Titan Medical Inc.
Q1 2021 Earnings Call Transcript

Published: 17 May 2021

[Operator:]

Good evening, ladies and gentlemen, and welcome to Titan Medical’s First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. 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 conference over to Kristen Galfetti, Titan Medical’s Vice President of Investor Relations and Corporate Communications. Please proceed.

[Kristen Galfetti:]

Thank you, operator. Good evening, everyone, and thank you for joining us for Titan Medical’s first quarter 2021 earnings conference call. During our call, we will review Titan’s first quarter 2021 financial results and key business highlights, which were summarized in our earnings press release issued earlier today. A copy of the release can be found in the Investor Relations section of our website at www.titanmedicalinc.com.

[David McNally:]

Thank you, Kristen. Good evening and welcome to Titan Medical’s first quarter 2021 earnings call. I want to thank our shareholders for their support and confidence in our ability to successfully develop the Enos robotic single access surgical system. We’re excited to share today’s updates with shareholders who have been following the Titan story, and with investors new to Titan Medical. Joining me on the call today will be Perry Genova, Senior Vice President, Research and Development and President of Titan Medical USA; and Monique Delorme, Titan Medical’s Chief Financial Officer. 2020 resulted in an incredible year of accomplishments that positioned Titan nicely going into 2021. During the first quarter of 2021 and in recent weeks that followed, the company secured more than $44.5 million from equity financings, separated the role of Chairman from President and CEO, expanded the Board of Directors, grew the senior leadership team, increased investor activities and communications, and launched Titan Living Labs. Most importantly, we continue to accomplish our milestones and move closer to bringing the Enos surgical system to patients. We were opportunistic with market activities, and as noted, close to equity financings, totaling $34.5 million and received an additional $10 million from the exercise of warrants held by investors from previous offerings. As a result of those efforts, we believe we are in a strong financial position to execute our strategy. The Board of Directors believes that sound principles of corporate governance are critical to our success as a company and to earning the trust and confidence of each of our stakeholders. In keeping with corporate governance best practices, we have separated the role of Chairman of the Board from President and CEO. And today we announced that Paul Cataford has been appointed Titan’s Chairman of the Board. Paul joined Titan’s Board last fall as our Lead Independent Director. And during his tenure on the Board, he has demonstrated his strong leadership skills and corporate governance experience. He was the CEO and Co-Founder of Zephyr Sleep Technologies, a medical device company specializing in the treatment and diagnosis of sleep disordered breathing. Paul brings significant technology transfer and early stage company experience to Titan Medical’s Board and as served as an Independent Corporate Director on a number of Public Boards of Directors at companies listed on the TSX, TSXV and NASDAQ, including Sierra Wireless, Trakopolis IoT Corporation, SemBioSys Genetics and AgJunction. We are proud to have him in place as our new Chairman of the Board.

[Perry Genova:]

Thank you, David. And it’s a pleasure to be speaking to all of you this evening. As David mentioned, we continue to advance our development work during the first quarter. Our growing U.S. subsidiary based in Chapel Hill, North Carolina has deepened our technical expertise in the areas of software, electrical and mechanical engineering, quality assurance and program management. As the advancement of the Enos surgical system continues. During the first quarter of 2021, the team leveraged its deep knowledge of physics and kinematics to improve the natural motion, surgeon feel and strength of Titan’s unique instruments. With the diligent efforts of our technical team, the Enos systems instruments are designed to precisely mirror a surgeon’s discrete hand motions. Surgeons appreciate the natural movement, designed it to the ecosystem that translates physical inputs into dexterous arm movements. Additionally, we have creative capability for surgeons to work very close to the surgical incision or entry point to the body resulting in greater work area within the patient. Simultaneously the in-house team further advanced the Enos steerable camera system, providing outstanding maneuverability and visualization for the surgeon Titan’s, independent 2D and 3D high-definition systems, eliminate, visualize, and move better and are closer to commercialization than ever before. Our software development team has worked tirelessly and continues to do so to improve robot kinematics, decrease electromechanical system response times and increase system reliability, all while adding those features necessary for successful commercialization. We also continue our deep commitment to implementing display overlays for augmented informatics to improve the surgical experience for surgeons, while making improvements to our integrated simulation training suite. The proximity of Titan’s, Chapel Hill facility to independent evaluation laboratories and some of the top U.S. thought-leading hospitals has proven to be an excellent asset that we have leveraged in support of Titan’s, robotics technology development and ongoing innovation. Managing product development in-house has provided us with tight control of our design and shorten-modification timing turnaround as we make iterative updates to the Enos system. This has improved our ability to take substantially greater control over our technology development and expeditiously execute on our milestones, manage spending and continue to innovate and expand our intellectual property portfolio. Our development program under the Medtronic development and license agreement continues to proceed according to plan. The joint steering committee comprised of equivalent number of members from each company, regularly coordinates activities and maintains development schedules. We are presently on track to achieve the next planned milestone for the program by the end of this month. I am very pleased with and proud of our accomplishments over the past. I look forward to sharing additional updates with you going forward through press releases and additional vignettes on Titan Living Labs. As David mentioned, Titan Living Labs on our website provides the opportunity to join our team of motivated and very talented engineers on our journey of innovation and to witness the growth of our expertise and advancement of the Enos surgical system. I will now turn the call to Monique Delorme, our CFO to review our financial results. Monique?

