Vicarious Surgical Inc.
Q4 2021 Earnings Call Transcript

Published: 3 Mar 2022

[Operator:]

Good afternoon and welcome to Vicarious Surgical's Fourth Quarter 2021 Earnings Conference Call. My name is Elliot and I'll 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 Marissa Bych with the Gilmartin Group for a few introductory comments.

[Marissa Bych:]

Thank you and thank you all for participating in today's call. Earlier today Vicarious Surgical released preliminary unaudited financial results for the three and 12-month ended December 31, 2021. 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 projections 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 section of our last quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 8, 2021. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 3, 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.

[Adam Sachs:]

Thank you, Marissa. Good afternoon, everybody. And thank you for joining our fourth quarter 2021 earnings call. Joining me on today's call is Bill Kelly, Vicarious Surgical’s Chief Financial Officer. On our call today, we look forward to reviewing our 2021 achievements, discussing our results of operations and providing an important update regarding our recent conversations with the FDA. First of all, 2021 was an incredible year at Vicarious Surgical. And I want to congratulate greatly our team and thank our investors, advisors and partners for contributing to our company's achievements throughout the year. We have a tremendous opportunity and an exciting journey ahead of us. And looking back at 2021, we have accomplished several meaningful objectives to position our company for success on that journey, and change the future of surgical robotics. For example, we meaningfully expanded our team began beta unit testing with surgeons and engaged in a series of productive communications with the FDA, including the completion of a pre-submission plan late in the year. We also of course successfully closed our business combination to become a publicly traded company, resulting in over $190 million net proceeds to our balance sheet. Before I dive deeper into our 2021, achievements and anticipated 2022 milestones, let me remind you of our overarching 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 legacy surgical robots are currently performed with no minimally invasive technology at all. They are still being performed using open surgical technique. The large incisions required for open surgery create significant trauma to the patient, resulting in long hospitalization and recovery times, high long term cost of care and significant pain and suffering. Due to the patient trauma associated with open surgery, 15% to 20% of such surgeries result in incisional hernias requiring additional complex surgery to correct. While current minimally invasive techniques seek to address this substantial unmet need, these technologies fall short. Laparoscopic instruments are difficult to manipulate have limited degrees of freedom, limited reach and reduced depth perception and visibility, requiring significant coordination among the surgical team to perform the procedure. Multi-port robotic systems have overcome some of the challenges of rigid instrumentation associated with laparoscopy. But they have a large equipment print and limited deportability require extensive setup and procedural time and using multiple incisions and multiple systems. Fundamentally, these systems still require surgeons to choose incision site locations based on the robotic motion that they are looking for, and to design the kinematic profile of their robotic tool for every procedure. Economically, these systems are expensive, and surgeons encounter cumbersome and costly learning curves. The more recent development of single-port surgical robot does not comprehensively address these fundamental issues, still relying on legacy robotic architecture. These systems require a much larger trocar incision than multi-port systems and are associated with complication rates, akin to legacy open techniques. Additional challenges include limited motion, strength and visualization. And these systems can only operate in a small procedural area. For these reasons, non-robotic techniques continue to be used in the vast majority of cases. At Vicarious Surgical, we intend to deliver the next generation in robotic assisted surgery to solve the shortcomings of open surgery and the shortcomings of current laparoscopic and robotically-assisted minimally invasive surgery. The Vicarious System combines advanced many tries robotics, computer science and 3D visualization to build an intelligent single incision surgical robot that virtually transport 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 surgeons own upper body movements. In surgical procedures conducted on cadavers, this system allows surgeons to enter the abdomen and work from nearly any angle and work in nearly any direction without multiple incisions and 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 also 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 surgical procedures and patient outcomes. Due to a technical advantages, the system's value proposition to hospitals and ambulatory surgical centers is clear. With a technology designed to enable so much capability within the abdominal cavity we intend for our products to be much more efficient to learn, setup, and use during a procedure. Unlike legacy robotic systems, our system is much smaller, easily moving to any operating room throughout a medical facility. Its size and design will allow cost effective price points in comparison to existing robotics systems. Hospitals and ambulatory surgical centers would not be required to dedicate permanent space, reducing expenses related to operating room