ClearPoint Neuro Inc. Q1 2023 Earnings Call

Speaker 1: Ladies and gentlemen, thank you for your patience. Please remain on the line. Your conference will begin momentarily. Again, we do appreciate your patience. Please remain on the line. Your conference will begin momentarily. Thank you.

Speaker 2: IDEA

Speaker 3: on your telephone keypad.

Speaker 3: 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, the size of total addressable markets, and the scope of the company's

Speaker 3: or the market opportunity for the company's products and services, and management's expectations, beliefs, estimates, or projections regarding future results of operations.

Speaker 3: Actual results or trends could differ materially.

Speaker 3: forward-looking statements for new information for future events.

Speaker 3: For more information, please refer to the company's annual report on Form 10K for the year ended December 31, 2022.

Speaker 3: which has been followed with the Securities and Exchange Commission.

Speaker 3: And the company's quarterly report on Form 10-Q for the three months ended March 31, 2023, which the company intends to file with the Securities and Exchange Commission on or before May 15, 2023.

Speaker 3: All the company's filings may be obtained from the SEC or the company's website at www.ClearPointNeuro.com. I would now like to turn the conference over to Joe Burnett, Chief Executive Officer.

Speaker 3: Thank you to all of the investors and analysts on today's call for being a part of the Clearpoint Vision and Journey.

Speaker 4: Our mission and our priority is to help patients restore quality of life.

Speaker 4: for patients and their families who are suffering from some of the most debilitating neurological disorders imaginable.

Speaker 4: In the first quarter of 2023, we have continued to make progress across our four pillar growth strategy, including biologics and drug delivery, functional neurosurgery navigation.

Speaker 4: and the necessity to augment our strategy in light of dramatic changes to the cost of capital, supply chain constraints, and volume of elective procedures.

Speaker 4: These strategic adjustments have included expanding pre-clinical services and capabilities for our pharma partners.

Speaker 4: Entering the therapeutic device market with the prison laser therapy system and evolving our navigation platform beyond the MRI and into the operating room.

Speaker 4: These tenants have given us greater confidence in our gross strategy and has led us to commit to our new manufacturing facility which gives us the room to require.

Speaker 4: For growth in both product-sense services, wild-appoint, lean manufacturing principles.

Speaker 4: Our first quarter revenue performance keeps us on track to achieve our prior forecast of between $25 and $27 million for the year, or a growth rate of 22 to 35% year over year.

Speaker 4: Our cash usage was also on-prem for the quarter, and as in prior years we expect the first half of 2023 cash usage from operations will be higher than the second half based on annual events like performance bonuses, NASDAQ listing fees, insurance, and other expenses that typically take place in the first and second quarter. I will now turn the follower to Denilo, our CFO , to review our financial process. We will now turn the follower to Denilo, our CFO , to review our financial process.

Speaker 4: And $5 million for the three months ended March 31, 2022, which represents 8% growth versus the first quarter of 2022.

Speaker 4: Our revenue is made up of three components, Biologic Syndrome Delivery, Functional Neurosurgery Navigation and Therapy, and Capital Equipment and Software.

Speaker 4: Biologics and drug delivery revenue includes sales of disposable products and services related to customer sponsored preclinical and clinical trials, utilizing our products.

Speaker 4: Biologic Syndrome Delivery Revenue increased 24% to 2.7 million in the first quarter, from $2.2 million in 2022. This increase was fueled by 60% increase in Biologic Syndrome Delivery Service Revenue, partially offset by $0.3 million decrease in product revenue.

Speaker 4: Functional neurosurgery navigation revenue consists of commercial sales of disposable products and services related to cases utilizing the clear point system to deliver medical device therapy to the proper target. This revenue segment increased 5% to $2.4 million for the first quarter up from $2.2 million in the first quarter of 2022.

Speaker 4: Capital equipment and software revenue consisting of sales of clearpoint reusable hardware and software and of related services decreased 38% to .4 million dollars in the first quarter from point six million dollars for the same period in 2022 as a result of fewer placement of clearpoint capital and software. Cross-margin for the first quarter 2023.

Speaker 4: was 59% as compared to a gross margin of 64% for the first quarter 2022.

Speaker 4: The decrease in gross margin was primarily due to changing the overhead costs and other inventory costs as well as higher costs for biologics and drug delivery services.

