Q1 2022 Clearpoint Neuro Inc Earnings Call

Greetings and welcome to the Clearpoint Neuro, Inc. First quarter 2022 financial results Conference call.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation if anyone.

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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 managements 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 for more information. Please refer to the company's annual report on Form 10-K for the year ended December 31st 2021.

Which have been filed with the Securities and Exchange Commission and the company's quarterly report on Form 10-Q for the three months ended March 31, 2020 to which the company intends to file with the Securities and Exchange Commission on or before May 16th 2022.

All the company's filings maybe obtained from the FCC or the company's website at www Dot Clearpoint neuro dotcom.

I would now like to turn the call over to Joe Burnett Chief Executive Officer. Please go ahead.

Thank you Rob and thank you to all of the investors and analysts on today's call and your support is important for the entire Clearpoint team as we remain focused on restoring quality of life to patients and their families who are suffering from some of the most debilitating neurological disorders imaginable.

Therefore, it had a strong start to 2020 2022 with record revenue of 5.1 million in the first quarter, representing 25% growth year over year.

This revenue revenue growth was achieved despite continued disruptions due to COVID-19 infections hospital staffing shortages and supply chain constraints, which have become everyday events.

Our team successfully installed for additional clinical systems in the quarter, which is more than we placed in all of 2021, showing capital purchases and placements are starting to return post COVID-19.

Additionally, we made progress across our pipeline of new products and partnerships, which I will provide a more detailed update on as we walk through our four pillar growth strategy a little bit later on the Cogs, but first I will turn this call over to Danilo, our CFO to review our financial performance in the quarter Danilo.

Yeah.

Thank you Joe and thank you all for joining us today.

Looking at the first quarter 2022 results.

Total revenue was $5 million for the three months ended March 31st 2022, and $4 million for the first three months of 2020 months, which represents 25% growth versus the first quarter of 2021.

Our revenue is made up of three components functional neurosurgery navigation therapy, biologic and drug delivery and capital equipment and software.

Functional neurosurgery navigation revenue consists of commercial sales of disposable products and services related to cases, utilizing the clearpoint system to deliver medical device therapy to the proper targets.

This revenue segment increased 17% to $2 $2 million for the first quarter up from 1.9, Maryland in the first quarter of 2021.

Biologic and drug delivery revenue include sales of disposable products and services related to customer sponsored preclinical and clinical trials utilizing our products.

Biologics in drug delivery revenue increased 30% to $2 2 million in the first quarter up from one 7 million in 'twenty 'twenty. One this increase was fueled by a 75% increase in biologic and drug delivery service revenue.

Capital equipment, and softer revenue consisting of sales of Clearpoint reusable hardware and software and related services increased 41% $2.6 million for the first quarter from point $5 million for the same period in 2021, falling our new installations in the first quarter.

Third point and you're right the gross margin of 65% on its sales for the first quarter of 2022 in line with the gross margin recorded in the first quarter of 'twenty one.

Research and development costs were $2 $5 million for the three months ended March 31st 2022, compared to 1.6 months for the same period in 2021, an increase of $1 million or 62%.

The increase was due primarily to increases in personnel costs of $3 million following our growth in head count in our product development costs.

Costs of <unk> 7 million, both resulting from our efforts to expand the applications of our technological platforms.

Sales and marketing expenses were $1 8 million for the first quarter, an increase of <unk> 3 million compared to the same period in 2020 one.

General and administrative expenses were $2 7 million for the first quarter compared to one 7 million for the same period in 2021, an increase of $1 million or 65%. The increase was due primarily to increased share based compensation of point $6 million and personnel cost of <unk> 3 million Boes attributed to increases in head count.

Net interest expense for the three months ended March 31st Twin Twins, who was 0.1 compared to <unk> 3 million for the same period in 2021 due to the converting into equity of two tranches of convertible debt in May 2021 and November 2021.

With respect to our cash position as of March 31st 2022, we held cash and cash equivalent balances of $49 7 million compared to $54 1 million as of December 21.

I'd like to turn now the call back to Joe.

Yeah.

Thanks Danielle.

As I mentioned earlier it was important for clear point to get off to a good start here in 2022, and we did exactly that in the first quarter with record revenue and installs despite challenges with omicron transmission hospital staffing shortages and supply chain to lives that delay is an added cost.

We also made significant progress across our development pipeline and added a number of new product and pharma partnerships.

