Q3 2021 Vicarious Surgical Inc Earnings Call

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Good afternoon, and welcome to the vicarious surgical third quarter 2021 earnings Conference call. My name is Sarah 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 fight with CTO Martin group for a few introductory.

Any comments you May proceed.

Thank you and thank you all for participating in today's call earlier today, the carrier surgical released financial results for the three months ended September 32021.

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 section of our quarterly report on Form 10-Q.

Filed with the Securities and Exchange Commission today.

This conference call contains time sensitive information and is accurate only as of the live broadcast today.

<unk> 2021.

<unk> 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 <unk> Chief Executive Officer.

Thank you Marissa and good afternoon, and thank you everyone for joining our first earnings call as a public company.

Joining me on today's call is Bill Kelly Vicarious Surgical's, Chief Financial Officer.

Before we begin I want to congratulate our team and thank our investors and advisers and partners for contributing to our company's growth and driving our ability to become a public company, we would not be trading on the New York stock exchange today, if it were not for my co founders.

Accretable leadership team and our employees, who have driven this company from an idea to a reality.

Have a tremendous opportunity and an exciting journey ahead of us.

Of course, I would also like to welcome newer investors to our story, let me take a step back to highlight our company's overarching mission.

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 health care 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 time.

My 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 resulted in an additional hernia requiring additional complex surgery to correct.

While current minimally invasive techniques seek to address the substantial unmet need these techniques fall short.

Laparoscopic instruments are difficult to manipulate have limited degrees of freedom limited reach and reduced depth perception and visibility requiring significant coordination among the surgical team to perform a procedure.

Port robotic systems have overcome some of the challenges of rigid instrumentation associated with laparoscopy, but they have a large footprint and limited portability require extensive setup and procedural time and use multiple incisions and multiple systems.

Fundamentally these systems still require surgeons to choose the incision site location based on the robotic motion that they're looking for and to design the kinematic profile of their robotic tool for every procedure.

Economically these systems are expensive and surgeons and counter cumbersome costly learning curves.

The more recent development of single Port robots does not comprehensively address these fundamental issue still relying on legacy robotic architecture. These.

These require a much larger trocar incision, the multiport systems and are associated with complication rate akin to legacy techniques.

Additional challenges include limited motion strength in visualization and can only operate in a small area.

For these reasons non robotic techniques continue to be used in the vast majority of cases.

If I carry a surgical we intend to deliver the next generation and robotic assisted surgery to deliver the shortcomings of open surgery as well as current laparoscopic and robotic minimally invasive surgery.

The vicarious system combines advanced miniature robotics computer science, and three D visualization to build an intelligent single incision surgical robot that virtually transports surgeons inside of the patient to perform minimally invasive surgical procedures.

Our proprietary decoupled actuators enable human equivalent motion with nine degrees of freedom per robotic arm, providing an experience that is more natural and more akin to the surgeons one upper body movement.

In surgical procedures conducted on cadavers, our system allows surgeons to enter the abdomen from nearly any angle and working nearly any direction without multiple incision.

A serious topic camera that rotates in three degrees of freedom provides the surgeon with imaging of nearly every surface in the abdomen. The vicarious system also contained 28 sensors per instrument arm and is designed to enable real time feedback to the surgeon on force motion and other key data intended to enhance.

Surgical procedures and patient outcomes.

Beyond its 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 to our product to be much more efficient to learn setup and use during a procedure.

Unlike legacy robotic system, our system is smaller easily moving from an operating room throughout a medical facility its size and engineering will allow cost effective price point in comparison to existing robotic system.

Hospitals, and ambulatory surgical centers would not be required to dedicate permanent space, reducing expenses relating to sterilization and operating room turnover.

The vicarious system is designed to provide excellent surgical 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 health care costs.

Our thoughtful design was created and adapted specifically to address current barriers to physician training and adoption.

Surgeon 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.

Our robotics is the first of its kind to receive a breakthrough designation from the FDA specifically for the ventral hernia indication, which we are targeting as our first clinical application.

