Q4 2019 Earnings Call

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5686 095.

Thank you may get your first and last name.

First name David.

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IRA.

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A I.E.R.A.

Thank you Sir that's you know.

Non-GAAP results are presented in the tables accompanying our earnings release, which can be found in the Investor Relations section of our website.

It is now my pleasure to introduce Transenterix, President and Chief Executive Officer, Anthony Fernando.

Thanks, Bob and thank you all for joining us today.

On today's call a retrofit briefly review how fourth quarter financial performance and then I remind you off a key strategic priorities. The progress we have made against these priorities over the last few months and show up plans for the rest of 20 Quinn.

With that I would like to hand, the call over to Brent.

Thanks Anthony.

Three months ended December 31, 2019, the company reported revenue of 700000 as compared to revenue of 7.5 million in the three months ended December 31 2018.

No revenue was recorded for Q4 system sales instruments and accessories revenue in the fourth quarter was $286000 service revenue in the quarter was $402000.

Gross margin for the fourth quarter was negative 10.2 million.

Result of lower revenue with the quarter and a 7.4 million dollar inventory write down due to the revised commercial strategy that we employed in the fourth quarter.

R&D expenses in the quarter were $4.6 million as compared to the prior year period at $6.4 million due to lower personnel and technology.

Sales and marketing expenses in the quarter were $5.6 million from $7.9 billion in the prior year period.

<unk> expenses were lower due to the sales restructuring completed during the quarter, which resulted in lower personnel and consulting costs.

General and administrative expenses in the quarter were $3.8 million down from approximately $3.9 million in the prior year.

Cash and cash equivalents restricted cash and short term investments as of December 31, 2019 was $10.6 million as Anthony will share with you later, we have subsequently added additional capital to the balance sheet.

Now I will turn the call back over to Anthony.

Anthony.

Thanks, Brett.

Before I share priorities and progress I want to remind you apply unique market positioning and the foundation, we have bid for the same had system.

Yeah, the only company with a strategy that is focused exclusively on converting laparoscopic surgery to robotics.

To execute on this strategy I system, but decided to maintain the benefits up enough for us Kobi provided a robotic experience that is and that's a really comfortable to laparoscopic and enhance the laparoscopic surgical experience through enabling technologies unique do a platform.

This combination of strategy and product offering allows us to target hospitals surgeons and procedures that are not economically viable for other robotic approach it either on the market today all in development.

We also know how challenging it is to develop a robotic platform that can perform surgery safely and reproducibly.

And to navigate the global regulatory landscape.

No other company focused on digitizing laparoscopy.

And we thought regulatory clearances behind us as well I saw meaningful clinical experience. We believe that we have a strong head start to realize this potential.

Specifically, we have regulatory clearances in three key geographies and importantly scenes person had system was cleared in the fourth quarter 2017, we have received seven Edison, a if diego clearances, including the most recently received clearance for machine vision.

Can you just the first stuff its type in robotic surgery.

The Senhance system is performing consistently for surgeons supporting strong clinical outcome.

We have an increasing number of foundational sites performing a significant and a growing number of surgeries with multiple surgeons across multiple specialties and we have continued to expand the indications for use office in hand.

To add high value instruments, and habit and a line of sight to heading augmented intelligence features to Senhance system in 2020.

Despite all we have accomplished to date, we still have both could do to build a successful who come to us so business.

There are four key areas that we have focused on into any pending.

Hi, good development clinical validation portfolio expansion and capital funding.

The first area of emphasis is makan develop but which involves building of and us up to send had system and effectively demonstrating the clinical and economic value in the marketplace by increasing the visibility of the success that our customers having the Senate.

To do this we are focused on the following.

Increasing the consistent utilization of the system, increasing the number of surgeons using the system and expanding into Andy said, especially our teeth.

Implementing new Senhance programs at strategic sites across the U.S. Europe and Japan.

Increasing the number of surgeon advocates.

Driving expanded clinical data and speaker programs.

The second area of emphasis is the development of clinical evidence.

