Titan Medical Inc.

Good morning and welcome to Titan Medical's third quarter 2022 earnings conference call. 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 call over to your host, Kristen Galfetti, VP, Investor Relations. Ms. Galfetti, you may begin.

Thank you, Operator. Good morning, everyone, and thank you for joining us for Titan Medical's third quarter 2022 financial update conference call. Early this morning, we issued a press release summarizing Titan's third quarter 2022 financial results and business highlights. A copy of the release can be found in the Investor Relations section of our website at www.titanmedicalinc.com. As a reminder, certain statements made during this conference call constitute forward-looking statements that reflect management's current expectations of the company's future growth, results of operations, performance and business prospects, and opportunities. Forward-looking statements involve significant risks, uncertainties, and assumptions. Many factors could cause the company's actual results, performance, or achievements to be material difference 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 31, 2021, which may be reviewed at cedar.com and at sec.gov. Please read all the 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. Joining me on the call today, we have Kerry Vance, Titan's President and Chief Executive Officer, and Stephen Lemieux, Titan's Chief Financial Officer. With this, I will turn the call over to Kerry. Kerry?

Thank you, Kristen. Good morning and welcome to Titan Medical's third quarter 2022 financial update call.

It has been an exciting quarter as I hit the ground running in my first few months. We had many accomplishments over the past several weeks, the most exciting being that the ENO system is in production at our partner benchmarks manufacturing plant. This is an important step and places our goals closer in view than any time prior as we look to receive the first ENO system at our Chapel Hill facility next month. We also announced that, after careful consideration, we will be holding a special meeting on January 12, 2023, to seek shareholder approval for consolidation of Titan's common shares to be affected by the company's board of directors at their sole discretion. The share consolidation may be given effect by the company with a view to regaining compliance with the NASDAQ minimum bid price requirements. which the company is not currently in compliance with and for which the company has until December 26, 2022, to demonstrate compliance. Compliance with the NASDAQ minimum bid price requirement is required to maintain our NASDAQ listings, which management and the Board of Directors deem critical to provide company with continued exposure to the largest capital market in the world and potentially provide an increased catalyst for institutional investor ownership. Stephen will provide additional details later in our discussion, but our focus remains on bringing the ENO system to market. Ted Medical is an innovation leader in single-access robotic-assisted surgery, or RAS. The ENO system was designed to address shortcomings of our current RAS systems. The goal for single-access surgery is to improve outcomes for patients by reducing the number of incisions or access points. While there may be a cosmetic advantage, this surgery can result in smaller and fewer scars, smaller amounts of narcotics, smaller recovery, and less pain and trauma to the body. Additionally, we aim to make surgical procedures easier, more comfortable, and more effective for surgeons using an ergonomically designed system. Importantly, we plan to drive adoption at hospitals by lowering costs, decreasing the footprint required for the equipment to operate, and increasing efficiency between surgeries. The ENO system is designed to enable a surgeon to interact openly with the operating room team members. The ergonomically crafted workstation is designed to be comfortable and allow the surgeon to see and communicate with the operating room team. Our surgeon interface consists of foot pedals, hand controllers, and a 3D HD screen for displaying images of the surgical site and graphical overlays. We designed the ENO system from the ground up and incorporated surgeon feedback at every step. Surgeon input, including input received from using prototypes of our system, provided us with guidance to design a technology that meets their preferences and needs. We wanted to ensure that the ENO system would be instinctive and easy to learn, use, and master. The system's dexterous and extendable 3D HD camera and precision instruments convert easy-to-learn and natural hand gestures into accurate surgical movements. These instruments have been designed with increased versatility to allow surgeons to operate close to the abdominal wall or surgical entry point in a small surgical volume, as well as in multiple quadrants when required without having to reposition the patient cart. The ENO System Patient Cart. 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 insertion tube. Importantly, the patient card is designed to offer swift docking, easy-to-load instruments, and easy draping. We believe these features will allow hospitals to turn over the surgical suite faster and more efficiently, which is vitally important to the OR and hospital management. 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. With over 225 patents and applications, Titan's portfolio includes patent families with early coverage dates. setting us apart from newer entrants in RAS. Importantly, our IP portfolio provides the company with potentially valuable protection and defense from competitive technologies, bestowing possible commercial gains and benefits, including further licensing opportunities. The market for RAS systems is robust and continues to grow. Currently, the market is dominated by multiport surgical systems. While the market adoption for single-access systems has been slow, our research suggests that an opportunity exists for an innovative single-access system, such as the ENO system, to comprise a more significant segment of the overall RAS market. The ENO system has been used in over 80 animal and cadaver lab cases with leading surgeons. During these studies, we collected a wide range of data in support of several procedures, including gynecology, urology, general surgery, and colorectal surgeries. This data supports our belief that the ENO system may eventually, with appropriate regulatory clearances, be used for a range of procedures. Titan's initial indication for the ENO system is