Beyond eventual hernia, we're excited by the potential to target an array of soft tissue abdominal and pelvic procedures, including other types of hernia hysterectomies cholecystectomy and other certain gastrointestinal procedures.

We have developed multiple prototypes, including beta units, which we are pleased to announce that we have and we are pleased to announce that we have just filed a detailed regulatory plan in the form of a pre submission to the FDA. Our regulatory plan is focused to minimize risk and minimize time to market by focusing initially on a single IND.

Acacia we intend to file a 500 10-K application for the vicarious system for ventral hernia procedures by late 2023 and other indications thereafter.

Today, we are also proud to announce that we are well on our way to successful beta testing of our first beta system with surgeons and hospital.

The first of five beta one units was integrated over the summer. Since then we have continued to collect critical surgeon and hospital feedback on our system across attributes such as clinical value and workflow to transport and ergonomics.

We plan to utilize a complete feedback to ensure that our devices exactly what surgeons and hospital meet our plan includes formative testing that will ultimately support our FDA submission in later 2023.

As far as the results of our testing have further confirmed our value proposition to patients surgeons and hospitals and we look forward to continued testing of the beta one system as we begin work toward data too.

This quarterly call marks the first of many and we are proud and honored by the broad base of support from the members of our stack sponsor, formerly known as holdings as well as innovative technology luminary supporting our story and development history.

I will now turn the call over to Bill Kelley, Our Chief Financial Officer for a discussion of our financial results in the third quarter.

Thank you Adam and thank you all for joining us today.

Again, I'd like to make a few comments about our recently completed merger with <unk> Holdings Corporation, which closed on September 17th and our successful listing on the New York stock exchange under our new ticker symbol <unk>.

Despite the redemptions that have become increasingly prevalent across all spectrum vaccines. We are very pleased that we successfully closed our transaction with <unk>.

Total proceeds of approximately $220 million, which after transaction cost.

Resulted in over $190 million in net proceeds to the company.

Through this financing we were able to demonstrate both technical and market validation with the addition of several key strategic investors, including Becton Dickinson and multiple hospital chain in the U S.

In Asia, which should serve us very well going forward.

With this financing secured.

But we can continue to execute on our development and regulatory timeline that plan and we look forward to continuing to update you on that progress in the coming months.

Turning to the results of the quarter.

Operating expenses for the third quarter of 2021 were $8 $6 million, 856% increase from $3 $3 million in the third quarter of 2020.

R&D expenses for the third quarter of 2021 were $5 $2 million compared to $2 $5 million in the third quarter of 2020.

The increase was primarily driven by a 70% increase in R&D head count cost associated associated with our new and expanded headquarters and increased materials and services expanded and the continued development of the bike carrier system.

General and administrative expenses for the third quarter of 2021 were $2 5 million compared to zero point $5 million in the third quarter of 2020.

The increase in G&A expenses can be primarily attributed to increased head count and personnel expenses increased professional fees, particularly related to the merger and the transition to being a public company.

As well as increased facilities expenses associated with our new headquarters.

Sales and marketing expenses for the third quarter of 2021 were zero point $8 million compared to zero point $4 million in the third quarter of 2020.

The increase in sales and marketing expenses can be primarily attributed to increased head count and related activity.

Adjusted net loss for the third quarter was $8 $6 million.

Leading to an adjusted net loss of nine cents per share as compared to an adjusted net loss of $3 $3 million or an adjusted net loss of <unk> <unk> per share for the same period of the prior year.

Net loss for the third quarter was $65 $5 million equating to a net loss per share of 71 cents per share.

As compared to a net loss of $3 $3 million or a net loss of four cents per share for the same period of the prior year.

For a reconciliation of these non-GAAP measures to GAAP.

Please review our earnings release.

We ended the quarter with $185 million in cash and cash equivalents, our cash burn rate for the third quarter of 2021, excluding the impact of the recently closed merger.

$13 $1 million.

