Q2 2020 Clearpoint Neuro Inc Earnings Call
[music] greetings and welcome to Clearpointt Nooros second quarter and.
Six months 2020 financial results conference call.
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A question answer session will follow the formal presentation.
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Comments made on this call may include statements that are forward looking within the meaning of securities laws.
These forward looking statements may include without limitation statements related to anticipated industry trends, the company's plans prospects and strategies, both preliminary and projected.
And management's expectations beliefs estimates or projections regarding future results of operations.
Actual results or trends could differ materially.
The company undertakes no obligation to revise forward looking statements for new information or future events.
More information please refer to the company's annual report on form 10-K for the year ended December 30, Onest 2019th.
And the company's quarterly report on form 10-Q, four the quarter ended March 31st Twentytwenty.
Both of which had been filed with the Securities Exchange Commission.
And the company's quarterly report on form 10-Q, four the quarter ended June Thirtyth Twentytwenty.
Which the company intends to file with the Securities and Exchange Commission on or before August 14th 2020.
All the company's filings may be obtained from the FCC or the company's website at www Dot Clearpointt neuro dot com.
I would now like turn the call over to Joe Burnett Chief Executive Officer. Please go ahead Sir.
Thank you Brad and thank you everyone listening on todays call.
The second quarter of 2020 brought about new personal and professional challenges to the entire world and we here at Clearpointt Neuro were no exception.
Our priorities during the second quarter for the company and for our team in culture, where threefold.
Number one to make sure that every patient that needed treatment felt supported by the availability of clearpointt products and our team members.
We wanted to ensure that surgeries performed during coated restrictions gave the patient the bad possible chance of success.
Number two well cases decreased in the quarter, we wanted to ensure our development projects and investments in our talented team continue to move forward. So that our strategy is intact and said that we exit the crisis in a stronger position then when when the pandemic started.
And number three to protect our employees are layoffs or furloughs. So that they can be a pillar of strange friends and family you have all been impacted by the health or financial impact of the crisis I can tell you now today that we accomplish all three of these goals during the second quarter.
In parallel to achieving these three cultural goals, we believe our financial performance indicates that we made the most of the situation and we were encouraged by the speed and what you're Lucky keeps procedures back bounced back in June to about 85% of the pre trial good run rate.
This combined with our diversification into biologics and drug delivery enable that they still have the successful quarter for my financial standpoint, and delivered $2.5 million in topline revenue.
I will have how hurwitz, our CFO take you through some of the detail and then I will provide an update on our four pillar growth strategy and expectations moving forward.
Thanks, Joe.
Total revenues were $2.5 million for the three months ended June 30 2020.
And $2.6 million for the three months ended June 30, 29 gene, which represents a decrease of $129000 were 5%.
Drilling down on these revenue numbers, one can see the effects of the cobot 19 endemic the Joe described in his opening remarks.
Functional neurosurgery revenue, which consists of disposable product commercial sales related to cases, using our clearpointt system decreased 38% to $1 million for the three months ended June 30, Twentytwenty from $1.7 million for the same period and 29 team.
This decrease was due to the effects of the covert 19 pandemic in which substantially all electric surgical procedures.
Starkly, representing approximately 80% of our Clearpointt system case volume were postponed or canceled in April 2020, and resumed modestly compared to pre pandemic levels in may and June 2020.
Biologics in drug delivery revenues, which include sales disposable products and services related to customer sponsored clinical trials utilizing the clearpointt system.
Increased 183% to $1.2 million for the three months ended June 30 2020.
From $413000 are the same period in 2019.
This increase was due primarily to an increase in biologic and drug delivery service revenues attributable to the establishment of relationships with biologic and drug delivery companies that included period based retainers preclinical services in support of such companies respective clinical trials.
Also contributing to the increase in biologics and drug delivery revenues was an increase in related product revenues.
Capital equipment revenue consisting of the sales of Clearpointt reuse of both hardware and software and services related there are two decreased 51% to $240000 for the three months ended June 30 2020.
$485000 for the same period and 29 team.
