Vicarious Surgical Inc.

Good afternoon and welcome to the Vicarious Surgical Second Quarter 2022 Earnings Conference Call. My name is Brika and I will be your operator 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 call over to Caitlin Broskow, Director of Investor Relations with Vicarious Surgical for some introductory comments. So, Caitlin, you may begin.

Thanks, Brita, and thank you all for participating in today's call. Earlier today, Vicarious Surgical released preliminary, unaudited financial results for the three months ended June 30, 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 and description of the risks and uncertainties associated with our business, please refer to the risk factors set forth in our annual report on Form 10-K for the year ended December 31st, 2021, filed with the Securities and Exchange Commission on March 31st, 2022. In our other reports, we may file with the SEC from time to time. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 8th, 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. With that, I will now turn the call over to Adam Sachs, Chief Executive Officer.

Thanks, Kate. Good afternoon, everyone, and thank you for joining us on today's call. With me today is Bill Kelly, our Chief Financial Officer. I want to start off by saying how very proud I am of what our team was able to accomplish since our last earnings call. We are thrilled to have executed Center of Excellence agreements as promised with not just one, but two of the top healthcare networks in the country. HCA Healthcare and University Hospitals. At the forefront of innovation, HCA and UH are widely recognized leaders in supporting and deploying cutting edge technology that delivers improved patient outcomes and advances the field of healthcare. And they will be monumental to the finalization of our surgical robotic platform, setting the course for our clinical trials, FDA clearance and commercial launch. Generally, Center of Excellence agreements focus on post-market surgeon training. However, our partnerships go much deeper. In formalizing these multi-year relationships, we are proud to establish powerful allies today to collaborate throughout the extensive development, clinical verification, validation, and launch phases of bringing our full product ecosystem to market. These partnerships epitomize Vicarious Surgical's objective to learn – excuse me, to leverage next generation robotic technology to deliver a solution that directly addresses the current shortcomings of open surgery, laparoscopic, and robotic assisted minimally invasive surgery. Despite advances in 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 still performed using open surgical technique. Trauma from large incisions associated with these techniques results in long hospitalization and recovery time, high long-term cost of care, and significant pain and suffering. While current minimally invasive techniques seek to address this substantial unmet need, these techniques also fall short for a number of reasons, including difficult manipulation of instruments, limited degrees of freedom and reach, and reduced depth perception and visibility as well as significant coordination required by surgical teams. Currently, marketed robotic systems offer some advantages as compared to laparoscopic surgery, but see limited adoption due to various technical limitations, extensive training requirements, high associated costs, and other factors. The significant technical advantages of the vicarious surgical robotic platform enabled by our proprietary decoupled actuators are designed to deliver a solution with advanced visualization and improved dexterity, all through a smaller trocar size. And by incorporating valuable insights from leading surgeons and administrators, we are able to collaboratively validate these technical features, further refine our system to meet the direct needs and wants of surgeons, and test our solution in hospital settings with these potential future customers. Additionally, our collaboration across system design, clinical and operational workflow, supply chain management, and procedural economics will enable Vicarious Surgical to better mitigate the intricate challenges faced by hospital systems today. In doing so, we aim to empower hospitals to improve patient standard of care with more efficient and effective procedures at a more attractive associated cost. Our Center of Excellence Partnership and the 200-plus hospitals they comprise play an important role in our overall development and commercial strategy, and we are sincerely grateful for each of these hospitals choosing to open their doors to us. I am confident that by working together with our unique strategy, leading technology, and our talented teams, Vicarious Surgical will provide hospital systems across the world a platform optimized to meet hospital needs and the needs of their surgeons and patients, and as a result, achieves widespread commercial adoption. Concurrent with our Center of Excellence partnerships, we are also leveraging further input from our surgeon luminary group. As we announced last quarter, this is a group of 20 of the most talented, experienced, and innovative surgeons in robotics. led by Dr. Igor Beliansky, and expands our access to leaders across an additional 10 hospital systems, providing ongoing development feedback. We continue to receive strong enthusiasm toward our platform from these surgeons. In that regard, we continue to make great strides in the development of our Beta-2 robotic platform. Updates to the previous Beta-1 system focus on ergonomic changes for surgeon comfort, improved visualization, enhanced sensing and motion capabilities, which enabled the surgeon to move freely within the abdominal cavity, further expanding their access and ability to operate. With significant and very positive feedback on the initial Beta 2 ergonomic prototype, we have completed the Beta 2 design and we are beginning the integration phase of the build. This is our next step toward bringing our robotics platform to market and ultimately demonstrating its capabilities through a cateteric ventral hernia procedure in a hospital setting, which we plan to share greater details around later this year. I would also like to take a moment to acknowledge the business environment in which we're operating. As we ramp up our operations, we increasingly face the same challenges that many of our peers have noticed. More specifically, we've experienced limited semiconductor supply and shortages of chips and other hardware in recent months. If these challenges continue, they can present a risk to our timeline. That said, I am tremendously proud of our team's ability to respond to and mitigate most of these challenges and supply chain delays to date. We continue to evaluate the details of our supply chain for opportunities to build internal redundancies, multi-source key components, and enhance our product design to address constrained supply chain risk. Given these factors, we believe we are well positioned in this environment. This has been an exciting quarter for Vicarious Surgical. We have significantly expanded our hospital and surgeon outreach, first with the Surgeon Luminary Group, as well as the more recently announced Center of Excellence Partnership. These relationships will help optimize the development of the vicarious surgical platform and will serve as the foundation for strong commercial traction. In addition, leveraging our unique hospital and surgeon access, we continue to enhance our differentiated technology, make meaningful progress toward delivering a disruptive vicarious surgical ecosystem, which we believe will be uniquely positioned for swift and effective integration into a hospital setting. I will now turn the call over to Bill for our discussion of our second quarter financial results.

