Vicarious Surgical Inc. Q4 FY2021 Earnings Call

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.

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-months 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.

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 greatly congratulate 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. 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 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 in 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 techniques. The large incisions required for open surgery create significant trauma to the patient, resulting in long hospitalization and recovery times, high long-term costs 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 larger footprint and limited portability, require extensive setup and procedural time, and use multiple incisions and systems. Fundamentally, these systems still require surgeons to choose incision site locations based on the robotic motion 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 robots does not comprehensively address these fundamental issues, as they still rely 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 surgeries. The Vicarious System combines advanced robotics, computer science, and 3D visualization to build an intelligent single-incision surgical robot that virtually transports 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 surgeons 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 our technical advantages, the system's value proposition to hospitals and ambulatory surgical centers is clear. With technology designed to enable so much capability within the abdominal cavity, we intend for our products to be much more efficient to learn, set up, and use during a procedure. Unlike legacy robotic systems, our system is significantly 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, enabling 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 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 assumed that most of these later indications would require pre-market clinical trials. However, we have planned to pursue our initial indication of ventral hernia without pre-market 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 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 month shift in our FDA submission timing relative to the expectations 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 system's 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 to the milestones 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 were well on our way to successful beta unit testing with surgeons and hospitals 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, and insights. 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 Beta1 testing 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 measured and focused in 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 a discussion of our fourth quarter and full year financial results.

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, a 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 increased expenditures in the development of the Vicarious System and increased facilities costs as we've moved to our new headquarters. 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 and 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, a 197% increase from $13 million in 2020. R&D expenses 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 a 150% increase in headcount from the beginning of 2020 to the end of 2021, along with an increase in development costs as we progress to beta testing the Vicarious System, increased facilities costs 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 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.

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 questions?

[Operator Instructions] Our first question today comes from Adam Maeder from Piper Sandler.

Great. Good afternoon, Adam and Bill, and thanks for taking the questions. Congrats on the progress in ‘21. So, I 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 to the burn rate for ‘22. But wondering about the impact from a cash standpoint related to this new development?

Adam, these are all good questions. To start with the timeline, that’s a significant portion of what 2024 will be about. The nine to 12 month shift overall will be about conducting those human clinical trials. That being said, it does have likely less of an impact on our revenue ramp overall, both because of additional indications, as well as the fact that we always planned on conducting a post-market clinical trial for that commercial marketing of our device. Regarding the trial design, we are still going through the details with the agency. We want to make sure we have complete alignment with the FDA before we share the details of any trials. The agency has communicated that we should not need long-term pre-market data; we will be doing a small, single-arm study focused on proving safety and efficacy. We are able to benefit from precedents in clinical trials over the last year or two to guide us. We anticipate updating more details as we progress. Bill, would you take the financial question?

Yes, sure, good question regarding the cash burn. To level set, when we closed Q3, we had $185 million, with guidance of $11 million to $14 million for Q4 and $60 million to $70 million for 2022. For Q4, we ended up coming in at the lower end of that range at $11.5 million compared to $11 million to $14 million guidance. So, we are reflecting a spillover that did not happen in Q4 rolling into this current year. In either scenario, we were guiding towards $100 million ending cash by the end of this calendar year, which we remain on target for. The trial costs mentioned earlier will primarily be occurring in the 2024 timeframe, along with some spending bleed into the current year and a slight increase in activity as we develop the product and outreach to hospitals and surgeons.

Okay, that's helpful, guys. If I can also sneak in one clarification and then one other question. Just on the clarification: it sounds like this regulatory development for ventral hernia doesn't influence the way you are thinking about the regulatory pathway for the other indications, is that correct?

Yes, I’d say that certainly does not influence it from the baseline. We are looking for 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 your question?

Yes, that's helpful, Adam. Appreciate that. One more to sneak in: previously discussed the potential for an investor event tentatively planned for the latter part of 2022. Is that still in the plan? Should we expect to potentially see the Beta2 system at that point in time?

Yes, that’s a good question. We're certainly excited about the potential to show off our Beta2 system and to demonstrate it in a hospital setting. We're working on the details of those plans and will be excited to share as soon as we are ready.

Our next question comes from Josh Jennings from Cowen.

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 am 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 Vicarious 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.