turnover. The Vicarious System is designed to provide excellent dexterity with flexible setup, to enable many procedures to be performed faster and more effectively with less injury and risk to the patient, significantly reducing overall healthcare costs. Our thoughtful design was created and adapted specifically to address current barriers to physician training and adoption. Surgeons’ feedback toward our prototype validates the system's ease of setup and use natural human motion and the value of system mobility from location to location. With all of these advantages, we are incredibly excited about the unique opportunity for our systems to impact patients, surgeons, hospitals and payers. Now, let me turn to our regulatory strategy and recent developments. As we have commented in the past, we are targeting the ventral hernia indication for our first clinical application. Beyond ventral hernia, we are excited by the potential to target an array of soft tissue abdominal and pelvic procedures, including other types of hernia, hysterectomy, colpopexy and certain gastrointestinal procedures. Our original regulatory strategy had assumed that most of these later indications would require pre-market clinical trial. However, we have planned to pursue our initial indication of ventral hernia without pre-market in human data. We have recently engaged in a series of communications with the FDA culminating in a collaborative discussion around the potential of our system and an ongoing mutual desire to bring our robot to the market safely. As a result of these conversations, we will also pursue a pre-market clinical trial in support of our initial intended indication of ventral hernia repair. As a reminder, our system is designed to offer revolutionary advantages relative to existing robotic surgery devices from fundamentally different robotic architecture to actuation. Due to the substantial differences between our technology and approved devices, we've reached an understanding with the FDA that a clinical trial is the best path to demonstrate the safety, effectiveness and competitive advantages of our system. We anticipate that conducting this pre-market clinical trial will cause a nine to 12 months shift in our FDA submission timing, relative to the expectations that we have provided in the past. We had previously communicated our intent to file a 510(k) application for the Vicarious System for eventual hernia procedures by late 2023. We now expect to file a de novo classification request by late 2024. While this development delays our initial submission timeline, we expect a more muted impact on the long-term roadmap, considering our original timeline to market assumed a post approval clinical trial process prior to broad commercialization. Overall, we are encouraged by the transparent communications with the FDA. And we continue to hold immense confidence in the advantages embedded in our systems design, and our ability to help health systems in the US and globally realize greater adoption of surgical robots for the benefit of patients. We have always been prepared for the possibility of a pre-market clinical trial for our first indication, and we look forward to continuing our work with the FDA and sharing greater details with the public as we progress. I will now shift the milestones that we aim to achieve in 2022. On the product development side, we are focused on the progression of our beta testing on our beta system. On our last earnings call in November 2021, we announced that we are well on our way to successful beta unit testing with surgeons and hospital following the integration of our first Beta1 unit last summer. We have since collected considerable surgeon and hospital feedback across attributes of the system such as clinical value from our visualization and surgical site access, workflow, ease of use, and surgeon ergonomics all supporting the significant potential of the Vicarious System even in its Beta1 form to benefit patients, surgeons, hospitals and payers. As part of this process, we have also had the pleasure of hosting many of the world's leading hernia surgeons in our facility to incorporate valuable test experiences responses ended site. We are continuing cathartic testing of Beta1 units this year, and incorporating the valuable feedback from Beta1 into our design of Beta2. We look forward to exploring opportunities later this year for Beta2 evaluation in a hospital setting, leveraging the experience from Beta1testing and our many hospital partnerships. In addition to advancing the development of the Vicarious System through beta testing, we plan to continue extensive testing with key opinion leaders in preparation for launching a surgical simulator later this year. We are also in the process of identifying a center of excellence within an external health system. We plan to partner with that facility this year to further our development and training pathway, strengthening our position for future commercialization. Lastly, we are continuing to leverage our differentiated technologies enhanced sensing to build up significant data and artificial intelligence capabilities. We see this as a unique opportunity for Vicarious Surgical to employ both data and AI to assist with all aspects of the procedure from preoperative planning through post-operative care. We remain measure and focus and our desire to advance these exciting initiatives while taking the time to listen, encourage and prioritize feedback and incorporate the advice of our surgeons, clinical and regulatory advisors and broader stakeholders to ensure that our system will be positioned for long-term success. Thank you and I will now turn the call over to Bill Kelly, our Chief Financial Officer for discussion of our fourth quarter and full year financial results.

