Q3 2022 Clearpoint Neuro Inc Earnings Call
Greetings and welcome to the Clearpoint Neuro, Inc. Third quarter 2022 financial results conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad and as a reminder, this call is being recorded.
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 companys 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.
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, and the company's quarterly report on Form 10-Q for the three months ended June 30th 2022.
Two of 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 September 32020 to which the company intends to file with the Securities and Exchange Commission on or before November 14th 2022.
All the company's filings may be obtained from the SEC or the company's website at www Dot Clearpoint neuro dotcom.
It is now my pleasure to introduce Joe Burnett, Chief Executive Officer. Thank you Sir you may begin.
Thank you and thank you to all of our investors and analysts on todays call for being a part of the clear point vision and Jeremy.
Our mission and our priorities are to help restore quality of life for patients and their families who are suffering from some of the most debilitating neurological disorders imaginable, we cannot do this without your support.
In the third quarter of 2022, we continued to make progress across our four pillar growth strategy, including biologics and drug delivery functional neurosurgery navigation therapy and access product.
And then achieving global scale.
Despite the continued high cancellation rates due to Covid historically high surge in transition and daily supply chain and hospital staffing challenges our team was able to achieve near record revenue of $5 1 million for the third representing.
Representing 13% year over year growth.
As a company, we believe we remain well capitalized with over $40 million in cash and short term investments and we'll continue to execute against our strategy and carefully manage our expenses. We continue to expect total revenue for 2022 to be in the range of $21 million to $22 million, representing 30% to 35% growth for the year.
Depending on timing of revenue recognition for some capital sales and biologic services.
I will now turn the call over to Danilo, our CFO to review our financial performance in the third quarter, after which I will add some detail to our four pillar growth strategy vanilla.
Thank you Joe and thank you all for being here with us today.
Looking at the third quarter 2022 results total revenue was $5 1 million for the three months ended September 32022, and $4 6 million for the three months ended September 32021, which represents 13% growth versus the third quarter of 2021.
Our revenue is made up of three components functional neurosurgery navigation and 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 target.
This revenue segment increased 12% to $2 4 million for the third quarter up from $2 $2 million in the third quarter of 2021.
Biologics in 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 9% to $2 2 million in the second quarter up from $2 1 million in 2021.
Capital equipment and softer revenue consists of sales of clear point reusable hardware and software and related services increased 32% to $5 million for the third quarter from <unk> 4 million for the same period in 2021, following an increase in the placements of clear point capital and software.
We achieved a gross margin of 72% in the third quarter of 2022, 6% higher than the 66 gross percent gross margin recorded in the third quarter of 2021. The increase in gross margin was mostly due to increased contribution of service revenue and lower overhead expenses.
Research and development costs were $2 5 million in Q3 compared to $2 6 million for the same period in 2021, a decrease of $1 1 million or 6%. The decrease was due primarily to lower product development cost as a result of re presentation of certain research and development initiatives.
Sales and marketing expenses were $2 1 million for the third quarter compared to $1 8 million for the same period in 2021, an increase of three one or 18%. This increase was due primarily to additional personnel cost, resulting from increase in head count to $1 2 million as we expanded our clinical team as well as increase in travel costs of $1 million.
General and administrative expenses were $2 9 million in Q3 compared to two four months for the same period in 2021, an increase of $5 million or 20%. This increase was due primarily to increased share based compensation of $5 million.
Net interest income in the third quarter was $30000 compared to 2.2 million of net interest expense for the same period in 2021. The increase in interest income was due to the company's investment in United States Treasury bills, and the resulting higher interest rates as well as lower debt.
<unk> due to the conversion of a portion of the 2020 secured convertible notes in May and November 2021.
In the third quarter, our operational cash burn was $3 $8 million, which was lower than our Q1 and Q2 operational cash burn as.
As we continue to face a challenging supply chain environment, we deployed more capital near term just solidify vendor supply in our supply chain reliability.
We continue to expect a further step down in our operational cash burn in the upcoming fourth quarter and remain confident we are well capitalized to achieve our midterm growth ambitions.
With respect to our cash position, we finished the quarter with cash and short term investments of $40 5 million compared to $54 1 million as of December 31, 2021.
At this point I'd like to turn the call back to Joe.
Thank you Daniela.
The third quarter of 2022 was another quarter of progress and execution against our four pillar strategy.
This included FDA clearance of three new navigation and therapy products.
The addition of multiple new biotech partners.
