Q3 2023 Vicarious Surgical Inc Earnings Call

Participants

Kaitlyn Brosco; IR; Vicarious Surgical Inc.

Adam Sachs; CO-Founder & CEO; Vicarious Surgical Inc.

Bill Kelly; CFO; Vicarious Surgical Inc.

Ryan Zimmerman; Analyst; BTIG, LLC

Adam Maeder; Analyst; Piper Sandler & Co.

Joshua Jennings; Analyst; Cowen Group, Inc.

Caitlin Cronin; Analyst; Canaccord Genuity Inc.

Presentation

Operator

Good afternoon, and welcome to Vicarious Surgical's Third Quarter 2023 Earnings Conference Call. My name is Kate, and I'll be your operator for today's call.(Operator Instructions) As a reminder, this call is being recorded for replay purposes.
I would now like to turn the call over to Kaitlyn Brosco with Vicarious Surgical for a few introductory comments.

Kaitlyn Brosco

Thanks Kate and thank you all for participating in today's call. Earlier today, Vicarious Surgical released financial results for the 3 months ended September 30, 2023. 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 provision 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 obtaining approval for the Vicarious Surgical System and timing for any such approval, 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 set forth in our Securities and Exchange Commission filings, including our most recent Form 10-K and Form 10-Q.
This conference call contains time-sensitive information that is accurate only as of the live broadcast today, November 13, 2023. Vicarious Surgical disclaims any intention or obligation, except required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.
With that, I'll now turn the call over to Adam Sachs, Chief Executive Officer.

Adam Sachs

Thanks, Kate, and thank you, everyone, for joining us. The third quarter brought several successes for our business, but also introduced new challenges. Our successes included the announcement of our fourth hospital system partnership with Intermountain Health as well as completing a $47 million equity follow-on offering that significantly bolstered our balance sheet and meaningfully extended our cash runway.
Further we are pleased with the significant progress made within the individual V1.0 subsystem bills. Currently our surgeon console, patient cart, robotic instruments and camera components are all built and functioning as subsystems.
Conversely, we also experienced some setbacks, challenging market conditions and their resulting pressure on our business drove us to make the difficult decision to once again downsize our team and reduced future planned spending in order to prioritize capital efficiency and better ensure our long-term success.
Additionally, as we entered the initial system integration process, we identified certain software and hardware components of the V1.0 systems that will require additional development efforts in order to ensure system compliance, reliability and safety ahead of formal verification and validation testing.
With the impact of the cost cutting initiatives, combined with some integration challenges, we predict a 12 to 18 month delay in the overall program. We believe this will ultimately push the completion of the V1.0 build, an integration to fall of 2024 and our de novo submission early to mid-2026.
Developing a surgical robot is complex and capital-intensive. It involves building multiple medical devices and integrating them so as one to perform precise procedures safely and reliably. But we always have them and remain committed to delivering the best product possible for surgeons and hospitals. We understand the importance of this announcement and will continue to provide updates as we progress through the integration process and address existing software and hardware challenges.
We have a powerfully, differentiated technology and a unique opportunity to revolutionize robotic surgery. Over the recent months, we've had the opportunity to attend medical meetings such as the American Hernia Society as well as our internal hospital partner summit.
Throughout these engagements, one common theme emerged. Surgeons and hospitals are hungry for a new truly differentiated surgical platform and even more importantly, there is strong excitement around the unique Vicarious Surgical offering. Despite our recent challenges, I continue to be enthusiastic about our mission and our potential to improve patient lives.
With that, I will now turn the call over to Bill Kelly to review our financial performance.

Bill Kelly

Thanks, Adam. Over the course of this year, we have taken the necessary steps to appropriately adjust our costs to better align the challenging economic conditions, we and other similar early-stage companies have been and are continuing to experience.
That being the case, total operating expenses for the third quarter of 2023 were down slightly at $21.4 million compared to $22.2 million in the third quarter of 2022. General and administrative expenses, as well as sales and marketing expenses were down year over year. G&A expenses in the third quarter were $6.9 million compared to $8.1 million in the prior year quarter. And sales and marketing expenses were $1.4 million in the third quarter compared to $1.9 million in the third quarter of 2022.
The only operating expense line item up year-over-year was R&D as we continue to invest in the critical product development aspects of our business. R&D expenses for the third quarter was $13 million, up 8% compared to $12.1 million in the prior year. GAAP net loss for the third quarter was $15.7 million equating to a net loss of $0.10 per share. This compares to a net loss of $24.7 million or a net loss of $0.20 per share respectively, for the same period in the prior year. Adjusted net loss for the third quarter of 2023 was $20.4 million, equating to an adjusted net loss of $0.12 per share as compared to an adjusted net loss of $21.7 million or an adjusted net loss of $0.18 per share for the same period in the prior year.
For a reconciliation of all non-GAAP measures to GAAP, please review our earnings press release. At the end of the third quarter, cash, cash equivalents and short-term investments were approximately $110 million, including the $47 million in gross follow-on proceeds. Including these proceeds, third quarter cash burn was $16.8 million, and we now expect full year 2023 cash burn to be between $60 million and $65 million, which is on the higher end of our previously communicated guidance range. Taking into account our recent cost cutting initiatives, we now estimate preliminary full year 2024 cash burn to be between $40 million and $55 million and cash runway out to Q1 2026.
I'll again reiterate Adam's sentiment that the third quarter brought both new successes and challenges for the business, but we remain committed to acting in the best interest of shareholders and therefore have taken the necessary steps to better position the company to be successful in the long run.
I'll now turn the call back over to Adam for closing remarks.