planned for gynecology procedures, for which the benefits of single access are compelling. Upon regulatory marketing authorization and launch of the ENO system, we intend to follow with applications for use in urology and other indications. We interact often 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 robotics. Their insight has been and will continue to be a critical part of our innovation pathway, influencing how the ENO system can address current unmet needs, but also providing advice on next-generation technology enhancements to meet future surgical needs. I want to share with you our progress to date and review the opportunity that we see for Titan in the RAS space, and our ability to innovate and advance single-access robotic surgical technology to positively change the surgical paradigm for patients, surgeons, and hospitals. Titan has shared several accomplishments during the third quarter and the weeks following, including we participated in the MedTech Conference in Boston in October, sponsored by Avomed, where key executives and innovators explored critical topics and shared visions for the future. I was invited to serve on a panel with other med tech and regulatory professionals to discuss how to navigate regulatory and business considerations in surgical robotics innovation. It was standing room only, and the conversation was lively. During the conference, we met with many members of the medical technology community and investors and shared Titan's story, our upcoming milestones, and how we believe our ENO system will improve the surgical experience. It was great to meet with folks in person to share our passion and discuss our innovative single-access robotic system. We appointed Eric Heintz as Vice President, Market and Corporate Development, who is responsible for developing and executing a strategic business plan to expand and accelerate the InnoSystems portfolio cadence. Recently, Eric served as Director of Business Development for Smith & Nephew, consulted the Zoomer Biomed, and served as a product manager over the $500 million instruments, accessories, and video system portfolio at Intuitive Surgical. Eric will help to leverage our industry partnerships to provide products that we believe will make a meaningful improvement to single-access robotic-assisted surgery technology. We are delighted he has joined our team. As I mentioned earlier, we completed design transfer to our manufacturing partner, Benchmark, for capital components of the ENO system, including the surgeon workstation and patient cart. Manufactured units of the ENO system are expected next month at our Chapel Hill facilities. This milestone is one of great pride for the entire Titan team, and everyone is very excited to receive the first system and to begin verification, validation, and safety testing on the delivered unit in support of the planned IDE submission to the FDA in 2023. We continue communication with the FDA utilizing the Q submission process as part of our ongoing plan to obtain additional guidance from the FDA regarding a de novo clinical submission for the ENOS system. We received helpful feedback from the FDA on our last few submissions and appreciate that we are able to utilize this effective process. We continued expanding our intellectual property portfolio, which now includes over 225 patents and applications, and includes innovations in next-generation single-access RAS technology, including those designed to support three instruments that are simultaneously positionable within an insertion conduit. We signed an agreement with Medtronic to manufacture and evaluate the performance of instruments and endoscopes. Titan will manufacture instruments and cameras for Medtronic to support development and evaluation for commercial supply for preclinical activity. Finally, we participated in the H.C. Wainwright Global Investment Hybrid Conference on September 12th and met with investors. We encourage you to listen to the webcast that is available on our website. Looking forward, we are proceeding with plans for market authorization utilizing the de novo classification request pathway. As I mentioned, our communications with the FDA continue to be constructive, and we plan to continue to utilize the Q submission process for additional regulatory clarification. Our timeline remains on track, and we plan to submit our IDE to the FDA in mid-2023. We have worked closely with Benchmark to secure components and materials in the supply chain and mitigate delays affecting production of our robotic systems. And as I mentioned, we expect to take receipt of our first system next month and then begin the verification and validation testing process. We are also building instruments and cameras, which are important components of our system. We expect our human clinical trials to start next year, subject to IDE approval. 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. I mentioned our patent filings as an example of our commitment to innovation. Together with the knowledge and experience of our talented team, we will continue to strengthen the company and promote our position within the industry with an eye on innovation for future single-access robotic systems. Our team will continue to engage with new potential investors to share Titan's narrative for the InnoSystem and the effect we believe the system will have on improving surgical outcomes. Importantly, we plan to meet with multiple audiences, including shareholders, physicians, and members of the media and others, to communicate 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. We are currently planning investor roadshows, participating in several investment bank conferences, and attending upcoming surgical summit meetings and medical society annual conferences. We invite you all to follow our story on social media via our LinkedIn and Twitter pages, where you will find photos and links to related activities that we engage in regularly. We have recently added a white paper and employee videos to our website that you may find interesting and informative. As we look at the long-term opportunity for our company and for our shareholders, we remain optimistic. The realization of our goals becomes closer every month. We strongly believe that our innovative and differentiated single-access robotic-assisted endosurgical platform, when authorized for marketing by the FDA, will improve patient outcomes and be well-received by surgeons and hospitals. I will now turn the call to Steven Lemieux, our Chief Financial Officer, to review our financial results. Steven?

