Exhibit
99.3
| TITAN MEDICAL INC. |
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Management’s
Discussion and Analysis |
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for the three and six months ended
June 30, 2022 |
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| August 10, 2022 |
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Table
of Contents
 | MANAGEMENT DISCUSSION AND ANALYSIS | 2 |
INTRODUCTION
The
following Management’s Discussion and Analysis (“MD&A”) is prepared as of August 10, 2022 and should be
read in conjunction with the unaudited condensed interim consolidated statements of financial position and the related notes thereto
for the three and six months ended June 30, 2022 (the “Interim Financial Statements”) of Titan Medical Inc. (referred
to hereinafter as “Titan”, the “Company”, “we”, “us” and
“our”) and the annual audited financial statements for the year ended December 31, 2021. The Interim Financial Statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”) 34, Interim Financial Reporting
(“IAS 34”) as issued by the International Accounting Standards Board.
Unless
otherwise indicated, all financial information in this MD&A is reported in thousands of US dollars except for share and earnings
(loss) per share data which is reported in number of shares and US dollars respectively. The tables and charts included in this document
form an integral part of this MD&A.
The
common shares of the Company (the “Common Shares”) are listed under the symbol “TMDI” on The Nasdaq
Capital Market (the “Nasdaq”) and “TMD” on the Toronto Stock Exchange (the “TSX”).
This
MD&A has been prepared with reference to National Instrument 51-102 – Continuous Disclosure Obligations. Additional information
related to Titan, including our Annual Report (“Annual Report”) on Form 20-F for the year ended December 31, 2021,
is available via our website at www.titanmedicalinc.com, on SEDAR at www.sedar.com, and on the EDGAR section of the SEC’s website
at www.sec.gov.
This
MD&A includes references to the Company’s trade-marks and trade names, such as Titan, Titan Medical, and Enos, some of which
may be protected under applicable intellectual property laws of one or more countries and which the Company believes is its property.
Solely for convenience, the Company’s trade-marks referred to in this MD&A may appear without the TM or Ò
symbols, but such references are not intended to indicate, in any way, that the Company will not assert, to the fullest extent
under applicable law, its rights to these trade-marks and trade names.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
discussion includes certain statements that may be deemed “forward-looking statements”. All statements in this discussion
other than statements of historical facts that address future events, developments, or transactions that the Company expects, are forward-looking
statements. These forward-looking statements are made as of the date of this MD&A. Forward-looking statements are frequently, but
not always, identified by words such as “expect”, “anticipate”, “estimate”, “may”, “could”,
“might”, “will”, “would”, “should”, “intend”, “believe”, “target”,
“budget”, “plan”, “strategy”, “goals”, “objectives”, “predicts”;
“potential”, “projects”, “possible”, “milestones”, “projection” or the negative
of any of these words and similar expressions, although these words may not be present in all forward-looking statements. Forward-looking
statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by
the forward-looking statements. Such factors include, but are not limited to, the factors discussed in the section entitled “Risk
Factors” in the Annual Report. Although the Company has attempted to identify important factors that could cause actual actions,
events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions,
events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as of
the date of this MD&A and, other than as required by law, the Company disclaims any obligation to update any forward-looking statements,
whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements
will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Forward-looking
statements are based on a number of assumptions, which may prove to be incorrect, including but not limited to the assumptions discussed
in the section entitled “Cautionary Note Regarding Forward Looking Statements” in the Company’s Annual Report. Accordingly,
readers should not place undue reliance on forward-looking statements.
| MANAGEMENT DISCUSSION AND ANALYSIS | 3 |
This
MD&A also includes market data and forecasts. Although the Company is responsible for all of the disclosure contained in this MD&A,
in some cases the Company relies on and refers to market data and certain industry forecasts that were obtained from third party surveys,
market research, consultant surveys, publicly available information and industry publications and surveys that it believes to be reliable.
Unless otherwise indicated, all market and industry data and other statistical information and forecasts contained in this MD&A are
based on independent industry publications, reports by market research firms or other published independent sources and other externally
obtained data that the Company believes to be reliable. Any such market data, information or forecast may prove to be inaccurate because
of the method by which it was obtained or because it cannot always be verified with complete certainty given the limits on the availability
and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties, including those
discussed in the Annual Report under the heading “Risk Factors”. As a result, although the Company believes that these
sources are reliable, it has not independently verified the information.
The
sections of the Annual Report titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”
are expressly incorporated by reference into this MD&A. The Annual Report is available on the EDGAR section of the SEC’s website
at www.sec.gov and on SEDAR at www.sedar.com.
OVERVIEW
Titan
is a medical technology company headquartered in Toronto, Ontario with operations in Chapel Hill, North Carolina. Titan is focused on
enhancing robotic assisted surgery (“RAS”) using innovative technology through a single access point. The Enos™
system, a single access robotic-assisted surgical platform (the “Enos System”) is being developed with an ergonomic
focus to provide a surgical experience that imitates real-life movements that surgeons demand. The platform consists of a surgeon workstation
that interfaces with a patient cart that includes multi-articulating instruments designed to allow surgeons an increased range of motion
in a confined space, with dexterity and the ability to exert the forces necessary to complete common surgical tasks. With the Enos System,
Titan intends to initially pursue gynecologic surgical indications. By focusing on a single access point, the Company believes that patient
trauma, post-operative pain and scarring can be reduced, and patients may be able to recover from surgery faster.
The
Company’s innovations in RAS, including those directed at the Enos System, are protected by a growing patent portfolio that includes
more than 200 patents and patent applications. Certain of Titan’s RAS technologies and related intellectual property have been
licensed to Medtronic plc (“Medtronic”), while retaining world-wide rights to commercialize the technologies for use
with the Enos System.
The
Enos System is under development and has not been authorized for marketing by the U.S. Food and Drug Administration (“FDA”)
or approved by any other regulatory authority in any other jurisdiction, and until such authorizations or approvals are obtained, is
not commercially available.
The
Company is the successor corporation formed pursuant to two separate amalgamations under the Business Corporations Act (Ontario)
on July 28, 2008. The address of the Company’s corporate office and its principal place of business is 76 Berkeley Street, Toronto,
Ontario, Canada M5A 2W7. On May 29, 2020, the Company established Titan Medical USA Inc. (“Titan USA” or the “Subsidiary”),
a Delaware corporation and a wholly owned subsidiary of the Company. Titan USA’s principal activity consists of R&D, regulatory
overview as well as the manufacturing of instruments and camera systems for the Enos System from its leased premises located in Chapel
Hill, North Carolina.
In
addition to leveraging in-house R&D capabilities, including for activities related to the Enos System and the development work performed
pursuant to the agreement with Medtronic (see “Significant Transactions - Development Agreement & License Agreement with
Medtronic”), the Company engages subcontractors and consultants to perform certain design and development, prototyping, and
assembly and manufacturing activities.
| MANAGEMENT DISCUSSION AND ANALYSIS | 4 |
SIGNIFICANT
TRANSACTIONS
Medtronic
Purchase Order
In
May 2022, the Company received a purchase order (“Medtronic Order”) from Medtronic for $2.6 million to cover the purchase
of instruments and cameras to be used in pre-clinical activities by Medtronic. Medtronic will be evaluating the Company as a potential
manufacturing and supply partner. The Company anticipates that it will deliver on the Medtronic Order during 2022.