Adam Sachs

Thank you, Bill. I'd like to close by thanking all Vicarious Surgical employees for their hard work and dedication. Although there are still challenges that remain, I'm confident that our team will rise to the occasion and deliver an exceptional product. There is still much to be excited about.
With that, we'll be happy to take questions. Kate?

Question and Answer Session

Operator

Thank you. (Operator Instructions) T
Ryan Zimmerman, BTIG.

Ryan Zimmerman

Thanks for taking my question. Good afternoon. So I guess to start, wondering if we can kind of walk through milestones with the impact of timing in terms of a clinical trial, when do you expect to complete that? And most importantly, do you think you have sufficient cash to get through that trial, based on the timing you just said, Bill, first quarter '26 before you submit what are your de novo plans?

Adam Sachs

Thanks for the question, Ryan. So to start with the milestones that we're looking at into the near future, some of the most important milestones that we'll be having over just the next 12 months, will be around our V1.0 system. So we're in the midst of integration right now. We're hitting some speed bumps as we bring all of these subsystems together, but we expect them to be up and running fairly shortly, and we'll be doing our first cadaver procedures with the system next spring.
We're then thinking that likely will have some remediation to perform with our system, and we'll be doing that over the summer and that's all in anticipation of our first clinical patients, in our first clinical use, which will be in the mid to late 2025. So that's getting pushed back out approximately 12 months. And that'll all be with multiple clinical patients that following that in our OUS clinical trial and then an FDA de novo submission in early to mid-2026. And before I hand it over to Bill, I'd also like to emphasize that and the entire goal of these changes was to make our Company significantly more efficient and more streamlined, to give us -- to get us as far as possible with the capital that we have, given our current market cap and the huge change in ratio of burn to market cap that occurred over the last quarter. So Bill?

Kaitlyn Brosco

Yeah, just to echo that, I think we want to make sure that we remain prudent with our fiscal spend and that's really the lens that we continue to look at our spending this quarter as we always do. So as we have given guidance that cash burn will be $40 million to $55 million in 2024, and that should get us into 2026 as well.

Ryan Zimmerman

Okay. And then just more specifically, what did you cut back on and just going from $60 million to $65 million down to $40 million to $35 million, what's the delta that you're giving up there?

Adam Sachs

So we made pretty significant cuts to our team as well as to external spending. Within our team, we've had a very large change over the course of this year, including two reductions overall to the total team size. The first reduction, as you'll recall, was really targeted at non R&D functions and then decreasing external R&D spending. And then this was significantly R&D functions as well as significant outsourced R&D spending that was throughout the budget, most of the functions that we've cut, our functions that are parallel effort, functions where we're working on remediating things that we expect to come up, taking the top 10 issues or areas like that and coming up with remediation in anticipation of challenges. Instead, we're going to do this in much more serial more capital efficient, but slower method have a waiting till the issues come up and then remediating them at that time.

Ryan Zimmerman

Okay, got it. Thanks for taking the question.

Operator

Thank you. Adam Maeder, Piper Sandler.

Adam Maeder

Hi, guys. Thank you for taking the questions here. Maybe just to start, I guess the first one would be following on Ryan's question just on cash runway, and maybe I'll ask it a little bit different, but the from the [IDE] study for ventral hernia, do you guys have any kind of just rough ring-fence around spend there? I mean, how do we think about the cost of that study? And then I had a follow-up or two

Bill Kelly

Yeah, we haven't given the external guidance on what that would be. But as we have talked about, it's going to be about a 30 to 60 patient trial, probably closer to the 35, hopefully. It's within the guidance that we would have earned that we provided here, it's probably less than a month's worth of burn.

Adam Maeder

Okay, that's helpful, Bill, thank you for that. And then I guess just in terms of the integration process and trying to better understand exactly kind of some of the bottlenecks or speed bumps that you're hitting, I heard comments referring to both software and hardware components. Maybe just flesh that out for us in a little bit more detail and what's being done to remedy those? Thanks.