Thank you, Kerry. Turning to our quarterly financial results, please note in the following discussion, all numbers are in U.S. dollars. As of September 30th, 2022, we had cash and cash equivalents of $11.6 million compared to $32.3 million at December 31st, 2021. We continue to anticipate that our cash on hand will fund operations into the first quarter of 2023. For the three months ended September 30th, 2022, total expenses were 10.6 million, a decrease from 14.1 million in Q3 2021. For the nine months ended September 30th, 2022, total expenses were 35.4 million compared to 37.9 million for the same period in 2021. R&D expenses were $7.6 million in the third quarter of 2022 compared to $10.7 million in the third quarter of 2021. The decline in R&D expenses is related to the transition from development to manufacturing as the company awaits delivery of its first manufactured ENO system by benchmark later this year. For the nine months ending September 30th, 2022, R&D expenses were 26.7 million versus 28.4 million for the same period in 2021. R&D expenses for the nine-month period ending September 30th, 2022 were related to the development of the ENO system and an increase in labor costs. 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 $3 million for the quarter ending September 30, 2022, compared to $3.4 million for the quarter ending September 30, 2021. The decrease in G&A expenses in the three-month period is related to a decrease in stock-based compensation of $0.4 million. For the nine-month period ended September 30, 2022, G&A expenses were 8.7 million compared to 9.6 million in the comparative period. The decrease in G&A expenses in the nine-month period is primarily related to a decrease in stock-based compensation of 1.8 million and a decrease in professional and consulting fees, partially offset by an increase in severance costs, public company costs, and the recruitment fees related to filling open roles on the senior leadership team. Titan has successfully shifted from product development to working with our manufacturing partner to build the Eno Systems patient carts and workstations. The collaboration between our manufacturing partners and in-house expertise continues successfully. We remain focused on our IDE application submission commencing and completing our IDE clinical trials, and ultimately commercialization of the ENO system. As Kerry mentioned, we will be seeking shareholder approval to implement a share consolidation to provide the company with the option of affecting the share consolidation, including for the purposes of demonstrating compliance with the NASDAQ rules, which requires the issuer to maintain a minimum bid price for at least $1 for a minimum of 10 days, but generally not more than 20 consecutive business days. As we have previously shared, NASDAQ granted us an extension to regain compliance with minimum bid price requirement. Can we continue to undertake initiatives directed at increasing shareholder value? Should the company not be able to evidence compliance prior to December 26, 2022, The company expects NASDAQ to notify Titan that its shares are subject to delisting. At such time, the company would likely appeal such determination and is expected that the company's securities would continue to be listed and available to trade on NASDAQ, at least pending the completion of the appeals process. The shared consolidation, if approved, would likely be the last option available to the company to regain compliance with the minimum bid price requirements. If proved by shareholders and affected by the company, the consolidated shares, the anticipated resulting price may also provide a catalyst for institutional investor ownership, provide the company with continued exposure to the largest capital market in the world and liquidity from the company's common shares. As a reminder, Should the share consolidation be approved and affected, the book value per share of Titan's common shares would be increased by the same share consolidation ratio so that the share consolidation would have no impact on the book value of an investor's total share position. Additional details of the proposed share consolidation, including the proposed ratio, will follow in a filing of a management information circular in connection with the special meeting. On August 25, 2022, our Form F-3 registration statement, or short-form base shelf perspectives, became effective. While many factors under securities regulations in Canada and the U.S., as well as the company's market capitalization, may impact the exact amount of capital the company may qualify to raise pursuant to the F-3 registration statement. The F3 provides the company the ability to raise up to $90 million of common shares, warrants, and or units in the U.S. over a period of 36 months, providing the company with additional flexibility in managing cash resources. Under certain circumstances, it may shorten the time period required to close a financing and is expected to increase the number of potential investors that may be prepared to invest in the company. It is an additional tool that we can use as we navigate our financing strategy. Our driving purpose is to improve outcomes for patients. We have made solid progress, and we continue to work hard to see our goals through.