Now lets break that progress down into our four growth pillars.

First our biologics and drug delivery team continued to add additional partners and services here in the first quarter, increasing our total partner left to approximately 45.

Over the past two years, we have been adding partners at a rate of more than one per month and believe that there are still a significant number of potential partners in neuro and spine that could benefit from clear point hardware software and cannula.

As expected each new partner brings new revenue, particularly early stage service revenue, which grew 75% in the quarter.

As a reminder, a key part of our strategy is to start working with our biologics partners well before they treat their first patient so that we build relationships and familiarity with our products throughout the entire drug development process.

And this segment will continue from four primary sources.

One. The addition of new partners and new indications into our portfolio to provide additional shots on goal and additional sources of revenue.

To the addition of new services that we can provide to partners and become a more valuable provider to these companies that need our specific device expertise.

Three the progression through the development cycle from consulting to bench testing preclinical testing to clinical trials to commercialization each progression, creating larger revenue opportunities for clear point.

And finally number four new creative ways to partner with pharma co development milestones and potential royalties in the future.

If we can continue to grow on all four of these axes.

It will be a very exciting and diversified platform business for us.

We continue to believe that a commercial gene therapy could be achieved in Europe . Later, this year and we expect that more information should become available in the coming months.

And initial therapy approval will be an important milestone for the entire biologics community as regulators continue to define appropriate and achievable pathways to commercial availability.

Now moving to our second pillar, our functional neurosurgery business also showed growth of approximately 17%.

We believe that this number could have been higher in the first quarter and it was impacted by a six week disruption in case volume primarily in January and the first half of February Although our March case volume was our highest monthly total in our history.

Our cancellation and postponing rate remains at historic highs as daily Covid testing for patients surgeons staff and even our own employees routinely identifies a key party to the procedure as Covid positive.

When a patient shows up the day of their surgery, they're administered a COVID-19 test if they test positive the procedure is postponed regardless, if they are asymptomatic or vaccinated.

Similarly, if a surgeon test positive they could be sidelined for weeks.

It's funny all procedures during that time. Unfortunately, we believe this higher postponement rate will continue for the foreseeable future as long as this COVID-19 testing remains a significant requirement.

On the bright side, we did place for new systems here in the first quarter and expect those sites to all perform their first cases in Q2, a couple of which have already become active.

We see this as a positive sign that hospitals are once again committing to capital purchases and importantly, allowing new technologies and vendors access to the hospital for installation and training.

From a pipeline standpoint, we did recently achieve FDA clearance for the Clearpoint arrays 1.1 software, which now includes an important pre planning module to facilitate more efficient planning and data transfer.

The array system is clear points first foray into the operating room environment here, we are going to walk before we run as we focus first on hybrid operating room M. Our suite and will move into full operating procedures in 2023 and beyond.

We had originally planned to do our first cases with the 1.1 software version in the second half of 2022. So this approval came a bit early versus our projected internal timeline.

We have continued development across the rest of our pipeline as well, including the 2.1 clear point software the maestro brain model the orchestra multi trajectory headframe, our co developed any our system in collaboration with Blackrock and our robotic assisted system called Revolution in partnership with D. N K engineering.

We feel that we have an exciting cadence of new and improved products over the next few years, which will continue to demonstrate clear point is one of the true innovative companies in the neurosurgery space.

Our previous timelines remain intact and we continue to expect first cases, a clear point to 0.1 and Maestro software here in 2022.

And the orchestra N E R Revolution, and our brain computer interface navigation system sometime in 2023.

While the team is doing what we can to keep these timelines intact. We do recognize the risks introduced by the global supply chain crisis on raw materials and components.

So far we've been successful in finding solutions to keep projects on track, but as you have heard from many firms in hospitals, there are issues that arise almost daily and our team spends an inordinate amount of time firefighting qualifying new materials and suppliers and making sure that supplying product for current patients is still the number one priority.

For our third pillar, our therapeutic products and access devices. We have continued our development progress and remain on schedule for our previously communicated timelines again.

The Clearpoint exclusive laser ablation system that is in development with CLS in Sweden continues to make progress and has been submitted to the FDA for review.

We remain on track for a first human cases before it performs later this year.

We have received our first inventory of access drill solutions from <unk> and expect to enter a full market release of the operating room version of the drill in 2022.