Why do we have seen many off this enhanced value propositions become reality in the field.

Specifically at a foundation of site.

It's critical that we continue to expand real world evidence of <unk> ability to support these beliefs.

Specifically that senhance proceeds or costs that assuming letter laparoscopy and DAF was significantly lower than other robotic platforms.

Senhance programs like maintaining all our efficiency, particularly in terms of case times and learning curves.

Senhance can minimize physical and called menu fatigue, both in terms of the impact it can have on surgical performance as well as the quality of life and longevity of the Surgeons Korea.

And finally that 3 million meet the instrument under Senhance will enable a further reduction in the invasiveness of several high volume procedures, which may impact cost me see patient recovery and pay.

All of these themes aligned extremely well with the challenges that hospitals are facing today.

And by deliberately collecting evidence on these fronts, we will increase our ability to grow sales in the future.

The Ted third area of emphasis is the expansion of <unk> instrument offering proceeds the indications and offering differentiated technologies.

The limited launch a five millimeter articulated instruments in Europe is ongoing and once complete we expect to launch these instruments in Europe.

And subsequently work towards regulatory approval in the U.S.

We also have ongoing programs to expand our regulatory indications to general surgery that includes bariatric.

We have completed the cases and collected data and now compiling a five 10-K application, which we expect to file in the second quarter.

We have already obtained CE mark for pediatric use of the Senhance.

In the first quarter off this year.

Finally, we do continue to pursue additional initiatives in digitizing surgery through a intelligence surgical unit or I guess you.

To expand the capabilities of 10 has through the integration of augment that intelligence and machine learning.

Our final area of focus is on capital funding.

An area that we have made significant progress in recent months, allowing the company to continue to execute against the initiatives that I spoke about earlier and demonstrated the clinical and economic value off the same had system.

Now let me discuss what we have accomplished since our third quarter call in November.

Starting with our market development efforts.

With respect to expanding the number of sites using sand has three new hospitals have initiated senhance digital laparoscopy programs, thus far into any trend.

Washington, The health system in Louisiana.

Clinique I'm ethylene got a hospital in southern Germany close to stood God.

Kentucky, you should general hospital, the hospital in southwest and Japan.

And in addition, we have signed two additional agreements with hospitals, who will begin that senhance programs during the second quarter.

Mariana University School of Medicine, Tokyo Hospital, the hospital in the greater Tokyo Metropolitan area.

Okay. It felt correct major university teaching and multi specialty hospital in Austria.

At the end of February we had completed 337 cases in 2020. This was at 28% increase compared to the same period in the prior year.

Additionally, we have added two more foundational sites to our portfolio, bringing the current total to nine.

And continue to make progress in terms of Senhance clinical adoption.

Another key focus within a market development efforts is increasing the number of surgeon advocates speaking at impactful P to P S enhance events.

In December we hosted a webcast discussion with a few off a U.S. surgeon users each.

Each of these surgeon highlighted that experience with this enhanced system and how it fits into that practice and hospitals surgical robotics program.

Those of you who have not had the tons to watch. This I would encourage you to watch the video replay which is available in the investor section of our website.

Moving onto our clinical evidence efforts, while we have seen many off this enhanced value propositions become reality in the field.

Specifically at a foundational sites.

It is critical that we continue to expand real world evidence of <unk> ability to support this belief.

We are currently working with a leading healthcare economic for with the goal of publishing impactful data.

Shifting gears to I indication expansion efforts.

Since November we have made significant progress related to our product portfolio initiative.

As noted on Friday March 13th we announced that we have received if the five 10-K clearance for the intelligence surgical unique.

Enabling augmented intelligence and machine vision capabilities under Senhance in the U.S.

We are thrilled with the speed at which we were able to achieve this clearance and look forward to a pilot launch in the second quarter.

In addition.

As announced in mid February you received CE Mark approval for pediatric use Austin.

We are excited about this opportunity and look forward to working closely with leading European hospitals. The so the needs of their pediatric patients.

