Titan Medical Inc. (TSX:TMD) (NASDAQ:TMDI) based in Toronto, Canada designs and develops computer-assisted robotic surgical technologies for application in minimally invasive surgery (MIS). In the last decade, Titan has been focused on developing a single-port system for abdominal surgery which promises ease of use, design characteristics for superior clinical performance, operating room efficiency and cost benefit to hospitals.
Stability and consistency of outcomes are of prime importance in interventional procedures since anatomical structures are complex and can be punctured easily. Robotic surgery was introduced to facilitate and enhance the performance of MIS procedures such as conventional laparoscopy which required three to five small incisions to be made in the patient to perform surgery and faced several technical hurdles (inadequate triangulation, lack of wrist articulation, continued need for an accessory port and ergonomic discomfort) thereby restricting a surgeon’s freedom. Multiport robotic surgical systems have helped alleviate a number of shortcomings listed above. Currently, single incision surgeries are gaining popularity as they offer cosmetically-appealing single incisions, less trauma and blood loss, decreased postoperative pain sores, less opportunity for infection, quick recovery time and shorter hospital stays.
Titan Medical’s Single-port Robotic Surgical System
View Figure 1: Titan Medical’s Single-port Robotic Surgical System1
Titan’s system is intuitive and promises improved ergonomics and better dexterity provided by cleverly designed electro-mechanical parts. The company’s single-port robotic surgical system (Figure 1), includes a portable workstation with a 3DHD viewing monitor to control two articulating arms and the endoscopic camera, all delivered through a single-arm maneuverable patient cart. The system comprises of a single 2.5 cm cannula that incorporates a 3DHD camera to guide the surgeon during the procedure, a 2D camera for identifying target anatomy and a unique feature of two reusable multi-articulating snake-like instrument arms. The reusable arms are designed to couple with an assortment of permanent and sterile detachable, disposable, semi-rigid end effectors (single-use replaceable tips) as required by the surgeon to precisely grasp, cauterize, suture and tie knots during a medical procedure. The rigid and flexible sections of the instrument provide for dexterity and triangulation thus allowing for maneuverability in many directions. The system offers seven degrees of freedom mimicking the movement of a human arm. The simulation exercises for physicians’ training have been developed by Mimic Technologies, Inc. in collaboration with Titan Medical. The simulation modules include directed suturing, knot tying, tissue coagulation, instrument manipulation and instrument clutching, which are all complex surgical tasks.
Regulatory Pathway: Titan’s prototype systems have been extensively tested by U.S. and EU surgeons from 4 surgical disciplines in the preclinical environment, on live animals as well as on human cadaver models. The tests indicated evidence of safety, efficacy and convenience of operation. About 45 robot-assisted procedures, including gynecological, gynecological-oncological, urological and colorectal, have been performed to date. Titan holds ownership of 40 U.S. and international patents and 82 pending U.S. and foreign patent applications covering a broad array of technology and user-interface components.
Dialogue with the FDA has helped the company formulate a clear regulatory path for its system to be used in gynecologic procedures such as hysterectomies and oophorectomies. Currently, the company is conducting GLP studies that will set the stage for a 510(k) application by year end. Management also anticipates conducting confirmatory studies at most likely four sites with at least 34 patients to support its 510(k) application for marketing clearance in the U.S. The company is in the planning stages for a limited commercial launch in the U.S. in approximately a year’s time, following anticipated regulatory clearance. The company also plans to submit an application to a European Notified Body by year end for obtaining the CE mark.
Market Opportunity and Business Strategy: The majority of the systems currently installed globally are multi-port robotic surgical units2. The market is led by Intuitive Surgical, whose signature platform system, the da Vinci, dominates the laparo-endoscopic surgery market. Although most of Intuitive’s systems are multi-port, Intuitive Surgical introduced a single-port option (da Vinci SP® system) last year that obtained FDA clearance for use in certain urological procedures. In late 2017, Senhance Surgical System, from TransEnterix, won FDA approval to perform minimally invasive gynecological and colorectal procedures.
While several competitors are on the horizon, Titan’s single-port robotic surgical system differentiates itself based on features such as a single-access port encasing two articulating instruments and a dual-camera system including a fixed wide-angle 2DHD camera for initial exploration of anatomy and a steerable 3DHD endoscopic camera for visualization during surgery. Further, the unit is small and portable compared to the da Vinci system. Although the system has comparable capabilities as the da Vinci system, we think that due to its simplicity it would most likely be employed in high volume procedures. Titan also aims to compete by offering its system at an affordable price compared to its competitors.