With that, I will turn the call back over to Kerry. Thank you, Stephen. We would like to thank our board, our partners, our employees, and importantly, our shareholders.

As we progress toward our goals and execute on our milestones, we hope that we can count on your support. We will continue on our mission to get the ENO system to market safely and as soon as possible. We will now open the line for questions. Operator?

I will now turn the call over to Ms. Galfetti, who will take questions from the webcast.

Great. Thank you, Paul. We have several questions to get to. The first will be, when do we expect the ENL surgical system to be delivered and ready to use in clinical studies?

Terry?

We expect our clinical, human clinical trials to start next year, subject to IDE approval. So, we've announced the transfer of design specifications for our workstation and patient cart. That's been completed with Benchmark, our OEM manufacturer. So we expect the ENO system consisting of both a patient card and a workstation to be delivered to Chapel Hill next month, December. And this will allow for us to complete safety and verification testing on the system that's necessary prior to its use.

Next question, there are several actually regarding today's announcement of a special meeting on January 12th, 2023, seeking shareholder approval for stock consolidation. Specifically, the question is, will this prevent Titan from being delisted on NASDAQ? And can you please provide details? Stephen?

All right. Thanks, Kristen. So as people know, we were granted an extension to continue, and we continue to undertake initiatives directed at increasing shareholder value. However, should the company not be able to evidence compliance prior to December 26th, we do expect the NASDAQ to notify Titan that its shares would be subject to delisting. At this time, the company would appeal as expected the company's shares would continue to be listed in trade on the NASDAQ pending the completion of the appeal process. The share consolidation, if approved at our shareholders meeting, would likely be the last option available to the company to regain compliance with the minimum bid requirement. The company will be sending meeting materials to investors in December, and those materials will include the consolidation ratio.

Kristen?

Next question. What activities do you plan to take to maintain the share price? Stephen?

Thanks, Kristen. So we plan to continue executing on our plan. We've got a lot of value creating milestones in the next 12 months, which include our manufacturing builds and the delivery of the ENO system next month, like Kerry mentioned, and then we'll be submitting our IDE application mid-year and then heading into our human clinical trials.

Okay. Next question, what activities are you taking to fund the company to FDA IDE submission and then to commercialization?

Steven? I'll take that one as well. So our cash balance, our current cash balance is expected to fund our operations into the first quarter of 2023. We have engaged with parties and we're exploring additional capital funding ideas to fund the business through commercialization. We set these conversations to continue as part of our initiatives to fund the company through future milestones, and we'll keep the market updated on our progress. Great.

Switching gears, do you have an update on the instruments camera project that you have with Medtronic? Could this possibly turn into a larger agreement with additional revenues? Kerry?

Sure. The assembly and manufacturing process is going very well. and we expect to deliver the instruments and cameras early next year which is uh which is in accordance with their purchase order on time as far as turning into a larger agreement i mean right now we're focused on meeting this current commitment on time and with high quality and reliable technology as we're able to do that it strengthens our value as an innovator and as a supplier and and furthers opportunities for for growth and for other opportunities with Medtronic as well. Medtronic's been a great partner, and we look forward to continuing to work with them.

Thank you. Next question. How will you convince investors to invest, Gary?

Well, it's a difficult market. It's highly volatile right now, but we believe the best course of action is to concentrate on creating value and to execute on value creating milestones like execution of product development, manufacturing builds, delivery of the ENO system, clinical success, and then ultimately regulatory marketing authorization, which leads to commercialization. So at every point, what we're trying to do is reduce risk. And every time we execute on a milestone, like the delivery of a system next month, it's a big deal in terms of reducing that risk. Now, in parallel, as we're reducing risk, we also want to continue to create awareness and excitement about what this kind of technology can do. And with our future customers and their patients, we want to make sure everyone's aware of how we can impact the market and how we can impact care. At the same time, we want to increase our investor outreach. to institutions that traditionally provide added stability in the stock. And in addition, we've increased our public relations program, and we're seeing interest and uptake with journalists as their story becomes widely heard.

Thank you. Steven, perhaps you could take this one. Titan recently filed an F3 registration statement. What was this for?