February
2021 Equity Offering
On
February 24, 2021, the Company closed an offering of 9,585,250 units of the Company (“February 2021 Units”) sold on
a “bought deal” basis, at a price of $2.40 per February 2021 Unit for aggregate gross proceeds of $23 million. Each February
2021 Unit consists of one Common Share and one half (1/2) of one Common Share purchase warrant (each whole warrant, a “February
2021 Warrant”). Each February 2021 Warrant is exercisable to acquire one Common Share at an exercise price of $3.00 per Common
Share until February 24, 2023. In connection with the February 2021 offering, the Company issued 670,967 broker warrants, each exercisable
at $3.00 until February 24, 2023 for one Common Share.
Anticipated
use of proceeds from the offering is for general corporate purposes and funding working capital and capital expenditures. As previously
disclosed, general corporate purposes includes the development of the Enos System (see “Enos Single Access Robotic Assisted
Surgical System - Development Plan”) and there have been no variations in the proposed use of proceeds to date.
January
2021 Equity Offering
On
January 26, 2021, the Company closed an offering of 7,419,354 units of the Company (“January 2021 Units”) sold on
a “bought deal” basis, at a price of $1.55 per January 2021 Unit for aggregate gross proceeds of $11.5 million. Each January
2021 Unit consists of one Common Share and one half (1/2) of one Common Share purchase warrant (each whole warrant, a “January
2021 Warrant”). Each January 2021 Warrant is exercisable to acquire one Common Share at an exercise price of $2.00 per share
until January 26, 2026. In connection with the January 2021 offering, the Company issued 518,234 broker warrants, each exercisable at
$1.9375 until January 26, 2023 for one Common Share.
Anticipated
use of proceeds from the offering is for general corporate purposes and funding working capital and capital expenditures. As previously
disclosed, general corporate purposes includes the development of the Enos System (see “Enos Single Access Robotic Assisted
Surgical System - Development Plan”) and there have been no variations in the proposed use of proceeds to date.
Development
Agreement & License Agreement with Medtronic
On
June 3, 2020, the Company entered into a development and license agreement (the “Development Agreement”) with a U.S.
affiliate of Medtronic in connection with the development of RAS technologies and a separate license agreement (the “License
Agreement”, and together with the Development Agreement, the “Medtronic Agreements”) with Medtronic with
respect to certain previously developed Company technologies.
Under
the terms of the License Agreement, Titan granted Medtronic an exclusive license with regard to certain RAS technologies, including patents
and know-how, for a one-time upfront royalty payment of $10 million received on June 10, 2020 with no further royalty payments due thereunder.
Under the terms of the Development Agreement, Titan granted Medtronic an exclusive license with regard to the technologies developed
under the Development Agreement in exchange for license fees totaling up to $31 million (the exact amount dependent on certain legal,
transaction and intellectual property costs under the Medtronic Agreements). The total payments received under the Development Agreement
were $30.6 million as described below, with no further royalty payments due thereunder.
| MANAGEMENT DISCUSSION AND ANALYSIS | 5 |
While
the intellectual property licensed to Medtronic under the Medtronic Agreements may not be licensed to a third party, Titan has retained
rights to continue to develop, commercialize and use the licensed intellectual property and the licensed technologies for the Company’s
own business in single access RAS, including the Enos System. Furthermore, in connection with the sale of all or substantially all of
the assets of the Company or a “change of control” (as such term is defined in the Medtronic Agreements), the Company may
assign and transfer all of its rights under the Medtronic Agreements, allowing an acquirer to use the licensed intellectual property
and technologies, as otherwise permitted under the Medtronic Agreements, for their own purposes.
All
of the milestones under the Development Agreement have been completed and the associated payments were received from Medtronic. The milestones
and associated payments were as follows:
| Medtronic
Milestone(1) |
Deadline(2) |
Payment
(US $ 000’s) |
Milestone
Achieved |
| Medtronic Milestone 1 |
Four (4) months from Development Start Date(3) |
10,000 |
Q4 2020(5) |
| Medtronic Milestone 2(4) |
Four (4) months from Development Start Date |
- |
- |
| Medtronic Milestone 3 |
Six
(6) months from the later of:
(a) receipt of Payment for Medtronic Milestone 1,
(b) receipt from Medtronic of Medtronic deliverables
required for Medtronic Milestone 3, and
(c) receipt from Medtronic of confirmation of certain due diligence in respect of deliverables
for Medtronic Milestone 1 |
10,000 |
Q2 2021(6) |
| Medtronic Milestone 4 |
Four
(4) months from the later of: (a) receipt of Payment for Medtronic Milestone 3,
(b) receipt of Medtronic deliverables for Medtronic Milestone
4, and
(c) receipt from Medtronic of confirmation of certain due diligence in respect of deliverables for Medtronic Milestone
3 |
10,600 |
Q4 2021(7) |
Notes:
| 1. | Medtronic
Milestone 1, Medtronic Milestone 3 and Medtronic Milestone 4 are each technology milestones
as defined in the Development Agreement and consist of the completion of the development
of certain RAS technologies as described in the Development Agreement. |
| 2. | All
as further described and qualified in the Development Agreement. |
| 3. | “Development
Start Date” has the meaning ascribed to it in the Development Agreement and was June
12, 2020. |
| MANAGEMENT DISCUSSION AND ANALYSIS | 6 |
| 4. | Medtronic
Milestone 2 was a non-technology milestone defined in the Development Agreement having Titan
raise at least $18.0 million of capital between the effective date of the Development Agreement
and the date that is four months from the Development Start Date. Medtronic Milestone 2
was achieved in June 2020. |
| 5. | On
October 28, 2020, the Company received a $10 million license payment for completion of Medtronic
Milestone 1. |
| 6. | On
May 28, 2021, the Company received a $10 million license payment for completion of Medtronic
Milestone 3. |
| 7. | On
January 26, 2022, the Company received a $10 million license payment for completion of Medtronic
Milestone 4 and a $0.6 million payment related to certain legal, transaction and intellectual
property costs for a total of $10.6 million. The Company received a net payment of $8.3 million,
as $2.3 million was offset by Medtronic to pay for the loan that was retired in December
2021. |
Aspire
Common Share Purchase Agreement
On
December 23, 2019, the Company entered into an agreement (the “Aspire Agreement”) with Aspire Capital Fund, LLC (“Aspire”).
Under the terms of the Aspire Agreement, Aspire committed to purchase up to $35 million of Common Shares for a maximum of 9,729,777 Common
Shares. To date, the Company has issued 6,981,048 Common Shares of Titan for total proceeds of $5.2 million ($2.7 million for the year
ended December 31, 2021 and $2.1 million for the year ended December 31, 2020). The Aspire Agreement expired on June 23, 2022.
ENOS SINGLE
ACCESS ROBOTIC ASSISTED SURGICAL SYSTEM
Development
The
Company’s business is focused on the development and commercialization of innovative surgical technologies for single access RAS
requiring only a single access point/port. The Company is working on the development of the Enos System, which comprises a surgeon-controlled
patient cart with a 3D high-definition vision system and multi-articulating instruments that enable a surgeon to perform surgical procedures,
and a surgeon workstation that provides the surgeon with an ergonomic interface to the patient cart and a 3D high-definition view of
the surgical procedure. The Company intends to initially pursue gynecologic surgical indications for use of its Enos System.
Development
of the Enos System has proceeded with input from various stakeholders including surgeons and operating room staff experienced in RAS,
specialized medical technology development firms and from the Company’s surgeon advisory board. This approach has positioned the
Company to design a robotic surgical system intended to include the traditional advantages of RAS, including 3D stereoscopic imaging
and restoration of instinctive control, as well as new and enhanced features, including an advanced surgeon workstation incorporating
a 3D high-definition display designed to provide a more ergonomic user interface and a patient cart facilitating the use of instruments
with enhanced dexterity.
