TORONTO, CANADA — November 8, 2016
To my fellow shareholders,
I have now been in the post of interim CEO for almost four weeks. As you know, there have been quite a few changes at Titan Medical (Titan) recently and I wanted to take the time to communicate with you.
In October, Titan announced that I was appointed as interim CEO and Marty Bernholtz as permanent Chair of the board of directors. Both Marty and I have been on the board for some time. Since both Marty and I joined the Board, we have seen the incredibly fast development of a new, yet already very large and lucrative industry – robotic surgery. There are numerous industry and company reports on this market and we know that it is already a multibillion dollar opportunity. In fact, the first to market company, Intuitive Surgical (NASDAQ:ISRG), with their da Vinci® Surgical System, generates more than US$2 billion in annual revenues.
While some may believe that the coming competition of other robotic surgical systems could fragment this burgeoning market, it is Titan’s view that the market opportunity has yet to be fully developed and will eventually surpass US$10 billion in annual revenues. There are a myriad of reasons why the market will grow dramatically including a market that doesn’t yet have a full set of approved devices for the full set of potential minimally invasive surgeries and at various price points. When we receive the appropriate regulatory approvals to launch the SPORT™ Surgical System, we believe that Titan will be filling a significant market void with an innovative product that will offer the widest range of surgical options at a more affordable price point for the majority of hospitals and hospital networks in order for patients to receive the best care possible.
Milestones and Commercialization
We are focused on advancing the development of the SPORT Surgical System as fast as possible. Our biggest constraint has not been one of knowledge, technical expertise or access to people; rather, we have a desire and need to fund the development all the way to market. Most companies in the sector are part of large, multi-national conglomerates and have significant resources. Our company has, we believe, developed one of the best solutions at a much lower total investment than any of our peers. Nevertheless, spending money to advance our product solution creates value. As we move closer to market launch, the board of directors has been exploring all opportunities to raise adequate funding to keep the development moving as fast as possible. In fact, since November 2015, Titan has raised close to C$60 million (US$45 million).We acknowledge that Titan will need to raise more capital before commercialization, but requiring additional funding is not a negative and I, along with the board of directors, am confident that we will be able to do so. We are exploring not only traditional ways to raise money, such as through equity offerings, but we are also actively pursuing partnerships, strategic investments and other non-dilutive methods. We will provide more updates on these options as we raise additional funding. We are confident that our company will obtain funding through to commercialization of the SPORT Surgical System.
A Differentiated Solution
While we recognize there are other robotic surgical systems being developed, Titan has reviewed the needs of surgeons and the buying hospitals to provide their patients with the best care and is developing the SPORT Surgical System with those needs in mind. In fact, we recently made a decision to have the SPORT Surgical System introduce a broader range of surgical procedures. This decision, made in part in response to communications by the FDA and supported by our Surgeon Advisory Board and development partners, was a solid business decision made on the fundamental requirements of the market allowing Titan to potentially appeal to a broader range of surgeons and hospitals. In addition, Titan’s single incision surgical approach will enable many procedures that are currently underserviced and cannot be performed by systems on the market today.
Strong Intellectual Property and Barriers to Entry
In addition to practical differentiation from other systems, Titan continues to push innovation in the robotic surgical space and, as of October 31, 2016, Titan has ownership or exclusive rights to 14 patents and 32 patent applications. Titan’s focus continues to be to develop an innovative single incision robotic surgical system that has been designed from the ground up with a unique technical footprint and with the intent of respecting the innovation of others while obtaining the appropriate patents to protect our competitive position.
Partnering for Success
Titan has worked closely with our principal development partner Ximedica, LLC of Providence, RI to develop our innovative SPORT Surgical System. The work that Ximedica is doing for us is already effective and is presently focused on the previously announced Human Factors and Usability Trials milestones for the SPORT Surgical System, which is a key step in advancing through the FDA’s process for regulatory approval. Titan’s choice to work with Ximedica means that Titan isn’t carrying even higher cost burdens at all times and results in Titan Medical having access to the best technical knowledge, tools and development processes at a fraction of the cost of having it all in house. With Ximedica, we have recently built engineering verification units that will be used in a series of cadaver studies and expanded procedure applicability – from gall bladder surgery to general abdominal, gynecological, urological and colorectal procedures. These systems will be shown at trade shows and conferences, presented to key opinion leaders and early technology adopters and also generate the requisite data in support of regulatory submissions.
With respect to our progress on regulatory submissions, we have significant milestones in 2017 that once confirmed will help enable us to inform our shareholders how close we are to a potential regulatory submission and subsequent approval.
