Vicarious Surgical Inc.

Good afternoon, and welcome to Vicari Surgical's first quarter 2022 earnings conference call. My name is Amber, and I will be your moderator for today's call. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to Marissa Beisch with Gil Martin Group for a few introductory remarks.

Thank you all for participating in today's call. Earlier today, Vicarious Surgical released preliminary unaudited financial results for the three months ended March 31, 2022. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance, expense management, market opportunity, and commercialization are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list of descriptions of the risks and uncertainties associated with our business, please refer to the risk factors section of our quarterly report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2022. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 9, 2022. Vicarious Surgical disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I will turn the call over to Adam Sachs, Chief Executive Officer.

Thank you, Marissa. Good afternoon, and thank you all for joining our first quarter 2022 earnings call. I'm excited about the progress and achievements we have made early in the year, which I will review shortly before discussing our operational results. Joining me is Bill Kelly, Vicarious Surgical's chief financial officer. I'd like to start by reminding you of our mission and vision. At Vicarious Surgical, we are committed to leveraging next generation robotics technology to improve the standard of care for patients across a variety of surgical procedures while minimizing associated costs to the healthcare system. Despite advancements to minimally invasive surgery over the last 40 years, it is estimated that more than 50% of the 39 million annual procedures addressable by surgical robots are currently performed using open surgical techniques. Trauma from large incisions associated with these techniques results in long hospitalization and recovery times, high long-term cost of care, and significant pain and suffering. While current minimally invasive techniques seek to address the substantial unmet need, these techniques fall short. Laparoscopic instruments are difficult to manipulate, have limited degrees of freedom, limited reach, and reduced depth of perception and visibility, requiring significant coordination among the surgical team to perform the procedure. Currently marketed robotic systems offer some advantages as compared to laparoscopic surgery, but require extensive training, have high associated costs, and see limited adoption. At Vicarious Surgical, we intend to deliver the next generation of robotic-assisted surgery to solve the shortcomings of open surgery and current laparoscopic and robotically assisted minimally invasive surgery. The Vicarius system combines advanced miniaturized robotics and software to build an intelligent single incision surgical robot that virtually transports surgeons inside the patient to perform minimally invasive surgical procedures. Our proprietary decoupled actuators enable human equivalent motion with a full nine degrees of freedom per robotic arm, providing an experience that is more natural and more akin to the surgeon's own upper body movements. In surgical procedures conducted on cadavers, the system allows surgeons to enter the abdomen from nearly any angle and work in nearly any direction, without the need to manually reposition the system. A stereoscopic camera that rotates in three degrees of freedom provides the surgeon with imaging of nearly every surface in the abdomen, The vicarious system contains 28 sensors per instrument arm, designed to enable real-time feedback to the surgeon on force, motion, and other key data intended to enhance the surgical procedures and patient outcomes. With its significant technical advantages, our system's value proposition to hospitals and ambulatory surgical centers is clear. The vicarious system is designed to provide excellent surgical dexterity with flexible setups, to enable indicated procedures to be performed faster and more effectively with less injury and risk to the patient, significantly reducing overall healthcare costs. Unlike legacy robotic systems, our system is also much smaller, easily moving to any operating room throughout a medical facility. Further, we intend for our product to be much more efficient to learn, set up, and use during a procedure. Hospitals and ambulatory surgical centers would not be required to dedicate permanent space, reducing expenses related to operating room turnover. Finally, our system's efficient size and design will allow a cost-effective price point. Considering these advantages, we remain incredibly excited about the unique opportunity for our system to benefit patients, surgeons, hospitals, and payers. Shifting to our recent progress. First, we are pleased to have completed the qualification of our clean room for the manufacturing of the vicarious system. The clean room substantially augments our existing capabilities by providing an environmentally controlled and easily expandable space for precision assembly. Through rigorous testing, the qualification process ensures that our space meets stringent efficiency and quality criteria. an essential step as we prepare for manufacturing our system. Secondly, we are excited to share that we have concluded cadaveric testing of our Beta-1 units and have begun testing some features of our Beta-2 system with surgeons. We have partnered closely with a