Medical's regulatory division, do you feel confident that everything is in place to ensure a smooth pathway to IDE application for the ENO system?

Yeah, no, thanks for the question, Kristen. You know, I mean, it's never a smooth pathway, I'll be honest. but the team is in place anticipating questions from the FDA. You're putting all the infrastructure that's required for our quality management system and putting together the innovation, innovation device exemption application. So the team is, is it's, it's a significant team now. And I think it's seven or eight people run by Tammy. And, you know, they are, they're anticipating questions in advance. I've talked earlier about the key submission process and, taking full advantage of that to engage the FDA and get clarification.

So I think it's as smooth as it could possibly go.

And the next question is perhaps for Stephen. Could you comment on the monthly burn rate and describe what we might be expecting there in the future?

Sure. Thanks, Kristen. Yeah, so in this quarter, we burned... just over $10 million. We expect the burn to be lumpy over the next few quarters because in Q2, Q3, we'll start receiving capital equipment, but then our internal burn to transfer to capital will decrease. So we had $30 million of cash at the end of the quarter. We expect that cash is going to last us into the first quarter of next year, and then our burn will average somewhere in the $8 million to $10 million range of quarter.

And Paul touched on this a little bit, but perhaps give an update on where we are with the new CEO search.

Yeah, no, I've already covered that off on the call, Kristen, and thanks for the call. But the ad hoc committee has been evaluating candidates using a top-tier recruiting organization, and we've moved a few of the candidates into a leadership assessment process that and just making sure that we have a good fit with a number of candidates with our company culture and where we're going as an organization.

Super. And maybe this is for Stephen. Could you elaborate on the shareholder purchase program and maybe your efforts to increase insider holdings?

Sure. Thanks, Kristen. Yeah, so we were heading into our annual shareholders meeting in June. One of the items that are being voted on is an employee share purchase plan so this will allow employees and management in the board to purchase shares in in the company and it allows us to do that through blackout periods so right now the challenge is there's a small company it gets tough to accumulate stocks so this is a tool we can use the other tools we have is the restricted share unit program so we do have So members of our board and executives like Paul are taking a portion of their compensation in stock as well. So we're starting to leverage these tools to give employees in management the opportunity to start buying more shares in Titan Medical.

Okay. And when do we expect the first system to be delivered by benchmark to Titan Medical?

Yeah, I think the current project plan looks like it's coming in the end of July, and then I think we'll be taking delivery of six units. The first unit is going to be called what's an engineering confidence build, just making sure all the setup's right and all these sorts of things, including crating and shipping to our device and some real detail. And then the subsequent five units will be coming in after that. But, yeah, we're looking at delivery. I think the first delivery is the end of July, and then the rest of the units should be shipped out sometime during the beginning of August. Perfect.

And then perhaps, Stephen, you could talk about the notification that we received from NASDAQ and our efforts to meet their requirements.

Sure. Yeah, thanks, Kristen. Yeah, as we know, we received a NASDAQ deficiency notice that we press released in December of As part of the first six months, that period ends June. So we're working with a group of advisors to look at all the options we have to satisfy the NASDAQ listing requirements. We'll have further updates on that in the future. We did release all of our proxy stuff, so a reverse stock split was not one of the tools that we were going to use at this AGM. So we're going to look at some of the other options that are available to us, and we'll provide further updates as we get closer to that June date.

Perfect. And then just regarding the IDE application next year, how long do you anticipate the human clinical studies to take? Three to four months, question mark?

Yeah, I think on the current project plan, it's anticipated to be three to four months. We're targeting three to four sites, more likely four sites. Part of that is to mitigate the risk of if a hospital gets closed down for COVID-related issues or something along those lines. the inclusion criteria is quite broad for the number of patients that's required for our clinical study. So we think that we should be able to get, I don't think that'll be a constraint. Yeah, so I think three to four months probably makes the most sense. And then we have to then take those clinical findings, wrap them all up, and then along with some additional validation verification testing, then complete the de novo application. So I mean, that process requires a lot of work, a lot of time.

But yeah, the human clinical trial should be three to four months. Perfect.

And then maybe one final question. We know it's hard to comment a lot on this, but can you share how Titan looks at its timeline when we look at compared to Vicarious? It seems as if we could be ahead and have a clear timetable that puts us as the one to watch first.

Yeah, I mean, there's a lot of work to do between now and when we receive final FDA clearance. I had a chance to review the vicarious documents in too, too much detail. But at this point in time, it looks like we will be ahead of vicarious by at least six to 12 months on our FDA clearance. application and subsequent approval. But I mean, like I said, there's a lot of uncertainty on that. And, you know, right now it looks like there's an advantage, but hopefully that'll play out over the next four to six quarters.

And then final question, are you still looking at outside partnerships?

Yeah, absolutely. It's one of our quality, it's one of our company objectives for this year to look at potential licensing partners for a licensed part or portion of our intellectual property. And we'll always be looking for partners as it relates to vendors for our supply chain, these sorts of things, as well as ongoing features and functionality for the e-mail platform. So we're open, we're collaborative, and we're looking to increase the number of partners that we work with over the next six to 12 months.

Thank you, Marilyn. Ladies and gentlemen. Apologies.

Ladies and gentlemen, we have reached the end of our question and answer session. And I would like to turn the call back to Paul for closing remarks.

Well, thank you, operator. I want to thank everyone for joining us on the call this morning. We're very excited about the opportunity that lies ahead for Titan and remain focused on bringing our single-access robotic-assisted surgical system to market for the benefits of patients, surgeons, and hospitals. We appreciate your support and look forward to sharing future updates on our progress over the next several months.

Thank you again and have a great day.

Thank you, Seth. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.