[Monique Delorme:]

Thank you, Perry. It’s my pleasure to be addressing all of you on this call this evening. As of March 31, 2021, we had cash and cash equivalents on hand of approximately $53.4 million compared to $25.5 million at December 31, 2020. The increase was due to the receipt of $10 million from the exercise of warrants by investors from a previous financing and aggregate gross proceeds of $34.5 million from two equity financings that closed in the first quarter of 2021. The company continues to carry a loan from an affiliate of Medtronic in the amount of $2 million, including accrued interest evidenced by an 8% senior secured promissory note on our books. Net and comprehensive loss for the three months ended March 31, 2021 was $14.8 million compared with the net and comprehensive loss of $800,000 for the three months ended March 31, 2020. The increased loss is primarily due to increased R&D expenses of $7.6 million in the first quarter of 2021 as we progressed on the development of our Enos system and the activities under the development and license agreement with Medtronic. In the first quarter of 2020, R&D expenses were $50,000 reflecting our temporary suspension of our R&D activities at that time. As we increased staffing through the quarter and invested in strategic business development and corporate governance, general and administrative expenses increased to $4.1 million in the first quarter of 2021 compared to $1.7 million in the first quarter of 2020. During the first quarter of 2021, the company also recognized a non-cash loss on fair value of warrant derivative liabilities of $3.1 million compared to a non-cash gain of $1.1 million recorded in the first quarter of 2020. As of March 31, 2021, current liabilities excluding warrant derivative liability were $5.2 million compared with $6.6 million at December 31, 2020. As of March 31, 2021, the company had working capital of $50.6 million compared to working capital of $20.4 million at December 31, 2020. The growth our company has experienced over the past year has been incredible. Augmenting the management team, establishing our U.S. subsidiary, tripling our workforce and achieving milestones internally for our Enos system and delivering those in our development and license agreement with Medtronic has been great accomplishments for Titan. Meanwhile, we continue to hone our financial reporting process and increase the efficiency with which we deliver our finance solutions. Working together with members of the senior management and audit committee of our board of directors, we continue to evolve our accounting systems and judiciously apply resources to address the rapidly changing needs of both our Canadian and U.S. operations. As we noted during our year-end earnings call, we have identified material weaknesses in our internal controls over financial reporting as we completed the preparation of our annual financial filings resulting in non-cash adjustments to our statements. All corrections were made prior to the approval of the financial statements by our board and prior to the release of year-end financial statements. Since that time we’ve taken several remedial actions, including engaging additional human resources to assist with the preparation of financial reports, engaging the services of third-party financial experts to assist in the preparation and review of more complex financial transactions and leveraging systems and technologies to reduce the risk of errors. Based on our assessment, we have concluded that the 2021 first quarter financial statements are fairly presented in accordance with IFRS. In summary, our balance sheet remains strong and is expected to support the completion of the Medtronic development program and continued progress on the Enos surgical system through 2022, as we prepare for regulatory filings and surgeons perform human clinical studies upon receipt of anticipated IDE approval from the FDA. With that, I turn the call back over to David.

