Vicarious Surgical Calls Layoffs a ‘Calculated Risk’

Vicarious Surgical is taking what management calls a "calculated risk" by trimming 14% of its workforce in addition to other spending cuts.

The news comes just a couple months after Vicarious unveiled a finalized Beta 2 version of its surgical robotics system in December. The Waltham, MA-based company is currently working on a version 1.0 of the system, which involves some design changes to the system arms, patient cart docking, and the approach to access. Vicarious expects to finalize this version of the system in the first half of 2023.

Vicarious is developing a surgical robotics system that combines human-like mechanical arms with virtual reality technology designed to virtually “transport surgeons inside the patient when performing minimally invasive surgery.” FDA granted the system a breakthrough device designation in December 2019.

Vicarious went public in 2021 through a $1.1 billion special purpose acquisition corporation (SPAC) merger with D8 Holdings. But the global shortage of semiconductor chips has been tough on Vicarious since the SPAC deal closed.

"We are operating in a very different economy than two years ago when we took our company public," said CEO Adam Sachs. "The cost of capital has dramatically increased, particularly for pre-revenue and emerging growth companies and thus, the meaning of efficient use of capital has dramatically changed as well."

Previously the company's strategy was to mitigate risk around the supply chain by working on parallel pathing systems around verification and validation to ensure success on the first try, he explained. That effectively minimized risk in Vicarious Surgical's projected regulatory timeline, Sachs said.

"And in the current market environment with the current cost of capital, it makes a lot more sense for us to take some modest amount of additional timeline risk and bet on success around our initial design, and bet on our own team to be able to quickly fix any issues that may come up," Sachs said, according to SeekingAlpha transcripts of Vicarious Surgical's earnings call earlier this week.

To that end, Vicarious has streamlined its internal teams via a "measurable reduction in total headcount," Sachs said, predominantly across selling, general, and administrative (SG&A) operations. He said the company has reduced external spending as well.

"In this way, we are reducing our burn while focusing investment on our critical business initiatives," Sachs said. "While we have intentionally structured these changes to preserve our development and regulatory timelines, understand that the reduction in resources, specifically the reduction of future planned spending, does naturally introduce additional timeline risk."

Medtech analysts, including BTIG's Ryan Zimmerman, did not seem overly phased by Vicarious Surgical's cuts.

"Frankly, we think some of the hiring in anticipation of a launch in FY25 may have been premature, so if [Vicarious Surgical] can operate in a leaner fashion and still make its timelines, we think investors should be okay with this," Zimmerman wrote in a report Monday.

As for the design changes from Beta 2 to version 1.0 of the surgical robotics system, Sachs said they are not major changes.

"In each of these changes, both Beta 1 to Beta 2, and Beta 2 to version 1.0, we are really thoughtful about not just the surgeon and hospital feedback, but also ensuring that any impact that it might have on regulatory submission is, frankly, positive," Sachs said. "And the entire process of collecting all of this surgeon feedback is part of the formatted process that minimizes risk during the clearance as well."