Note 1 - Business Overview

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

1. Business Overview

Overview

TransEnterix, Inc. is a medical device company that is digitizing the interface between the surgeon and the patient in laparoscopy to increase control and reduce surgical variability in today’s value-based healthcare environment. It is focused on the market development for and commercialization of the Senhance® Surgical System, which digitizes laparoscopic minimally invasive surgery, or MIS. The Senhance Surgical System is the first and only digital, multi-port laparoscopic platform designed to maintain laparoscopic MIS standards while providing digital benefits such as haptic feedback, robotic precision, comfortable ergonomics, advanced instrumentation including 3 millimeter microlaparoscopic instruments, eye-sensing camera control and fully-reusable standard instruments to help maintain per-procedure costs similar to traditional laparoscopy.

The Company believes that future outcomes of minimally invasive surgery will be enhanced through its combination of more advanced tools and robotic functionality, which are designed to empower surgeons with improved precision, ergonomics, dexterity and visualization; offer high patient satisfaction and enable a desirable post-operative recovery; and provide a cost-effective robotic system, compared to existing alternatives today, for a wide range of clinical applications and operative sites within the healthcare system.

The Senhance System is commercially available in Europe, the United States, Japan and select other countries.

• The Senhance System has a CE Mark in Europe for adult and pediatric laparoscopic abdominal and pelvic surgery, as well as limited thoracic surgeries excluding cardiac and vascular surgery.

• In the United States, the Company has received 510(k) clearance from the FDA for use of the Senhance System in laparoscopic colorectal and gynecologic surgery in a total of 28 indicated procedures, including benign and oncologic procedures, laparoscopic inguinal hernia and laparoscopic cholecystectomy (gallbladder removal) surgery.

• In Japan, the Company has received regulatory approval and reimbursement for 98 laparoscopic procedures.

Over the past 24 months, the Company successfully obtained FDA clearance and CE Mark for its 3 millimeter diameter instruments, its Senhance ultrasonic system, its 3 millimeter and 5 millimeter hooks, and the Senhance articulating system. The 3 millimeter instruments enable the Senhance System to be used for microlaparoscopic surgeries, allowing for tiny incisions. The ultrasonic system is an advanced energy device used to deliver controlled energy to ligate and divide tissue, while minimizing thermal injury to surrounding structures. The Senhance articulating system was launched in Europe in November 2019 and the Company is evaluating its pathway forward to launch such a system in the United States with a planned submission for U.S. clearance in the first quarter of 2021.

In January 2020, the Company submitted an application to the FDA seeking clearance of the first machine vision system for its robotic surgery unit named Intelligent Surgical Unit (ISU™). The Intelligent Surgical Unit was developed using the image analytics technology acquired from MST in the fourth quarter of 2018. The Company believes it is the first such FDA submission seeking clearance for machine vision technology in abdominal robotic surgery. On March 13, 2020, the Company announced that it had received FDA clearance for the Intelligent Surgical Unit.

The Company continues to make additional submissions for clearance or approval for enhancements to the Senhance System and related instruments and accessories, including additional filings and approvals sought in Japan.

The Company is implementing its strategy to place Senhance Systems with customers pursuant to leasing arrangements and to work with its customers to increase utilization. As of July 31, 2020, the Company has installed six Senhance Systems, including one in July 2020.

Risks and Uncertainties

The Company is subject to risks similar to other similarly sized companies in the medical device industry. These risks include, without limitation: potential negative impacts on the Company's operations caused by the COVID-19 pandemic; the Company’s ability to continue as a going concern; the historical lack of profitability; the Company’s ability to raise additional capital; the success of its market development efforts, the liquidity and capital resources of its partners; its ability to successfully develop, clinically test and commercialize its products; the timing and outcome of the regulatory review process for its products; changes in the health care and regulatory environments of the United States, the United Kingdom, the European Union, Japan, Taiwan and other countries in which the Company operates or intends to operate; its ability to attract and retain key management, marketing and scientific personnel; its ability to successfully prepare, file, prosecute, maintain, defend and enforce patent claims and other intellectual property rights; its ability to successfully transition from a research and development company to a marketing, sales and distribution concern; competition in the market for robotic surgical devices; and its ability to identify and pursue development of additional products.

In 2020, the Company is focusing its marketing efforts on markets with high utilization of laparoscopic techniques, including Japan, Western Europe and the United States. Its focus is on (1) increasing the number of placements of the Senhance System, not necessarily through sales, but through leasing arrangements, (2) increasing the number of procedures conducted using the Senhance System quarter over quarter, and (3) solidifying key opinion leader support and publications related to the use of the Senhance System in laparoscopic procedures. During this period the Company is not focusing on revenue targets. As further discussed in this Quarterly Report on Form 10-Q, the COVID-19 pandemic has had a significant impact on the Company’s operations, primarily due to the temporary cessation of elective surgical procedures in many markets, and the challenges and restrictions caused by stay-at-home orders, social distancing requirements and travel restrictions.

During the fourth quarter of 2019, the Company announced the implementation of a restructuring plan to reduce operating expenses as it continues the global market development of the Senhance platform. Under the restructuring plan, it reduced headcount primarily in the sales and marketing functions and determined that the carrying value of its inventory exceeded the net realizable value due to a decrease in expected sales. The restructuring charges amounted to $8.8 million, of which $7.4 million was an inventory write down and was included in cost of product revenue and $1.4 million related to employee severance costs and was included as restructuring and other charges in the condensed consolidated statements of operations and comprehensive loss during the fourth quarter of 2019. During the first half of 2020, the Company continued its restructuring with additional headcount reductions which resulted in $0.9 million related to severance costs which were or are expected to be paid in 2020. The total amount of accrued and unpaid restructuring costs as of June 30, 2020 is $1.0 million and is included in accrued expense in the accompanying unaudited condensed consolidated balance sheet.

With respect to the COVID-19 pandemic, the Company has taken steps, and will continue to take further actions, in its approach to minimizing the impact of the COVID-19 pandemic on its business. In March 2020, to ensure the health and well-being of its employees, the Company implemented work from home at all its facilities, which restrictions were lifted in part in June 2020. The Company has also implemented cost containment strategies across all areas of the organization, including continued curtailment of Company travel, canceling of trade shows for 2020 and temporary salary reductions for its senior management and certain groups of its field-based employees. The Senhance Systems are manufactured at a contract manufacturing facility in Milan. Due to the quarantine in Northern Italy, the assembly of new units was disrupted, but has returned to normal operating levels. A variety of travel restrictions have caused a delay in the Company’s product installation and training activities. During the second quarter of 2020, the Company has seen elective surgical procedures recommence in the United States, Europe and Japan, but not, to date, to the levels seen before the COVID-19 pandemic. This has significantly impacted the Company’s ability to implement our market development activities to place our Senhance Systems, provide training, and increase the use of the Senhance Systems in place. Given the dynamic nature of this health emergency, the full impact of the COVID-19 pandemic on the Company’s ongoing business, results of operations and overall financial performance cannot be reasonably estimated at this time.