Monogram Orthopaedics, Inc. (NASDAQ:MGRM) Q4 2023 Earnings Call Transcript

Monogram Orthopaedics, Inc. (NASDAQ:MGRM) Q4 2023 Earnings Call Transcript March 21, 2024

Monogram Orthopaedics, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Benjamin Sexson: Okay, great. Thanks Greg. Well, good afternoon, everybody. We really appreciate you joining us today for this Update Call. I want to try and lay a couple of ground rules from the start. We’re going to be really collaborative on this. You’re going to be able to chat with us. There’s a chat on the right-hand side of your screen, and we will be looking at that and doing our best not to — it’s going to be a free speech platform, so please keep it respectful. Please no bad language, nothing obvious — obviously kind of unconstructive. But as a management team, we really want to be as open and available as we possibly can and give everybody an update on how everything is doing and go from there. So, we’re going to start out with a — and I should introduce the team.

So, on the left, I don’t know if it’s in the same order for our viewers, but my name is Ben Sexson, I’m the CEO of Monogram Orthopaedics. Directly below me on the left there is Noel, maybe Noel you can wave to the audience, Noel Knape, our CFO. We have our CTO, Kamran Shamaei below him; and then Dr. Unis, our Founder, who is still a practicing orthopedic surgeon, and we got him out of the operating room for this call. So, with that, I’m going to turn it over to Noel to just mention some of the disclaimers about forward-looking statements and then we’ll jump into the call.

An orthopedic surgeon performing a surgery while using ankle plating systems.

Noel Knape: Thanks Ben. Good afternoon everybody. Just some little housekeeping here. I want to go over the forward-looking statements disclaimer with you before we get started in this presentation, we’re really excited to give. As a legal disclaimer, this presentation by Monogram Orthopaedics, Monogram may include forward-looking statements. To the extent that information presented in this presentation discussed as financial projections, information or expectations about Monogram’s business plans, results of operations, products or markets or otherwise, make statements about future events, such statements are forward-looking. Such forward-looking statements can be identified by the use of words as they should, may, intends, anticipates, believes, estimates, projects, forecasts, expects, plans, goal, target, and proposes.

Although Monogram believes that the expectations reflected in this presentation are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. So, no one has a crystal ball.

Benjamin Sexson: Terrific. Thanks Noel. Appreciate it. So, the presentation is going to cover these five topics. We’re going to start with a quick financial summary. We’re going to get into a detailed regulatory strategy review, give you some market analysis and just an overview of where we are. We’ll have, hopefully, Dr. Unis to kind of speak from a surgeon’s perspective on our product. And then from there, we’re going to open it up to a Q&A. And if you have questions, please type them in the right, and we will be doing our best to get to kind of the majority of those. So, with that, Noel, why don’t you kick it off?

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Q&A Session

Noel Knape: Okay. Just some key points about where we are financially speaking. As our 10-K reflected as of the end of the year, we had $13.5 million in cash. As you’re all aware, we had it raised earlier in the year and we’ve marshaled that cash well through the year, keeping our burn at a minimum. We had an account receivable from that first robot sale at the end of the year of $365,000 and no issues with that. Our operating cash flow for the year is $13.5 million. So, as you can kind of do the math, it’s a burn of about $1.1 million.

Benjamin Sexson: Hey Noel, just really quick. I’m seeing some comments that people can’t hear and can’t see. Can somebody in the chat just confirm that you can see the summary financial data slide and that you can hear Noel?

Noel Knape: Yes, can you hear me? I–

Benjamin Sexson: Okay. Good. So, keeping Noel.

Noel Knape: Okay. Sorry about that. Okay. So, some people maybe have some issues, I apologize for that. But anyway, so our monthly burn has been about $1.1 million, and it’s been running a little hot with the verification and validation phase that we’ve been going through. We expect that to come down a bit going into the new year. Some select information to give you a little color behind that is we now have 28 full-time employees. We’re very product focused. We have 22 in engineering and just 6 in the administrative function. So, we’re very, very much focused on the product development. We have 26 engineering contractors, 12 specifically supporting the V&V process. Like I said, as that winds up at the end of the first half of the year or shortly thereafter, we’ll be able to cut back on that a little bit.

And that’s denoted in this highly variable cost structure. That’s what we’re kind of referring to, we’ll be able to dial back on that a bit. We have no debt, and that’s a big comment for a start-up such as ourselves to not having leverage debt to get cash flow to be able to support our operations and development of our product is a big accomplishment. And as we communicated a little while ago, we were able to finalize the one outstanding warrant that we had. And that holder actually was an early strategic investor, and they converted their warrant for $1.25 million in cash. So that’s kind of indicative of their confidence in our forward progress, they’re willing to put in more cash. So, we took that as a very good sign. We have no other warrant overhang outstanding, so we have a very, very clean balance sheet.

We’re very proud of that. And importantly, I’ll let Ben get into the regulatory roadmap, but we expect to have sufficient access to cash to get us through the 510(k) approval process. So, that’s — I mean those are the main points that–

Benjamin Sexson: Just to say, I think what we said, Noel, it’s not through the approval through the submission is what we said. So, we’re comfortable with the submission. Certainly think that from there, we would move forward from there. Okay, perfect. Sounds good. So, I’m going to dive into the regulatory strategy. And for those of you who are unfamiliar with some of the vernacular, we’re going to explain all of it, but if you are, just bear with us. So, I’m going to kind of go through the details of this to help bring people up to speed on where we are and what we’re doing. So, Monogram’s Surgical Robot, we’ve called it mBôs and it’s a Class II risk device. And Class II risk devices are eligible for what’s called a 510(k) submission.

A 510(k) submission, for all intents and purposes, it’s just FDA submission for clearance of a device. To legally sell our device in the United States, it has to be approved — or not approved, the FDA’s preferred vernacular is cleared for sale in the U.S. and that involves taking a product through a very intense, what’s called, verification and validation testing process. So, there’s a whole development that has to take place and to kind of not more focus on all of the details, but the device has to be very thoroughly tested. And that testing depending on your equivalents to other cleared predicates may or may not require clinical data. So, the way the 510(k) submission works, which is the FDA submission for approval, you find predicates that you think are kind of reflective of the technology and application has the same intended use as your device and it’s similar in function in operation.

And then you show the FDA through a formal communication process, how your system works and then they evaluate whether or not you’re equivalent or operate similarly to the other devices that you’re comparing to. And then they look at the safety features and profile of your device and how that compares to the predicate device. And where they especially scrutinized are anywhere where there’s a technical difference between the predicate that you’re claiming equivalence to and your device, that’s where the heightened level of kind of scrutiny goes, those differences need to enhance safety and efficacy, and it can be sometimes difficult to prove to the FDA through non-life patient testing that that’s the case. So, there’s — typically speaking, the FDA is looking to first establish technical equivalents and then they’re evaluating the differences and trying to determine whether or not those differences are at risk that basically can’t be proven to be safe without clinical data.

So, the company has not been just kind of going at this alone. We are working with the preeminent of a CRO, whether they’re basically regulatory consultants that run clinical trials and provide consulting. We have retained a firm called Mikra [ph] to help us with the strategy of this submission and to evaluate our technology, evaluate all the predicates on the market, evaluate the technical equivalents, and determine whether or not the device would need a clinical trial with our submission. So, we did this in July 2022, we got a formal report from them and their conclusion was that we were equivalent to the predicates and they did not see a need for clinical testing. So, that’s really kind of been management’s opinion as well that we think we have enhanced the safety of our device versus predicates.