Speaker 4: Research and development costs were $3 million for the three months ended March 31st, 2023, compared to $2.9 million for the same period in 2022, an increase of $1 million or 4%.

Speaker 4: The increase was due primarily to increases in personal costs, including share-based compensation of $0.4 million, offset by lower product development cost of 0.3 million as a result of repartization of search and research and development initiatives. Sales and marketing expenses were 2.9 million for the first quarter compared to 2 million.

Speaker 4: administrative expenses were $3 million for the first quarter compared to $2.2 million for the same period in 2022, an increase of $0.8 million or 36%. This increase was due primarily to increase in personal costs, including share-based compensation of $0.4 million, and an increase in the allowance for credit losses of $0.2 million. Net interest income

Speaker 4: For the three months at March 31st, 2023, was 0.1 million compared to 0.1 million net interest expense for the same period in 2022.

Speaker 4: With respect to our cash position at the end of March 2023, we held cash, cash equivalent balances, and short-term investments of $31.7 million compared to $37.5 million as of December 31st 2022.

Speaker 4: I'd like now to turn the call back to Joe.

Speaker 4: for CNS delivery. An example is the new cell delivery device and IP licensed from UCSF and announced just weeks ago ahead of the AAANF conference. We think of the direct infusion market for neurobiologics to fall into four buckets. The two buckets that we currently have partners in represent direct injections of the brain, including gene therapy and now cell therapy. In the future, we plan to demonstrate a prototype of two additional rapid administration, including spinal infusion and longer term indwelling catheters for treatments that take multiple days.

Speaker 4: Our existing partners continue to make progress as well, and we expect to initiate multiple new clinical trials and first patient dosing before the end of 2023. Importantly, our extension into Preclinical Services has transformed our relationship and duration of partnerships, allowing us to work alongside pharma well before the first patient is enrolled. We have now signed our first milestone based agreement with a pharma partner, whereby ClearPoint is able to share in the success of important development and regulatory milestones with the drug sponsor. We expect this deal to become the blueprint for future agreements with our pharma partners, and we hope to see the future of pharma partners in the future.

Speaker 4: and allow us to form more creative and sophisticated methods of collaboration that better value the unique support that we believe we offer in drug development. Seconds are functional neurosurgery navigation business, added new sites to our install base in the quarter.

Speaker 4: and we continue to expect more than 10 site installations in 2023. This is keeping us on pace to achieve an installed base goal of 100 individual customers by the end of 2025.

Speaker 4: As a reminder, our strategy is not to install a clear point at every local hospital, but rather treat these patients with chronic conditions at regional therapy centers that have the benefit of scale and experience. Just 100 centers doing two procedures a week could potentially deliver 100 million revenue to the company.

Speaker 4: At present, we have more than 50 hospitals active in our acquisition funnel, meaning we need just a 20% closure rate this year to achieve our 2023 goal.

Speaker 4: We continue to host fellow's courses throughout the year to train surgeons at the center and prepare for when these regional centers are doing daily procedures not weekly or monthly as they are today.

Speaker 4: In the future, these cases will be made up of both MRI and operating room surgical arenas and across deep brain stimulation, brain computer interfaces, laser ablation, biocity, and clinical and commercial drug delivery.

Speaker 4: Our expanded R&D team has been busy as well continuing development along a number of fronts including navigation headbrains, drill technology, robotic technology, and machine learning based software.

Speaker 4: We expect multiple new FDA submissions for new products this year, and also expect the expansion of our current portfolio in additional countries around the world.

Speaker 4: For our third pillar, our therapeutic products and access devices, we have continued our limited market release and installed two additional prison laser systems in the quarter, with first cases expected here in Q2.

Speaker 4: We've expanded our clinical trial in Loan, Sweden at the request of the surgeons there and are actively collecting data which we plan to use for CLEMARK's submission under the new European MDR.

Speaker 4: We expect to remain in limited market release for PRISM throughout 2023 as we gain experience with the system across multiple sites and surgeons, but also with different scanners and different patient indications.

Speaker 4: These cases will help build our educational tools as we look toward a broader release in 2024.

Speaker 4: Now, it is also important to note that the majority of our investment into the navigation system mentioned in Pillar 2 still applies to biologic and drug delivery as well as our therapy products.

Speaker 4: This is the beauty of our platform strategy as much of the investment is applied across many indications.