Similarly, we remain on track to evaluate prototypes of the MRI conditional version in 2022 with an estimated first clinical use sometime in 2023.

Access technologies like our partnership with Eddie or are important across our entire portfolio as they are designed to make procedures faster and more predictable, enabling more and more centers to perform two procedures a day in the same MRI suite or the same operating room.

It is also important to note that the majority of our investment into the navigation system mentioned in pillar two applies to biologics in drug delivery as well as our therapy products.

That's the beauty of our platform strategy as much of the investment is applied across many indications, including biologics deep brain stimulation laser ablation catheter placement biopsy brain computer interfaces, and perhaps even more in the future.

This is crucial from a training standpoint, as well every biopsy case laser ablation case or D. B S case that a hospital does with clear point today is in fact training and preparing them to do biologics and brain computer interface cases in the future.

Finally, our fourth pillar of achieving global scale has made progress as well.

Our quality system has been successfully updated to be compliant with the new European N P or rules that went into effect in may of the past year.

This is not a small task and it has been daunting enough to some companies that they have decided not to sell certain products in Europe under these new regulations.

We believe our quality system and knowledge is a strength and something that helps us differentiate ourselves in the eyes of our pharma and our device partners.

We have been successful thus far and securing additional inventory ahead of the supply chain backlogs that are very real and very challenging.

We have used our existing capital to purchase materials ahead of time, particularly raw materials, which you can see by the expansion of inventory investment on our balance sheet today.

Our cash burn for the quarter was approximately $4 5 million, leaving us with a balance of just under $50 million at the end of Q1 and at present, we do not have plans to raise any significant capital this year.

If you add up the global opportunities across all of our current and future product lines. The results are quite impressive.

Today, we are actively working directly or through partnerships on more than 35 different indication, which is estimated to include more than 1 million new patients diagnosed each year.

If those 1 million plus patients were all treated with clear point, enabling technology the potential market is in excess of $12 billion annually.

These markets of course will take time to develop but the sheer number of partnerships and opportunities. We have today is diversified clearpoint in a way that many individual therapy technologies cannot.

With many ways to win and to positively impact a large number of patient lives.

At this point, we are adjusting our full year 2022 revenue guidance to between 21 point O and $22.1 million up from 20 to 22 million, which was previously announced.

We do expect further growth versus our Q1 results and think it's appropriate to increase the lower end of the range to reflect that.

Our revenue guidance of 21 to 22 million does include the impact of certain risks first we assume that the effect of any new COVID-19 variant will have a modest impact on elective procedures that is somewhat transient and lasts for a month or two.

Second we assume that supply chain issues persist, but that no meaningful back orders or supply issues take place to our customers for our products or for the therapeutic partners product.

Finally, the geopolitical issues in Europe are very difficult to predict relative to travel new installations material costs hospital overcrowding et cetera. So that risk is really not understood at this point and therefore not included in that guidance.

With that Rob I would love it if you could open up the call to any questions absolutely at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

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For participants using speaker equipment, it may be necessary to pick up your handset before pressing the darkies one moment. Please while we poll for questions.

Our first question comes from Frank Ptak.

<unk> with Lake Street Capital markets. Please proceed with your question.

Hey, Thanks for taking my questions. Congrats on the progress really impressive in a tough environment I wanted to start.

At one point, yeah, absolutely wanted to start with array 1.1, how should we be thinking about commercial launch there or was it going to be in a demo capacity and in early days and then supposed to launch more aggressively.

Throughout the latter half of the year, just maybe talk about that product a little bit more on the significance of the the 1.1 parents.

Sure Yeah, there's a there's kind of three phases that we sort of see what this product line today, maybe foresee four phases and I'll kind of walk you through them real quick. So the first one is now that we have that's pre planning module, which is something that the early users and our limited market release have I've requested we are rolling that product out to the existing <unk>.

So that has been installed with array, which is just a handful of them across the United States. Today. So in addition to some of our preclinical partners like Charles River for example.

Does have the tool as well.

So as we sort of just double check the installation process. The early use the compatibility of the data transfer or things like that we think that will quickly move into a full market release of the array for specific targeted accounts and many of those accounts will be sites like Emirates accounts. For example that has hybrid operating room MRO.

Rai suite, which allows the MRI magnet to move in and out of the room. So you can do part of the procedure using other navigation tools are in combination with array operating room drills things like that and then went at times when it comes time to actually.