[David McNally:]

Thank you, Monique. We believe that the Enos surgical system will address an under-penetrated, but high demand segment of the robotic-assisted surgical device market, promising less patient trauma and faster recovery times and savings on capital equipment, service and procedure costs for hospitals. We look forward to keeping you appraised on Titan’s progress toward the exciting milestones ahead, including advancing our Enos robotics single access surgical system toward commencing human clinical studies and meeting additional milestones under the Medtronic development program. We remain committed to corporate governance and shareholder engagement, and look forward to communicating with you through news releases, our newly enhanced website, social media, and remaining engaged with the investor community through our participation in virtual investor conferences, investor road shows, meetings with institutional investors, and discussions with our covering analysts. Planned participation in upcoming virtual investor conferences include, the Oppenheimer & Company MedTech Summit on May 26, and the Cantor Global Healthcare Conference at the end of September. Importantly, we will be holding our Annual and Special Meeting of Shareholders virtually on June 9. Details of the meeting, including instructions on how to connect to the online platform can be found on our website in the Investors section, under news and events. We encourage all of our shareholders to cast their votes and attend virtually for additional updates. Thank you for your support. We will now open the line for questions. Operator?

[Operator:]

And at this time, we will be conducting a question-and-answer session. And our first question is from Suraj Kalia with Oppenheimer. Please proceed with your question.

[Suraj Kalia:]

Good afternoon, everyone. David, can you hear me all right?

[David McNally:]

Yes, Suraj. Thank you.

[Suraj Kalia:]

Perfect. So David, what all remains to be done to freeze product design and move into IDE trials?

[David McNally:]

Thank you for asking the question, Suraj. And as you’ve seen on Titan Living Labs, we’ve been able to demonstrate the functionality of the improvements to the camera systems and the instruments. Now comes the part that’s not as obvious to the outside world, which is moving through the processes of biocompatibility of materials, perfecting the manufacturing processes and verification and validation. And those steps are necessary before we can say the design is truly frozen and ready for production. I can say however that the design is firm and that we have been able to test the instruments, the interfaces, and the improvements to the system in the laboratory environment. And we feel comfortable with the architecture of the system, but it’s the details that take us from an exciting system that operates in a preclinical environment to one that is ready for clinical use. And of course these activities must be completed before we file for our investigational device exemption plan for early next year.

[Suraj Kalia:]

So David, the IDE next year, can you just back up when must the design be completely frozen? I presume you’re already in discussions about an IDE design in a benign hysterectomy. So just kind of what should we expect over the next three quarters in terms of milestones as we prepare for the IDE?

[David McNally:]

So in terms of the milestones, we’re performing, as we’ve noted in our MD&A, the biocompatibility testing. Of course, that’s on for the current quarter, that’s Q2. We’re also marching forward toward verification and validation, completing software development this current quarter as well, and continuing to communicate with the FDA regarding the clinical study that is the design of the clinical study in benign hysterectomy. So that when we go to file for our IDE in the first quarter of next year that we’ve already worked out with FDA, the details of the number of patients, the number of sites and the endpoint associated with that study. The cadence of over these next several quarters of this year include not only those activities related to our Enos robotic single access surgical system, but also in parallel execution to the Medtronic milestones of which there are two remaining; one, as we confirm today that we expect to achieve this very month of May and the fourth milestone to be achieved later this year, earning license payments of approximately $10 million and $11 million respectively related to those milestones.

[Suraj Kalia:]

Got it. David, one final question. I’ll let others jump in. So David, as you’ll think about the IDE early next year, obviously you’ll have to be targeting your low-hanging fruit. Is the top process to go into larger university centers or to tackle more community centers? And also if you could touch upon the training and credentialing groundwork you would be laying in anticipation of an eventual commercial launch? Thank you for taking my questions.

[David McNally:]

You’re welcome, Suraj. And as always, great questions and your research. So we’re targeting a mix of facilities for our IDE studies that range from large teaching hospitals to smaller community hospitals. And we do see that this also would demonstrate to the FDA that facilities of a broad range are potential candidates to safely use our technology. So it’s strategic in the design of those. Key to this as well is that we’re working with surgeons that we believe can really further single access surgery with their hands on the Enos system. So very much focused on the right surgeons, who we’ve handpicked and by mutual agreement sharing the inspiration of where we can take single access surgery are also interested in teaching other surgeons. So we view our initial sites for the IDE study as evolving into teaching sites, where we can train other early adopter surgeons and ramp our commercial launch, once we have cleared the FDA. And then with respect to credentialing, we expect that the training modules that we have been developing and implementing on the workstation will be invaluable not only to the surgeons and their performance in the operating room, but to the hospitals for accreditation. So we’re investing heavily in integrated training software on our platform. We’re also working with our key opinion leading surgeons who will lead the IDE studies that may also proctor in terms of cases with early commercial adopters outside of the surgeons perform in the IDE study. So we’re very keen on optimizing the outcomes associated not only with the IDE studies, but focused on excellent patient outcomes as we roll into commercialization after clearance.