Installation of systems at new hospitals, and the hiring of talented professionals across multiple functions, bringing our total direct employee costs and just under 100.
This is not including the support and teamwork, we receive from our pharma biotech and device partners that make us look and feel much larger.
Lets break that progress down into those four growth pillars.
First our biologics and drug delivery team continued to add additional partners and services in the third quarter, adding multiple new partners to our count which is now approximately 50 active relationships in the space.
We continue to keep pace with our past two years history of adding approximately one new partner every month.
We have also hired multiple new team members and expertise to the biologic and drug delivery team increasing the scope of services, we can provide and in turn the total potential revenue opportunity with these pharma partners prior to commercialization.
Now this is an important distinction distinction I want to make sure to highlight.
If one of our partners or you had one of the programs within a partner would purchase the entire suite of products and services that our team can now provide the total value of those products and services from initiation of the program through the completion of a phase III clinical trial could potentially add up to $10 million.
Per program before the drug or biologic is even approved.
Therefore, our newly added capabilities will allow us to access a total addressable market of several hundred million dollars in the pre commercial space.
This is one of the reasons that we believe that we can ramp revenue and achieve profitability without requiring the contribution of large commercially available drug therapies during that time horizon.
Arguably our biggest milestone in the past three months was the first commercial patients treated with Ptc's <unk> gene therapy product for the treatment of a D. C deficiency in Europe under CE Mark authorization.
Our multiyear strategy has played out as expected where the labeling for upstate includes our smart glow cannula directly in the surgical guide is the only infusion cannula to be used in combination with this gene therapy.
Say it another way the very first gene therapy ever approved for direct injection into the brain is co labeled with our device and the Marquis marketing authorization for administration of the therapy.
We believe this first approval along with the exhaustive bench preclinical and clinical testing required for submission as a sign of things to come for many of our approximately 50 active partners that could see a similar path to approval.
Our goal for our smart glow family of Cannula products is to achieve co labeling globally across multiple partners and indications and that clear point as the go to delivery mechanism for pharma delivery to the brain and spine.
Second our functional neurosurgery navigation business achieved a number of key milestones in the quarter, including the FDA clearance of the $2 one version software and the Maestro brain model.
These two software tools represent our second and third software approvals this year.
And show the cadence of new product introductions that we plan to continue as that and demonstrate clear point as an innovator in the neurosurgery space.
Still a tremendous amount we can do to make our procedures faster more informative and more predictable, which will help to drive utilization increased to a day procedures in the same MRI magnet and enable some procedures to be done without nuclear point representative present that the case.
Currently we now have installed 10 systems year to date, which is a new record with a couple of months still to go in 2022.
We have more than 40 additional hospitals in our active funnel, which again is the strongest installation and capital funnel that we've had in our history.
Our cancellation or postponement rate does remain at a very high level, what the most common reason being patient or surgeon sickness via COVID-19 or the flu or other.
As we move into the winter months, we expect this high rate to continue for the time being.
For our third pillar therapy products and access devices in collaboration with our Swedish partner CLS, we achieved FDA clearance of the prism laser therapy system, which was granted here in the third quarter.
This product will enable our team of clinical specialists not only navigation, but also therapy to two distinct markets in epilepsy and in neuro oncology.
We are in the process of working with a handful of existing clearpoint users to get the laser system installed and continue to expect first clinical cases under a limited market release before the end of this year.
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 is the beauty of our platform strategy as much of the investment is applied across many indications, including biologics deep brain stimulation laser ablation biopsy brain computer interfaces, and perhaps others in the future.
This is crucial from a training standpoint, as well every biopsy case laser ablation case or deep brain stimulation in case of hospital performs 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.
In addition to receiving MD SaaS and EU MBR certification earlier in the year, we have placed additional systems in Europe to expand our global footprint and prepare for future drug delivery trial enrollment.
As Danilo mentioned earlier, a significant a significant portion of our cash burn went toward working capital, including prepaid inventory and expenses and raw material and component purchases.
We believe some of these inventory purchases will start to slow down here in the fourth quarter, which will be offset by inventory as new products. For example, laser systems to support the limited market release.
We also just signed a 10 year lease under favorable terms for a new 20000 square foot manufacturing facility in San Diego close by our training and innovation Center.
We have outgrown our current facility in Irvine, and the new facility will add space and capacity to support a more than $100 million revenue business.
We will take possession of the building in Q2 of 2023 and be able to design from the ground up following lean principles to support greater efficiency.