With our recent business combination concurrent pipe transaction, which provided $220 million in gross proceeds.

We expect cash burn.

11 million to $14 million in the fourth quarter as our balance sheet normalizes and we continued development of the vicarious system.

As we advanced our development clinical and regulatory processes, we expect cash burn of approximately 60 million to $70 million.

Fiscal year 2022.

Overall, we are very proud of our recent transactions and strengthened balance sheet and we look forward to providing updates as we execute on our development initiatives in the quarters ahead.

We believe the future of victory surgical as bright and with that I'll turn the call back to Adam.

Adam.

Thanks, Bill I'd like to close by commenting on the expansion of our leadership team and our footprint to critical aspect of our company's growth and positioning into the years ahead. In addition to Bill's appointment to Chief Financial Officer, We have expanded our executive team with the addition.

In a June Morris as General Counsel, and Michael Pratt as Vice President of commercial strategy their respective expertise has been and will continue to be invaluable as we embark on the path to transforming the standard of care for minimally invasive procedure.

In addition, we recently signed a new lease facility to expand by 30000 square feet and Waltham, Massachusetts.

Another vital step towards building out our development manufacturing and testing capabilities and represents a budding campus for vicarious surgical and an area of famous for technological innovation.

With the capital resources and people brought together over the last year, we are well positioned to steer the future of vicarious surgical toward our goal of improving patient lives.

Thank you all again for joining today's call operator would you. Please open up for Q&A.

Absolutely.

I will begin the question and answer session. If you would like to ask a question. Please press star followed by one on you touched on it for any reason I turn your question. Please press star followed by two.

Again to ask a question press star one.

Wonder if youre using a speakerphone, please remember to pick up your handset before asking a question.

Talk to you briefly to allow questions to generate in Q.

The first question comes from the line of Ryan Zimmerman with <unk> you May proceed.

Alright, well congrats.

First quarter off the cave here.

So I wanted to just talk about a few components.

Adam you've talked about the submission to the FDA pre submission I should say that the FDA and.

And I'm wondering if you could provide any more color or roadmap around kind of.

When do you expect to hear from them.

You know what their feedback may or may not be thus far and any other color you can give around that component and then I have a follow up question.

Absolutely well. Thank you so much that question Ryan.

So.

I want to mention and we are incredibly pleased with the engagement that we've had with the FDA, especially get a break.

Yeah.

We're able to have a close relationship overall at the end of the day, it's ultimately going to be the Fda's decision. What's the feedback they provided so I prefer to not not speculate on what they may or may not say Ah, we do expect some amount of back and forth over over a number of months.

<unk> fairly backlog after all and expect.

I expect to come to a conclusion and we'll be sharing the results as soon as they come to an agreement at the end of that.

Okay.

And then bill really appreciate your commentary around cash burn.

Not just for the fourth quarter, but also for next year.

Any color in terms of I would imagine that's more R&D loaded than sales and marketing initially, but any directional commentary there around kind of the cash burn as we think about modeling for next year. Thank you so much for taking my questions.

Yeah, no. Thanks, and thanks for joining us on our first call really appreciate it yeah I think.

All right.

We're providing guidance on what the actual overall cash burn is obviously.

Spending that we've had as we've seen in the quarter is R&D, which includes both the development of the system as well as the regulatory process as well, so but that being said towards the end of the June towards the middle of this year you did hire Michael Pratt.

Instead of commercial strategy, and so I think you're going to see that.

The launch of our spending will be in R&D related, but I think you'll.

More and more sales and marketing.

That line item.

Most of the time.

Okay. Thank you.

Okay.

Thank you Mr. Zimmerman.

Next question comes from the line of Kyle Rose with Canaccord Genuity you May proceed.

Great. Thank you for the questions and again like Orion sentiment congrats on the first quarter here as a public company.

Well the one thing I, just really wanted to ask was.

Just around.

Some of the comments about some of this back or the pipe investors. If you could help us just understand I mean, we don't.

Typically you see health systems.

Both U S and internationally.