While revenues from this product line historically have varied from quarter to quarter. We believe that many hospitals have post on capital equipment, <unk> evaluations and acquisition activities during the pandemic, resulting in this decrease.
Gross margin for the three months ended June 30, 2020 was 74%.
That's compared to 60% for the same period and 29 team.
This increase in gross margin was due primarily to a shift in the mix of revenues by line of business that resulted in service revenues, which bear higher gross margins in comparison to other product lines, representing a greater contribution to total sales.
Turning to operating expenses total operating expenses for the three months ended June 30, 2020 were $3.3 million, a 15% increase from operating expenses of $2.9 million for the same period and 29 team.
Breaking down the components of the operating expenses.
Research and development costs were $822000 for the three months ended June 30, 2020 compared to $698000 to the same period and 29 team an increase of 18%.
The increase was due primarily to increases in head count and related personnel costs.
Sales and marketing expenses were $1.1 billion for each of the three months ended June 30, 2020 and 2019.
Travel and entertainment expenses decreased during the three months ended June 30, 2020 as compared to the same period in 2019, resulting primarily from reduced activity due to the covert 19 pandemic.
Also decreasing was incentive compensation, resulting from the reduced product sales I previously discussed.
These decreases were offset by an increase in personnel costs, resulting primarily from head count increases in our clinical and marketing teams.
General and administrative expenses were $1.4 million for the three months ended June 30, 2020 compared to $1 million for the same period in 2019.
An increase of 33%.
This increase was due primarily to increases in share based compensation.
Additional fees and a reduction of the allocation of shared departmental resources to production due to the reduced manufacturing activity hasn't affected the Coca 19 pandemic.
Net interest expense for the three months ended June 30, 2020 was $197000.
Compared with $259000 for the same period in 2019.
This decrease was primarily due to a decrease in the amortization of the discount associated with secured notes that were repaid and retired in the first quarter of 2020.
And to the repayment in retirement in June 2019, other secured notes.
This decrease was partially offset by the interest expense associated with the secured notes issued in January 2020.
Cash used in operations for the three months ended June 30, 2020 was $1.7 million.
And our cash balance at June 30, 20, Twond, who was $16 million.
I will now turn the call back to Joe.
Thanks Al.
Hope you can see we believe we had a strong quarter performance certainly compared to how things look back in April of this year.
However, we are cognizant that new challenges lie ahead as a direct result of the continuing of a 19 pandemic and we will continue to focus on patient support and pipeline execution in the month ahead.
Starting with our first pillar of growth in functional neurosurgery, we continue to see that case volume has not yet returned to pre cobot levels and we do not expect a full return the foreseeable future for the following reasons.
Number one the virus continues to spread to many regional hospitals, which remain at risk to against the spend elective procedures for some duration of time.
We currently have a handful of hospitals that have in fact reduced procedure volume in preparation of protecting ventilators and hospital beds in the invented the case influx.
While we do not expect a drastic change in practices as we had seen from March to May of this year, we do expect continued openings in clothing.
Number two patients have to maneuver a series of testing before becoming candidates for surgery with our products.
While in the past month, we have enjoyed an increase in surgical procedures, we need to remember that in March through may of this year. Many patients were not able to see their neurologists during that time to do the crocker testing in preparation of a surgery.
Those meetings are again, taking place, but we do expect a lull in cases as the patient destined for surgery continue to undergo the appropriate preliminary study.
And finally, our case volume continues to be centered around 60 active clinical sites in the United States. Today. She had one of these sensors or one of our high volume users be impacted directly by kind of it. It can in fact slow down the returns of these pre covered levels. We must also remember that the patient plays an important role in the decision to move forward with us.
Surgery, as well and as many of our patients are being treated for all high risk categories like Parkinson's disease. It is not uncommon that patients may change their mind on their surgery, the day before or even today.
As al mentioned in his comments, while capital acquisition has not completely stopped there has been a significant pause placed on news site evaluation and purchases.
We did not initiate any new sites for installation in the corner. However, we do maintain a pipeline of more than 20 potential additional placements.