This year, we have also hired eight additional clinical specialists, which adds significantly more capacity to our surgical team in preparation for growth in 2023 and 2024.
We are reiterating our full year 2022 revenue guidance of between 21, and $22 million, which corresponds to annual growth between 30% and 35% for the year.
We also continue to believe that our current cash and short term investment position of more than $40 million does not require us to raise additional capital to support our current portfolio and strategy. This year.
With that I would like to open up the call to any questions.
If you have a question at this time, please press star one.
If you have a question at this time, please press star one on your telephone keypad.
Waiting for callers to join the queue.
Our first question comes from Mark with B Riley Securities. Please go ahead.
Hi. This is William went on for Mark Weisenberg of Zero Securities. Thank you for taking our questions and congratulations on a really productive quarter, we've got a couple of things.
I'll start with we've got a couple of as I said, so I'll start with the first one so I was just curious if you can talk about.
The conversations with your Bvd partners have continued to evolve.
And as the partners move from preclinical to clinical phase are you seeing any changes to the decision making process.
Yeah Helane thanks for the question.
Yes, so obviously, we're having conversations on a daily basis.
In fact, whether it's.
An introductory call or an audit of our facility or a life product demonstration. Yes. These are happening.
If not a daily basis, and certainly a weekly basis and I can't say that they've changed materially in any way.
I think many many companies I would say if there are any differences to historical amounts.
One has been around sort of frustration with the same things that we're seeing in the field relative to hospital delays and supply chain disruptions that are certainly slowing things down to some extent, but not stopping them like we saw back in April of 2020. So I think if anything that's still a positive that these things are moving forward.
And then in some cases, we've heard that some partners have had to sort of prioritize some of their internal programs.
Just to go ahead, and kind of reduce the burn and save capital, especially some of the smaller companies that might be might see.
Capital raised on the horizon.
They might be forced to slow down their second and third options and focus their attention and detail on option number one in their platform.
But outside of that there's no other kind of large material differences I would say if anything I think people are more and more excited about the space given now that you know.
PTC in upstate there's been the first gene therapy approved to the brain.
It's certainly open doors for us.
We expect to see that pace of new partners continue in the year ahead.
Yeah.
Right that makes a lot of sense and then with regard to the prison neuro laser therapy systems can you lay out how you expect penetration in the market to evolve over the next say 12 to 18 months and specifically.
How do you go about converting surgeons from incumbents in the market and then what are the primary factors driving their decisions.
Well I mean, I think we're going to probably operate within a limited market release.
For the balance of this year and at least through the first half of 2023.
This is our first therapy product and we want to make sure that we're doing it in the most responsible manner ever so I see us starting primarily with our existing users that are already using clear point navigation for their laser cases.
I don't expect us to always convert all of the business at a hospital over to clear point, but I think our reputation in the market and the quality of our products has earned us the right to at least get a trial.
And most of the surgeons that we've spoken to at this point at our active centers are more than happy to give us a chance and I think one of the biggest.
The biggest components of why they are willing to use our technology is again the team that we've established and the competency and credibility of our clinical specialist team.
The fast process of us having one person that can be responsible for the entire procedure.
Starting at the beginning with the navigation and all the way through to the end with the delivering of the therapy is something thats very attractive.
Handoff and responsibility halfway through so I think that's going to be a that's going to be a major component for us.
And we're very very excited about this laser market and excited to get started as I mentioned, we do expect the first couple of cases to really happen here in the next month or so.
Awesome I'll look forward to see how that pans out.
Can you talk a little about how your domestic versus ex U S expansion is progressing I know you've mentioned Europe , a little bit.
And do you expect to see any material changes to either.
Either U S or obviously ex U S. In the near term and then Additionally can you update us on your expansion efforts in China.
Yeah sure thing so domestically.
Domestically I think that's where most of the revenue dollar growth as we expect in the next couple of years as well, whether it's through our laser program grew new customer.
Customers that are interested in doing MRI guided DBS and MRI guided laser procedure and eventually our expansion into the operating room as well so the U S is still going to be the primary focus.
Arguably we're going into Europe , a little bit earlier than we normally would but again. This is in order to support our biologic and drug delivery customers that are interested in enrolling clinical trials across Europe .
With local researchers, especially for our European partner so.
Where we don't expect a massive revenue opportunities for DBS or laser ablation in the near term in Europe , we are expecting to initiate a number of clinical trials in the next couple of years in Europe .
