Titan Medical Inc.

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. Forward-looking statements involve significant risks, uncertainties, and assumptions. Many factors could cause companies' 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 sections of the company's annual report for the fiscal year ended December 31st, 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 contents in making investment decisions or recommendations. The news release is available at www.titanmedicalinc.com. With that, I will turn the call over to Terry Vance, Titan's newly appointed president and chief executive officer. Terry?

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 you know, I've been a member of Titan's board of directors since September 2020. I have a passion for this space and 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 so enthusiastically joined the company as CEO last month. Over the past month or so, my belief in Titan, the innovation built into the ENOS system, and the prospects for the company's future have never been stronger. On today's call, 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. Titan Medical is an innovation leader in single-access robotic-assisted surgery, or RAS, with over 215 patents and applications. Titan's intellectual property provides a technological breadth and depth of coverage in RAS 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, setting Titan 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 ENO 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, make 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 increased efficiency between surgeries. The eNOSystems 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, hand controllers, and a 3D HD screen for displaying images of the surgical site in graphical overlays. In designing the ENO system, we have taken into account the feedback received from surgeons, including those that have interacted with prototypes of our system in order to design a technology that meets their preferences and needs. Titan has heard repeatedly that the ENO 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 to increase versatility when required without having to reposition the patient card. The IngoSystem 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 for 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 system, such as the ENOS system, to comprise a more significant segment of the overall RAS 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 ENO system to be gynecology procedures for which the benefits of single access are likely most impactful. Upon regulatory clearance and launch of the ENO system, we intend to follow with urology and other indications for use. In meetings with members of the Surgeon Advisory Board, we have gained valuable insight on what surgeons are looking for in the next generation of single access surgical robotics. Their insight continues to be a critical part of our innovation pathway and will influence not only how the ENO 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 ENO 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 announcement, 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 rules. and will continue to reevaluate options to address the price deficiency to regain compliance prior to the December 26, 2022 deadline. 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 ENO system. We expect to hear back from the FDA on this Q 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 Titan and the Enos system during the plenary session. We announced an agreement with Nisha 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 and special meeting of the shareholders on June 8th. All nominees were elected as directors of the company by shareholders. The shareholders approved the renewal and amendment of the company's 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, and commercialization experience to Titan and will be responsible for both in-house and contract manufacturing relationships. We are excited to have him on board. The path to manufacturing ENOS continues as we finalize design transfer to benchmark for capital components of the ENOS system, including the surgeon workstation and patient cart. Manufactured 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 that is available on our website. As previously communicated, we are proceeding with plans for marketing authorization utilizing the de novo classification request pathway. Our communications with the FDA continue to be constructive. On June 28th, we announced that 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 and 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 postpone 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 are planning to perform total laparoscopic hysterectomies 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 ENO 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, and 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 a meaningful improvement 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 endosurgical 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 Eno system and 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 Eno 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 Mamou, our Chief Financial Officer, to review our financial results. Stephen? Thank you, Kerry.

I want to extend my welcome to you from the Titan team. We are pleased that you've joined us and look forward to working with you on our common goal to bring the innovative ENO system to market. Turning to our quarterly financial results, please note in the following discussion all numbers are in U.S. 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 30th, 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 ENO 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 ending 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- and six-month period ending June 30 of 2022 were related to the development of the ENO system and an increase in labor costs as the company continues to add the required resources to its engineering, regulatory, and quality teams to advance the ENO system. During the six-month period, the company's focus was on completing product development and transferring key components of the ecosystem to our external manufacturing partner. During the second quarter, the company transferred substantially all of these components to its 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 seller's costs and public company costs. For the six-month 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 primarily related to a decrease in stock-based compensation of $1.4 million and a decrease 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 goals and bring the ENO system to market. We also continue to investigate capital market options that will support financing the ENO system through the de novo regulatory pathway and eventual commercialization. Our discussions with interested parties continue, and we plan to show the results of this work in the coming months. Tightened shift from product development to the collaboration between our manufacturing partners and in-house expertise to build units of the ENO system continues successfully. We remain focused on our IDE submission, building units for use in planned IDE clinical trials, and ultimately commercialization of the EMO system. Our driving purpose is to improve outcome for patients. We have made solid progress and will continue our hard work to see our goals through. With that, I will now turn the call back over to Kerry.