The
Enos System patient cart has been developed with the goal of delivering multi-articulating instruments and a dual-view camera system
into a patient’s abdominal body cavity through a single access port. The dual-view camera system consists of a flexible 3D high-definition
endoscopic camera along with a light source and an insertion tube/cannula with a diameter of approximately 25 millimeters that includes
an integrated 2D high-definition camera along with an independent light source that, once inserted, provides visualization of the surgical
site to allow for optimal surgical positioning of the patient cart. Once the insertion tube is positioned in the body, it is docked to
the patient cart and the 3D high-definition endoscopic camera is subsequently deployed in a manner that the endoscopic camera and multi-articulating
instruments can be controlled by the surgeon via the surgeon workstation. The reusable multi-articulating instruments are designed to
provide highly dexterous movements and to facilitate an assortment of permanent and detachable single patient use end effectors. The
use of reusable robotic instruments for a specific number of uses that can be cleaned and sterilized between surgeries is intended to
minimize the cost per procedure without compromising surgical performance. The design of the patient cart also incorporates multiple
mechanical elements for surgical positioning allowing for configurability for a number of surgical indications and the ability to be
maneuvered within the operating room, or redeployed within hospitals and ambulatory surgical centers, where applicable.
| MANAGEMENT DISCUSSION AND ANALYSIS | 7 |
As
part of the development of the Enos System, the Company plans on the development of a robust training curriculum and post-training assessment
tools for surgeons and surgical teams. The training curriculum is planned to include cognitive pre-training, psychomotor skills training,
surgery simulations, live animal and human cadaver lab training, surgical team training, troubleshooting and an overview of safety. Post-training
assessment will include validation of the effectiveness of those assessment tools. An initial set of core surgical skills simulation
modules customized for use with the surgeon workstation have been produced in the first phase of the comprehensive surgeon training curriculum
that the Company plans for its Enos System.
Through
the development of RAS technologies, including the development of the Enos System, the Company has worked to deepen its intellectual
capital by recruiting an experienced in-house technical team and engaging leading medical technology development firms with a depth of
experience in medical technology development, including RAS technologies. In addition to expanding its intellectual capital, the Company
continuously evaluates its technologies under development for intellectual property protection through a combination of trade secrets
and patent application filings, with a focus on the filing and prosecution of patents that it believes validate the novelty of its unique
technologies.
Regulatory
Overview
RAS
systems are highly regulated, complex medical devices. The Company has used a combination of internal and external resources to execute
the research, development and regulatory plans for the Enos System. Development objectives have been established to support a planned
regulatory submission to the FDA for marketing authorization in the US, followed by submittal of a Technical File to a European Notified
Body to obtain CE marking, which indicates that a product for sale within the European Economic Area has been assessed to conform to
health safety and environmental protection requirements.
In
the US, the regulatory clearance process includes a Q-Submission Program that provides companies an opportunity to interact with and
obtain feedback from the FDA on specific aspects of the regulatory process, requirements and planned submissions including Investigational
Device Exemption (“IDE”) applications, 510(k) applications and De Novo classification requests. Certain Q-Submissions,
termed Pre-Submissions, typically include a request for written feedback, and if desired, a meeting in which additional feedback and
findings are documented in meeting minutes. The recommendations made by the FDA in response to a Pre-Submission are non-binding on the
FDA, and circumstances related to a company’s product or potential risks identified through post-market surveillance of similar
products in clinical use may further change the position of the FDA. Furthermore, while the FDA encourages Q-Submissions, there is no
assurance that feedback provided from these communications will result in regulatory marketing authorization, nor does it preclude any
identified future changes in regulatory pathways.
The
Company has filed a number of Q-Submissions and based on ongoing communications with the FDA, expects that the Enos System will be classified
as a Class II device and accordingly plans to obtain marketing authorization through a classification request for novel devices in accordance
with section 513(f)(2) of the U.S. Federal Food, Drug and Cosmetic Act (the “FD&C Act”), commonly known as a De
Novo classification submission. In 2020, the Company filed a Request for Information in response to communications the Company had with
the FDA, in which the FDA raised the question of whether RAS devices would generally continue to be eligible for classification as Class
II devices and the 510(k) submission pathway, or whether a De Novo submission would be more appropriate for such devices. While the Company
had previously confirmed with the FDA that the Enos System would be suitable for marketing authorization through a 510(k) submission,
in December 2020, it received a written response (the “Written Response”) from the FDA to its Request for Information
in accordance with section 513(g) of the FD&C Act that indicated that the FDA believes, based on information provided to it, that
the Enos System is appropriate for classification through the De Novo submission pathway. The FDA stated that the technological differences
between the Enos System and RAS devices previously cleared for marketing by the FDA raise new questions of safety and effectiveness,
and that a 510(k) application submitted by the Company claiming substantial equivalence to any previously marketed RAS device would most
likely be determined to be not substantially equivalent. In view of the Written Response and additional guidance provided by the FDA
to the Company, the Company plans to proceed with a De Novo classification request for the Enos System following successful completion
of the IDE clinical study as described below.
| MANAGEMENT DISCUSSION AND ANALYSIS | 8 |
Requests
for Information made pursuant to Section 513(g) of the FD&C Act require the FDA to provide information about the classification and
the regulatory requirements that may be applicable to a particular device. FDA responses to such requests represent the FDA’s best
judgement about how a device would be regulated, based upon review of information provided by a requester, including the description
of the device and its intended use. The FDA’s response to a 513(g) request is not a classification decision for a device and does
not constitute FDA clearance or approval for commercial distribution. Classification decisions and clearance or approval for marketing
require submissions under different sections of the FD&C Act, such as a classification obtained in response to a 510(k) submission
or a De Novo submission.
The
De Novo classification request provides a pathway for the FDA to classify novel medical devices for which general controls, or general
and special controls, provide a reasonable assurance of safety and effectiveness, but for which there is no legally marketed predicate
device. The De Novo process allows the FDA to review a company’s submission and reasons as to why the device should be a Class
II device, including the review of the general and special controls that would provide reasonable assurance of the safety and effectiveness
of the device. Included in such a classification request, clinical, non-clinical, test and design data may be provided to support a company’s
recommendation for the classification of the device as a Class II device. After the FDA receives and reviews a request, a determination
(generally within 150 review days) is made to either grant or decline the request. Review days are calculated as the number of calendar
days between the date the De Novo request was received by the FDA and the date of the FDA’s decision, excluding the days a request was
on hold for an additional information request. If the request is granted (i.e. the device is determined to be a Class II device), the
device is authorized to be marketed and a new classification regulation will be established, ultimately allowing the novel device to
serve as a predicate for 510(k) submissions of future devices of the same type. Should the De Novo classification request be declined,
and the device is therefore classified as a Class III device, a premarket approval application under section 515 of the FD&C Act,
also known as a PMA, would be required to market the device, involving a more expensive and time-consuming approval process.
Since
the Enos System is presently under development and the Company has not submitted any applications for marketing authorization, it is
not possible to predict with certainty the outcome of any review by the FDA and the time required to complete activities necessary for
regulatory marketing authorization is not quantifiable at this time. The FDA’s recent review and response to the Company’s
proposed IDE clinical study general design and planning occurred during a video conference call held in September 2021. While the general
design of the Company’s planned IDE clinical study was confirmed, more detailed communication will be required to reach agreement
on the content of a complete IDE application, including the final clinical design, risk analyses, safety testing, human factors testing,
and preclinical data. Accordingly, the Company plans on further communications and submissions with the FDA to clarify the requirements
for the IDE application and to understand any special controls which the FDA may apply to the IDE clinical study. Additional Pre-Submissions
will allow the FDA to review the state of the current design of the surgical system, and the inclusion of test data and more detailed
proposals for clinical protocols would allow the FDA to provide additional feedback and/or suggest modifications.
