Q3 2023 ClearPoint Neuro Inc Earnings Call
Thank you for standing by and welcome to the Clearpoint Neuro, Inc. Q3, 2023 earnings conference call.
Comments made on this call may include statements that are forward looking within the meaning of the securities laws do you feel looking statements may include without limitation statements related to anticipated industry.
The company's plans prospects and strategies, both sort of eliminate aerie and projected the size of the total addressable markets or does that market opportunity for the company's products and services 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 2022.
And the company's quarterly report on Form 10-Q, four to three months ended June 30th 2023, both of which have been bought with the Securities and Exchange Commission and the company's quarterly report on Form 10-Q for the three months ended September 30 of 2023, which the company intends to file.
<unk> with the Securities and Exchange Commission on or before November 14th 2023, all the company's filings may be 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 to begin the call Joe over to you.
Thank you Brandy and thank you to all of the investors and analysts on today's call.
Clear point narrow as the premier cell gene and device therapy, enabling company uniquely focused on precise navigation and quality control delivery to the brain.
Our four pillar growth strategy continued its progress here in the third quarter with some important updates that I will discuss momentarily.
The most important highlight or point of emphasis we want to make on the call. Today is our stated priority of flattening operational expenses and improving cash flow.
Our operational cash burn in the third quarter was reduced to only $1.8 million the lowest quarterly operational cash burn since 2020.
The last few years, we have a race to build a foundation of team and a product portfolio that can prepare us to realize a total addressable market that could treat more than 1 million newly diagnosed patients each year and in doing so create a 12 billion dollar revenue opportunity for clear point via our products services and <unk>.
Gartner ships.
That unserved market is still very much our intention and our vision.
However, instead of continuing to invest in growing our capabilities and portfolio in the near term, we're going to make sure. We focus on extracting value from the existing capabilities that we have already built and invested in as well as new product launches that we already have planned here in 2024 and 2025.
Our deepening partnerships with biologics in drug delivery companies expansion of our navigation platform into the operating room.
In the full market release of our prison laser therapy system can sustain top line growth in the years ahead.
While the flattening of operational expenses scale, and our newly certified Carlsbad manufacturing facility and improvement to gross margins can create leverage and ensure revenue grows faster than expenses for at least the next couple of years.
We continue to believe our goal of operational cash flow breakeven is achievable sometime in the second half of 2025.
While this strategy does slightly reduce our forecasted revenue in 2023 to the range of $23 million to $25 million. We continue to expect operational cash flow to be meaningfully less in the second half of 2023 compared to the first half with our Q3 result, being the first tangible example of that commitment.
Our strong balance sheet with over $24 million in cash and equivalents will continue to enable us to launch these key new products and execute on our strategic plan, while at the same time reduce our operational cash burn.
We are more excited for the company and its prospects than ever.
We expect that these launches in 2024 will introduce three new and additive revenue streams to our base, which I will talk about in more detail a little bit later on the call.
I will now turn the call over to Danilo to discuss our Q3 financial results after which I will provide additional color on our four pillar growth strategy Danilo.
Thank you Joe and thank you all for joining us today.
Looking at the third quarter 2023 results total revenue was $5 $8 million for the three months ended September 30th 2023, and $5 1 million for the three months ended September 30th 'twenty, 'twenty, two which represents 12% growth versus the third quarter of 2022.
As a reminder, our revenues made up of three components biologics in drug delivery functional neurosurgery navigation therapy and capital equipment and software.
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 growth accelerated to 55% or $3 $5 million in the third quarter up from $2 $2 million in 2022.
This increase was fueled by a 109% increase in biologics and drug delivery service revenue as we expand our service offering to pharmaceutical customers. The biologics in drug delivery service growth was partially offset by a $3 million decrease in product revenue.
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, because it is our target. This revenue segment declined <unk> $5 million to $1 9 million for the third quarter.
Capital equipment and software revenue consisting of sales of clear point reusable hardware and software and related services decreased 26% to $4 million in the quarter from point $5 million for the same period in 2022.
Gross margin for the third quarter, 2023 was 57% as compared to a gross margin of 71% for the third quarter 2022 the decrease in gross margin was primarily due to an increase in biologics and drug delivery preclinical services, which to date have had a lower margin than the prior year as we launch new services and increase our presence in this space.
Increased costs related to the transition to the new manufacturing facility also contributed to the decrease in gross margin.
Research and development costs were $2 $4 million for the three months ended September 32023, compared to $2 7 million for the same period in 2022, a decrease of 8%. The decrease was due primarily to re prioritization of certain research and development initiatives, partially offset by higher personnel and share based comp.
Sensation costs.
Sales and marketing expenses were $2 $8 million for the third quarter compared to $2 4 million for the same period in 2022, an increase of <unk> 4 million or 17%. This increase was due to additional personnel costs, including share based compensation as we expand our commercial reach in preparation for multiple new product launches over the.
Next 18 months.
This hiring reflects the learning curve required to train and educate on the expanding clear point product portfolio, which will be targeting new.
<unk> customers and new surgical areas within hospitals.
General and administrative expenses were $2 9 million for the third quarter compared to $2 4 million for this computer in 2022, an increase of <unk> 5 million or 21%.
This increase was nearly all due to an increase in the allowance for credit losses of <unk> 5 million, partially offset by lower professional fees of <unk> 1 million.
With respect to our cash position as of September 32023, we held cash and cash equivalents of $24 3 million compared to $26 5 million as of June 32023, our operational cash burn in Q3 was $1 $8 million down 54%.