And companies so how much does understand from it from a broader perspective, what does adding that type of investor to your shareholder base do for you from a beta site for perspective, and maybe just help us understand what rights if any do they have from a commercialization and how we should be thinking about just layer in that type of relationship into the model.

You do flip commercial.

Yeah.

So first of all thank you. Thank you so much for the question.

This is.

Bit of a tricky one to answer because at any of these hospital chains that have been that they are not swap we're incredibly proud of their investment, but we also want to be aware of the fact that they are potential huge customers in the future for our company right. These are you know today, our partners and our investors and we hope.

Tomorrow will become.

Our customers are we've had engagement from multiple hospital chains inside and outside the United States.

Including major ones with over 200 total hospital Saab between them.

And if there is a lot of potential opportunities with with hundreds of hospitals thousands of operating rooms, thousands of surgeons engaged working with us to ensure that our our technology is exactly what they want and our product is exactly what they want when we bring.

It to the FDA and bring it to market just to answer specifically the question about special rights. There are no specific special rights.

There are no special rights provided in any of the investments that Bill do you have any color you'd like to add to that.

Yeah, No I think.

You hit a rhythm for sure we're extremely pleased with our pipe that we actually oversubscribed twice.

And there are multiple hospital systems, none of the strategic investors in office systems or any of the investors who sees any special night.

But I think what we feel pleased about is just we.

You stated back when we started this process that we wanted to reach out to hospitals and start to engage them and just this level of involvement houses excited because it shows a big sale.

Got engaged in and are supportive of our system and we're very appreciative of that.

Great. Thank you for taking the question.

Thank you Mr Rose.

The next question comes from the line of Adam <unk> with Piper Sandler You May proceed.

Hi, Adam Hi, Bill This December and on for Adam. Thank you guys for taking the question.

So I wanted to touch on how your current engagement with hospital systems and physicians on the development of a vicarious the vicarious robot is doing.

You know how many of those kinds of physicians have come through headquarters and are these clinicians associated with large academic centers or ASC.

You know any any feedback commentary that you'd like to share.

It's always had a large number of hospitals across the many different Dod chains as well as academic centers there are.

A whole bunch of facilities. In addition to those hospital chains that have invested in us that we're working with it does include smaller community hospitals academic centers AFC that you mentioned as well as larger for profit hospital chains inside and outside the United States.

They've been engaged with us both at the hospital C suite level, all the way all the way through including Surgeons and other operating room staff.

And we've been going through a beta testing too.

To thoroughly examine and understand every feature of our system to make sure. It's exactly what they want to did I answer your question.

Yeah, No that was perfect and then could I, maybe ask a little bit more on them. You know how things are looking from an opex standpoint could you maybe help us understand the on the pace of spend in in subsequent quarters, both on the R&D and SG&A side of thing.

You know quantitatively or qualitatively.

Yeah, It's a good question.

Obviously, they probably reiterate reiterate back to the guidance that we have.

This quarter coming up but really we're now coming out of the transaction.

At the end of Q3 here.

Number seven.

So the guidance we provided for Q4 is about $11 million to $14 million in cash spend.

And you know the vast majority of that very significant majority of that is pure opex.

And then if you continue that trajectory into next year.

Our total cash burn guidance.

$2 million for 2022 again.

With the Opex there definitely was some capex involved in that for sure as well, but you can see us going from the Q4 run rate of this year.

To a point, where we get to.

60 to 70.

Okay got it thank you guys.

Thank you. The next question will come from the line of Josh Jennings with Cowen You May proceed.

Hi, good evening, Thanks, Chairman in the.

It's great to be on your first public earnings call as well.

The other English.

Wanted to just ask about pipeline, it's moving towards a beta two system development, but also you have yes.

Yes in the early days post commercialization I don't see our vessel sealing and clip.

The pipeline projects and can you just talk about the development work and engine timing of those features and additions to the portfolio and then the second question is a similar one but just on manufacturing.