The
performance of human surgeries as part of the proposed clinical study with the Enos System will require an IDE from the FDA, which must
be submitted and approved in advance. An IDE allows the investigational device to be used in a clinical study in order to collect safety
and effectiveness data. Further, the recruitment of surgeons from multiple hospital sites will be necessary to perform the surgeries
as well as the recruitment of patients willing to participate in the IDE study. Each of these sites will require approval of their independent
Institutional Review Board (“IRB”) to approve the studies. Application to the IRB of each hospital can be made once
the FDA has approved the Company’s IDE application. Only upon successful completion of the IDE clinical study will the Company
be in a position to submit to the FDA an application for De Novo classification for marketing authorization.
Previous
results achieved by surgeons in operating prototypes in numerous animal and cadaver studies have preliminarily validated the potential
for single incision surgeries to be performed with the Enos System.
| MANAGEMENT DISCUSSION AND ANALYSIS | 9 |
Insights gained from these preclinical studies have directed the
Company to make product improvements. In June 2019, the Company commenced preclinical live animal and cadaver studies according to Good
Laboratory Practices (“GLP”) and subsequently, on July 18, 2019, announced the successful completion of those studies.
Following the completion of the GLP procedures, the Company proceeded to perform human factors evaluation (“HFE”)
studies, which included verification of production system operation with clinical experts under simulated robotic manipulation exercises.
However, during the GLP and HFE studies, the Company identified opportunities to improve the performance of instruments, camera systems
and sterile interfaces before proceeding further, which may require repeating those studies with enhanced designs.
During
the third quarter of 2021, the Company completed additional pre-clinical GLP studies. The pre-clinical studies involved utilizing the
Enos System to perform hysterectomies in porcine subjects. The subjects successfully completed the survival period in the study. With
the completion of these studies, surgeons have now performed over 70 pre-clinical procedures representing multiple subspecialties with
Titan’s Enos System.
During
the third quarter of 2019, the Company’s European Notified Body also completed audits of the Company’s quality system procedures
and related documentation for ISO 13485 Certification, which was ultimately received in January 2020. In September 2021, a surveillance
audit of the Company’s quality system was successfully completed by the Company’s Notified Body.
During
the first quarter of 2022, the Company completed an animal lab procedure. Additional surgeon validation was gained during this animal
lab where Titan received positive feedback on improvements to the vision system and on electrical energy instrumentation. New insights
on the ease of robotic surgery adoption for laparoscopic surgeons was also noted, which the Company expects to institute as part of its
training programs.
Development
Plan
For
the purposes of this section, the description and milestone chart with respect to the Company’s development plan should be read
in conjunction with the “Risk Factors” section of the Annual Report.
The
Company is focused on the development and commercialization of the Enos System. The following chart and narrative are provided to outline
the significant development and regulatory milestones required to achieve the overall goal of commercializing the Enos System in the
United States.
While
the milestone chart is based on information currently available to the Company, there is no assurance that the development, regulatory
and commercialization milestones set forth above will be completed within the timeframes forecasted, if at all, and are based upon the
following key assumptions:
| MANAGEMENT DISCUSSION AND ANALYSIS | 10 |
| 1. | The
Company will complete each milestone within the projected timeframe and at the estimated
cost. |
| 2. | The
Company will receive on a timely basis all applicable regulatory authorizations, approvals
or clearances including without limitation the planned IDE application and the planned De
Novo application to the FDA. |
| 3. | There
will be no significant changes to the regulatory authorization process in the United States. |
| 4. | The
Company will be able to secure a sufficient number of hospital sites, surgeons and patients
as part of the IDE clinical study. |
| 5. | The
costs of materials and components required by the Company, availability of sufficiently qualified
personnel and the wages and salaries of such personnel and the costs and timing of engaging
third parties in respect of the Company’s clinical study and the manufacturing of its
Enos System will remain stable. |
| 6. | Despite
global supply chain challenges, the Company and the manufacturing firms it engages will be
able to secure components and subsystems for the Enos System on a timely basis, and no unforeseen
shortages or shipping delays will arise. |
| 7. | The
Company will be able to raise required financing on a timely basis to support its development
program, manufacturing, human clinical study and operations. |
| 8. | The
design of the Enos System and related platforms and equipment will not be required to materially
change for any reasons (including without limitation due to results of safety and verification
testing, market demands, intellectual property or regulatory issues). |
| 9. | The
Company will be able to engage, retain and recruit, as necessary, technical personnel, contractors
and third parties (such as development firms and manufacturers) with the type of specialized
skill and knowledge required to develop, manufacture and test the Enos System. |
The
foregoing list of assumptions is not exhaustive. Although the Company has attempted to identify on a reasonable basis the key assumptions
related to forward-looking statements in the development milestone table above, there can be no assurance that the forward-looking statements
will prove to be accurate, as events or circumstances or other factors could cause actual results to differ materially from those estimated
or projected and expressed in, or implied by, these forward-looking statements.
In
June 2022, the Company updated its timing for filing the IDE application for the Enos System with the FDA. The Company expects to file
its IDE with the FDA mid-year 2023 versus the earlier anticipated time period of the first quarter of 2023. The Company anticipates receiving
a response on the IDE application from the FDA in the second half of 2023. Associated milestones as set forth in the chart above are
described in additional detail below.
| ● | Completion
of Product Development and Transfer to Manufacturing – The Company has substantially
completed product development to accommodate the transfer of the Enos System to manufacturing,
including the areas of supply chain management, product assembly and testing, and implementation
of software updates related to safety controls. The Company relies on its employees as well
as engagements with consultants, development firms and manufacturers to complete product
development. Any interruptions in the engagement of the forgoing or from other interruptions
related thereto, such as supply chain interruptions, will impact the Company’s ability
to complete product development. |
| ● | Manufactured
Units Safety and Verification Testing – Upon completion of product development
and the delivery of manufactured units of the Enos patient cart and surgeon workstation,
the Company anticipates completing system verification and validation and safety testing
in support of the planned IDE submission to the FDA. |
| ● | IDE
Application, FDA Review, IDE Study – Upon successful completion of safety and verification
testing of the Enos patient cart and surgeon workstation as well as the biocompatibility
testing of instruments, cameras and accessories, the Company expects it will have the requisite
information |
| MANAGEMENT DISCUSSION AND ANALYSIS | 11 |
| · | necessary to submit a complete IDE application to the FDA
in mid-year 2023. Upon receiving approval of the IDE application by the FDA, the Company plans to commence human clinical studies to
validate the safety and effectiveness of the Enos System. |
With the feedback
from the FDA during the second half of 2021, it is anticipated that the IDE clinical study will include total laparoscopic hysterectomies
performed on 40 to 50 patients at 3 to 4 clinical sites. The Company has already begun IRB site preparation for the selected clinical
sites. Based on the expected timing of filing the IDE application and the FDA review and approval process, the Company anticipates that
the surgical procedures associated with the IDE, and the associated follow-up, can be completed in mid-year 2024.
| · | De
Novo Application and FDA Review – Assuming the successful completion of the IDE study, including follow-up data, the Company
expects to submit its De Novo application to the FDA and receive the FDA’s response in early 2025. |
| · | Commercialization – The Company anticipates
a commercial launch of the Enos System in early 2025 upon receipt of marketing authorization from the FDA. Commercial manufacturing of
the Enos System is expected to be an extremely detailed and complex process with the potential for delays, interruptions (including supply
chain interruptions) or cost overruns. |
The total costs to complete
the development of the Enos System cannot yet be determined with a high degree of certainty, and the costs may be substantially higher
than any estimated by the Company. Please see “Special Note Regarding Forward-Looking Statements” and “Risk
Factors” in the Annual Report.