Thank you, Adam, and thank you all for joining us today. Total operating expenses for the second quarter of 2022 were $19.1 million, inclusive of R&D expenses of $10.1 million, general and administrative expenses of $7.8 million, and another $1.3 million in sales and marketing expenses. Operating expenses in the second quarter were up from $6.6 million in the prior year, primarily due to continued investment in the development of our Beta 2 platform and necessary expansion within our internal teams. Adjusted net loss, which excludes a $17.6 million adjustment for changes in the fair value of our warrant liabilities, was $19.1 million for the second quarter, equating to an adjusted net loss of $0.16 per share. as opposed to an adjusted net loss of $6.6 million or an adjusted loss of $0.08 per share for the same period in the prior year. GAAP net loss for the second quarter was $1.5 million, equating to a basic and diluted net loss of $0.01 per share, respectively, as compared to a net loss of $6.6 million or a basic and net loss of $0.08 per share for the same period of the prior year. For additional detail regarding our second quarter 2022 financial results and a reconciliation of all non-GAAP measures to GAAP, please review our earnings press release. Our cash burn for the second quarter of 2022 was $15.7 million, and we ended the quarter with $141 million of cash and cash equivalents. As we advance our development clinical and regulatory processes, we continue to expect full year 2022 cash burn of approximately $65 to $75 million. As such, we also continue to anticipate ending the year with approximately $100 million in cash and cash equivalents on our balance sheet. We are excited by the progress we've made to date, and we look forward to sharing further progress in the quarters to come. And with that, I'll turn the call back to Adam. Adam?

Thank you, Bill. I'd like to close by highlighting our recent experience at the 2022 Society of Robotic Surgery Annual Meeting and the SAGES Surgical Disruptive Technology Summit. Both events provide important opportunities each year for the healthcare community to coalesce and examine the direction of robotic surgery for years to come. With a landscape of robotic surgery more expensive than it's ever been, it's become clear that differentiation in the market is paramount to long-term success in adoption. The appetite for differentiated next-generation robotics is large. We were pleased to hear panelists and thought leaders emphasize the importance of a single port system to expand surgical access and capability. And more than anything, we appreciated the enthusiastic reception of our technology from the participating surgeon community. Our attendance at these conferences, as well as our continued surgeon feedback and support, has made us all the more confident in our ability to transform the landscape of robotic surgery. Thank you again for joining today's call. Operator, would you please open the line for questions?

Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind at any time, please press star two. Please stand by whilst we order today's Q&A.

Our first question comes from Josh Jennings of Cowan.

Your line is open, Josh.

Hi, this is Eric, all for Josh. Thanks for taking the question. Was hoping to hear any updates you can provide on recent discussions with the FDA around trial design and plans to finalize the study for the ventral hernia indication. If the trial design still hasn't been finalized, just wondering if we could get any timing on when that may be in place. Just thinking maybe early first half of next year may be a good timeline, but any detail there would be great. Thank you.

Thanks so much for the question. So it's a really good question. I'll say right off the bat that the conversations that we're having with the FDA continue to be very positive and very collaborative. We're going back and forth around the details of everything around, not just the trial design, but actually starting with the pieces that go in before the specific trial design to finalize those. Everything that we've seen thus far would indicate that we'll be in line with, again, with our peers at a relatively small trial, very short follow-up, no statistical significance required. Again, this has not been locked in. I think the timeline specifically, though, I'd like to hold off on commenting specifically around that, simply because at the end of the day, it really is the agency's discretion on when they sign off on our trial design.

Okay, understood. Yeah, that's totally fair. If we do think of this as being a smaller trial, say maybe 50 patients or less, I know you're not blessing a patient number, but if I'm just assuming 50 patients or less, is that a number you think could be at one investigation site, or do you think you'll need a few sites to complete the trial?

I think that typically you probably don't want to put all your eggs in one basket, both for variation of geography as well as simply risk mitigation on our part as well. That being said, I'd look at, given that we have the resources to support multiple trials and we have these incredible relationships that have actually been lined up explicitly in the agreements with university hospitals and HCA Healthcare to have support and use them to support us through the clinical trial process. We're really enthusiastic about doing multiple sites because it, frankly, gives It de-risks from a clinical standpoint and provides better data for our filing so that we can actually de-risk that filing. And it helps set us up well for a better and broader commercial launch.

Excellent. Thank you so much for taking the questions. Of course.

Thank you. We now have the next question on the line from Adam Meder of Piper Sandler. You may proceed to your question, Adam.

Hey, Adam and Bill, this is Phil on for Adam. Can you hear me all right?

Yeah.

Yes. Oh, great. Great. Thanks for taking the questions and that, you know, good to hear the progress in this quarter, I guess, just to start from a macro level. I understand you've been able to navigate these supply chain headwinds, but could you go into more detail there, you know, especially as it relates to the, you know, the beta two unit, it hasn't impacted the design in any way. And, you know, If it has, I would say, could you describe how exactly it has and how you've been able to kind of overcome these challenges?

So most of the challenges that we're facing today are around sourcing capabilities. So there's a few ways that it impacts us, but the biggest is it's simply design and development efforts. as well as some amount of timeline risk, especially looking towards the future, as, you know, I wish I could better predict things, but we're in a world where when parts and components are delivered, it becomes highly unpredictable, which is really quite a drastic change from where we were a year or two ago. So if you're looking for a specific example, I think just – The best example off the top of my mind is probably around the chip shortage and a particular component that's in our robotic arms that's not critical. We were easily able to swap it for a different component that we're able to source, but that involves some amount of PCB redesign and ordering and some software rewriting as well. So we've ended up with just as good a product and at just as good a point, but with significant additional time and effort as a result.

No, thank you for that color. That's great. Just to kind of stick on beta 2 here, I understand that it's early, but could you kind of go into detail in terms of feedback if you've been able to garner any between beta 1 and beta 2? I know you were going after, you know, those ergonomic and visualization changes, but any feedback there would be great.