select group of well-respected surgeons to integrate their thoughts and feedback as we refine the nuances of our technology, and we have high expectations in our final product. By engaging thought leaders core to the trajectory of surgical robotics, we know we will deliver a more thoughtful and comprehensive product prepared for efficient surgeon adoption. Over the past month, we have rigorously tested the first iteration of our Beta 2 Surgeon Console in order to help answer questions about the final Beta 2, which we intend to lock for production shortly. Feedback on ergonomic changes introduced between Beta 1 and Beta 2 has been well-received. with surgeons additionally excited for the improved visualization Beta 2 provides, as well as the enhanced sensing and motion capabilities, which enable the surgeon to move freely within the abdominal cavity, further expanding their access and ability to operate. On the note of surgeon partnerships, we are pleased to announce we have recently formed a Surgeon Luminary Group. This is a group of 20 of the most talented, experienced, and innovative surgeons providing critical expertise and thought leadership to guide all clinical aspects of our technology. These surgeons include Dr. Igor Belyansky, who is credited with being the first to describe robotic ETEF access technique for repair of ventral hernias and who is globally recognized as an expert in robotic abdominal wall reconstruction. Dr. Belyansky is excited to work with our company because of our technology's potential to change the paradigm across surgery. as well as the ability of our company to rapidly iterate and incorporate surgeon feedback into our product offering. It is truly an honor to have this incredible group of surgeons working alongside us to create the future of surgery. Leveraging the experience from Beta-1 and our many hospital and surgeon partnerships, as well as the expertise of our newly formed surgeon luminary group, we are now exploring opportunities for beta-2 cadaveric testing in a hospital setting as we finalize our product design. We look forward to continuing to update you on this progress in the coming months. Shifting to our early awareness and training efforts, we strongly believe that simulation outside of the operating room will play an increasing role in surgeon and staff training for surgical robotics. We have a talented team of software engineers who have developed a simulation platform. And we are pleased to announce that we have begun allowing surgeons to use our robotic simulator for clinical and technical testing. Our simulator allows surgeons to virtually test Beta 2 features in realistic scenarios, even from remote locations and without physical access to our system. This simulation program allows us to get surgeon feedback more quickly from more surgeons and with broader reach, ultimately ensuring that our launch meets the needs of surgeons and hospitals. We look forward to making our simulation for robotic hernia repair and additional use cases available to more surgeons across a broader set of hospitals later this year. We continue to identify and engage with major hospitals for product feedback as we finalize our system. To date, hospital engagement has reflected strong enthusiasm for our system. We are optimistic that our high engagement strategy will set the stage for broader reach as we plan our initial launch by ensuring that we are building exactly what surgeons and hospitals need. As part of our partnership efforts, we are working toward executing a center of excellence agreement with the goal of generating valuable insights on the development, integration, and finalization of the vicarious system. We are also confident that the center will help surgeons better understand and experience our system. We remain focused on leveraging our differentiated technologies and hand sensing to build out significant data and artificial intelligence capabilities. We see a unique opportunity for Vicarious Surgical to employ data and AI to assist in all aspects of the procedure from preoperative planning through postoperative care. Our unique hammer technology not only provides for additional physical space for multispectral light sources and filters, but also provides the platform for 3D mapping, enabling advanced intelligence to support the surgeon's decisions during the procedure and postoperatively. Before I turn the call over to Bill to review our first quarter financials, let me touch on our broader clinical and regulatory strategy. As a reminder, we are targeting the ventral hernia indication for our first clinical application. with the intent to file a de novo classification request by late 2024, following which we intend to file for three additional indications, inguinal hernia, cholecystectomy, and hysterectomy. With that, we hope that by maintaining a close cadence of submissions, we will be able to offer customers a broad set of use cases relatively early in our commercial launch. In summary, we are making important steps toward realizing the full potential of minimally invasive robotic surgery. Our team is thoughtful and uncompromising in our approach toward development, with an emphasis on ergonomic appeal and technological excellence. We are actively building meaningful hospital and surgeon relationships to capitalize on this unique opportunity, and we are as confident as ever in the road ahead. Thank you. And I will now turn the call over to Bill Kelly, our Chief Financial Officer, for a discussion of our first quarter financial results.