The seven has system is designed to maximize control of instruments as small as three millimeters.

And be compatible with small five millimeter scopes, while also returning the sense of cuts through haptic feedback.

This makes our technology uniquely positioned to meet the requirements of pediatric surgeon.

As it relates to additional indications, we continue to pursue general surgery, including bariatric indication in the U.S. and expect to submit a application in the second quarter.

I would now like to provide an update on our capital funding status.

Since our last call we have been very active in raising capital to fund our business and support our long term strategy for driving the adoption of Senhance.

Since the beginning of 22 any we have raised approximately $11.6 million at an average price per share of $1.73 cents through our ATM program.

On February 24, 2020, we entered into a series B warrants exchange agreement, we told US off series B warrants or originally issued as part of a public offering in Mxntwenty 70.

Under the terms of the agreement E series B warrants. These cancers in exchange for 0.61 off a share of the company's common stock.

The warrant holders participating in the exchange currently held approximately 3.4 million.

The approximately 3.6 million.

Series, B warrants outstanding and receive an aggregate of 2.040 million 757 cents of common stock.

The purpose of the warrant exchange loss to reduce the potential of a dilution overhang going into equity financing.

In February we announced a common stock purchase agreement with Lincoln Park capital.

This agreement provides the company up to $25 million, which would represent the proceeds from the issuance of shares.

The company's common stock over at 36 month period to Lincoln Park.

On March 15, we announced our plan to launch an underwritten equity financing through Ladenburg Thalman.

We have sublease subsequently close the transaction, providing us with gross proceeds of $15 million.

Starting in Q3 2019, we have been evaluating the best way to restructure the organization.

In conjunction with our new strategy and focus for Twentytwenty.

Since this time, we have reduced our headcount by approximately 40% compared to the peak in 29 team.

Our current headcount is on rent 35 globally.

With respect to I knew us pen, we anticipate that the significant changes we have made will reduce our cash but by approximately 35% compared to 29 Pete.

As a result of these cost optimization measures. We believe that current cash on hand will give us the capital to run the business into the fourth quarter off 2020.

Before discussing my thoughts on the balance of Twentytwenty I would like to comment on our strategic alternatives process.

And the impact of Colby 19 on our organization.

We initiated exploring strategic alternatives in October Oftwenty 90.

Since then.

We have actively explore multiple potential value driving initiatives, including the sale of the company.

A strategic financing of the company a strategic partnership a collaboration or some other form of commercial relationship.

At this time, we have determined that the sale of the company is not currently a viable option. Although we are continuing to pursue commercial partnerships and strategic financing options.

Turning to the impact of Corbett 19 on our business, we do have a material portion of our operations located in Milan, Italy.

Most importantly, none of our employees have been personally impacted by the disease and we'll continue to work remotely until the situation resolved.

Our systems are manufactured at a contract manufacturing facility in Milan.

And given that employees out working remotely the assembly of new systems has being disrupted.

However, we currently have enough systems ready to be ship and we do not anticipate that system availability will cause any new system installation to be delayed or canceled.

We have however scene and impact.

On case volumes and surgeon training.

Given the various travel restrictions that have been put in place and the closure of our Milan training Center, we have been unable to support new installations due to delays in new surgeon use a training in recent weeks.

While it is unclear as to when the travel situation will be resolved. We will continue to work diligently to get as many surgeons up and running as quickly as possible across our global installed base of systems.

Now moving onto our expectations for Twentytwenty with each of our focus areas.

On the market development front, we will be focusing on continuing to increase the number of foundation of sites in order to drive significant clinical case volume growth as a reminder, foundational sites are those that outperforming procedures at a at an annualized.

Hi straight of greater than 100 procedures per year.

As stated previously we intend to initiate approximately 12 cents hands programs. During the first three caught us off the year and are pleased with the progress we have made so far against this goal.

The larger base of systems and users will allow us to meaningfully increase the number of speakers and advocates who can cascade, our key messages through publications and speaking engagements.

Moving on to clinical evidence in Twentytwenty, we will be focusing.