The Company anticipates that its cash and cash
equivalents balance of $20.2 million at June 30, 2022 will be sufficient to fund the development of the Enos System and operational expenses
into the first quarter of 2023. However, unexpected increases in costs and expenses due to operational decisions made by the Company and/or
factors beyond the Company’s control, such as pandemics and international conflicts, including the COVID-19 pandemic and the Russian
invasion of Ukraine, or any delays related to sourcing of parts and materials or higher than expected inflation rates impacting pricing
of parts and materials could cause a material impact on working capital resources of the Company.
Due to the nature of technology development and
the related medical device regulatory pathway in the United States, there is no assurance that the development, regulatory and commercialization
milestones set forth above will be completed within the timeframes forecasted, if at all, and there can be no assurance with respect to
the resources that may be required to achieve these milestones, including both internal resources with respect to the availability to
the Company of qualified technical personnel and third party development and manufacturing firms. Furthermore, additional required development
or regulatory tasks could be identified in the course of the development, manufacturing and testing of the Enos System which may elongate
the forecast timeline. The review times for IDE applications as well as De Novo applications with the FDA can vary greatly, and there
can be no assurance as to the time it will take for the Company to receive FDA marketing authorization for the Enos System, or whether
such authorization will be obtained at all.
INTELLECTUAL PROPERTY AND LICENSING
As of June 30, 2022, the Company’s patent
portfolio includes over 200 patents and patent applications. The Company anticipates further expanding its patent portfolio by filing
additional patent applications as it progresses in the development of robotic surgical technologies and, potentially, by licensing suitable
technologies.
Pursuant to the License Agreement (see “Significant
Transactions - Development Agreement & License Agreement with Medtronic”), the Company exclusively licensed to Medtronic
a portion of its portfolio related to certain aspects of instruments and cameras, while retaining the world-wide rights to commercialize
the licensed technologies for the Company’s own business in single access RAS.
| MANAGEMENT DISCUSSION AND ANALYSIS | 12 |
Furthermore, pursuant to the Development
Agreement with Medtronic, the Company developed certain RAS technologies, that were completed and exclusively licensed by Medtronic
for license payments of $30.6 million. The Company retains the world-wide rights to commercialize any developed technology in its
own business (see “Significant Transactions - Development Agreement & License Agreement with Medtronic”).
IP Exclusivity and Independence
Under each of the Medtronic Agreements, while
Titan granted an exclusive license to Medtronic, Titan retained world-wide ownership rights to independently commercialize the licensed
technologies in single access RAS, including with the Enos System and enhancements thereof. Under each of the Medtronic Agreements Titan
may assign its intellectual property rights thereunder in connection with the sale of all or substantially all of the assets of Titan
or in connection with a “change of control” (as such term is defined therein).
RESULTS OF OPERATIONS
| | |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| | |
2022 | |
2021 | |
2022 | |
2021 |
| | |
$ | | |
$ | | |
$ | | |
$ | |
| Revenue | |
| - | | |
| 10,043 | | |
| - | | |
| 10,093 | |
| | |
| | | |
| | | |
| | | |
| | |
| Expenses | |
| | | |
| | | |
| | | |
| | |
| Research and development | |
| 9,509 | | |
| 8,361 | | |
| 19,109 | | |
| 17,644 | |
| General and administrative | |
| 3,142 | | |
| 3,630 | | |
| 5,660 | | |
| 6,207 | |
| | |
| 12,651 | | |
| 11,991 | | |
| 24,769 | | |
| 23,851 | |
| Net loss from operations | |
| (12,651 | ) | |
| (1,948 | ) | |
| (24,769 | ) | |
| (13,758 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Finance income | |
| (21 | ) | |
| (20 | ) | |
| (61 | ) | |
| (33 | ) |
| Finance expenses | |
| 17 | | |
| 57 | | |
| 35 | | |
| - | |
| Foreign exchange (gain) loss | |
| (6 | ) | |
| 15 | | |
| 28 | | |
| 59 | |
| (Gain) loss on fair value of warrant derivative | |
| (1,758 | ) | |
| (1,060 | ) | |
| (4,667 | ) | |
| 1,950 | |
| Total other (income)expenses | |
| (1,768 | ) | |
| (1,008 | ) | |
| (4,665 | ) | |
| 1,976 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net and comprehensive loss | |
| (10,883 | ) | |
| (940 | ) | |
| (20,104 | ) | |
| (15,734 | ) |
| Basic and diluted loss per share | |
| (0.10 | ) | |
| (0.01 | ) | |
| (0.18 | ) | |
| (0.16 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Financial Position | |
| | | |
| | | |
| June 30,
2022 | | |
| December 31,
2021 | |
| Cash | |
| | | |
| | | |
| 20,179 | | |
| 32,306 | |
| Total assets | |
| | | |
| | | |
| 25,758 | | |
| 47,222 | |
| Total liabilities | |
| | | |
| | | |
| 9,681 | | |
| 11,929 | |
| Total equity | |
| | | |
| | | |
| 16,077 | | |
| 35,293 | |
Revenue
Revenue was $nil for the three and six months
ended June 30, 2022 compared to $10.0 million for the three months ended June 30, 2021 and $10.1 million for the six-months ended June
30, 2021. Revenue in the comparative period was primarily related to the achievement of the third milestone with Medtronic.
The Company completed all of the milestones under
the Development Agreement and the License Agreement with Medtronic and earned $40.6 million of the maximum amount of $41.0 million. See
“Significant Transactions - Development Agreement & License Agreement with Medtronic”.
| MANAGEMENT DISCUSSION AND ANALYSIS | 13 |
Research and Development
Research and development (“R&D”)
expenses were $9.5 million for the three months ended June 30, 2022 compared to $8.4 million for the three months ended June 30, 2021.
R&D expenses were $19.1 million for the six months ended June 30, 2022 compared to $17.6 million for the six months ended June 30,
2021.
R&D expenses for the three and six-month period
ending June 30, 2022 were related to the development of the Enos System and an increase in labour costs as the Company continues to add
the required resources to its engineering, regulatory and quality teams to advance the Enos System. During the six-month period, the Company’s
focus was on finishing product development and transferring key components on the Enos System to our external manufacturing partner. The
Company has transferred substantially all of the components to its manufacturing partner. The Company expects to start receiving manufactured
units of the Enos System later this year. In the comparative period, R&D expenses related to the development of the Enos System and
the development work required to achieve the milestones under the Development Agreement with Medtronic.
General and Administrative
General and administrative (“G&A”)
expenses were $3.1 million for the three months ended June 30, 2022 compared to $3.6 million for the three months ended June 30, 2021.
The decrease in G&A expenses in the threee-month period is related to a decrease is stock-based compensation of $1.1 million, partially
offset by an increase in severance costs and public company costs.
G&A expenses were $5.7 million for the six
months ended June 30, 2022 compared to $6.2 million for the six months ended June 30, 2021. The decrease in G&A expenses in the six-month
period is primarily related to a decrease is stock-based compensation of $1.4 million and a decrease in professional and consulting fees,
partially offset by an increase in severance costs, public company costs and recruitment fees related to filling open roles on the senior
leadership team.