In most cases.
The pharma companies, we're working with don't want the very first patient in their trial to be a a.
Their first patient where the doctor is using clearpoint.
We do a number of roll indications as typical where they might do a biopsy a laser procedure of DBS procedure to get familiar with clear point before they start enrolling those patients. So so most of our revenue opportunity in the near term is going to be around.
Clinical trial sites that are becoming familiar with our technology in Europe .
We do have approval in.
Singapore, we do have approval in Israel at this point and we have started our submission process and a number of other countries, including Brazil for example.
And as but in each of those situations. It's not that we're trying to penetrate the entire country of Brazil. For example, it would be the same center of excellence model, where we would have our system installed in one or two centers and then we'd be transporting these patients with chronic diseases to get treated at these centers of excellence not at their local.
Our local hospital across the street.
And I think you specifically asked on China, China, we are evaluating a couple of other options again.
We have the luxury I would say, although not confirmed and that again is focused on centers of excellence, meaning we're not trying to deploy our technology across an entire country, but maybe at only even one hospital or two hospitals in a country and theres actually a number of.
Sort of alternative regulatory pathways, where if it is a very very focused technology like what we're trying to deploy theres ways to accelerate that access to technology. So that's something we're exploring in different countries, but most of our O. U S expansion is really at the request of our biologics partners and not necessarily something.
We're driving on our own.
Hopefully that hopefully.
Yeah absolutely.
And then finally for me can you talk about how you're covered restrictions impacted you in the quarter and maybe just quantify the drag if there was any I know you sort of touched on this already.
Yeah, I mean, I don't have too much to add other than it's always the worst surprise when you show up at the hospital that morning, and all ready to go at it the patient fails there COVID-19 tests and have the best loan for a couple of weeks because in general we have not lost the airfare, we've lost a day of capacity from our clinical team and we've lost the MRI deck.
So it's kind of painful for us it's great. We don't lose the patient, we're still able to treat them and help them in the next two weeks. However that day, we lose the case.
Historically pre COVID-19 are sort of routine cancellation or postponement rate was always in that 8% to 12% range.
Since COVID-19 initiated and sort of has calmed down from the initial stoppage that postponement rate has been north of 30%. So the good news is we're we're scheduling more cases, but theres still a very high percentage of that currently are being canceled and I think we're seeing this in a number of different different avenues for in our case, if if the patient has COVID-19.
For our specialist has COVID-19 or the surgeon has COVID-19 or the MRI Tech guys Covid, if any one of those four essential.
The central parts of the equation test positive for that or the flu or RSV or anything like that we end up losing the case that day, which is unfortunate.
Yeah.
Makes sense.
Okay.
You can see that to continue on that we're going into the winter months kind of expect sort of this depressed our highest by postponement race to continue at least until the spring. So certainly for the next two quarters is kind of what we've built into our plan.
Okay understandable well that's it from us I appreciate it and congratulations again on your quarter.
Alright, Thanks Lee.
If you have a question at this time. Please press star one our next question comes from Frank with Lake Street Capital markets. Please go ahead.
Hey, Thanks for taking my questions I wanted to start with your new commentary around a biologic and drug delivery total revenue per asset.
Asset potential I think he called out 10 million on the call I was hoping you could walk us through that figure and a little bit more detail and more specifically talking to the cadence of a recognition across the drugs development. My assumption is once it becomes phase III. It becomes a much larger revenue opportunity, but maybe just kind of walk us through how that $10 million is recognize.
Over the life of development for specific assets.
Yeah sure. Thanks, So maybe building backwards since you brought up the clinical trial revenue itself.
Typical MSA typical because.
Our pharma companies are still learning.
So put in perspective, if you remember the study that the FDA had approved for Voyager therapeutics to treat Parkinson's disease, which again.
A moderate sized market opportunity in the Grand scheme of things.
An opportunity that would require a sham arm because there are alternative treatments for the disease, that's kind of the best barometer, we have of what what normal might look like for trial design and for their phase II and phase III trials that they were granted to operate in parallel I believe the target number of patients in those trial were about 220.
<unk>.
Okay. So if you look at the phase II phase III aspect of it we were selling approximately $20000 of equipment into that trial between navigation and Cannulize. So $4 million of it is really product related revenue that you would see in the phase two and phase III, so kind of the the outward years just before commercialization.
That's sort of one bucket.