[Operator:]

And there are no more questions over the phone lines. I’ll hand it back to David.

[Kristen Galfetti:]

Actually, we do have some questions from the webcast, which I’d like to share. First up, with the increased funding that the company has successfully completed, is it possible to speed up the FDA submission?

[David McNally:]

Kristen, I’ll be happy to take that. This is David. Unfortunately, more money does not make a difference in terms of one completing the product. And more importantly, getting the – navigating the regulatory pathway, there are certain response times associated with interaction with the FDA. I can say that to date, the FDA has been very responsive and supportive of our drive to move forward with advanced technology, but there are certain processes that cannot be circumvented even by capital or more personnel. So what we’ve put forth in our milestone plans are what we believe to be realistic projections based on the known regulatory pathway ahead.

[Kristen Galfetti:]

Great. Another question, is the increase loss due expected? And when do you think you will need to raise additional funds?

[David McNally:]

Monique, would you like to take that one?

[Monique Delorme:]

Yes, David, thank you. I’d love to. And thank you for the question from our webcast readers or listeners. So as we mentioned earlier on the call, we expect our current cash to last through the end of 2022. Our reserves were in great shape. Our reserves will allow us to finalize the product development of the Enos system that David was just speaking about. And upon FDA approval of our application for the IDE, we anticipate that we will be able to commence and complete our IDE human clinical studies in 2022 as well. Meanwhile, we have anticipated license payments from Medtronic that will add to our funding and pursuant to our development and license agreement. As David mentioned, we expect to earn $10 million in the coming weeks, as well as an additional $11 million later this year. Also as recent warrant exercises have continued to strengthen our balance sheet, there also remains additional warrants outstanding that could be exercised at values of around $2 and $3, which will also increase our runway. So although we acknowledge that additional financing will eventually be required to carry us through commercialization, we’re in good shape today and there’s no urgency for us to go back to market.

[Kristen Galfetti:]

Great. Next question, is there a plan to increase insider ownership?

[David McNally:]

I’ll be happy to take that Kristen, this is David again. And with respect to share ownership, our new independent board believes that equity ownership is important for directors, management and frankly for all employees. Since meeting for the first time in October of last year, the board has begun developing and implementing policies and mechanisms to increase insider ownership. And it’s something that the board and management remain committed to.

[Kristen Galfetti:]

Excellent. another question. If Medtronic does not wish to pursue a long-term partnership with Titan Medical, once the Medtronic milestones are completed, wouldn’t Titan Medical be able to license the IP that Medtronic used in the Medtronic milestones to other companies who may be interested in that IP?

[David McNally:]

Again, this is David. Great, great question. And it’s important to – for me to make the point that Titan Medical’s future, we see to be based on our Enos system. We retain a non-exclusive perpetual royalty worldwide license to all intellectual property developed under the Medtronic development and license agreement. But it’s important to know also that and remember, that we retain all rights to the greater portion of our IP portfolio that we continue to develop independently. We’re free to develop strategic relationships globally, including M&A without intervention from Medtronic. I’d say that with all due respect to Medtronic, we value as a development and strategic partner, we hold them in very high regard, but at the same time when it comes to Titan Medical our future is open to many possibilities.

[Kristen Galfetti:]

Next question. Even with all the progress that is being made, the share price continues to slide downward. Is there anything that company can do to raise it?

[David McNally:]

Well, this is a fundamental question David again here, Kristen and thanks to our audience here. With respect to valuation, we view execution to our milestones to be paramount, including those related to our Enos robotic single access surgical system, as well as those related to the Medtronic development and license agreements. At the same time, we remain committed to investor outreach, having hired Kristen as our Vice President of Investor Relations and Corporate Communications. Evidence of our outreach also includes new analyst coverage by Suraj Kalia of Oppenheimer and David Martin of Bloom Burton. And the things that we’re doing tactically in terms of ramping up our activity on the website with an enhanced investor relations page and additional vignettes as Perry referred to on Titan Living Labs. All of this is part of a coordinated effort for us to continue to get the word out as we announce our milestones.