Yeah, the feedback has been overwhelmingly positive. It really is night and day from an ergonomic standpoint. So to just back up a little bit to beta one, the feedback on the robot itself and the patient cart were phenomenal. But the feedback on, frankly, the surgeon console left, shall we call it, opportunity for improvement. And I think we've really seized that opportunity incredibly well and developed a system that surgeons tell us they really love. and has resolved a lot of the problems, not just that were with our Beta-1, but actually existing in the field at large.

Awesome. Thank you.

Thank you. We now have Kyle Rose of Canaccord. You may proceed with your question, Kyle.

Hi, this is Caitlin on for Kyle. A couple of questions. Have you made the simulator available to a broader set of hospitals, and are these hospitals testing out other use cases yet besides hernia repair? And then just on the Center of Excellence agreements, have you been able to already engage these systems to test your baby units? Thank you.

Yeah, great question. So to start with the simulator, for now the simulator is available internally for testing and with our close partners. know as we get to the end of the year we're going to be looking at the opportunity to show this off more and we'll be really excited about that uh including to a you know a broader audience within the incredible network of hospitals and partners that we have today uh to the question of um of indications that we're testing uh and beta 2 as well so you know the early iterations of beta 2 have been tested uh by a handful of our hospital partners, including with the DOE partners that I mentioned and some other partners as well. And we're going to be looking, of course, to greatly expand that over the next few months as we fully integrate the final beta 2 design. So we're really excited about that. We're excited about the opportunity to show it off, to get broader feedback beyond that. And I believe the last question is indications specifically. The testing that we're doing is focused on our early indications. So mostly focused on ventral hernia repair, but we are, of course, testing other indications as well, including some that we've mentioned, some that we haven't. I believe the ones that we've mentioned include Coley's. We've done a number that was hysterectomy and inguinal hernia.

Thank you. We now have another question on the line from Matt Mystic from Barclays. You may proceed with your question, Matt.

Hey, great. Thanks for taking the question. So congrats on the Center of Excellence Agreements, of course, to you and team, Adam. You had talked, as you mentioned, sort of as promised about these coming together Can you talk maybe a little bit about any surprises or, you know, things that came through a little bit differently than you expected them to here or how this positions you going forward? And maybe sketch out, you know, from a practical standpoint, what this could look like. And I'm sure you're still putting together plans as to physically how this works, but maybe just for folks who may not understand what this means. you know, sketch out something like a scenario of how this could work over the next, you know, 12, 24-month day, and I'd want to follow up if I could.

Yeah, absolutely. Thanks for the question, Matt. So, to the surprises, I'll start with that. You know, I'll say always incredibly pleasantly surprised at the, you know, really positive reception that we've received overall. and how deep a level of engagement these hospitals are looking for. Both hospital systems that we're working with are incredibly excited about not just the potential to use our system down the road, but actually the potential to work really closely with us and collaborate over the next 12, 24 months and beyond. We're looking at these as really long-term partnerships uh for us to really work together to build a system that provides better patient care uh overall you know what we're focused on right now is beta 2 feedback refining that design getting to the next stage which is verification and validation of our device uh we'll be you know making some design changes after beta 2 based on the feedback that we received again all with the goal of making sure that the device that we're launching is exactly what surgeons need and hospitals need in order to provide better care for their patients. And then the step after that will be support through clinical trials. And then finally, commercialization, where we're optimistic that we'll have delivered on exactly what both these hospital systems need, as well as hospital systems all across the world.

That's great. And just a simple follow-up on sort of timelines. I think there was a time when you had talked about the prospect of putting um one of these beta systems in front of investors and um just curious if you've uh if you've been more specific about that or if you have any timing in mind uh when you might be able to host an event like that uh you know going forward so uh yeah we're we're really excited about the opportunity to show it off in a hospital setting uh still looking at uh around the end of this year

and we'll be having probably more details to follow on the exact date of that.

Terrific. Thanks so much.

Thank you, Matt. As a reminder, if you would like to ask any further questions, please press Start followed by 1 on your telephone keypads now.

As we have had no further questions registered, I will now close the call.

Thank you all for joining. You may now disconnect your lines.