[Bill Kelly:]

Thank you, Adam. And thank you all for joining us today. Let me start with the results for the fourth quarter. Total operating expenses for the fourth quarter of 2021 were $18.2 million, 380% increase from $3.8 million in the fourth quarter of 2020. R&D expenses for the fourth quarter of 2021 were $9.3 million, compared to $3 million in the fourth quarter of 2020. The increase was primarily driven by increased headcount of over 111% versus 2020 as well as increase expenditures in the development of the Vicarious System and increase facilities cost as we've moved to our new headquarters, and general administrative expenses for the fourth quarter of 2021 were $7.3 million, compared to $0.7 million in the fourth quarter of 2020. The increase in G&A expenses can be primarily attributed to an increase in headcount, as well as increased insurance and other costs incurred as we transitioned to becoming a public company. Sales and marketing expenses for the fourth quarter of 2021 were $1.6 million, compared to $0.1 million in the fourth quarter of 2020. The increase in sales and marketing expenses, can be primarily attributed to increased headcount and related activity. Adjusted net loss represents GAAP net income or loss less the changes in fair value of warrant liabilities was $18.2 million for the fourth quarter, equating to an adjusted net loss of $0.15 per share, as compared to an adjusted net loss of $3.8 million, or an adjusted loss of $0.04 per share for the same period of the prior year. GAAP net income for the fourth quarter was $70.1 million, due to an $88 million reduction in the fair value of our warrant liability for the period, equating to net income of $0.59 per share, as compared to a net loss of $3.8 million, or a loss of $0.04 per share for the same period of the prior year. Total operating expenses for the full year were $38.6 million, 197% increase from $13 million in 2020. R&D expenses for the year for the full year were $22.1 million, compared to $9.8 million in 2020. General and administrative expenses for the full year were $13.5 million, compared to $2.3 million in 2020. Sales and marketing expenses for the full year were $3 million, compared to $0.9 million in 2020. The increase in operating expenses can be primarily attributed to more than 150% increase in headcount from the beginning of 2020 to the end of 2021. While increase in development costs as we progress to beta testing in the Vicarious System, increased facilities cost as we expanded into our new headquarters, and an increase in insurance and other expenses associated with becoming a public company during 2021. Adjusted net loss for the full year was $38.6 million, equating to an adjusted net loss of $0.33 per share, as compared to an adjusted net loss of $12.9 million, or an adjusted loss of $0.16 per share for the prior year. GAAP net loss for the full year was $7.3 million, equating to a net loss of $0.06 per share, as compared to a net loss of $12.9 million, or a loss of $0.16 per share for the prior year. For reconciliation of all non-GAAP measures to GAAP, please review our earnings press release which we filed today. Our cash burn rate for the fourth quarter of 2021 was $11.5 million. And we ended the year with $173.5 million of cash and cash equivalents. As we advance our development, clinical and regulatory processes, we're updating our 2022 cash burn expectations to approximately $65 million to $75 million. We continue to anticipate into ending the year with approximately $100 million in cash and cash equivalents on our balance sheet. We look forward to continuing to provide updates as we execute on our development initiatives in the quarters ahead. We are confident that the future of Vicarious Surgical is bright. With that, I'll turn the call back over to Adam. Adam?