Thank you, Steven. 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 Eno system to 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. To ask a question on the phone, you may press star, then 1. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Ms. Goffetti, are there any questions?

Yes, thank you, Keith. We have a couple questions regarding the benchmark relationship, and they're asking when will Benchmark be delivering completed units, and how many will they be building? Terry?

Yeah, thank you, Kristen. It's a 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 manufacturer of six units. So 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 timelines.

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?

Yeah, thank you. The manufactured 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 two multi-articulating instruments. Thanks.

There are a couple questions regarding Medtronic. They would like an update on the purchase order, and they're asking what platform will be supplied instruments used for.

I'll take that one, Kristen. So, we announced the purchase order with Medtronic in May, where we will produce instruments and cameras for Medtronic's evaluation and testing, in addition to producing instruments and cameras for our 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 at 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 trials. We're asking where those trials will be conducted and which surgeons will be managing the trials.

Okay, thank you. The anticipated clinical trials and the trial sites are all located in the U.S., and I think, importantly, they belong to major hospital systems. If you also incorporate the facilities that are affiliated with our SAB members, there are a total of just under 300 hospitals affiliated with our efforts there.

And a question on Paul Catford's compensation. Why was Paul compensated financially after being replaced by you, Kerry, as president and CEO? Stephen?

I'll take that one. So Paul's contract provided for a 30-day transition period to allow for a smooth transition from Paul to the new CEO, who is Kerry. So accordingly, in terms of his agreement, he was compensated during that period, which ended on July 31, 2022. Okay.

Yeah, 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 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? follow on what is increasingly being done to increase insider holdings?

Sure, I'll take that question as well. 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 while restricted stock units, they provide a path to equity 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 that cover the tax obligations. So Paul was left holding the net amount of shares after the tax piece. With respect to increasing insider holdings, so the board has put a number of mechanisms in place, so including granting of RSUs to 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 and strategists?

Yeah, thank you. So we have, and I have personally, and will continue to reach out to several strategic partners to discuss mutual interests and working together, and that will continue, and we look forward to that.

And regarding financing, what activities are you considering to fund the company to FDA IDE submission and then commercialization?

Yeah, I'll take that one, Kristen. 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 transactions. So our goal is to raise capital this year to continue to fund ENOS 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 a reverse split?

Thanks, Kristen. So as everyone knows, we were granted an extension through to December 26, 2022 from the NASDAQ. Our goal is to remain in compliance with the NASDAQ, so we're going to continue to work on that through delivering on milestones and continue to develop the ENO system. A reverse split is one of the tools that can be used to regain compliance, and we're going to continue to evaluate this on a monthly basis as we approach the December date.

And then a question about training and commercialization sites. Will Chapel Hill be used as a training and commercialization site?

Yeah, thank you, Kristen. 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'll 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.

And where do you see ENOS compared to other single assets? access systems in development? What will make, you know, stand out as differentiated and what timeline are you expecting and anything you could comment on the competitive environment?

Okay, that's a lot of questions. Thank you, though. So, you know, we see other entrants 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'll be the case. We focus on our own timelines. We have plenty to do, and so we know there are things outside our 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 Aspire, there's a question asking, did it expire and what happened to the remaining funds that should have been available?

Yeah, so everyone knows that we had an agreement with Aspire. It's an 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. Kerry, did you want to have a closing remark?

Yeah. I want to thank 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 system to the market for the patients and surgeons and hospitals. And so with that, thank you, and have a great day, everyone.

Thank you. The conference is now concluded. Thank you for attending today's presentation.