The market is witnessing an uptick in overall demand for robotic surgical systems. Titan is looking to provide access to facilities that are currently underserved and underpenetrated, including smaller hospitals and ambulatory surgery centers. We have estimated Titan’s potential market size using data from American Hospital Association (AHA) and Intuitive Surgical’s annual reports. According to Healthcare Real Estate Insights, there were more than 10,000 surgery centers and hospitals in the U.S. in 2016. Intuitive has a total of 5,000 systems installed globally, of which approximately 65% (~3,200) are in the U.S.3 We estimate there are roughly 6,800 facilities that currently do not have Intuitive’s robotic surgical units installed. It is estimated that a healthcare facility needs to perform roughly 250 procedures annually to redeem the cost (~$2 million) of currently available robotic systems. We think only half (~3,400) of the remaining facilities would have the capability or are looking to install robotic surgical units. Of this, we expect roughly 50% to entertain a new entrant such as Titan which leaves us with an addressable market of roughly 1,500 (~15%) healthcare facilities. Titan could command a slice of the promising surgical robotics market, which is expected to grow at a CAGR of 11.7% and could be worth ~$5 billion by 2021 as per the Robotically Assisted Surgical Devices Market Report, Meddevicetracker Group.
View Figure 2: Potential procedures for single port robotic surgeries4
Since the FDA approved the use of robotic systems in gynecological and urological surgeries, we have witnessed the widest adoption in these surgical disciplines. More than 600,000 procedures in both abdominal hysterectomy and salpingo-oophorectomy and oophorectomy are performed in the U.S. annually (Figure 2). A large percentage of gynecological procedures are performed as conventional abdominal surgery. This provides a lot of opportunity for Titan to expand in this space. Management has identified gynecological applications as the potential addressable market and the rationale behind this choice that is the SPORT system has the
‣ potential to reduce trauma and scarring
‣ ability to produce positive patient outcomes in relatively low-risk benign procedures
‣ learning curve that is not steep as compared to other single-port approaches, based on gynecologic surgeon feedback5
‣ clarity of regulatory pathway
Reimbursement: Reimbursement rates vary widely among national private payors depending on the procedure performed and contract terms. Medicare does not offer additional reimbursement for robot-assisted procedures. Since October 1, 2015, a new family of ICD-10-PCS codes can be used-in conjunction with other applicable procedure codes to describe various robotic-assisted procedures. When Titan obtains permission for the expanded labeling of their product from the regulatory agencies, clinical data could then be gathered from these additional cases and submitted as evidence of effectiveness to the insurance agencies. Consequently, insurance payers may raise the reimbursement rate to cover the cost of using an innovative system like Titan’s.
Accomplished Milestones in 2019:
✓ Announced completion of Engineering Confidence Build
✓ Announced publication of first peer-reviewed manuscript in Surgical Endoscopy
✓ Documented results of confidence build unit testing and implemented design improvements
✓ Began planning preliminary audit of quality system by European Notified Body
✓ Updated system design and related hardware and software documentation
✓ Initiated capital equipment design freeze
✓ Initiated preclinical live animal (swine) and cadaver surgery studies under GLP protocols
Upcoming milestones for 2019:
• Complete and document preclinical live animal (swine) and cadaver surgery studies
• Verify production system operation with clinical experts under rigorous formal human factors
evaluation under simulated robotic manipulation exercises
• Submit Investigational Device Exemption (IDE) application to FDA
• Obtain ISO 13485 Certification
• Receive IDE approval from FDA
• Complete and document human confirmatory studies performed under IDE
• Submit technical file to European Notified Body for review for CE mark
• Submit 510(k) application to FDA
Titan’s Leadership Team: David McNally, an executive who has successfully created and developed two medical device companies while generating significant shareholder value joined Titan as the CEO in 2017. Stephen Randall is the CFO at Titan, bringing over three decades of experience in finance, capital markets, tax planning and compliance, information technology management, mergers and acquisitions and operations management. David and Stephen are joined by a seasoned management team possessing deep experience in complex medical device development and successful commercialization of robotic surgical systems. Titan’s Surgeon Advisory Board is comprised of world-renowned multi-specialty surgeons affiliated with leading institutions in the U.S. and E.U.
Outlook: Robotic procedures comprise a large market and robotics in the healthcare sector is disruptive but still in a nascent stage. Titan’s systems are a part of this rapidly growing industry. In the three months ending March 31, 2019, Titan had secured close to $29 million in financing from Canadian and U.S. institutions as a result of its up listing to NASDAQ in June 2018. Operating burn is about $15 million per quarter. The Company anticipates raising sufficient financing (~$35 million) to continue the development and commence commercialization of is single-port robotic surgical system.
Pending anticipated FDA approval (2020), and with supplemental clinical data to support sales and a thoughtful marketing strategy, we think Titan could witness an uptick in revenue in the initial years after launch. In addition, we believe that management’s flexibility in allowing lease options as compared to one-time upfront payment for their systems may translate into a larger installed base. Further, management anticipates pursuing regulatory clearances for additional indications for use of the system, potentially broadening its applicability over time which could aid in commanding a larger market share.
We think Titan offers an investment opportunity considering the large robotic surgical market that the company is addressing. By demonstrating the key benefits of its single-port robotic surgical system, the company could establish its system as the preferred choice for abdominal endoscopic procedures.
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