On the development of health economic data, primarily around the cost impact of Senhance relative to traditional laparoscopy SLS other surgical robotic system.

In addition, we will continue to develop data on the use of three millimeter instruments and the benefit of smaller institutions.

Moving to our portfolio expansion efforts.

Following up on our recent approval Hyundai I S. U. We will continue to pursue incremental features which would be available within the ISU, namely the next generation of additional machine vision and augmented intelligence capabilities, which we plan to submit in Q3 to the FDA.

We will also focus on the expansion of I indications for use with the system.

With the initial efforts devoted to a general surgery indication.

Which we expect to file the five 10-K submission to the FDA during the second quarter of Twentytwenty.

With respect to our capital funding needs as noted earlier, we currently have funds available to support the business into the fourth quarter 2020, and we will continue to execute on our plan.

Shifting to a financial outlook for Twentytwenty.

As a result of the strategy we have outlined our primary focus this year is not on generating near term revenue, but rather building the commercial and clinical foundation to support commercial activities in the future.

Having said this we do expect revenues for the full year twentytwenty to be in the range.

Three and $3.2 million.

Driven primarily by leasing existing system service contract and instruments and accessories revenue.

Any traditional system sales would materially add to this expectation.

To recap, we're very excited about the opportunity that exists for Senhance and I'm very proud of what our team has been able to accomplish in the short time since I stepped in as CEO in November 2090.

We have bolstered our balance sheet, enabling us to continue to execute on our strategic vision into Q4.

We have added to our installed base of systems with three hospitals initiating programs, thus far in 2020 and with another two set to initiate in the near term.

We have progress the capabilities of Senhance, most notably with the recent FDA approval of the ISU.

Which we will continue to leverage going forward.

We have broadened applicability of Senhance with the CE Mark for Pediatrics.

Looking to the balance of 2020 with near term capital funding needs taken care off we will continue to execute within our focus areas.

Market development clinical evidence and portfolio expansion efforts.

I would now like to open the line for questions.

As a reminder to ask a question you will need to press star one of your telephone to withdraw your question press the pound cheap again, that's star one on your telephone to ask a question. Please standby, while we compile the Q when a roster.

Our first question comes from the line up Jeffrey Cohen of Ladenburg Thalmann.

Your line is open.

Oh, Hi afternoon, Brett how are you.

Doing good Jeff.

So our keeps it seems to answer your question. So you said earlier that too.

Total case volume in 2000 maturity was I hear that corrects recently Sherman.

Yeah. That's correct that's for January and February just the first two months.

Got it do you disclose anything as far as 20 nurturing on claims for you.

Yeah, So 2019 for the full year plus the slightly over 1600.

Cases.

Okay perfect can can you give her cereal.

Better sense specific types of procedures that you're seeing a mature volume in the lease during 2019 or 2020.

Yeah, I think so if you look at 29 team Jeff. We May majority was general surgery closely followed by gynecology.

And then we did also have some.

Urology and colorectal cancers that but I think just if you take general surgery and.

Gynecology they accounted for approximately.

70%, so overall case volume.

And then as far as.

Youre intelligent surgical unit, you're going to file that as far turn came in.

First half of the are you said you with summit in the second quarter So right.

So the intelligent surgical in it we actually submitted it in January and we got it approved.

I lost a.

Last week, Oh styles confusing though.

Sure.

Yeah. So that's I guess you. So we had two so we have a follow on submission.

We got the initial features approved and now we have a follow on submission that we plan to submit a in the third quarter, which will add more applications to that same device.

Okay, and what are your plans for adding that on to the existing platform out there that would be a software upgrade or software purchase.

So it would be a software upgrade and also a hardware component that needs to be a swapped out. So initially given the installed base a small installed base in the U.S., we plan to upgrade their so that we.

Get this into all the the sites that are kind of a pilot launch.

Probably by second half of Q2 will start to get it out as a pilot launch in the U.S. and then Oh, we will go from that looking at how best we can integrate it into all the systems globally will ask the regulatory approvals come through.