Net Loss from Operations
Net loss from operations was $12.7 million and
$24.8 million for the three and six months ended June 30, 2022 compared to $2.0 million and $13.8 million for the three and six months
ended June 30, 2021. The increase in net loss from operations in the both the three and six-month periods is related to the $10.0 million
of revenue in the comparative period from the achievement of the third milestone with Medtronic. There was no revenue earned in the current
three and six-month periods.
Other (Income) Expenses
| | |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| | |
2022 | |
2021 | |
2022 | |
2021 |
| | |
$ | | |
$ | | |
$ | | |
$ | |
| Finance income | |
| (21 | ) | |
| (20 | ) | |
| (61 | ) | |
| (33 | ) |
| Finance expenses | |
| 17 | | |
| 57 | | |
| 35 | | |
| - | |
| Foreign exchange (gain) loss | |
| (6 | ) | |
| 15 | | |
| 28 | | |
| 59 | |
| (Gain) loss on fair value of warrant | |
| (1,758 | ) | |
| (1,060 | ) | |
| (4,667 | ) | |
| 1,950 | |
| Total other (income) expenses | |
| (1,768 | ) | |
| (1,008 | ) | |
| (4,665 | ) | |
| 1,976 | |
Other income was $1.8 million for the three months
ended June 30, 2022 compared to $1.0 million for the three months ended June 30, 2021. The increase in other income is related to the
gain on the fair value of the warrants.
| MANAGEMENT DISCUSSION AND ANALYSIS | 14 |
Other income was $4.7 million for the six months
ended June 30, 2022 compared to other expenses of $2.0 million for the six months ended June 30, 2021. The variance in the six-month period
is related to the gain on the fair of the warrants in the current period compared to a loss in the comparative period.
Finance Income
Finance income was $21 for the three months ended
June 30, 2022 compared to $20 for the three months ended June 30, 2021. Finance income was $61 for the six months ended June 30, 2022
compared to $33 for the six months ended June 30, 2021.
The increase in finance income in the three and
six-months periods is related to interest income earned on the Company’s cash balances.
Finance Expenses
Finance expenses were $17 for the three months
ended June 30, 2022 compared to $57 for the three months ended June 30, 2021. In the current quarter, the finance expenses relate to the
non-cash interest inherent in lease obligations for the Company’s Chapel Hill facility. In the comparative quarter, the finance
expenses included the non-cash interest inherent in lease obligations for the Company’s Chapel Hill facility and interest on the
loan with Medtronic that was extinguished in December 2021.
Finance expenses were $35 for the six months ended
June 30, 2022 compared to $nil for the six months ended June 30, 2021. In the current six-month period, the finance expenses relate to
the non-cash interest inherent in lease obligations for the Company’s Chapel Hill facility. In the comparative six-month period
finance expenses included the non-cash interest inherent in lease obligations for the Company’s Chapel Hill facility, interest on
the loan with Medtronic that was extinguished in December 2021 and the reversal of accrued interest on supplier accounts.
Foreign Exchange (Gain) Loss
Foreign exchange gain was $6 for the three months
ended June 30, 2022 compared to a foreign exchange loss of $15 for the three months ended June 30, 2021. Foreign exchange gain was $28
for the six months ended June 30, 2022 compared to $59 for the six months ended June 30, 2021. Foreign exchange is related to the revaluation
of the Canadian dollar non-monetary assets.
(Gain)
Loss on Fair Value of Warrant Derivative
For the three months ended June 30, 2022, the
gain on the fair value of the warrant derivative was $1.8 million compared to $1.1 million for the three months ended June 30, 2021. For
the six months ended June 30, 2022, the gain on the fair value of the warrant derivative was $4.7 million compared to a loss of $2.0 million
for the six months ended June 30, 2021.
The warrant derivative is marked to market at
each reporting period and the gain or loss represents the change in valuation of the warrant derivative liability and can fluctuate significantly
based on the market price of the Company’s Common Shares.
Net and Comprehensive Loss
Net and comprehensive loss was $10.9 million
for the three months ended June 30, 2022 compared to $0.9 million for the three months ended June 30, 2021. The increase in net and
comprehensive loss in the quarter is related to the $10.0 million in revenue related to the achievement of the third milestone with
Medtronic in the comparative period.
Net and comprehensive loss was $20.1 million for
the six months ended June 30, 2022 compared to $15.7 million for the six months ended June 30, 2021. The increase in net and comprehensive
loss is related to the $10.0 million in revenue related to the achievement of the third milestone with Medtronic in the comparative period,
partially offset by the $4.7 million gain on the warrant derivative.
| MANAGEMENT DISCUSSION AND ANALYSIS | 15 |
FINANCIAL POSITION
Working Capital
The Company defines working capital as current
assets less current liabilities. Working capital was $13.3 million at June 30, 2022 compared to $32.8 million at December 31, 2021. Working
capital includes the non-cash warrant derivative liability of $0.3 million. The Company anticipates that its working capital will be sufficient
to continue to fund the development of its Enos System and operational expenses into the first quarter of 2023.
However, unexpected increases in costs and expenses
due to operational decisions made by the Company and/or factors beyond the Company’s control, such as pandemics and international
conflicts, including the COVID-19 pandemic and the Russian invasion of Ukraine, or any delays related to sourcing of parts and materials
or higher than expected inflation rates impacting pricing of parts and materials could cause a material impact on working capital resources
of the Company.
LIQUIDITY AND CAPITAL RESOURCES
| | |
Three Months Ended
June 30, | |
Six Months Ended
June 30, | |
| | |
2022 | |
2021 | |
2022 | |
2021 |
| | |
$ | | |
$ | | |
$ | | |
$ | |
| Cash used in operating activities | |
| (9,529 | ) | |
| (738 | ) | |
| (11,454 | ) | |
| (14,048 | ) |
| Cash provided by (used in) financing activities | |
| (104 | ) | |
| 2,518 | | |
| (205 | ) | |
| 43,919 | |
| Cash used in investing activities | |
| (300 | ) | |
| (145 | ) | |
| (468 | ) | |
| (335 | ) |
| Net change in cash during the period | |
| (9,933 | ) | |
| 1,635 | | |
| (12,127 | ) | |
| 29,536 | |
| Cash and cash equivalents, beginning of period | |
| 30,112 | | |
| 53,370 | | |
| 32,306 | | |
| 25,469 | |
| Cash and cash equivalents, end of period | |
| 20,179 | | |
| 55,005 | | |
| 20,179 | | |
| 55,005 | |
The Company had cash and cash equivalents of $20.2
million at June 30, 2022 compared to $32.3 million at December 31, 2021.
Operating Activities
Cash used in operating activities was $9.5 million
for the three months ended June 30, 2022 compared to $0.7 million for the three months ended June 30, 2021.
Cash used in operating activities in the quarter
was primarily related to the costs associated with the development of the Enos System, offset by the recovery of working capital related
to the final milestone payment of $2.6 million. In the comparative quarter, the cash used in operating activities related to the costs
associated with the development of the Enos System and the development work under the Development Agreement with Medtronic, offset by
the revenue earned from the achievement of the third milestone from Medtronic. See “Results of Operations – Research and
Development” and “Significant Transactions – Development Agreement & License Agreement with Medtronic”.