Thank you, Adam, and thank you all for joining us today. Total operating expenses for the first quarter of 2022 were $18.2 million, a 248% increase from $5.2 million in the first quarter of 2021. R&D expenses for the first quarter of 2022 were $9.8 million, compared to $3.6 million in the first quarter of 2022. The increase was primarily driven by a $3.6 million increase in personnel costs as R&D headcount increased nearly 100% compared to the prior year, as well as increased professional fees, facility, and material costs as we continue beta testing and development of the Vicarious system. General and administrative expenses for the first quarter of 2022 were $6.9 million compared to $1.4 million in the first quarter of 2021. The increase in G&A expenses can be primarily attributed to $3.1 million in increased personnel costs, as well as $2 million in insurance, professional fees, and other costs associated with being a public company. Sales and marketing expenses for the first quarter of 2022 were $1.4 million, compared to $0.2 million for the first quarter of 2021. The increase in sales and marketing expenses can be primarily attributed to increased headcount and related costs. Adjusted net loss, which represents gap net income or loss adjusted for the changes in the fair value of our warrant liabilities, was $18.2 million for the first quarter, equating to an adjusted net loss of $0.15 per share. As compared to an adjusted net loss of $5.2 million or an adjusted loss of $0.06 per share, for the same period of the prior year. Cap net income for the first quarter was $42.5 million due to a $60.7 million reduction in the fair value of our warrant liability for the period, equating to a basic and diluted net income of 35 cents and 33 cents per share, respectively, as compared to a net loss of $5.2 million, or a basic and diluted net loss of 6 cents per share for the same period of the prior year. For a reconciliation of all non-GAAP measures to GAAP, please review our earnings press release. Our cash burn rate for the first quarter of 2022 was $16.5 million, and we ended the quarter with $157 million of cash and cash equivalents. As we advance our development, clinical, and regulatory processes, we continue to expect 2022 cash burn of approximately $65 million to $75 million. We also continue to anticipate ending the year with approximately $100 million in cash and cash equivalents on our balance sheet. We look forward to updating you on our continued development as we march towards bringing the Vicarious system to market. We are uplifted by our progress to date and excited by the opportunity ahead. And with that, I'll turn the call back to Adam. Adam? Thanks, Bill.

I'd like to close by reiterating our appreciation for our team here at Vicarious Surgical, along with our investors, advisors, and partners for contributing to our company's achievements thus far. We have an exciting journey ahead, and we are making measurable progress in support of our goal to revolutionize minimally invasive surgery. Thank you again for joining today's call. Operator, would you please open the line for questions? Of course.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, that's star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking any questions. Our first question comes from Ryan Zimmerman with BTIG. Ryan, your line is now open.

All right. Thank you for taking the questions, Adam and Bill. Appreciate it. Good to hear the progress. Adam, last call we left with the update that you needed a trial. The FDA was requiring a trial for progress, for de novo approval. Can you provide any update or feedback since that time regarding the progress that you guys have made, any discussions with the FDA, anything you can share with us regarding that topic, I think would be appreciated for investors.

So thanks, Ryan. There's been a ton of progress across a few different areas with regard to the FDA with clinical trials and indication sequencing. From the FDA conversations, we've had conversations since then with the FDA, but have no formal or material updates to share on this call at the time. It's been incredibly positive open communication with the agency. We are actively planning and revising any clinical trial plans. Everything is still, as we shared, likely a relatively small number of patients and likely a single arm study without statistical significance. we've dug in in depth and will be able to have some significant parallel effort in order to achieve those four indications within roughly a year or so of launch, but have more details on that to come in the following quarters.