Speaker 4: This is also crucial from a training standpoint. Every biocase, laser-ablation case, or deep brain stimulation case the hospital does with clear point today is in fact training and preparing them to do biologic and brain-computer interface cases in the future. Finally our fourth pillar of achieving global scale has made progress as well.

Speaker 4: including multiple successful audits, new global regulatory submission, and the submission of construction plans for our new Carlebag California manufacturing facility.

Speaker 4: This new site is approximately three times the size of our current facility in Irvine and will enable us to design product flow and efficiencies from the ground up as well as add additional services and capabilities in support of pharma partners.

Speaker 4: We believe the new facility will not only be a cost reduction tool, but also a sales tool, giving greater confidence to our biologics partners that we are truly a state-of-the-art delivery solution.

Speaker 4: From a cash standpoint, we continue to perform in line with our expectations, with more than $30 million in cash in the equivalent at the end of the quarter, primarily in short-term U.S. Treasury.

Speaker 4: We feel like we have the vast majority of our team already in place to achieve operational cash break even and expect future hiring to be focused on scalable personnel in operations and clinical specialists.

Speaker 4: Although we have allowed our inventory and prepaid expenses to expand in order to navigate supply chain challenges, as those supply risks start to wane, we expect to bring down that inventory level to more historical days on hand targets and further reduce our operational burn.

Speaker 4: We believe that as we approach the end of 2023 and move into 2024, we plan to hit an inflection point and expect to see sales growth outpace expense growth, especially when the new facility is up and running in 2024. As mentioned earlier, our top lines performance in the quarter keeps us on track to achieve our prior forecast of 25 to 27 million in sales.

Speaker 4: or between 22 and 35% growth year over year.

Speaker 4: And we'll take our first question from Neil Chatterjee from B. Riley. Please go ahead, Neil. Hi, everyone. This is R.P. Shephard on for Neil. Thanks for taking our questions today. Is this the green weekend update? You guys hear me? Sorry. Yeah, we can hear you. Sorry. Before we get to give us an update on how your extended agreement with Phillips for Mastro includes the fully automatic sub-nuclear segmentation for DBS procedures and how that helps kind of expand into the operating room.

Speaker 4: Yeah, happy to. You know, the first version of myestro that's clinically cleared today is more of a radiology tool. So it's not embedded into our navigation system itself. However, that's the next logical step. Our regulatory strategy was to clear it as an individual product. And then our next submission would be to merge it together when we already have a product in the predicate there.

Speaker 4: simulation procedures. You know, today a lot of different technologies are used to sort of find your way to the exact target or node in many particular cases. Many surgeons believe that these subnuclear eye is the desired anatomical target for the lead of a ZBS system. However, it's not something that's currently available and...

Speaker 4: So our current pathway is that we've also licensed the ability to use the auto-segmentation tool on CT scans and not only MRI scans. So the workflow we see in the future is a patient will have a prior MRI, as they always do, as part of their routine diagnostic workup. They would then do a live CT the day of the procedure.

Speaker 4: and we would fuse those two images together. And because of Maestro's unique properties, we'll be able to compare not just a couple of fiducial points, but actually the entire surface of those subcortical structures. So we believe that we're going to have a very, very accurate fusion algorithm.

Speaker 4: procedures are done today in the operating room. So hopefully it's a lot of information there but hopefully hopefully that helps with your question.

Speaker 4: Yeah, that was great. A lot of color there. And then, to follow up here, kind of just staying with mystro, do you elaborate on the benefits you expect to deliver from any scientific partnership with integrating the gene therapy infusion tool with mystro's brain model?

Speaker 4: which is showing you where the different destinations are that you're trying to get to. What NES does is more of the modeling of how the therapy is going to impact that patient. So an example you gave on drug delivery, if I were to inject a certain viscosity of drug into this specific location, into this specific patient at this volume, where do I expect that drug to go? So can I, in fact, predict an almost pre-plan and entire drug infusion procedure to help me decide what dose, what location, how many infusions I want to do, etc. So it's almost like where my stroke is giving us the map.

Speaker 4: NES is helping us to determine traffic patterns and flow and how long it will take to get to a certain destination. That's kind of a simple analogy.

Speaker 3: I think that's helpful. And then.

Speaker 4: Maybe one more here.