[Adam Sachs:]

Thanks Bill. We're tremendously excited by the future of Vicarious Surgical. The Vicarious System has the potential to address a substantial unmet need. And with the capital resources and people brought together in support of our mission over the last year, we are well positioned to secure the future of Vicarious Surgical toward our most important goal, improving patient lives. Thank you again for joining today's call. With that operator, would you please open the lineup for question?

[Operator:]

Our first question today comes from Adam Maeder from Piper Sandler.

[Adam Maeder:]

Great. Good afternoon, Adam and Bill and thanks for taking the questions and congrats on the progress in ‘21. So wanted to start with the regulatory update. If I heard correctly, timeline for ventral hernia is de novo FDA submission late 2024. When should we expect the pre-market study for ventral hernia to commence? Any more color on potential trial design in terms of things like number of patients and duration of follow up? And then how do we think about any associated costs with the pre-market ventral hernia trial, it sounds like you took that the burn rate for ‘22. But wondering about the impact from a cash standpoint related to this new development?

[Adam Sachs:]

Adam, it's all good questions. So to start with the timeline that's a significant portion of what 2024 will be about. And that nine to 12 month shift overall will be about conducting those human clinical trials. I mean, that overall, and that being said, it does have likely less of an impact to our revenue ramp overall, both because of additional indications, as well as the fact that we'd always planned on conducting a post market clinical trial for that commercial marketing of our device. For what the trial design looks like. And the total design and size overall, we are still going through the details of that with the agency. And we want to make sure that we have complete alignment with the FDA, before we share the details of any trials. And that being said, the agency has clearly communicated to us that we should not need long term pre-market data, like we're going to be a small single arm study focused on proving safety and efficacy. And we are able to benefit from precedents, especially in the last year or two for other clinical trials with results to time trial design, et cetera. So that being said, we have no discrete timeline to share. But we certainly anticipate updating even more as we progress. Bill, do you want take the financial question?

[Bill Kelly:]

Yes, sure, no, good question in terms of the cash burn, just to, from level set, as we closed Q3 with $185 million, we provided guidance of $11 million to $14 million for Q4, and $60 million to $70 million previously for 2022. For Q4, we ended up coming in at the lower end of that range to $11.5 million compared to $11 million to $14 million guidance. So what you're seeing mostly as a spillover extending that did not happen in Q4 rolling into the current year. In either scenario, essentially, we were guiding towards $100 million ending cash by the end of this calendar year. And we remain on target for that. The trial costs that Adam mentioned really are going to be more in the 2014 timeframe. So if you consider a little bit of spending bleed coming in from last year to this year, and just a slight uptick in activity as we continue to develop the product and continue to outreach to hospitals and surgeons.

[Adam Maeder:]

Okay, that's helpful, guys. And if I can, I guess sneak in one clarification. And then one other one. Just on the clarification, it sounds like this regulatory development for ventral hernia doesn't influence really the way that you were thinking about the regulatory pathway for the other indications, the way that you were thinking about timeline for the other indications, is that correct?

[Adam Sachs:]

Yes, I'd say certainly does not influence it from the baseline. We're looking at opportunities to parallelize a number of those indications with ventral hernia given this development rather than doing ventral hernia first, and then clinical trials for the remaining indications. Did that answer?

[Adam Maeder:]

Yes, that's helpful, Adam. Appreciate that. And then maybe just one more to sneak in. I think in our past discussions, you talked about potentially doing some sort of investor event or that was tentatively kind of circled on the calendar for the latter part of 2022. So I was wondering if that's still in the plan. And should we expect to potentially see the Beta2 system at that point in time? Thanks so much for taking the questions.

[Adam Sachs:]

Yes, it's a good question. I'd say we're certainly really excited about the potential to show off our Beta2 system, the potential to be able to demonstrate it in a hospital setting. And still working on the details of some of those plans. We'll be excited to share it as soon as we are ready.

[Operator:]

Our next question comes from Josh Jennings from Cowen.