Our team has done a great job, making progress remotely. However, we expect there to be at least a few months before additional placements began and our sales team can pass through meaningful hurdles.
Paul acquisition process.
Our development efforts have not stopped however, and we have made meaningful progress. During this time on our next generation navigation platform and other ancillary products. We look forward to offering continued updates on these programs in the very near future.
For our second pillar biologics in drug delivery, we continue to expand the number and depth of our partnerships in the gene therapy in stem cell state.
While many preclinical and bench testing labs had to shut down for a period of time shipments to these labs have resumed supporting preclinical efforts of more of our more than 20 active relationships.
We also saw a pause in recruitment and enrollment for a number a pivotal studies. However, those cases seem to have started scheduling again.
We've continued our training and talent investment in this space and identified more than five potential development projects currently underway to cement our role as a leading device partner for these exciting biologics company.
Right third pillar therapy project, we've continued to make progress with our laser partner CLS and I GT in Sweden, and France, respectively.
The current interruption, however did impact our ability to progressed through some key clinical milestone based on lab testing availability.
We now believe that we will perform our first human cases, using our complete laser solution sometime in the second half of Twentytwenty one.
As for our fourth pillar, achieving global scale, we've continued to support appropriate regulatory filings in countries requiring CE mark.
The current travel bands in the United States to Europe has again slowed our ability to train and install systems in the quarter at some of these new centers. We do believe however that we will have active clinical sites installed in Europe in the first half of 2021.
Further you can see from the 74% gross margin in the quarter that our disposable and service businesses continue to gain profitability highlighting the validity of our razor razorblade model.
While we do not expect every quarter to have this level of margin at so little capital had been sold we do continue to feel we can gain economies of scale with increased throughput and less travel local clinical specialist as their higher.
With that I would like to open up the call for any question.
Thank you.
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One moment, please while we pull for questions.
Our first question today as from Sallie I guess, a Brookline capital markets. Please proceed with your question.
Oh, Hi, Jello Hao. Thanks, Thanks for joining the call.
Just wondering when I think there's gonna be a resumption of bounce back in the elective surgery.
Teachers I mean.
Oh, I mean fourth quarter next year.
You have any indication or when you think.
Things might resume there.
Oh.
Yeah, Sally that's a it's a very important question and I tried to give a little bit of color that in my prepared statements. I think the reality is that we have in fact seen a bounce back.
Okay, I think a if you look at the monthly results of our case volume. We did 11 aided in April we did 44 in May and then we did 71 in June. So you can see the trend is certainly in the right direction.
However, as I shared with you before there's a number of reasons, where certain hospitals and in certain states that are being hit hard by the covered prices right now can certainly impacts a couple of hospitals shutting down now that the one thing that's not the one thing. There's there is one thing that certainly worked in our favor is that the hospitals that you are procedure.
There are some of them more sophisticated.
Hospital locations in the country Okay.
So if you are thinking about which hospitals youre going to send cobot patients to versus which hospitals, you're going to protect because they do some of the most sophisticated difficult surgeries. In most cases are our equipment is in some of those larger academic centers, which are which do continue to treat them very very sick patient <unk>.
[laughter] masses of various regionally looks like it you know the areas where there.
You know first of the virus that there's going to be.
I was kind of top though I guess.
Yeah, that's right.
And lastly, you know our business is diversified across the country as I shared there were five hospitals right now that are kind of in that red down relative to available hospital bed.
But again you know do you think back the April was 100% of our hospitals and now we're talking about kind of 10% to 15% of our hospitals. So we're definitely moving in the right direction, but we need to recognize that you know this this up endemic is still not under control. So we need to we need to make sure we're conservative in our planning.
The next question is from Andrew Dsilva of B. Riley FBR. Please proceed with your question.
Hi, Thank you very much and I'm glad to share be sounds healthy I. Just a couple of quick ones from me can you just give a little bit of color on how how things are progressing with the two days and then also as it relates to just practices that don't have access yes.
Fairly internally to or am I right are you seeing additional efficiencies coming in there were there they're able to you.