Yeah, I think in the first quarter we reported that we completed the first five patients of the cohort and we've actually extended to another additional ten patients under the same protocol. This study is, like you said, designed to really collect first in human data of the complete PRISM system and that data will one day be used as part of the submission for European approval. We were able to get US approval based on a 510K simply doing bench top testing and preclinical work and no actual clinical evidence was required or clinical enrollment.

Thank you. That's for me and graduation on the court of great. Thanks so much. Once again, Star one, if you do have a question or comment, and we'll take our next question from Frank Takenin from Lake Street Capitol, please go ahead Frank.

not actually do 50 million in the quarter. So just to set expectations correctly here. But I think it's a great question. And I think it's going to come in a number of different phases.

So, if you think about 2023, if we break it up into 3 years, for example, 23, 24, and 25, I think the majority of growth this year is going to come from expanded partnerships and preclinical services, which you've already seen part of with the 24% growth in Q1. I continue to expect that to be our fastest grower, at least from a dollar percentage here in 2023.

where this year we're only in a limited market release. So, you know, maybe five to ten centers by the end of the year, but specifically targeting centers, different scanners, different surgeons that do both oncology and functional neurosurgery so that we can get kind of a broad base.

training material, as I said in the press release and the prepared comments, so that we can start launching and going into a broader market release in 2024. So, whereas revenue in 2023 directly from the laser system will be pretty muted based on a limited market release.

2024, we would expect to accelerate those penetrations and then, importantly, more and more laser catheters being used in each one of the sites. So, you know, growth in 2024 might actually be supplemented by the laser system. You get to 2025, you know, that's when we expect to have completed the limited market release for our operating room.

positive feedback on initial prototypes relative to our research and development efforts and as we prepare for that submission as well as limited market relates that might be a larger contributor to growth in 2025. So there is a staged approach but you know as we outline those key pillars we really see all three of those pillars firing by by the end of 2025 which is what gives us confidence that we can we can

the other leaders on the market and rehash what you think are the key differentiators and why you think this is a right market for the taking.

Yeah, there's two I'd really bring up and kind of bring to the top here because there are some subtle differences as well. But number one, our system is what we describe as a non-cooled system, meaning that we do not need to push either a saline or liquid CO2 or...

some other coolant into the catheter apparatus to keep the catheter and the temperature done. So it effectively serves as a traditional way to do these procedures is it serves as a heat sink and it kind of pulls heat away from the catheter so that it doesn't necessarily overheat. We don't require that because of the unique.

designed at the tip of our device. So what that means is that we can deliver less energy and likely, although we don't have data to prove it at this point, but our goal is to generate that data over time, is that we think we can do faster, it's logical that we could do faster ablations as well because you don't have that heat sink. So you can do these ablations at lower cost.

in shorter times, we think that's a benefit. Not to mention the simplicity itself. Anytime you're hooking something up to a pump or a CO2 device or something like that, not only is the installation more difficult, because sometimes you have to build it physically into the room, but it's just one more thing that can go wrong during a procedure. And some of these procedures continue, it could be two hours, four hours, six hours.

We've been in procedures even longer than that. You know, the last thing you want, you want to simplify it as much as you can. And we believe we have a very, very simple system. So I think that's one key benefit. The second one is the expertise of our team as well. We're not new to this space. We've been navigating laser procedures quite some time. We've been able to sort of listen to

the requests of what surgeons would like to see different and done differently, whether it's the laser itself, the software, the thermometry, the navigation, etc. So we're in a unique position to deploy all of that different learning into a complete system which comes with a companion being the actual ClearPoint clinical specialist. So.

Think of it as, you know, in a lot of cases today there might be a handoff between someone doing the navigation and helping versus someone helping with the therapy itself, you know, with ClearPoint you'll be able to do the entire procedure with one person assisting the entire way. And that's something that, again, our surgeons have told us is a big advantage.

Those are the two I would lean on that I think I would bring to the top of the importance list.

Got it. Okay. That's helpful. I'll stop there. Thanks for taking the questions. All right. Thanks, Frank. As a reminder, that's Star 1 if you do have a question or comment.

And there appear to be no further questions at this time. I'll turn the floor back over to Mr. Burnett for closing remarks.

Thank you, Karen. And once again, thank you to everyone interested in being a part of our team's journey here at ClearPoint. As a team, we have never been more excited about our strategy and vision as we are today. We look forward to continue to update you on all of this progress in the months and years ahead. Thank you very much. Thank you. Ladies and gentlemen, this does conclude today's talk.