Backing up from there you have to do your safety trials your phase one and a couple phase one trials things like that which can be anywhere from 30 to I think 48 patients as a typical size that we have seen with some of our existing partners. So again with that $2000 $20000 per case estimate that's about 1 million.
For for kind of that phase, one and phase one safety study phase <unk> phase <unk>.
So probably 50, I'm, sorry, $5 million of the $10 million I would expect to be within the clinical trial product category of that estimate.
So everything else is coming from.
Preclinical work whether it's.
And HP work, that's commonly done it at sites like Charles River for example, or.
Other <unk> that are in the area.
Some of the services that we've added are that we've hired actual surgeons. We've hired veterinarians. We've hired study directors. We can write protocols. So we can actually execute a number of these studies in a way that normally you would have to go to a massive CRO and sort of get in line for so that's really where the other half of that.
$10 million comes from is consulting and toxicology studies, it's bench top studies.
Flow studies, one of the things the FDA is asking for is whatever the component makeup of the drug or cell therapy that you're putting in one side of the cannula you have to be able to characterize exactly what's coming out at the other end it was better to do that than a company like us that focus is in actually makes the cannula itself. So these are the types of things, where if you reverted back.
Maybe two years ago, I would say the most that we could possibly sell to a company within that $5 million range. Because we just didn't have any of these services compared to everyone. We've hired and these capabilities that the team has built is effectively doubled the opportunity we have with each one of these partners, but hopefully that's enough color, but I'm happy to answer.
Or any other parts of that.
Oh, that's perfect I was hoping that just as an extension to that question of your 50 partners, if you're thinking about an approximate number how many of those could be approaching a phase two or phase III trial in the next call. It 12.
24 months to try and tease out which ones are.
Approaching that inflection point.
Yes.
2023, I think we're going to see the initiation of a lot more of the phase One studies for example, so in the next 15 months I think it's going to be highly focused there with maybe a couple of fate phase twos that begin however, if the timing holds or the timeline holds for an out of these programs. Then you could see five to 10 in that phase II.
Range, starting probably in 2024, I think that's kind of realistic based on based on where some of our partners are.
The one caveat I would add to that though is that some of these there is an alternative we're in with some of these very rare pediatric disorders, you don't necessarily have to go through the same gannett.
So it could be a different yes, there could actually be commercialization of some by 2020 core, albeit there is kind of smaller rare disease opportunities.
But those kind of follow a slightly less rigorous.
The pathway.
Got it okay. That's helpful. Maybe switching over to the laser to get a little more color. There. If you've previously spoken to a concept 100 of hundred 100 systems. Each doing 100 procedures at call. It on average 10000 per procedure, making for $100 million revenue business, maybe speak to the lasers specific.
<unk> contribution to that equation, and how impactful that the launch and scaling up the laser can be.
Yes, I think it'll be a very important launch for us.
Again, we're not trying to kind of over promise the speed at which we're going to go one thing to consider in our clearance.
CLS Scott with the FDA around Prism is that these first clearance is actually only four three Tesla scanners. It does not yet include the one five Tesla.
It's about half of our customers that are on the three key Magnus and sort of where we're starting first.
We would expect the one and a half that.
Proved.
Probably early 2024, I think is realistic.
But that's why we're going to be operating in a little bit longer of a limited market release.
But if we can get to the point, where we're opening kind of knew a couple of sites each quarter.
And trial and getting some ramping some stickiness with the technology. If you think about the next 15 months, that's kind of the speed at which we hope to go to if you fast forward into the future and you think about your question, which was the contribution to when we're $100 million business. How much of that is laser and laser navigation I think this could easily be a call.
Order of that number.
So probably 225% of that.
Sort of what we would expect ballpark, which could go faster it could go slower based on what our biologics business does but we're counting on this to be a meaningful part of our equation and an important part of our business.
Okay. That's helpful. Thanks for the color I'll stop there.
Thanks Frank.
We have no more questions at this time.
Yes.
Alright.
Well once again, thank you to everyone.
Interested in being a part of our teams journey here at clear point, we recognize the challenging global environment that we are all forced to live in today. We assure you that we are going to help patients around the world as best as we can and keeping our heads down staying focused and executing against our strategy to develop products that truly improve the quality of life for our patients and their <unk>.
Families.
As management, we will react quickly and thoughtfully to future challenges, which we realize are always around the corner Goodnight everyone.
Ladies and gentlemen. This concludes your call you may disconnect at this time.
Once again this concludes our call and you may disconnect at this time.