We appreciate the opportunity to update you on our second quarter's progress and provide some general comments.
The past year has undoubtedly been a challenging one for our industry. Third-party reports trusted by management indicate that approximately 760,240 primary TKA procedures were conducted in the United States in 2020, compared to 884,000 TKA procedures in 2019. This decrease in primary TKA procedures represents a year-over-year decrease in surgical volume from 2019 to 2020 of 14% for primary TKA procedures. While we believe this decrease is transitory and related to the effects of the COVID-19 pandemic, the reduction exceeded our expectations. A silver lining is that year-over-year implant ASPs remained stable and, in some cases, increased slightly.
The most significant macro trend that has directly impacted Monogram is manufacturing lead times. Anecdotally, we are seeing lead times getting pushed across the board. For example, manufacturers that previously quoted 6-8 week turnarounds have been pushing out to 10-12 week deliveries. One of our suppliers had to shut down a manufacturing cell for a short period. We have been actively managing these impacts, but they have impacted some of our development timelines. A positive is that we have been using time delays from hardware bottlenecks to incorporate software features previously planned for the second generation robot release.
In the first six months of 2021, Monogram generated $628,000 in revenue from the sale of licensed implants. The Company has negotiated and executed its strategic objectives with the inventory purchased and will discontinue marketing these products as-is for the foreseeable future. Monogram is actively developing implants that will upgrade features of its licensed implants and incorporate elements from the licensed implants into novel implants.
Notably, as part of this strategy, Monogram is now HIPAA compliant, has implemented a scalable ERP system, and has worked through some of the early kinks often associated with becoming a revenue-generating entity. The past quarter was a terrific "dry run" that has positioned our organization for our novel product launch.
The Company intends to submit a first-generation press-fit implant for FDA approval by Q2 2022. The timing for this FDA submission will depend on the availability of third-party manufactures to prepare our physical inventory to be evaluated by the FDA. The Company does not currently have any manufacturing capabilities itself for what is required by the FDA. As such, we could encounter longer production lead times or supplier disruptions that could materially impact our development timelines, delaying submission beyond Q2 2022. If we cannot submit our FDA submissions in a timely manner, it could adversely affect our financial position and ability to generate sales.
Figure 1: The first-generation press-fit TKA will feature aggressive asymmetric porous coating and is insertable both robotically and with manual instrumentation. We anticipate this product may be competitive with current offerings.
We look forward to exhibiting our products at AAOS in March 2022 for those interested in attending. We invite all of our shareholders to check out our booth (additional details to be announced)!
Monogram has made significant technical progress this quarter. We are exceptionally proud of the team effort made to accomplish our goals. We capped our quarter with a successful end-to-end procedure run on a cadaveric specimen in our lab. The current Monogram surgical workflow is as follows:
a) Pre-operative planning & case management: this workflow generates the patient case file, links it with important patient data (like the CT scan), and generates all necessary patient-specific inputs required for robotic execution. This workflow is highly automated. Our team has trained machine learning algorithms on many thousands of images to auto-identify patient anatomy. Currently, our identification algorithm is nearly perfect (near 100% accuracy), and our segmentation algorithm is getting close (approximately 99% accuracy). Trained operators and the surgeon will review all outputs, but we can minimize risk by implementing these powerful AI tools.
b) Guidance application: this software executes surgeon inputs during the operation. We have implemented registration, soft tissue management, virtual implant placement, and various cut screens. We have devoted significant resources to our guidance application development. This application is how surgeons will interact with our technology, so it must be polished and flawless. A considerable advantage of navigated robotic execution is the ability to help surgeons properly tension ligaments before making cuts via predictive simulations.
Figure 2: The guidance application allows the surgeon to interact with the robot during the case. An advantage of navigated robotics is the ability to balance soft tissues before making cuts.
c) Autonomous robotic execution: with inputs from the surgeon entered through the guidance application, our software autonomously executes optimized bone cuts. We are implementing highly complex patient-specific workflows to facilitate dynamic cut paths that are specific to the patient. As far as we know, competitive systems do not do this. Cut boundaries of competitive systems appear to correspond to the chosen implants (notably to generic implants). We believe this could cause unfinished cuts (for example, the medial posterior portion of tibial resections).
Developing cutting tools that overcome the numerous challenges of active robotic execution has not been easy. For example, vibration is a significantly increased challenge for an active robotic system. When a surgeon is holding the cutting tool, it absorbs considerable vibration, but there is no such damping with active systems. We have prototyped two different novel cutting end-effectors intended to optimize different cut types and applications. We also expect to receive the second build of our robot carts with many design improvements in December.