[Unidentified Analyst:]

Hi, this is Eric on for Josh, thanks for taking the question. I think we've covered the regulatory path well in the call already. I was understanding that you can't market the system without approvals. I was just curious to hear your sense of surge in interest or demand that's growing as you continue to develop the platform? Is there any sort of buzz about like carries within the surgeon community that's starting to pick up? Or what sort of demand is there from surgeons to try and use the system in beta testing? Any detail that would be great, thank you.

[Adam Sachs:]

Yes, I think part of the demand comes from a significant unmet need that has existed for a very long time in this industry in this space, there's a huge need for a change and improvement to how surgical robotics is performed in a way that can really help patients help surgeons help hospitals and health payers. And as we go through this beta testing, we're aiming to gather all the feedback that we need to develop the details, to develop the exact device that meets that demand for surgeons and for patients. And the feedback has been absolutely wonderful. Even for the first for the Beta1 one program, it's been incredible. So I think as far as buzz is concerned, I think we certainly are creating some but the goal is always going to be above all else, really to collect that information that we need in order to design the perfect system that we can get cleared, and then we'll have robust adoption when it's on the market.

[Unidentified Analyst:]

That totally makes sense. Thank you. And then in the past, you've shown some encouraging data through third party studies around the surgeon feedback on the Vicarious System. Are there any other smaller sample studies like that underway? Or do you have plans to commission any other studies in the future that could highlight the benefits of the system?

[Adam Sachs:]

It's a good question. I think we have had a tremendous amount of impact and success with some of those previous studies. A lot of the research that we conduct today is in house, but it's certainly a consideration going into the future is to conduct more third party independent studies. I will note that as we prepare for and go through the regulatory path, a lot of those studies are certainly independently run in a significant sense in order to collect appropriate data for clearance.

[Operator:]

We now turn to Matt Miksic from Credit Suisse.

[Matt Miksic:]

Hey, good evening. Thanks so much for taking the questions. And thanks for the regulatory update here. It's helpful to have some clarity around this issue, which I know is a big question from much of last year, to which way this pathway was going to proceed. I was wondering, Adam, if you could talk a little bit about how different, you don't know exactly the structure of the trial. But can you just talk about your plans for trial before this sort of final agreement that you've sort of decided to go ahead and do the pre-market as part of the de novo filing, but and memory serves you had a plan to perform a trial before and maybe what the timing and cost profile of that trial might have been and how it's -- how you expect it to be different than what you'll actually end up and executing, in other words, change to your plan on the clinical front, regardless there has been a change to the filing timeline?

[Adam Sachs:]

Yes, it's a really fair question. And I certainly wish I could give definitive guidance here. What I can share is what our plans, as you mentioned, we certainly had developed a plan for that clinical trial. And we will be sharing that and reviewing that in detail with the agency. But this is, it's an iterative process, it's, this process will continue back and forth between us in the agency and collaborative with us and the agency. And we wanted to share this information and what we knew as soon as possible. So that's a long way of saying that we have not reviewed that trial design with the FDA yet. But our trial is designed based on what other similar companies have done for other similar indications. And these are relatively small number of patients, relatively short term follow up with, with longer term, but post market, post approval follow ups. And they're typically single arm studies, compared against existing data sets. So that's part of why we are relatively confident in our ability to mitigate a lot of the timeline changes here. But that is all with the caveat that at the end of the day, and we are going to continue to work with the FDA on this.

[Matt Miksic:]

Of course, that makes sense. And thanks for that. And then the other is just maybe if you could clarify and oftentimes, postponement of approval means some substantial postponement of revenues. And if you could maybe remind us and flesh out the FDA’s breakthrough designation, and what that means, essentially, in terms of your ability to generate any revenue during this trial period, and how that might look differently than what we thought if we were to assume, say, six months ago that you might have been able to submit without data, how differently does that plan look, at least as we stand here today?