Thanks, Kristen. So in August, our F3 registration became effective, and it provides the company the ability to potentially raise up to $90 million of common shares, warrants, and or units in the US over a period of 36 months. This provides a company with additional flexibility in managing our cash resources and raising capital to fund the Enos program through the de novo clearance.

Great. Another question. Why did members of senior management and your board chair sell shares? Is there anything being done to increase insider holdings? Steven?

Sure. Thanks, Kristen. So from time to time, employees, officers and board members, they may be granted restricted share units or RSUs. When these settle, common shares are issued and withholding taxes become due to the employee. So to cover taxes payable, the individuals can sell shares In connection with the settlement of the RSUs, this is a common practice in this space to cover the tax position. With respect to company ownership, so we're seeing a steady increase in the amount of ownership the company has. We've got a couple programs in place, so we just kicked off the employee share purchase plan, so we're in our first six-month window for that period, as well as the board has put in share ownership restrictions for members of the board and the C-suite. So those members are working towards fulfilling those obligations as well. So we expect to see insider ownership in the company continue to increase over time.

Great. A little different question, maybe, Kerry. Have you designed your launch strategy, and what do you think it will look like?

Yes. Yeah, we're actually very excited about our launch strategy. It might seem like it's a ways off, but it's never too early to put thought into it. I think what's important about a launch strategy is that it's very real because it can be a strategy, but the ability to execute on it is really important. Having experience in launching products and some of the hurdles that you see, it's good for me to get my hands on the strategy very early in the process. We're going to be very deliberative and strategic as we develop the strategy and as we launch the product. We'll develop our KOL centers of excellence that can serve as training centers. And we'll work closely with academic sites that can serve as influencers on outgoing fellows and residents. And we'll be sure to have the initial systems after launch in a diverse group of hospitals and centers that represent a cross-section of care that others can look to as proof points of successful utilization. Because for us, it's not just about launching a product. but it's about customers using it and liking it once they use it. And that's extremely important not only for them, but for future customers that will look to them as reference sites. Additionally, we plan to build out our integrated delivery network customers to expand into large integrated hospital networks in rural medical centers with several hundred hospitals.

Okay. Can you, referencing the completed the 80 animal and cadaver cases, can you talk about what feasibility studies have been conducted on Titan's single axis system, Kerry?

Sure. Thanks, Kristen. As you mentioned, we have completed over 80 preclinical animal and cadaver cases. And we've done so in the areas of gynecology, gynecology, oncology, urology, general surgery. colorectal surgeries, and we've done these at esteemed centers, including places like IHU in Strasbourg, France, Columbia University Medical Center in New York, and the Advent Health Nicholson Center in Celebration, Florida. So completing all these cases has really helped us to target the unmet needs of gynecologic surgery as our first indication, and to design our robotic system

and build it for the purpose of affecting potential additional indications.

Great. The company recently announced a patent application publication mentioning a single-axis RAS system designed to support three instruments. Does this mean you are abandoning the two-arm system? Terry?

Thanks. Well, no. I will say we're excited. and extremely proud of our patent portfolio, past, present, and future. Now that being said, we're focused on advancing the ENO system, which supports two instruments, and it'll be extremely competitive. Now concurrently with that, and necessarily as an innovation leader in single access RAS, we continue to innovate for the future. So this patent application documents such innovations for a potential next generation system that could incorporate three instruments along with an independent endoscope.

Excellent. And then our final question, have you had interest from other companies beyond Medtronic for strategic opportunities? Terry?

Thank you. Yeah, I mean, we've had many inquiries and discussions with other companies who see value and they're interested in learning more about the benefits of the Enos system and Titan in general and what the system brings to single-access surgical robotics. So I've spent the past four months having productive discussions with several companies as they inquire about mutual benefits they see between their technology or their strategy and what we've created for our system. We're committed to make sure we have the strongest partnerships, greatest opportunities to accelerate our path to market, and the most innovative tools for our current system and the next generation.

So we find these conversations to be very fruitful.

I think that's our last question, Kerry. I'll turn it back over to you for closure.

Thank you, Kristen. Thank you. Thank you. I want to thank everyone joining us on the call this morning. We appreciate your support and we look forward to sharing updates on our progress over the next several months. We're very excited about Titan's future, and we remain focused on bringing our innovative single access robotic assisted surgical system to the market for the benefit of patients, surgeons, and hospitals.

Thank you all so much for your support.

That concludes today's conference call. Thank you for attending, and have a pleasant day.