Cash used in operating activities was $11.5 million
for the six months ended June 30, 2022 compared to $14.1 million for the six months ended June 30, 2021.
| MANAGEMENT DISCUSSION AND ANALYSIS | 16 |
Cash used in operating activities in the six-month
period was primarily related to the costs associated with the development of the Enos System, offset by the recovery of working capital
of $12.0 million primarily related to the final milestone payment of $8.3 million from Medtronic that was received in January. In the
comparative six-month period, the cash used in operating activities related to the costs associated with the development of the Enos System
and the development work under the Development Agreement with Medtronic, partially offset by the revenue earned from the achievement of
the third milestone from Medtronic. See “Results of Operations – Research and Development” and “Significant
Transactions – Development Agreement & License Agreement with Medtronic”.
Financing Activities
Cash used in financing activities was $0.1 million
for the three months ended June 30, 2022 compared to cash provided by financing activities of $2.5 million for the three months ended
June 30, 2021.
Cash used in financing activities in the quarter
is related to the repayment of lease obligations for the Company’s facility in Chapel Hill. In the comparative period, the Company
raised $2.5 million from the issuance of Common Shares under the common share purchase agreement with Aspire (see “Significant Transactions
– Aspire Common Share Purchase Agreement”).
Cash used in financing activities was $0.2 million
for the six months ended June 30, 2022 compared to cash provided by financing activities of $43.9 million for the six months ended June
30, 2021.
Cash used in financing activities in the six-month
period is related to the repayment of lease obligations for the Company’s facility in Chapel Hill. In the comparative period, the
Company raised $31.3 million from the issuance of Common Shares and warrants in two separate financings (see “Significant Transactions
– February 2021 Equity Offering and January 2021 Equity Offering”). In addition, the Company received proceeds of $10.0
million related to the exercise of warrants and $2.5 million from the issuance of Common Shares under the common share purchase agreement
with Aspire.
Investing Activities
Cash used in investing activities was $0.3 million
and $0.5 million for the three and six months ended June 30, 2022 compared to $0.1 million and $0.3 million for the three months ended
June 30, 2021. In the current and comparative periods, the cash used in investing activities related to the purchase of equipment for
the development of the Enos System and patent costs.
Going Concern
Since inception, the Company has devoted its resources
to funding the development of the Enos System, which has resulted in an accumulated deficit of $274.0 million as of June 30, 2022. The
Company’s Enos System has not been approved by any regulatory agency in any market so losses are expected to continue until the
Enos System is commercialized and revenue from the Enos System can support the related costs to commercialize the platform.
The Company does not earn any revenues from the
Enos System and is therefore considered to be in the development stage. As required, the Company will continue to finance its operations
through the sale of equity, licensing or development agreements, or pursue non-dilutive funding sources available to the Company in the
future. The continuation of the development of the Enos System and the commercialization of the Enos System is dependent upon the Company’s
ability to successfully finance and complete the development program through a combination of equity financing and revenues from strategic
partners. We have no current material sources of revenues from strategic partners.
The accompanying interim condensed
consolidated financial statements have been prepared on a going concern basis in accordance with IFRS as issued by the International
Accounting Standards Board (“IASB”). The going concern basis contemplates the realization of assets and the settlement
of liabilities in the normal course of business as they come due for the foreseeable future.
| MANAGEMENT DISCUSSION AND ANALYSIS | 17 |
Management has forecasted that the Company’s
current level of cash is expected to be able to fund operations into Q1 2023. The Company is actively pursuing additional financing to
continue the development and regulatory process for the Enos System, but there is no assurance these initiatives will be successful,
timely or sufficient. Consequently, the Company’s ability to continue as a going concern beyond Q1 2023 is dependent on its ability
to secure additional financing. These circumstances cast significant doubt as to the ability of the Company to continue as a going concern
and, hence, the appropriateness of the use of accounting principles applicable to a going concern.
These financial statements do not reflect the
adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be
necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations.
Such adjustments could be material.
SELECTED QUARTERLY INFORMATION
The following is selected financial data for each
of the eight most recently completed quarters, derived from the Company’s financial statements, and calculated in accordance with
IFRS. Net and comprehensive (loss) / income figures include the non-cash effects of adjustments in the valuation of outstanding warrant
liability.
| | |
Revenue | |
Net and comprehensive
(loss) income | |
Basic and diluted
(loss) earnings per
share |
| | |
$ | | |
$ | | |
$ | |
| June 30, 2022 | |
| - | | |
| (10,883 | ) | |
| (0.10 | ) |
| March 31, 2022 | |
| - | | |
| (9,221 | ) | |
| (0.08 | ) |
| December 31, 2021 | |
| 10,000 | | |
| 9,431 | | |
| 0.08 | |
| September 30, 2021 | |
| - | | |
| (8,555 | ) | |
| (0.08 | ) |
| June 30, 2021 | |
| 10,043 | | |
| (940 | ) | |
| (0.01 | ) |
| March 31, 2021 | |
| 50 | | |
| (14,794 | ) | |
| (0.15 | ) |
| December 31, 2020 | |
| 10,000 | | |
| (20,633 | ) | |
| (0.25 | ) |
| September 30, 2020 | |
| - | | |
| (1,641 | ) | |
| (0.02 | ) |
Significant changes in key financial data from
July 1, 2020 through June 30, 2022 reflect the following:
| · | the
revenue recognition of the payments received pursuant to the Medtronic Agreements; |
| · | the
resumption of product development following receipt of license fees earned pursuant to the Medtronic License Agreement and Development
Agreement; |
| · | the
equity capital raises in the capital markets, all since the third quarter of 2020; |
| · | the
Company established in-house R&D capabilities in Q3 2020 that increased staffing costs; and |
| · | the
ongoing non-cash impact associated with the requirement to revalue the Company’s warrant derivative liability at fair value, with
subsequent changes recorded through net and comprehensive loss for the period. |
Historically, operating results have fluctuated
on a quarterly basis and the Company expects that quarterly results will continue to fluctuate in the future. Operating results for interim
periods should not be relied upon as an indication of the results to be expected or achieved in any future period or any fiscal year as
a whole. Risk factors affecting revenue and results are discussed in the section entitled “Risk Factors” in the Annual
Report.
| MANAGEMENT DISCUSSION AND ANALYSIS | 18 |
CAPITAL MANAGEMENT
The Company’s objective when managing capital
is to maintain a strong statement of financial position. The Company achieves its objective by obtaining adequate cash resources to support
planned activities which include manufacturing the Enos System, filing an IDE with the FDA, clinical studies, filing the De Novo application,
administrative costs, and intellectual property expansion and protection. The Company defines its capital as cash and cash equivalents
and shareholders’ equity, which as at June 30, 2022 totaled $36.3 million [December 31, 2021 - $67.6 million].
The Company does not have any debt other than
accounts payable and accrued liabilities and lease liabilities. The Company does have commitments related to the Enos System.
In managing its capital, the Company estimates
future cash requirements by preparing an annual budget for review and approval by its Board. The budget establishes the approved activities
for the upcoming year and estimates the costs associated with these activities.
Historically, the Company has funded its operations
through the issuance of additional Common Shares and common share purchase warrants that upon exercise are converted to Common Shares
and through license revenue received under licensing agreements. While management regularly monitors the capital markets, general market
conditions, and the availability of capital, there are no assurances that funds will be made available to the Company in the required
amounts or when required.
Base Shelf
On July 30, 2019, the Company filed a Form F-3
registration statement (the “Base Shelf”) that qualifies for distribution of up to $125,000,000 of Common Shares, warrants,
or units (the “Securities”) in either Canada, the U.S. or both.