Okay. Good to know. Yeah, we'll certainly be looking forward to hearing about that. And then in terms of, you know, you're now moving into Beta 2, you were in Beta 1. You have the surgeon panel kind of up and running. And you talked a little bit about some of the changes. I think ergonomic, visualization. Can you just talk a little more about that, Adam? What specifically did you learn from Beta 1 to Beta 2 that you enhanced? And, you know, if you carry that forward, what can people expect on the newer system?

So the biggest learnings from Beta 1, above all else, have really been about the robot itself and the value of the patient-side cart and the robotic technology that we've created. Beta-1 is able to provide surgeons with incredible ability to perform operations and cadaveric testing across a variety of different procedures and a number of different surgeons. Now, that being said, there's significant room for improvement in a few different areas in particular. The main areas that we're focusing on improvement are really about the ergonomics and how the surgeon interacts with the device rather than how the device interacts with the patient. So we've already seen a ton of progress in this in our formative testing of the initial Beta 2 workstation. This includes revisiting how the hand controllers work, the ergonomics behind the hand controllers, and a few things around other pieces of surgeon interaction with the device. So we'll be really excited to show this in a hospital setting and show this to analysts and investors at a later point.

Awesome. Thanks for taking the questions.

Thank you, Ryan. Our next question comes from Josh Jennings with Cohen. Josh, your line is now open.

Hi, this is Eric for Josh. Thanks for taking the question. I was just curious, supply chain headwinds are a routine topic that we're hearing from management teams through the Q&A cycle. I was just wondering if you could characterize the sort of supply chain headwinds that Vicarious is facing, and then if you could discuss how you're dealing with that, that'd be fantastic. Thank you.

I think as a pre-commercial company overall, we are not immune to supply chain headwinds, but they impact us a lot less than commercial stage company. That being said, I mean, we have faced headwinds in a number of areas. We've had to source alternative parts. We've had to even make some changes to software, but none of these are material headwinds that we're facing. And Overall, we've been able to mitigate any issues that we've seen with supply chains by really focusing on our ability to internally execute, our ability to manufacture our own components where necessary with our own team. So the result is that we are experiencing the same world and the same overall challenges that a lot of other people are experiencing. But they don't at all have the same impact to us because of really the stage that our company is at today. And on the upside, overall, I'd like to say I've been incredibly impressed with our team and their ability to adapt to this environment and the world that we're in and make changes as needed in order to continue to execute and continue to deliver.

That's great. Thank you. And then maybe as a follow-up to Ryan's question on beta testing, in your observation, what elements of the vicarious system do you think surgeons and users are really finding most valuable and differentiated?

So more than anything else, it's really the robot and the visualization that comes with it. And that's one of the biggest reasons why we're focusing on getting this device to market you know, as readily and quickly as we can with the indication of ventral hernia. So the dexterity and the ability to work up on the ceiling, the ability to visualize all around and really comfortably see everything in 360 degrees, as well as some of the advanced features that we are starting to bring in, are all offer surgeons incredible advantages. And that's been what they're most excited. So in summary, it's really the robot itself.

Understood. Thank you so much.

Yeah, thank you.

Thank you, Josh. Our next question comes from Adam Nader with Piper Sandler. Adam, your line is now open.

Hi, Adam. Hi, Bill. This is on for Adam. Congrats on the progress this quarter. When we take a look at the roadmap here, you've checked off the manufacturing clean room validation already this quarter, and it looks like the next key milestone is really executing these centers of excellence agreements. So any additional color on your progress there? Can you share with us which hospital systems you've engaged or how these agreements are structured? what a partnership might exactly entail, just any additional detail there.

Yeah, so thank you for the question. Overall, these conversations have been going really well, and we're really excited to be able to have progress and be able to update soon and really in the near future. I wish I had more details to share at this time, but I don't today. I'll be looking forward to sharing more as soon as we have it.

Okay, perfect. And then to just circle back to Beta 1, now that that's kind of completed, what has surge in feedback looked like in terms of how you're thinking about commercializing the product or adoption of the product once it is commercial, and then how many surgeons were you able to engage in that phase, and has that interest from those surgeons translated to demand for placement of a beta-2 when you've reached that point?