Adam Sachs

Yeah, so the V1.0 system, as we've mentioned in the past, is our kind of, ground up re-architecting of the Beta 2 system, the Beta 2 was the final prototype had all the functionality we needed, got great reviews from our hospital partners and surgeons. And over the course of the last year and a half has been re-architected and redesigned it to into the V1.0 system product that we have today.
That system the way to think about, it's somewhere around eight or so, depending on how you slice it different fairly complex medical devices and patient carts, surgeon console, arms, the [GUI] and the camera, et cetera. And each of those has been designed by their own subsystem team, brought up and is running effectively. And as they're all being integrated together as we use the term integration phase, we're starting to encounter some bugs and some issues across the system.
So overall, most components are functioning effectively, but we're starting to encounter some software challenges which are then as things come up, uncovering some hardware challenges. They're nothing that's particularly significant, hence why we're looking at instead of around now having it integrated looking at next spring. So really just a one or probably two quarter delay there and the rest being the anticipated impact of reduced spending and our inability to pre-emptively resolve challenges, that may come up.

Adam Maeder

That's helpful color, thanks, Adam. And if I could just sneak in one more another kind of follow-on to Ryan's question just around the organization. Can you be a little bit more specific in terms of what the R&D org looks like, kind of at the beginning of the year versus where we are today, just trying to get a better understanding through kind of the magnitude of the reduction and how many folks are currently working on the development of the system.
Thank you for taking the questions.

Adam Sachs

Yeah, I don't have the exact numbers in front of me, but it is -- we started the [air ballpark] of 230 people and reduced to about 130, and that is just the internal, we obviously indexed more on external reduction than internal reduction for capital efficiency reasons.

Bill Kelly

I would say if you look at, people touching the product between operations, quality, R&D, all those sorts of things, that's probably 70%, 75% of the business are people touching product, still in this reduced headcount?

Adam Maeder

Thanks for the color, guys.

Adam Sachs

Yeah, thanks for the question here.

Operator

Josh Jennings, TD Cowen.

Joshua Jennings

Yeah, good afternoon, thank you. I was hoping, Adam, just to ask about verification and validation testing. And I know there's a process it and you've mapped out these timelines that includes the [DNB] assuming, but I guess, where does that stand? And is there any timeline specifically for verification validation, I guess, and then the real point of the question is to ask that on the manufacturing side, my understanding is the and the agency has to control, manufacturing systems are in place and where does that stand today? And when do you plan to have a feel to be done in manufacturing in a place where you can move forward?

Adam Sachs

Yes, really good question. So some of the kind of the timeline after the V1.0 is integrated and up and running is all about verification and validation, begins with less formal and with subsystems and then it culminates in summative testing, which is kind of the end of system level of validation for the product. So the way to think about most of the work that we'll be doing any remediation after next spring. It is all about the system, how it performs in our kind of preliminary DNB testing that we perform on the subsystems evaluating that finding any issues that might occur in DNB, and then burning those issues down and remediating them in order to decrease the risk of the DNB process.
So one of the benefits, if I can call it that of that time line shift here is decreasing some of the risk and pulling some of the risk out of the DNB process and into the earlier process of these remediation in the V1.0 builds. As far as manufacturing, that part of what needs to be all in place. And we are well underway with our CM partners as well as internally in order to build all of that out. So especially given the, what we're discussing on today's call. I certainly don't anticipate any challenges with that from a timeline perspective.

Joshua Jennings

Excellent. And then wanted to just ask about the integration challenges and where you stood earlier in the year in terms of locking in on V1.0 and the design and the go forward, does this delay was it caused or is there an opportunity to explore differentiated visualization sensing, the data collection enhancements for the system relative to where you started or as you continue down the line in terms of what you had locked in from a design standpoint from V1.0 earlier in the year. Thanks for taking the questions.

Adam Sachs

Yeah, it's a fair question on. There's a lot of things that we're really excited about as you guys know, from an advanced visualization standpoint, we're making sure that we can roll all of those things and shortly after our initial launch that have being said, given the reduction in resources, our focus right now is almost entirely on remediating any of the challenges that we've faced and then setting ourselves up for success through the DNB process and through FDA authorizations.

Joshua Jennings

Understood. Thank you.

Operator

Caitlin Cronin with Canaccord Genuity.

Caitlin Cronin

Hi, thanks for taking the question. Just to start off in terms of clinical trial plans, are there any changes for your plans for pursuing other indications

Adam Sachs

No, not at this time, other than, that would be a obviously expected way back time line change, that we're discussing. We're still going to pursue other indications as quickly as we can. Frankly, the OUS opportunity gives us the ability to do that significantly more equally, and we are taking the extra time that we have now with our clinical engineering team to evaluate all these other procedures and really built as best we can in anticipation effects.

Caitlin Cronin

Got it, okay. And then any kind of risk to current or future hospital or surgeon partnerships given kind of this delayed timeline?

Adam Sachs

Yeah, I think the risk is relatively low, but there is always some risk, it's a competitive market. That being said, our hospital partners have been incredibly supportive of what we're doing. What we're doing remain very differentiated and frankly, my personal biggest disappointment and are taking extra time here is that it will take that much longer for us to be able to deliver this really important product for our hospital and surgeon partners, they need it.

Caitlin Cronin

Got it. Thanks for taking the questions.

Adam Sachs

Yeah, thank you.

Operator

Thank you. At this time, there are no additional questions registered in the queue.
So that will conclude today's Q&A session as well as today's conference call. Thank you all for your participation, and you may now disconnect your lines.