[Adam Sachs:]

Yes, so not even just, not even under the breakthrough designation, but even simply under a standard ID and clinical trial, there are a number of opportunities to recover a lot of the costs of that trial, within certain criteria. I think the bigger way, though, that we can significantly mitigate any rightward shifting of revenue, that we would be able to receive comes from parallelizing other indications, and the fact that our previous plan had always assumed, conducting a post market clinical trial in order to support marketing data and claims, so that time period is no longer necessary, because we will have that as a pre-market clinical trial. And in addition to that, there are opportunities to parallelize other indications. That all being said we are still reviewing this with the agency and frankly, internally and developing the details those plans.

[Operator:]

We now turn to Ryan Zimmerman from BTIG.

[Ryan Zimmerman:]

Hey, Adam. Hey, Bill, thanks for taking questions. Two just real quick for me, number one, with the change in cash burn for 2022 of incremental $5 million. It sounds like the trial is going to be in ‘24. So, Bill, help us understand kind of what that incremental $5 million is going to be going towards. And then I have a brief follow up.

[Bill Kelly:]

Yes, no, sure. Obviously, giving guidance on a cash basis. We'd given the guidance at the end of Q4 that we would have spent $11 million to $14 million, we spent $11.5 million. So there's probably an extra $2.5 million of last year spend that really just bleeds into this year. So a bit of that is timing. In addition to that we continue to have strong engagement with hospitals and surgeons, and continuing really pursue the product development efforts that have been underway. So just really looking at it as a marginal increase in that activity and that spending together with just the timing of some of the spending from last year falling into this year. Net result is in either scenario, we're looking at about $100 million of ending cash by the end of this calendar year is always our goal.

[Ryan Zimmerman:]

Okay, and then just, Adam, you mentioned a surgical simulator later in 2022. What is that specifically, that you're hoping to gain out of that this early in kind of the lifecycle of the system?

[Adam Sachs:]

Yes, it's a fair question. I think there's a lot of advantages to a surgical simulator for us. In fact this is, of course, something that we already have in house and already run surgeons through on a very regular basis. As recently as today, it's a really valuable tool for giving more surgeons experience with our system with our technology, then, frankly, can feasibly fly out our office or any future sites that we have our unit placed, can give us feedback and get interaction and get experience and to some degree, also gain excitement about our devices ability to make a significant impact in the ability to perform hernia repair and future procedures. So we're really excited about the ability to use this both as a tool to gain feedback and a tool for people to experience the anatomy and the way that our device interacts with the anatomy inside of the abdomen.

[Operator:]

Our final question comes from Kyle Rose form Canaccord Genuity.

[Kyle Rose:]

Hi, good afternoon, everyone. I just wanted to make sure that I understood it here. So just to be clear, late 2024 de novo, when are you expecting first revenues? Should that be 2025? Or is there something that could potentially happen before ‘25? And then I have one follow up.

[Bill Kelly:]

Yes, we have obviously put guidance out there in terms of revenue levels, et cetera. in the day, we're looking at a nine to 12 month delay in terms of the regulatory filing. But in terms of material revenues, especially later year revenues, due to the parallelization of clinical trials and indications that Adam alluded to before 2026, 2027 revenues, we don't necessarily see a major change in those revenues. But in terms of month-to-month, quarter-to-quarter in the early years, it's a little more difficult to say.

[Kyle Rose:]

Okay, I appreciate that. And then I just want to make sure I understand there's a lot of moving pieces and still some confirmations to get with the agency. But are you thinking that you might be able to launch with additional indications beyond ventral hernia, or accelerate, pull forward any of those other indications sooner than previously expected?

[Adam Sachs:]

So, I think the best way frankly to say is that the incredible opportunity to do this has not escaped us. But it is something that we are exploring today, and not something that we have a definitive plan that we're ready to share.

[Operator:]

We've come to the end of our Q&A. I will now hand back to Adam Sachs, CEO for closing remarks.

[Adam Sachs:]

Thank you everybody very much for joining for the wonderful questions. And that concludes the call. Have a great evening.

[Operator:]

Thank you. This concludes today's call. We thank you for joining. You may now disconnect your lines.