More readily access samurais and utilize qualifying for the procedures.
Yeah sure again I'll answer the first question initially here thanks for the question Andrew.
Our progress on todays is certainly continuing to gain steam.
In fact, I believe we have 16 hospitals right now that have successfully scheduled and warrant to procedures in the same MRI suite in the same day and again one of the most crucial parts of that is not the fact that it can be done, but and reliably unpredictably be done. The last thing you want to do is scheduled to patients.
As for surgery, bringing them and get them emotionally prepared to go through a.
A challenging neurosurgery and important one but the challenging when nonetheless, and then have that first procedure that was only sebesta last for three hours takes six hours and then you have to risk keeping that patient the second patient overnight or sending them home. So it really is a significant milestone when hospitals that have yet I'm, bringing to patient than today to get these procedures.
And as I shared with you I I think at least 16 of our centers today has successfully done that which gives us incredibly confident that theres no reason that all of our centers couldn't do it now well, we'll never get to 100% because some of the hospitals like pediatric hospitals. There just isn't that much demand for these types of procedures, there are fewer and farther between.
But there's no reason for a situation where a hospital I had access to a significant phenolic parkinsons patients. For example are essential tremor patients, where they can't reliably due to procedures a day using using our platform and our training.
That's going to kind of bucket number one.
Bucket number two is that access to MRI include continues to improve as well you know, it's I would estimate at least 20% to 30% of all new MRI systems that go in with a focus on narrow our.
Our in fact, those interactive I'm a rise in the hospitals that we work with and again once an interactive MRI. It's technically an MRI suite that's designed for surgery.
What that means in most cases is the surgical team in fact makes the decision on scheduling not the radiology team and that takes down one significant barrier of MRI access being that the surgical team does not need to negotiate for that time, it's actually reverse where they do surgeries when the patient need.
And then they back fill their own scanner with diagnostic scans when the time as appropriate. So those those two trends are certainly still moving in the right direction.
Okay. That's great color. Thank you very much I was actually just a little bit curious.
And this doesn't need to be specifically about this particular quarter, but just as the cadence goes Medtronic for example has their own MRV MRI guided.
Laser ablation platform that is capable of being news without clearpointt narrows platform, but but I know that it does often get utilized with it.
Have you seen a trend where more and more those kinds of systems are being utilized alongside your platform. Despite the ability to not be utilized not to have to be utilized with it.
Yeah, I would say that our you know the laser ablation market as an interesting one because it's one that you were sort of there from the start you know if you think about deep brain stimulation those procedures have been helping patients for more than 20 years and our technology was not available from the beginning with neural laser ablation you know we had the advantage.
That being there from the start so we feel like we are actually growing with the market if anything maybe growing a little faster than those initial placements I would say our current penetration is about 30% to 35% of all laser ablation procedures use clearpointt and the key reason why that was going to try and attractive.
Jason market for Us and one that we felt we had a credible path to market leadership is because even if the the laser ablation catheter is placed in the operating room and does not use MRI guidance for the placement itself.
Before you can turn the laser on the patient has to be transported to the MRI scanner because the MRI is what delivers the temperature information during the laser ablation part of the procedure. So since our technology is in our home. If you will is is in that and MRI environment, that's where we operate the bat.
If you can do the entire procedure in that one suite without transporting the patient and benefit not just from the accuracy of them or ice for the ablation, but also benefit from the accuracy of am I right for the navigation at the beginning of the procedure. We still we continue to believe that that that's the best option for patients and that's why we felt it was appropriate.
For us to build a pathway to have access to our own laser system, where we can only entire procedure from the beginning to the yen.
Right and then that makes sense and I also like some of the channel checks. We ran stuff that's good to hear and I'm just a couple more more quick ones from me just as it relates to the the whole working remotely situation created by the pandemic.
From a sales and marketing standpoint, and the essential employee protocols at the hospitals, how has your ability to get in front of decision makers.
Ben I I understand that capital equipment purchase things down, but have you been able to at least a adequately talk to who would eventually be able to make those decisions that your targets Chile.
