Good afternoon, and welcome to Vicarious Surgical's third quarter 2023 earnings conference call. My name is Kate, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Kaitlyn Brosco with Vicarious Surgical for a few introductory comments.
Thanks, Kate, and thank you all for participating in today's call. Earlier today, Vicarious Surgical released financial results for the three months ended September 30th, 2023. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements.
All forward-looking statements, including without limitation, those relating to obtaining approval for the Vicarious Surgical System and timing for any such approval, our operating trends and future financial performance, expense management, market opportunity, and commercialization, are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors set forth in our Securities and Exchange Commission filings, including our most recent Form 10-K and Form 10-Q. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 13th, 2023.
Vicarious Surgical disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. With that, I'll now turn the call over to Adam Sachs, Chief Executive Officer.
Thanks, Kate, and thank you everyone for joining us. The third quarter brought several successes for our business, but also introduced new challenges. Our successes included the announcement of our fourth hospital system partnership with Intermountain Health, as well as completing a $47 million equity follow-on offering that significantly bolstered our balance sheet and meaningfully extended our cash runway. Further, we were pleased with the significant progress made within the individual V1.0 subsystem builds. Currently, our surgeon console, patient cart, robotic instruments, and camera components are all built and functioning as subsystems. Conversely, we also experienced some setbacks. Challenging market conditions and their resulting pressure on our business drove us to make the difficult decision to once again downsize our team and reduce future plan spending in order to prioritize capital efficiency and better ensure our long-term success.
Additionally, as we entered the initial system integration process, we identified certain software and hardware components of the V1.0 system that will require additional development efforts in order to ensure system compliance, reliability, and safety ahead of formal verification and validation testing. With the impact of the cost-cutting initiatives, combined with some integration challenges, we predict a 12- 18 month delay in the overall program. We believe this will ultimately push the completion of the V1.0 build and integration to fall of 2024, and our De Novo submission to early to mid-2026. Developing a surgical robot is complex and capital intensive. It involves building multiple medical devices and integrating them as one to perform precise procedures safely and reliably. But we always have been and remain committed to delivering the best product possible for surgeons and hospitals.
We understand the importance of this announcement and will continue to provide updates as we progress through the integration process and address existing software and hardware challenges. We have a powerfully differentiated technology and a unique opportunity to revolutionize robotic surgery. Over the recent months, we've had the opportunity to attend medical meetings such as the American Hernia Society, as well as our internal hospital partner summits. Throughout these engagements, one common theme emerged: surgeons and hospitals are hungry for a new, truly differentiated surgical platform, and even more importantly, there is strong excitement around the unique Vicarious Surgical offering. Despite our recent challenges, I continue to be enthusiastic about our mission and our potential to improve patient lives. With that, I will now turn the call over to Bill Kelly to review our financial performance.
Thanks, Adam. Over the course of this year, we have taken the necessary steps to appropriately adjust our costs to better align with the challenging economic conditions we and other similarly staged companies have been and are continuing to experience. That being the case, total operating expenses for the third quarter of 2023 were down slightly at $21.4 million compared to $22.2 million in the third quarter of 2022. General and administrative expenses, as well as sales and marketing expenses, were down year-over-year. G&A expenses in the third quarter were $6.9 million, compared to $8.1 million in the prior year quarter, and sales and marketing expenses were $1.4 million in the third quarter, compared to $1.9 million in the third quarter of 2022.
The only operating expense line item up year-over-year was R&D, as we continue to invest in the critical product development aspects of our business. R&D expenses for the third quarter were $13 million, up 8% compared to $12.1 million in the prior year. GAAP net loss for the third quarter was $15.7 million, equating to a net loss of $0.10 per share. This compares to a net loss of $24.7 million, or a net loss of $0.20 per share, respectively, for the same period in the prior year.
Adjusted net loss for the third quarter of 2023 was $20.4 million, equating to an adjusted net loss of $0.12 per share, as compared to an adjusted net loss of $21.7 million, or an adjusted net loss of $0.18 per share for the same period in the prior year. For a reconciliation of all non-GAAP measures to GAAP, please review our earnings press release. At the end of the third quarter, cash, cash equivalents, and short-term investments were approximately $110 million, including the $47 million in gross follow-on proceeds. Excluding these proceeds, third quarter cash burn was $16.8 million, and we now expect full year 2023 cash burn to be between $60 million and $65 million, which is on the higher end of our previously communicated guidance range.
Taking into account our recent cost-cutting initiatives, we now estimate preliminary full year 2024 cash burn to be between $40 million and $55 million and cash runway out to Q1 2026. I'll again reiterate Adam's sentiment that the third quarter brought both new successes and challenges for the business. But we remain committed to acting in the best interest of shareholders, and therefore, have taken the necessary steps to better position the company to be successful in the long run. I'll now turn the call back over to Adam for closing remarks.