Perform the surgery itself or confirm the impact of the surgery. That's when the MRI magnet has moved into the room and those final images are taking so that'll be kind of phase two of the launch which is a a full market release to be used in MRI accounts or hybrid or MRI account okay.

And that and we think that'll that'll take place in the second half of this year. The third level of release, which we have currently planned for 2023 is procedures that would not use the MRI at all but rather they would be using other operation navigation systems with our hardware our flight version of a slight change to the current array version.

Which can be done using optical navigation for example, in the operating room or C T navigation and things like that.

So that's something that we have planned for 2023, and then sometime in 2024 will be the fourth iteration of that which will be a truly see T. Guided version using our own software, which is something that we highlighted in our press release, a few weeks back where we've partnered with Philips to do a next generation of the Maestro brain model that will work.

With C. T data in addition to MRI data. So you can kind of think of it as that progression, but the end result, you know, let's say by 'twenty 'twenty. Four is that we would have three different options for deep brain stimulation guidance for example, and optical navigation system. That's just uses our hardware a C. T navigation that uses our hardware and software.

And then the current version of the MRI version that can that can be used in any MRI suite today.

Hopefully that helps.

No that's great and then just for my my second one maybe.

Asking about.

Capital equipment placements good to see a resurgence in placements in the quarter, maybe give us your thoughts for capital placement expectations for the rest of 2022, and what specifically is baked into guidance on that line item.

Yeah, I would say, we've kind of carved out about $2 million or so into capital equipment placement, which would also include service contracts on that capital equipment. So again, we we charge you know between 12 and 14% of the purchase price and Courier service contracts.

So that probably makes up the 600 to 700000 of that and then maybe another one three to one 4 million would be on new capital placements.

That number is.

Probably as the biggest range in our guidance because it is a little unpredictable as you know where we're focused on getting the installs and getting people to get familiar with the technology.

That capital P. O comes in after the evaluation period, you know on the 31st of the prior quarter or the first of the next one it can be a little choppy. So it's hard to say when it comes in but you know give or take $2 million for the year and that in that segment.

Perfect. Okay. That's helpful. I'll stop there congrats again on all the progress.

Great. Thanks, Frank.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.

Okay.

Our next question comes from Mark Weisenberger with B Riley Securities. Please proceed with your question.

Yeah. Thanks, Good afternoon, and just following up on the last question I think prior to the pandemic you are on pace to maybe add six to eight new centers of excellence per year four to start the year is pretty strong could you talk about the dynamics around the timing of those adds in the geography was there anything that might have resulted in pull forward and then as you.

Think about the high volume centers in the U S that aren't currently using the Clearpoint system.

How many are still out there and kind of what's the strategy and expectation for them to adopt a clear point.

Yeah.

Sure Yeah I'll answer the first question first here.

So you're you're correct. Our current paces are where we're on pace now to have our biggest placement quarter in our year rather in our history.

Part of that is because we are starting to be viewed as you know arguably in a central part of the future of neurosurgery, you know, whether you're doing DBS in laser ablation with us today or you believe in the future of brain computer interfaces are biologics and drug delivery or new indications of DBS in laser ablation in the future.

Turning to say look even if I don't use clear point for every single case, it seems to be a technology that I need to be familiar with and I need to have around so I think that demand is continuing to ink to increase as word gets out as to the future of clearpoint in what will be capable of so I think that's that's one thing working in our benefit are the other thing that's working as the catch up factor.

You know, where we've had relationships with hospitals that had been really interested in using clear point that are destined to participate in some clinical trials and you know the access to new technology has just been put on hold for a while and hospitals have to prioritize current patients and renovations versus adding anything new.

Yeah as I mentioned, that's starting to change a little bit which is a sort of unleashing of backlog not a pre purchased products like a lot of companies do have but at least the backlog of the interest to get those and it does.

There's new capital things started so I think those are those are things working in our favor.

I would say you know one of the primary negatives that are out there today and not necessarily isolated to clear point alone.

It's not necessarily access to capital, but it's concerns about cyber security and new questionnaires and requirements that heart hospitals that are adopting you know, which you know any hospital tries to do it in the same way and they create a blake and document for everyone, but Atlanta cases, it takes a long time to negotiate through that and convince the hospital.