Yes, I think part of the demand comes from a significant unmet need that has existed for a very long time in this industry. There is a huge need for change and improvement in how surgical robotics is performed in a way that can really help patients, surgeons, hospitals, and payers. As we go through this beta testing, we gather feedback that we need to develop the exact device that meets that demand. The feedback has been absolutely wonderful for the Beta1 program. I think, as far as buzz is concerned, we are certainly creating some, but our main goal is to collect the information necessary to design the perfect system, then have robust adoption when it's on the market.

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

It’s a good question. We have had tremendous success with previous studies, and while much of the research we conduct today is in-house, conducting more independent third-party studies is certainly a consideration going forward. I will note that as we prepare for the regulatory path, many of those studies will be independently run to collect the appropriate data for clearance.

We now turn to Matt Miksic from Credit Suisse.

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 was a big question last year, regarding how this pathway would proceed. I was wondering, Adam, if you could talk a little bit about your plans for the trial prior to the decision to proceed with the pre-market as part of the de novo filing. If memory serves, you had a plan to perform a trial before, let's say, what the timing and cost profile of that trial might have been and how it’s expected to differ from what you'll be executing. In other words, has there been a change to your plan on the clinical front, and has this trajectory changed your timeline expectations?

Yes, that's a fair question. I wish I could give definitive guidance here. We certainly had developed plans for that clinical trial. We will be sharing that and reviewing it in detail with the agency. This is an iterative process, and our discussions with the agency will continue. To summarize, the trial is designed based on what other similar companies have done; it will be a relatively small number of patients, with short-term follow-up and longer post-market follow-ups and typically single-arm studies compared against existing data sets. This gives us confidence in our ability to mitigate timeline changes. However, we will continue to collaborate with the FDA on this.

Of course, that makes sense. And thanks for that. Then the other question: oftentimes, postponement of approval means substantial postponement of revenues. Could you remind us of the FDA’s breakthrough designation and what that means in terms of your ability to generate revenue during this trial period? How might that look differently than what we thought if we were to assume six months ago that you might have been able to submit without data, and how the plan looks as it stands today?

Yes, not just under the breakthrough designation, but simply under a standard IDE and clinical trial, there are many opportunities to recover costs of that trial within certain criteria. The bigger way to mitigate any rightward shift of revenue comes from the ability to parallelize other indications and the fact that our previous plan had always assumed conducting one post-market clinical trial that is no longer necessary, as we will have that as a pre-market clinical trial. There are opportunities to parallelize other indications, but we continue to review this with the agency and internally to develop the details of those plans.

We now turn to Ryan Zimmerman from BTIG.

Hey, Adam. Hey, Bill, thanks for taking the questions. Two quick questions: number one, with the change in cash burn for 2022 of an 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.

Yes, sure. On cash guidance, we closed Q3 with $185 million. We provided guidance for Q4 of $11 million to $14 million and $60 million to $70 million for 2022. For Q4, we came in at the lower end at $11.5 million, which carried a bit into this year. We are guiding towards keeping our ending cash at about $100 million for this calendar year. The trial costs that Adam mentioned will be occurring around the 2024 timeframe, along with some spending bleed from last year and slight increases in activity as we continue development and outreach to surgeons and hospitals.

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

Yes, it’s a fair question. A surgical simulator is extremely valuable for us. It's something we already have in-house and run surgeons through regularly. It is a fantastic tool for providing experience with our system and technology, offering feedback and interaction that can nurture excitement about our device's ability to impact hernia repair and future procedures. We see this as an opportunity to gain valuable feedback and to help people experience how our device interacts with the anatomy inside the abdomen.

Our final question comes from Kyle Rose from Canaccord Genuity.

Hi, good afternoon, everyone. Just to be clear, late 2024 de novo, when are you expecting first revenues? Should that be 2025, or does something potentially happen before ‘25? And then I have one follow-up.

Yes, we provided guidance on revenues. We are looking at a nine to 12 month delay in regulatory filing. Regarding material revenues, especially later year revenues, due to the parallelization of clinical trials and indications, we don’t see a major change in those revenues. However, estimating month-to-month or quarter-to-quarter revenues in the early years is more difficult.

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

Let me put it this way: we recognize the incredible opportunity to do this, and we are exploring today. But it's not something we have a definitive plan that we're ready to share.

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

Thank you, everybody, very much for joining and for the wonderful questions. That concludes the call. Have a great evening.

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