Yes, I think you have and I think hospitals, you know in dealing with the crisis and dealing with uncertainty of capital budget. That's still made their key decision makers accessible, albeit it it'd be a.
Microsoft Microsoft and zoom meetings, and it's certainly not in person. So you know as I tried to mention and some of my remarks, we has absolutely been able to.
To give the football analogy here that but moved the ball down the fielding and kind of move the change. However, there are still a couple substantial milestones that have to be cross before anything could actually lead to a new capital purchase and and arguably the most important one is a successful evaluation. So our typical process is.
We work through the the committees at the hospital, we determine pricing both through capital and disposables, we schedule a time for an install we work with the I see professionals and med device experts and risk assessment and everything else.
And then we offer generally a three month, a evaluation, where we placed our asset at our cost and then the hospital will pay for the disposable products. That's used during the evaluation and provide a devaluation goes well it would transform into a capital purchase at the end of that it's really that evaluation part that we have not been able to.
To perform because hospitals are still running through or kind of pent up demand for some of their other procedures and the thought of bringing a new technology and for evaluation, but some of these uncertainties just hasn't hasn't quite been the priority there still trying to get through their existing technology and and pipeline of patients.
So, let's say that point like I mentioned, a there's at least 20 additional sites that are somewhere in that capital acquisition process that we have been making progress and as soon as we get the green light, we got inventory ready to install it begin these evaluations once again.
The one additional caveat I would mention because it I think you asked an important question as well is that I don't know that that everything returns to normal anytime soon if not ever I think access to hospitals is something that is it would be kind of going to become much more value driven as far.
As which employees of different companies are allowed in the hospital and and that's one thing I'm really proud of our team is that over the past four or five years, we've demonstrated our professionalism weve demonstrated the value that our clinical team adds to each and every case and we have not had a single hospital that has come to us and said that we are not essential personnel in that fashion.
So so we feel that absolutely our channel and our support network is going to continue to have access to these hospitals, you didn't where in some situations where more traditional sales personnel have not been able to do that.
Useful useful color great great great to hear as well and one last question for me well just.
Within health care more broadly, where we're seeing a lot of clinical trials.
Adding additional sites as companies just try to hit a earlier.
Announced enrollment timeline expectations are you seeing that with any of your.
Drug delivery partners right now.
Oh, we absolutely are yeah, I think thats, a a very ongoing conversation and it's a very very delicate balance that we all have to to make between expanding too quickly and then also ensuring that every single patient gets treated and a consistent fashion and then the right way you the more.
Sites, you have less control you kind of have and and I think if anything that has made our our model in the biologics and drug delivery space, even more attractive to some of our partners because number one you know we've demonstrated the ability to get a new site up and running quickly and we can getting new site up and running quickly partially because we don't.
Just train them and then move on we have someone present for every one of those procedures. So it's a constant evolving training process and you have the quality control of having a seasoned professional with eyes on the case throughout the entire procedures. So I think that's one thing that works in our benefit. The second thing is that if you are one of these biologics company.
He is in executing a trial it puts you in a difficult spot because the more sites you expand to the more you have to expand your own team to be able to support those sites and that's why I have shared in the past that we have a service we provide to these companies where if they feel it's appropriate they don't have to higher their own clinical team, but rather they can hire.
Our team as an extension of their own clinical group and we cannot only perform the infusion, but we can help execute the randomization and the protocol itself. So it if anything I think it's putting one of our services and even more demand than it was before because we can help some of these companies to expand quickly at high quality and be able to catch up to some of those milestone.
Sounds and delays that the cobot situation itself.
Interesting dynamics, great Hey, Thank you very much for taking the time and best of luck on Florida.
Okay, that's fair.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
There are no additional questions at this time I would like to turn the call back to Joe Burnout for closing remarks.
Well. Thank you again from the entire Clearpointt team for staying buyer side.
With your help we can continue to give patients with debilitating neurological diseases like Parkinson's disease to tumor and epilepsy. The comfort that they can count on us to receive these truly life changing procedures. Thank you very much and have a good evening.
This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.
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