So, from the beta-1 standpoint, the main feedback has been, you know, the incredibly positive, enthusiastic feedback around Beta-1's ability to actually perform the procedure is in order to manipulate tissue, in order to give incredible access and visualization, and room for improvement around the ergonomics, which is why we're already testing a lot of these changes and a lot of these improvements with surgeons today, the feedback of which already on early Beta-2 ergonomic feedback has been incredibly positive. The number of surgeons, I don't know the exact number. It's in the few dozen category. And they've been obviously incredibly enthusiastic about continuing to work with us through Beta 2. And ultimately, we're aiming to design exactly what these surgeons need and therefore hope that that will translate into long-term demand through providing them the perfect product.

Okay, perfect. That's it for me. Thank you.

Yeah, thank you. Thank you. Our next question comes from Matt with Credit Suisse. Matt, your line is now open.

Hi. Thanks so much for taking the questions, and congrats on all the great progress. So, I mean, it looked like The spending and the sort of progress that you've made in terms of deploying some of the capital you've raised here all seems to be kind of on pace and maybe just a touch ahead of schedule, which is a great sign. I'd just love to confirm whether you have any difficulty, as sometimes is the case, in terms of timing of spend or finding the resources you need or getting through the you know, key spending events that, that, that are required investing events to, to move forward. And I, I just have a couple of followups.

Yeah. And I would say from a spending perspective, we actually feel we're, we're right on track. I think, you know, for sure. Um, you know, uh, it, it, we're in the same hiring market as everybody else. And so, uh, that becomes a challenge for everybody, but we're doing extremely well on them and continuing to expand the team. Um, But our spending as we advance towards Beta 2 is actually right on target.

That's awesome. And then the follow-ups were a couple things that you've mentioned, I think, Adam, a couple times. One is around the sort of center of excellence or evaluation, you know, centers, and then also on the trial structure. So I know you don't want to be prepared to get into a ton of detail on the trial. and the filing strategy, but just could you maybe clarify as to, you know, the trial that you're describing, the one that you've been talking about, negotiating the protocol with the FDA, that that is gonna get you to Ventral, and will there be additional patients or additional study to get to the other indications, or maybe just a little more color? And then as I said, just one quick follow-up on the centers.

Yeah, so to the clinical trial, it's likely to be a pretty similar trial for each of the indications that we're looking at. There's a lot of ability to do these significantly in parallel rather than entirely sequentially, which is how we'll be able to deliver on a number of indications all within about a year of our initial launch, which we do think is important to the broader appeal of our technology and to providing surgeons and hospitals exactly what they need. Overall, the plan to do clinical trials, it's actually always been the plan for every indication, with the exception that ventral hernia, we had intended to do it originally post-FDA filing. That being said, every other indication we had always had in the plan, these clinical trials. So that's all unchanged from our original plan.

Got it. And then just on the centers, if you could... Maybe expand a little bit on, you know, is this sort of put you in a position to have kind of a persistent or broader evaluation over a longer period of time with a center and a group of surgeons? Or what exactly is the, what is it, what are some of the benefits it delivers for vicarious and what are some of the benefits that it delivers for the center?

Yeah, so these agreements that we're discussing with hospitals and hospital chains are really focused around around today, around evaluation, beta testing, and providing valuable feedback in the development of the system. So to the hospital, it's an ability to participate in an incredibly exciting platform, an incredibly exciting technology and company, and the ability to, frankly, have their mark and their fingerprints on our first commercial product. And then once we're commercial, we'll transition into a core training center for surgeons and staff long-term for our technology. So we're pretty far along in the conversations and they're going extremely well. People are excited about it. And, you know, as soon as something's executed, we'll report it publicly.

Excellent. Thanks so much.

Yeah, thank you.

Thank you, Matt. That concludes today's question and answer session. I would now like to pass the conference back over to Adam for any closing remarks.

Thank you, everybody, for joining, and that concludes today's call.

That concludes today's Vicarious Surgicals 2022 First Quarter Earnings Call. Thank you for your participation. You may now disconnect your line.