Thank you, Bill. I'd like to close by thanking all Vicarious Surgical employees for their hard work and dedication. Although there are still challenges that remain, I am confident that our team will rise to the occasion and deliver an exceptional product. There is still much to be excited about. With that, we'll be happy to take questions. Kate?
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by a one on your telephone keypad. If for any reason you would like to remove your question, please press star followed by a two. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Again, to ask a question, it is star followed by a one. The first question will be from the line of Ryan Zimmerman with BTIG. Your line is now open.
Oh, thanks for taking my question. Good afternoon. So I guess to start, I wonder if we can kinda walk through the milestones with the impact of timing in terms of a clinical trial, you know, when you expect to complete that, and most importantly, do you think you have sufficient cash to get through that trial, based on the timing you just said, Bill, first quarter 2026, before you submit for your de novo clearance?
Thanks, for the question, Ryan. So to start, with the milestones that we're looking at, into the near future, some of the most important milestones that we'll be having, over just the next 12 months will be around our V1.0 system. So, you know, we're in the midst of integration right now. We're hitting some speed bumps as we bring all of these subsystems together, but we expect them to be up and running fairly shortly, and we'll be doing our first cadaver procedures with the system next spring. We're then thinking that, likely we'll have some remediation to perform with our system, and, we'll be doing that over the summer. And that's all in anticipation of, our first clinical patient and our first clinical use, which will be in, mid- to late 2025.
So that's getting pushed back approximately 12 months. And that'll all be with multiple clinical patients that following that in our OUS clinical trial, and then an FDA de novo submission in early to mid-2026. And before I hand it over to Bill, I also like to emphasize that in the entire goal of these changes was to make our company significantly more efficient and more streamlined, to give us to get us as far as possible with the capital that we have, given our current market cap and the huge change in ratio of burn to market cap that occurred over the last quarter. So, Bill.
Yeah, just to echo that, I think we want to make sure that we remain, you know, prudent with our, with our fiscal spend, and that's really the lens that we, you know, continue to look at our spending this quarter, as we always do. So as we have been giving guidance that, you know, cash burn will be $40 million-$55 million in 2024, that should get us into 2026, as well.
Okay. Then just more specifically, what did you cut back on? And just, you know, going from 60-65 down to 40-55, you know, what's that, what's the delta that you're giving up there?
So we made pretty significant cuts to our team as well as to external spending. Within, you know, our team, we've had a very large change over the course of this year, including two reductions overall to the total team size. The first reduction, as you'll recall, was really targeted at non-R&D functions and then decreasing external R&D spending. And then this was significantly R&D functions as well as significant outsourced R&D spending, that was throughout the budget. Most of the functions that we've cut are functions that are parallel effort functions, where we're working on remediating things that we expect to come up, taking the top 10 issues or areas like that, and coming up with remediations in anticipation of challenges.
Instead, we're gonna do this in a much more serial, more capital efficient, but slower method of waiting till the issues come up and then remediating them at that time.
Okay, got it. Thanks for taking the question.
Thank you. The next question will be from the line of Adam Maeder with Piper Sandler. Your line is now open.
Hi, guys. Thank you for taking the questions here. Maybe just to start, I guess the first one would be following on Ryan's question just on cash runway, and maybe I'll ask it a little bit different. But the IDE study for ventral hernia, do you guys have any kind of just rough ring fence around spend there? I mean, how do we think about the cost of that study? And then I'd have a follow-up or two.
Yeah, we haven't given the external guidance on what that would be, but as we have talked about, it's going to be about a 30-60 patient trial, probably closer to the 30 side, hopefully. So it's within the guidance that we would have burned that we provided here. It's not. It's probably less than a month's worth of burn.
Okay. Okay, that's helpful, Bill. Thank you for that. And then I guess just in terms of the integration process and trying to better understand exactly kind of some of the, you know, the bottlenecks or speed bumps that you're hitting, I heard comments referring to both, you know, software and hardware components. Maybe just flesh that out for us in a little bit more detail and what's being done to remedy those. Thanks.
Yeah. So, you know, the V1.0 System, you know, as we've mentioned in the past, is kind of ground up rearchitecting of the Beta 2 system. The Beta 2 was, you know, the kind of final prototype, had all the functionality we needed, got rave reviews from our hospital partners and surgeons, and over the course of the last year and a half, has been rearchitected and redesigned into the V1.0 System that we have today. That system, the way to think about it is, it's somewhere around eight or so, depending on how you slice it, different fairly complex medical devices, you know, patient cart, surgeon console, arms, the GUI, the camera, et cetera. And each of those has been designed by their own subsystem team, brought up, and is running effectively.