As Interim CEO, my main focus is to find and recommend to the board a new CEO as soon as practically possible. My intent is for the board to appoint a new CEO who will have a proven leadership and capital markets track record. We have engaged a search firm to assist us in the search and they have presented us with an initial group of very strong candidates. We are also searching for a head of engineering; however, this position will be filled once the new CEO is in place as the board believes the CEO should have a role in selecting the successful candidate.
The board of directors is actively seeking new potential board members who have been recognized for their success in business and in the field of healthcare. I believe that appointing such individuals to the board will result in additional independence. We will provide updates as information becomes available.
Since being appointed interim CEO, I have initiated a deep dive into our project plan to ensure that we are taking every step to maximize the value of our company, based on the best people and resources, at the most refined and cost effective strategy to bring the SPORT Surgical System to market as rapidly as possible. The results of this deep dive will provide our new CEO with the opportunity to get up to speed quickly.
I have moved quickly on a number of specific initiatives since becoming interim CEO. Titan announced on Oct. 13 that it had reached an agreement on the resumption of its development plan with Ximedica. On Oct. 26, the OTC Markets Group announced that Titan will be included in a newly launched OTCQX Canada Index, which is comprised of a diversity of high quality Canadian companies that meet high financial, disclosure and corporate standards. On Oct. 27, Titan announced that it had sold an additional 2,030,000 units for additional proceeds of C$1,218,000 to bring gross proceeds of its most recent raise to C$11,468,000.
Communications and Investor Relations
A number of investors have communicated with the executive leadership and board of directors of Titan over the past months in order to convey several key messages. The most significant message is their frustration that Titan’s market capitalization is now just over C$80 million (just over US$60 million). This valuation does not reflect their belief that the SPORT Surgical System represents a disruptive technology that could capture a significant portion of a multibillion dollar market. We can’t disagree with your analysis and share in your frustration – not just as the leadership team of the company, but also as shareholders. We have confirmed that we will be activating as many channels as possible that will help to unlock value for our shareholders, including increased communications and investor relations activities and also including and incorporating feedback from shareholders into our efforts.
Growing Shareholder Value
Titan’s comprehensive commercial strategy will capitalize on global demand for robotic surgery in traditional markets such as the U.S., Europe and Canada as well as high growth, yet underserved, emerging markets including China. Titan, with the clinical, operational and financial value its SPORT Surgical System brings to the healthcare community and patients worldwide, is well positioned to deliver on the promise of optimized robotic surgery.
As we achieve operational and development milestones, as well as the progress regarding our CEO and board member search, I will promptly inform our shareholders. If you have any questions, please feel free to contact me.
This letter was sent simultaneously to our shareholder distribution list and posted to our website. If you know anyone who would be interested in receiving updates from us, please refer them to the Investor section of our website to sign up there.
In early August, Titan Medical exhibited its SPORT™ Surgical System at the World Robotics Gynecology Congress (WRGC). The conference was sponsored by the American Association of Gynecologic Laparoscopists (AAGL) and was held in New York City.
John Hargrove, Chief Executive Officer of Titan Medical said “Being invited to exhibit Titan’s SPORT Surgical System at this premier global robotic meeting demonstrates that our vision for an advanced platform is being recognized by influential audiences. This was the first time we demonstrated the SPORT Surgical System to the gynecological community and based on the feedback it was a positive experience. We believe SPORT’s single port surgical design, along with the focus on clinical capabilities, operational efficiency and financial viability, are reasons why it will be welcomed by GYNs along with other surgeons.”
The Company’s SPORT Surgical System is being developed to address the current limitations of surgical robotic technology and enable surgeons and hospital administrators to achieve better clinical outcomes and economic benefits.
In March, Titan Medical successfully unveiled the SPORT™ Surgical System to the surgeon community at the Society of American Gastrointestinal and Endoscopic Surgeons (SAGES) meeting in Boston. Over the course of three exhibit days, more than 800 surgeons viewed the technology and attended live demonstrations of Titan’s SPORT technology.
John Hargrove, Chairman and Chief Executive Officer of Titan Medical, said, “In my 40 years in the medical device industry, I have never experienced such a turnout and expression of interest as the Titan team did at SAGES. This was our first unveiling of the SPORT Surgical System as well as demonstration of its capabilities. The overwhelming feedback from the surgical community at SAGES visiting our exhibit was that SPORT could enable a new era of clinically capable, operationally efficient and ROI friendly robotic surgery.”