And what are your key manufacturing development goals over the next few years I think the sterile portion of your system. That's fully disposable maybe one of them, but anything you can kind of give us a roadmap and Intel.

What we should be expecting in the next 12 to 24 months on the manufacturing front. Thanks for thanks for taking the questions.

Yeah. Good question, so, let's let's start with the launch of additional feature.

So between that the the ones that you mentioned the vessel sealing clip applying.

Dr functionality added to our system.

Those are in development currently and in fact.

Many of them are.

<unk> far along but we expect them to require clinical data for clearance and we don't want to add any additional regulatory risk that's unnecessary INR, Maine filing that might delay our time to market. So that's the reason that those are will be following the exact timing.

We expect them to be fairly shortly after our initial launch but again ultimately each of these is at the discretion of the FDA and will be launched in sequence. Following our initial product launch.

The manufacturing question.

There are a lot of manufacturing goals, it's certainly a complex system theres instruments and accessories. There are capital equipment manufacturing are there. There's also a not directly manufacturing better service and support function out we're in the process of building out as well. So each of these is a major initiative, we're building out both capability and how.

As well as partnering with contract manufacturers in some cases for individual components and sub assemblies in some cases off for significantly more than that and it's one of the biggest reasons that we have built out.

Our we're in the process of building out this new facility.

Next door to our existing facility with an additional 30000 square feet and will be converting part of that as well as the big chunk of our existing facility into clean room manufacturing space for the production of sterile disposable.

Great. Thank you.

Thank you. The next question will come from the line of Matt makes it with credit Suisse. You May proceed.

Yeah.

Yeah, Hi, good evening and congrats for.

Getting out on your first call here.

Duane what everyone else has said here so far.

Thanks for taking the questions.

I had one.

On what you described as you get them. Initially was the first of beta one units I think thats, what you said.

If you could maybe just.

Sort of map out the pathway and the plan for.

On the other.

Five units look like or the timeline for that or or what the.

But the criteria or if we're sort of getting to that next and then the next cycle and then I had one follow up.

Yeah. So the the remaining units R. R.

Currently hi.

They're actually currently in production on all four of them and we expect them to come to you completed in the near future one or two of them are going to be primarily for engineering purposes, and testing and then the remainder are going to be for continued testing and with surgeons and hospital staff.

We can certainly share more info as has that testing.

Happens.

That's great.

And then just I thought it would be helpful. Given that you've been at this for a number of years now, but now sort of at a.

Steep part of the growth and execution curve.

And.

Thought it might be helpful. Just to talk about.

With the growth and bringing people on and expanding into new facilities and moving through the regulatory pathway.

With some of the.

Everyone. In this environment is facing challenges of one kind or another it would be it would be helpful. Maybe to here.

Where are your challenges what are the things that you see and what keeps you up at night in terms of getting through what you need to in the next 612 18 months say.

Yeah.

Good question I think there are a lot of challenges associated with building any company and what we're building.

<unk> is an incredibly complex, we've been really successful and really proud to have grown our team effectively grown our company effectively and where we're achieving our milestones and in the early stages of of our regulatory plan and engagement.

At the end of the day, you know to really directly answer your question about what keeps you up what keeps me up at night. It really comes down to making sure that our product is exactly right. We have a technology that we firmly believe provides so many advantages against the legacy technology and it's just a nice.

And day difference and making sure that we have successfully turned that technology into the perfect product for surgeons, who are rightly very demanding customers.

And it is incredibly important and that's why we're engaging with so many hospitals everywhere from the C suite level all the way through it.

<unk> and.

And operating room staff, including circulating nurses scrub tax we really want to make sure that everything is exactly right.

That's helpful. Thank you.

Thank you Mr <unk>.

There are no additional questions waiting at this time I'll pass it back to Adam to give closing remarks.

Yeah.

Well. Thank you everybody very much for joining our FERC earnings call as a public company have a wonderful evening. Thank you.

That concludes the conference call. Thank you for your participation and enjoy the rest of your day.

Yeah.

Oh.

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Yeah.