As they're all being integrated together, hence we use the term integration phase, we're starting to encounter some bugs and some issues across the system. So, excuse me, overall, most components are functioning effectively, but we're starting to encounter some software challenges, which are then, you know, as things come up, uncovering some hardware challenges. They're nothing that's particularly significant. Hence why, you know, we're looking at, instead of around now, having it integrated, looking at next spring. So really just a one or probably two two-quarter delay there, and the rest being the anticipated impact of reduced spending and our inability to preemptively resolve challenges that come up.
That's helpful color. Thanks, Adam. And if I could just sneak in one more, another kind of follow-on to Ryan's question, just around the organization. You know, can you be a little bit more specific in terms of what the R&D org looks like, you know, kind of at the beginning of the year versus where we are today? Just trying to get a better understanding for kind of the magnitude of the reduction, and how many folks are currently working on the development of the system. Thank you for taking the questions.
Yeah, I don't have the exact numbers in front of me, but it is, we started the year ballpark of 230 people, and have reduced to about 130. And that is just the internal. We obviously indexed more on external reduction than internal reduction for capital efficiency reasons.
Yeah, I would say if you look at, you know, people touching the product between operations, quality, R&D, all those sorts of things, it's probably, you know, 70%-75% of the business are people touching the product, still in this reduced time.
Thanks for the color, guys.
Yeah, thanks for the question.
Thank you. The next question will be from the line of Josh Jennings with TD Cowen. Your line is now open.
Hi, good afternoon. Thank you. I was hoping, Adam and Bill, just to ask about verification and validation testing. And I know there's a process, and you mapped out these timelines, that includes V&V, I'm assuming. But I guess, where does that stand? And is there any timeline specifically for verification and validation, I guess? And then the real point of the question is to ask about on the manufacturing side. My understanding is V&V, the agency has to get comfortable manufacturing systems are in place, and where does that stand today? And then when do you plan to have V&V done and then manufacturing in a place where you can move forward?
Yeah, it's a really good question. So, you know, some of the kind of timeline after V1.0 is integrated and up and running, it is all about verification and validation. It, you know, begins less formal and with subsystems, and then, you know, culminates in summative testing, which is kind of the end of system-level validation for the product. So, you know, the way to think about most of the work that we'll be doing, any remediations after next spring, it is all about the system, how it performs in our kind of preliminary V&V testing that we perform on the subsystems, evaluating that, finding any issues that might occur in V&V, and then, burning those issues down and remediating them in order to decrease risk of the V&V process.
So one of the sub-benefits, if I can call it that, of the timeline shift here is decreasing some of the risk and pulling some of the risk out of the V&V process, and into the earlier process of these remediations in the V1.0 build. As far as manufacturing, that is part of what needs to be all in place, and we are well underway with our CM partners as well as internally in order to build all of that out. So especially given, you know, what we're discussing on today's call, I certainly don't anticipate any challenges with that from a timeline perspective.
Excellent. Then wanted to just ask about the integration challenges and where you stood earlier in the year in terms of locking in on 1.0 and the design and the go forward. Does this delay, was it caused or is there an opportunity to explore differentiated visualization, sensing or data collection enhancements for the system relative to where you started? Or is this, you know, continue down the line in terms of what you'd locked in from a design standpoint for 1.0 earlier in the year? Thanks for taking the questions.
Yeah, it's a fair question. You know, there's a lot of things that we're really excited about, as you guys know, from an advanced visualization standpoint. We're making sure that we can roll all of those things in shortly after our initial launch. That being said, you know, given the reduction in resources, our focus right now is almost entirely on remediating any of the challenges that we've faced and then setting ourselves up for success through the V&V process and through FDA authorization.
Understood. Thank you.
Thank you. The next question will be from the line of Caitlin Cronin with Canaccord Genuity. Your line is now open.
Hi, thanks for taking the questions. Just to start off, in terms of, you know, clinical trial plans, are there any changes for your plans for pursuing other indications?
No, not at this time, other than, you know, that would be obviously expected with the timeline change, that we're discussing. You know, we're still going to pursue other indications as quickly as we can. Frankly, the OUS opportunity gives us the ability to do that significantly more easily, and we are taking the extra time that we have now with our clinical engineering team to evaluate all these other procedures and really build them as best we can in anticipation of that.
Got it. Okay. And then, you know, any kind of risk to current or future hospital or surgeon partnerships, given kind of this delayed timeline?
Yeah, I think the risk is relatively low, but, you know, there is always some risk. It's a competitive market. That being said, you know, our hospital partners have been incredibly supportive of what we're doing. What we're doing remains very differentiated. And frankly, you know, my personal biggest disappointment in taking extra time here is that it will take that much longer for us to be able to deliver this really important product for our hospital and surgeon partners that need it.
Got it. Thanks for taking the questions.
Yeah, thank you.
Thank you. At this time, there are no additional questions registered in the queue, so that will conclude today's Q&A session, as well as today's conference call. Thank you all for your participation, and you may now disconnect your lines.