Under the Base Shelf, the Company may sell Securities
to or through underwriters, dealers, and also may sell Securities directly to purchasers or through agents, subject to obtaining any applicable
exemption from registration requirements. The distribution of Securities may be effected from time to time in one or more transactions
at a fixed price or prices, which may be subject to change, at market prices prevailing at the time of sale, or at prices related to such
prevailing market prices to be negotiated with purchasers and as set forth in an accompanying Prospectus Supplement.
The Base Shelf provides the Company with additional
flexibility when managing its cash resources as, under certain circumstances, it can shorten the time period required to close a financing
and is expected to increase the number of potential investors that may be prepared to invest in the Company. Funds received as a result
of using the Base Shelf would be used in line with the Board approved budget. The Base Shelf is effective until July 30, 2022.
Nasdaq Compliance
On December 30, 2021, the Company received a notification
from the Nasdaq Stock Market LLC Listing Qualifications Department that it was not in compliance with the minimum bid price requirement
set forth in Nasdaq Rule 5550(a)(2) since the closing bid price for the Company’s common shares listed on Nasdaq was below US$1.00
for 30 consecutive business days. Nasdaq Rule 5550(a)(2) requires the shares to maintain a minimum bid price of US$1.00 per share, and
Nasdaq Rule 5810(c)(3)(A) provides that failure to meet such a requirement exists when the bid price of the shares is below US$1.00 for
a period of 30 consecutive business days.
These notifications do not impact the Company’s
listing on Nasdaq at this time. In accordance with Listing Rule 5810(c)(3)(A), the Company has a period of 180 calendar days from the
date of notification, being until June 28, 2022, to regain compliance with the minimum bid price requirement, during which time the shares
will continue to trade on Nasdaq.
| MANAGEMENT DISCUSSION AND ANALYSIS | 19 |
On June 29, 2022, Nasdaq Stock Market LLC Listing
Qualifications Department notified the Company that it was granted an additional 180 calendar day period, through December 26, 2022, to
evidence compliance with the US$1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market. If at any time
before December 26, 2022, the bid price for the company’s common shares closes at or above US$1.00 per share for a minimum of 10
consecutive business days (and generally not more than 20 consecutive business days, in Nasdaq’s discretion), it is expected that
Nasdaq would provide formal notice that the company has regained compliance with the bid price requirement.
The Company is also listed on the TSX and the
notification does not affect the company’s compliance status with such listing. The Company intends to evaluate all available options
to resolve the deficiency and regain compliance with Nasdaq Rule 5550(a)(2).
CONTRACTUAL OBLIGATIONS
Contractual obligations relating to accounts payable
and accrued liabilities, lease liabilities and purchase order commitments as at June 30, 2022, are as follows:
| | |
Total | |
Less
than 1
year | |
2 – 3
years | |
4 – 5
years | |
Greater
than 5
years |
| | |
$ | |
$ | |
$ | |
$ | |
$ |
| Accounts payable and accrued liabilities | |
7,821 | |
7,821 | |
- | |
- | |
- |
| Lease liabilities | |
1,541 | |
339 | |
852 | |
350 | |
- |
| Purchase order commitments1 | |
16,089 | |
12,346 | |
3,743 | |
- | |
- |
| TOTAL | |
25,451 | |
20,506 | |
4,595 | |
350 | |
- |
Note:
| 1. | Purchase order commitments are obligations that are not reflected on the balance sheet. These are contracts
with suppliers not yet fulfilled. These commitments are with engineering consulting firms to support the development of the Enos System
and suppliers for parts to manufacture the Enos System and with our contract manufacturer to manufacture the Enos System. |
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this report, the Company had no off-balance sheet
arrangements.
OUTSTANDING COMMON SHARE DATA
The following table summarizes the outstanding share capital as of
August 10, 2022:
| Type of Securities |
Number of Common Shares issued
or issuable upon conversion |
| Common Shares 1 |
111,545,261 |
| Stock options |
7,926,850 |
| Restricted share units |
5,820,669 |
| Derivative warrant units |
18,508,727 |
| Equity warrants |
9,912,633 |
Notes:
| 1. | The Company has entered into an agreement with a consultant under which the Company has certain contractual
obligations to grant up to 100,000 restricted Common Shares based on the consultant’s achievement of multiple pre-determined performance criteria. To date, the performance criteria have not been achieved and no restricted Common Shares have been granted to the consultant.
The agreement expired on May 13, 2022. |
| MANAGEMENT DISCUSSION AND ANALYSIS | 20 |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
A description of the Company’s significant
accounting policies are included in Note 2 of the Company’s audited consolidated financial statements for the year ended December
31, 2021.
The preparation of the Consolidated Financial
Statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting
periods. Management has identified accounting estimates that it believes are most critical to understanding the Consolidated Financial
Statements and those that require the application of management’s most subjective judgments, often requiring the need to make estimates
about the effect of matters that are inherently uncertain and may change in subsequent periods. The Company’s actual results could
differ from these estimates and such differences could be material.
Financial statement items subject to significant
judgement include, (a) incremental borrowing rate used to measure lease liabilities, (b) the fair value estimate of the measurement of
lease, warrant derivative liabilities and the note payable, and (c) the assessment of the Company’s ability to meet its obligations
as they come due. While management believes that the estimates and assumptions are reasonable, actual results may differ.
RELATED PARTY TRANSACTIONS
During the three and six months ended June 30,
2022, and June 30, 2021, transactions between the Company and directors, officers and other related parties were related to compensation
matters in the normal course of operations and are measured at the fair value, which is the amount of consideration established and agreed
to by the related parties.
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist
of cash and cash equivalents, accounts payable and accrued liabilities and the warrant derivative liability. The fair value of these financial
instruments approximates their carrying values, unless otherwise noted, due to the short-term maturities of these instruments, the discount
rate applied or in the case of the warrant liability, due to the application of mark-to-market policy.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for the design of internal
controls over financial reporting (“ICFR”) within the Company, in order to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
National Instrument 52-109 – Certification
of Disclsoure in Issuers’ Annual and Interim Filings requires the Chief Executive Officer and Chief Financial Officer to certify
that they are responsible for establishing and maintaining ICFR for the Company and that those internal controls have been designed and
are effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS. The Chief Executive Officer and Chief Financial Officer are also responsible for disclosing
any changes to the internal controls for the Company that have materially affected, or are reasonably likely to materially affect, the
Company’s ICFR.
| MANAGEMENT DISCUSSION AND ANALYSIS | 21 |
Management, including the Chief Executive Officer
and Chief Financial Officer, does not expect that the internal controls over financial reporting of the Company will prevent or detect
all errors and all fraud or will be effective under all potential future conditions. A control system is subject to inherent limitations
and, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives
will be met.
Further, the design of a control system must reflect
that there are resource constraints, and the benefits of controls must be considered relative to their costs. Inherent limitations include
the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls
can also be circumvented by individual acts of some persons, by collusion of two or more people or by management override of the controls.
Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
The design of any control system is also based in part upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under all potential conditions. Projections of any evaluations
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
There have been no changes in the ICFR of the
Company during the period of this MD&A that have materially affected, or are reasonably likely to materially affect, the Company’s
ICFR.
RISK FACTORS
For a detailed description of risk factors associated
with the Company, refer to the “Risk Factors” section of the annual report on Form 20-F, which is available on SEDAR at www.sedar.com
and EDGAR at www.sec.gov.
An investment in the Company’s securities
is speculative and involves a high degree of risk due to the nature of the Company’s business. It is recommended that investors
consult with their own professional advisors before investing in the Company’s securities.
| MANAGEMENT DISCUSSION AND ANALYSIS | 22 |