All that some of the things in that document don't apply to clear point you know, we're not a cloud service provider. For example, so we shouldn't be held to those particular requirements and you know sometimes that takes a week, sometimes that takes months, sometimes it might never happen. So I think that.

That one kind of working against US right now again in a heightened a heightened environment, where cyber security is on everyone's mind.

And then moving onto your second question you know from a geographic standpoint, you know I think it is you know if you look at what we placed in the first quarter. There were two in the United States two in Europe , I would still expect there to be more placements in the United States. This year than Europe , but I think placements will take place in both locations as we continued to gain some interest on our.

Current products.

And as a number of our pharma partners begin clinical trials across Europe , that's driving placements at some hospitals that have never used clearpoint before but what's very common in those situations is that we don't want their first clearpoint case to be a clinical patient in our biologics drug delivery trial. So we generally start with simpler.

Procedures are more predictable procedures like biopsy like deep brain stimulation like laser ablation. So the hospital gets familiarity on three to five of these other applications first before they are ready to enroll their first patient in that trial. So it does it does help them to understand how to use our technology in a few different ways as well.

Very helpful. I appreciate that color and then any notable changes in the case mix in our functional neurosurgery segment. This quarter could you quantify maybe the impact you think on micron had in the quarter and then should we expect those deferrals to kind of be pushed in is it more likely <unk> or <unk>.

Q.

Yeah, hopefully it comes back in Q2 again, there's there's there's other things that always impacted as well, which is access to the MRI magnet is a we have a couple of hospitals that are getting their MRI is replace so they're not doing procedures at all and in Q1. So you know it's hard to say when they fit in but you know the most important thing is that the vast majority of patients.

That are postponed because of COVID-19 or a hospital staffing shortage normally that postponement is not long enough that it threatens the patient never getting the surgery and hopefully it's in two to three weeks you know Unfortunately, it just it plays around with our scale and our cost structure, because we have clinical specialists flying around to cover these cases and you know it's pretty painful.

You show up the day of the procedure and the patient is unable to go forward. So you know but in in.

In General you know, we see we see most of those cases, returning yeah in Q2 and Q3, so long as another you know I'm a crime or similar version variant isn't on the scene.

Very helpful. Thank you and then just a final one for me I think you you noted that early stage Bdd revenue grew I think you said, 75% year over year in the quarter.

I'm kind of just ballpark what percentage of that.

What percentage does that represent of the total bdd's revenue and how does the cadence kind of those cohorts usually progressed, but I mean should we expect some moderation from those customers kind of in two Q3 Q as they digest some.

Some of their purchases. Thank you.

Yeah, I think as that number continues to grow and I think it was close to 50% or so its getting getting closer to that that thresholds between services and actual products that are sold are too.

Two two pharma partners are for using clinical trials.

You know we we there there is some choppiness in that and I'll give you. Some examples where in some cases a hospital mice a ship a lot you know perform a large not a hotspot I'm sorry, a pharma partner might perform a large bench chop study, where you know they need 200 cannula is to do compatibility testing or flow testing or things.

Like that so that was sort of one off things can make it a little choppy, but the more partners that we add the more consistency youre going to start to see quarter to quarter and it should be consistent growth as well because as I as I mentioned as well you know our first year of engagement with a pharma company is generally sort of feeling each other out.

Doing a little bit of consulting handling a few catheters here and there to do some some simple bench top testing and then if the partnership is a healthy one it should continue to grow year after year after year. After year. So that's that's really the strategy. We're pursuing here is to now have 45 patients or 45 partners in this funnel and each one of them on.

Averages go up growing slightly quarter to quarter. You know then you can have something a little bit more expensive at that point and again. This is all pre commercialization. So we're talking about bench testing preclinical testing compatibility testing phase.

<unk> one through three pharma trials are all of those can be profitable parts of our business well before the commercialization of any singular drop.

Great very helpful. Thanks for taking the questions and congrats on a very strong quarter.

Great. Thanks, Mike.

We have reached the end of the question and answer session I'd now like to turn the call back over to Joe Burnett for closing comments.

Thanks, Rob and once again, thank you to everyone interested in being a part of this team's journey here a clear point, we recognize the challenging global environment that we are all forced to live in today and we assure you that we are going to help patients around the world as best as we possibly can by keeping our heads down and staying focused and executing against our four pillar growth.

Strategy to develop products that truly improve the quality of life for our patients and for their families Goodnight everyone.

Yeah.

This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.

Yeah.