[Kristen Galfetti:]

Another question, having had an opportunity to peruse through the updated website, it seems that Enos system is in the completion stage. Is this the reason for the change of board members, bringing in those with M&A and evaluation experience?

[David McNally:]

The – David here again, there’s an even bigger picture here when we look at our board. So our new board members complement are increasingly independent and diverse board, when we look to the future, we as a board have looked to the skill sets with which we’d like to augment our board. So the investor inquiry is onto something here, when we think about Heather Knight, who brings us commercialization experience that is particularly relevant to our planned commercial launch following FDA clearance. Also on the management information circular, we’ve nominated Cathy Steiner who brings a depth of investment banking, M&A, capital markets and finance experience that will help us to navigate the opportunities that lie ahead as we execute on our strategy and also manage financially at the board level. So we’re very excited to bring both of them onto our board. And I can say that they are strategic as we look ahead to the company’s needs.

[Kristen Galfetti:]

Great. What is the projected completion date and when will Titan satisfy the outstanding 1.5 million from Medtronic, since there are sufficient funds to pay off the debt now?

[David McNally:]

I’ll turn that one over to Monique.

[Monique Delorme:]

Yes. And thank you, Kristen. And a dual part question, the first part of your question was…

[Kristen Galfetti:]

The projected completion date and when will Titan satisfy the outstanding loan?

[Monique Delorme:]

So I’m going to assume that our listener was asking about the completion of the Medtronic milestones and the Medtronic project, as they’re referring to the loan that’s associated with the Medtronic project. And our Medtronic project is ongoing through to the end of this year, its short complete before the end of the year. We have two milestones left, as we mentioned, milestone three, we expect to complete this month and report on. And the fourth milestone we expect to complete closer to the end of the year. And associated with the loan and when do we expect to pay it and why do we not pay it back now, it is a loan that our commitment to Medtronic was to repay this loan at the end and the completion of milestone four under our development and license agreement and so we continue to hold the loan just until that time.

[Kristen Galfetti:]

Great. Next question. Do you plan to manufacture and commercialize the Enos systems yourself?

[David McNally:]

I’ll be happy to take that Kristen and this is David again. And indeed, we intend to go to market ourselves, managing outcomes with respect to our Enos single access system as being the top priority, that is ensuring that with early commercial uptake that we’re seeing an increasing number of cases being performed at each of the early installed sites with excellent patient outcomes, that’s our priority. So our current plan is for us to launch in a very measured way and to control that with our own internal team and internal resources, who have been with us on this journey, augmented by clinical expertise and of course at the appropriate time more sales resources.

[Kristen Galfetti:]

Thank you with the growth of the facilities in North Carolina, is it possible that you would consider closing the Toronto office?

[David McNally:]

We are committed to being a Canadian company. Our roots are Canadian, we have a very strong Canadian shareholder base. We have demonstrated earlier this year that there have been great benefits in terms of being able to raise capital on both sides of the border. So our plans are to remain a Canadian entity to enjoy the advantages and the pride that we have in that, and at the same time to ramp up our commercial and of course development team here in Chapel Hill, where in spite of COVID-19, that team has grown and thrived and executed on the milestone. So we believe that we’re living the best of both worlds, and we remain committed to move forward as a – I’ll look at it as a global company with headquarters in Toronto and our primary development facility here in the United States in Chapel Hill.

[Kristen Galfetti:]

Okay. Thank you. I believe that’s the last question. So I’ll turn it back to David for closing.

[David McNally:]

Thank you, Kristen. So in closing, I’d like to thank all of our listeners again for joining us on the call this evening and for your support of Titan Medical. We continue to push forward and plan to bring our robotics single access surgical system to the market, for the benefit of patients and surgeons. We’re proud of our accomplishments to date and recognize that it is a direct result of the commitment and hard work of our employees, the leadership of our board of directors and the support of our shareholders. We’re very excited about the future ahead and look forward to keeping you informed of our progress. Thank you again, and have a great evening.

[Operator:]

This concludes today’s conference. And you may disconnect your lines at this time. Thank you for your participation.