Got it okay sure we'd expect to hear more towards the on the back after the year.

Yes, yes, you, Okay and is there any information give us related to the on the commercial phone or the sales cycle.

As far as army, we have a good sense over the the quarters about the duration of an average sales cycle can you talk just about anything that shot in latter stage or anything that.

Do you believe could get started 2020 or North America measures, you're essentially guiding just utilization of existing platform.

So I think Jeff I know like we've said before the goal for this year is really to focus on building a foundation and working on Mako development efforts. So.

We are not very active in direct sales.

And what we're really doing is at the turn of the RV had Oh systems are already bid. It. So we are trying to lease these systems in the U.S. Europe and in Japan in order to.

Drive utilization and kinda bypass the the capital purchasing cycle.

That's why they're using this leasing methodology.

See I tried to get that Don as fast as we can Ah. So that we can get a data and also prove out the value propositions off the system. So that's why we as we said the revenue number that we put out there was more leasing revenue and.

No not not a very big data about primarily leasing and instruments accessories, but the real focus is on a system placements and driving decision.

Okay got it sounds like Sir you mentioned, the foundational sorry surgery or would like to do or or doing 100, plus cases annually, but.

Your average looks like it's just a slightly above 60 ish.

What's your expectation for Twentytwenty I mean.

Would that be a good baseline or would you like to see material growth from a from the average number.

Yeah, I think obviously, we're looking to see growth in from that number as we have more foundation of sites. The average will definitely move up.

But again, we have seen a slowdown in cases, especially in Europe and ER as Sofitel. This morning, we've seen some cases are being.

Canceled in the U.S. as well so there will be some impact there, but it's hard to say about you know in in aggregate. Our goal is to improve on that average and keep driving that number up.

Great and one for you, but could you talked about should the interest expense is going to zero now.

Correct.

Yeah, we paid off the that a facility. So so that should be correct going forward.

Okay got it and then lastly, I guess.

Right and you can you give me a little more flavor as far as the.

The opex going forward I know that are.

Q4 was approximately 14 million or may be you stated or.

You'd be off of a wish it 30 or 34% from 20 during two levels could you give us a kind of home and then number in force sensing Smith Pan out over the year.

Yeah.

Yeah, Jeff So I think I mean, we've taken a look at all the different functions and really the goal is to reduce the cash burn.

Its a.

No problem the purpose of if we need primarily focused on some headcount reductions in the direct sales.

And can myself organization and then most recently weve.

Look to flatten the organization as much as we can so I think if you look at the numbers for 29 team you know assuming 30, 35% reduction in cash I think thats kind of what we're projecting for for this year.

Okay got it and then.

As far as the the ice you units being added on to existing systems will you be.

Looking for our further payment on software and hardware or for systems that are bill ready to be place you would be including the in rates for for leasing or per procedure.

Yeah. So initially.

Jeff will be a placing these systems and getting a utilization from it but as we add mall a advanced features in the future. Then we will look to come up with a a commercial model on how best to monetize this technology.

That's kinda up hole, but that's kind of the one of the reasons why we want to do a pilot launch and tried to learn about how best to monetize it in the future, but initially we will be placing them.

Okay, and I guess at this point I want to ask you about conference presentations are podium presentations consumer on that are.

On the short term schedule, but I imagine there are some more studies ongoing.

Yes, no I mean as soon as things come up we'll be looking forward to participating but given the uncertainties now it's hard to kinda talk about what's next.

Okay perfect that's closer for me thanks for taking the questions. Thank you Jeff.

Thank you that concludes our question and answer session for today I will now turn the call back over to Mr. Fernando.

Thank you all for taking the time to join US today I Hope we have conveyed to you the strong foundation, we have built.

The significant progress we have made since November and I also.

What we need to do in 2020 to continue.

To position ourselves for commercial success I.

I will assure you that I along with the other members of the Trans Centex team are committed to achieving our goals.

Thank you again for joining us and for your support of Transenterix.

Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.

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