Ultimately our internal development goal is to commercialize a robotic system that is cheaper and faster than a manual procedure. Stryker has already demonstrated the cost savings vs. manual approaches with Mako (Robotic arm–assisted knee surgery: An economic analysis. (2020). The American Journal of Managed Care, 26(7). https://doi.org/10.37765/ajmc.2020.43763). Our goal is now to push the envelope on cost with cheaper hardware and to overcome, in our view, the most significant barrier to adoption, speed. We have our work cut out for us. Still, if we are to disrupt the orthopedic market by making robotics ubiquitous, it will require significant advances to the current state of the art, especially execution speed. As a benchmark, current robotic systems take on average over an hour to complete a TKA (Kayani, B., Konan, S., Huq, S. S., Tahmassebi, J., & Haddad, F. S. (2018). Robotic-arm assisted total Knee Arthroplasty has a learning curve of seven cases for integration into the surgical workflow but no learning curve effect for accuracy of implant positioning. Knee Surgery, Sports Traumatology, Arthroscopy, 27(4), 1132–1141. https://doi.org/10.1007/s00167-018-5138-5). We believe there are opportunities to streamline robotic execution.
d) Implants: as we shared previously, Monogram is commercializing via a multi-generational product release strategy. We believe it prudent to kick-off our robotic launch with an implant that is insertable both robotically and with manual instrumentation (like every other robotic system today) and similar to devices with which surgeons are familiar. Our robot is the "trojan-horse" for implant sales. Once placed, we believe our robots will facilitate upselling of differentiated novel designs.
Our first-generation Mongoram TKA will capitalize on what we view as one of the most significant growth opportunities in large joint reconstruction, the cementless knee segment. Uncemented TKA's are projected to grow by an estimated 400,000 procedures from 2020-2024 ($1.21 billion). Notably, ASPs on cementless knees are also higher than cemented (about 10% higher). Cementless TKAs accounted for 42% of Stryker's TKA volume in 2020, up from 30% in 2018. Monogram will be starting with a press-fit TKA that we think could be competitive with the current state of the art. We believe we are early to this opportunity (for example, one of the prominent four players doesn't currently have a competitive uncemented TKA). We believe uncemented TKA's is where the market is quickly moving, and we will have a product to address this growing opportunity.
Figure 3: Monogram has licensed the rights and supply pricing cap for the supply of an FDA-approved partial knee. The Company plans to incorporate the partial knee for robotic execution once the TKA application enters V&V.
As mentioned above, the timeline for submitting our first-generation implant is by the second quarter of 2022. We are working extremely hard to improve that timeline. Notably, we have licensed the rights to an FDA approval partial knee. Our development plan is to submit our robot for FDA approval for the total knee application and then submit for a partial knee application as quickly as possible. We should note that our team is also developing manual instrumentation to enhance the marketability of our implant system.
In summary, we have made considerable progress, but work remains. Over the next few months, we expect to file on the order of 4 to 5 additional patents based on our recent learnings. We take heart with every technical headwind we face, knowing this is a challenging and non-trivial exercise to replicate.
Important Next Steps: Monogram intends to selectively reveal our products to significant industry stakeholders over the coming six months. To date, while Monogram has undoubtedly communicated with others in the industry, we have only ever hosted one major strategic in our facility, and that was well over two years ago (before relocating to Austin and building our team). We have our final internal cadaver lab scheduled for the fourth quarter of 2021, after which we intend to reveal our progress to select industry peers strategically in addition to the public. Given the intellectual property and novel approaches to certain technical hurdles, we are thankful to our shareholders for letting the development efforts mature privately and giving us the time and space needed to focus our engineering efforts. We are incredibly grateful for your dedication to our mission. In March 2022, Monogram intends to exhibit at the AAOS meeting.
Thank you to everyone who has joined the Monogram journey. As a management team, we very much appreciate you. We want to make sure all of you are well aware that we expect to continue accessing capital as we work to advance our technology. We think this is a necessary step in building a company with such a complex product. We anticipate a Series-C capital raise will be forthcoming. We believe ongoing access to capital is in the best interest of our shareholders as we continue to devote significant capital resources to our development efforts.
Thank you for your continued support and commitment.
Benjamin Sexson, CEO
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