The prior year third quarter.
We maintained our focus on appropriate resource allocation and cash management and remain committed to effectively and carefully managing our operating expenses as.
As anticipated in our prior earnings call our operational cash burn in the third quarter was meaningfully below the operational cash burn of the prior quarters in fact, it was the lowest.
Quarterly operational cash burn since 2020.
The reduction of operational cash burn versus the first half of 2000 22023, we will continue enabled by one the easing of supply chain conditions that allows us to gradually reduce inventory levels to operating leverage due to higher revenue three the completion of the transfer of the <unk> of the company's manufacturing.
So carlsbad and four on the expense side, our existing head count should be sufficient to support our business for the next 12 to 18 months.
We will continue to take measures to reduce and contain cash burn going forward.
With that I'd like now to turn the call back to Joe.
Thanks Daniela.
Our third quarter results represented a shift of priority to cash flow improvement, yielding a $1 $8 million operational burn, while still demonstrating double digit growth overall, and an acceleration to 55% growth in biologics and drug delivery.
These preclinical services are arguably our newest product launch and are already delivering great early results.
To add a bit more detail to our four pillar growth strategy.
First looking at biologic and drug delivery, our strategy of building deeper and more strategic partnerships continues to make progress with additional sophisticated and long term agreements signed in the quarter.
As a reminder, a couple of years ago, we are very much a product oriented biologics company simply selling devices to pharma companies for use in clinical trials as part of an arm's length transaction.
Over the last two years, we have invested in tools and talent to add clinical development regulatory and other preclinical CRO services to our portfolio.
That investment our pivot is already yielding terrific results with growth of 55% in that segment and $3 $5 million total revenue for the quarter.
Say it another way this new capability in the last two years has already grown to be the largest part of our business today.
Our growth strategy is now less focused on accumulating partners, but rather building deeper strategic partnerships. These.
These more sophisticated agreements may include longer duration quarterly commitment direct commercial pricing clinical and regulatory milestones on the drug itself and even royalties on commercial drug sales.
Newly signed agreements are expected to be a combination of these different features all of which are designed to demonstrate the long term commitment and value that we offer.
We continue to view ourselves as a device extension of our pharma partners.
Something that by working with US there is no need for them to replicate internally.
Our total number of active partners remains more than 50, despite the challenging capital markets that if for some companies to delay or shutdown programs.
Our diversification in biotech that served us well as we continue to be viewed as a sort of lower risk biotech ETS. If you will spread across multiple corporate partners different patient indications and even redundancy within the same indication with often multiple partners looking to treat the same disease.
While the mix of products and services in this segment and change dramatically quarter to quarter based on the timing of certain preclinical and clinical trials. We do expect this to remain our fastest growing segment for at least the balance of 2023.
As we look to 2024, we will add a new revenue opportunity in our biologics business as we expect to achieve <unk> LTE readiness next year.
We have also already built additional capacity for studies into our current expense run rate the.
This means that in 2024, we will be able to accept pharma company requests for GLC studies that we've had to turn down in the past and we will have the added capacity to accommodate these studies without any significant increase to our expenses.
This new capability and capacity will act as an additional source of revenue that will be new in 2024.
Yes.
Moving on to pillar number two functional neurosurgery navigation, we made significant strategic process progress rather preparing for our next generation of products designed for use beyond the MRI and in the operating room itself.
From a financial standpoint, the segment showed a significant decline of more than 20%. However, the vast majority of that decline or almost $400000. In the quarter was the result of one development partner, who is funding of brain computer interface project in 2022 and had to pause the program in 2000.
23.
Financial constraints.
From a capital standpoint, we see a shift away from outright capital purchases to more rental programs, which can sometimes fit in a hospital operating budget without having to go through lengthy capital Committee reviews.
Now the economics of the total sale are similar however, clear point, maybe may be receiving and therefore also recognizing a monthly fee instead of the entire purchase upfront.
Now we expect this trend to continue which spreads the recognition of revenue over a longer period of time, but it is still providing the company with healthy gross margins and cash flow.
If this strategy can accelerate the install a more clear point systems than a delay in the revenue recognition still fits our model as the installation enables our disposables to be used and sold into the account.
From a strategic standpoint, we submitted multiple new products to the FDA for clearance, including our smart frame product for net for navigation designed in the operating room.
Our clear point to two software with the integrated Maestro brain model and our array won two software, which also actually achieved FDA clearance in the quarter.
We believe the timing of these submissions will set us up for revenue traction of these products in 2024 with limited market releases, starting in the first half of the year and full market releases in the second half of the year.
To highlight the theme of new revenue streams the of product launches. We currently do not have any revenue at all from the operating room only segment, which is an investment that we have been making for the past two years.
The new smart frame navigation product for the operating room will act as an additional source of revenue in this segment that will be new for us in 2024, and again has already been submitted to the FDA for clearance.
For pillar number three therapy access products, we continue to execute our limited market release of the prism laser therapy system and collect real world product experience as well as develop marketing and training materials.
Over the next six to nine months, we expect to submit multiple new hardware and software product improvements, which should enable full market release in the second half of 2024.
As well as more substantial revenue traction.
This is an exciting second generation laser therapy system with many clear advantages compared to the currently available systems.
While our installation experience has been limited we have been able to win exclusive business from some early users who plan to use prism for all of their cases moving forward.
The limited market release revenue for this year for this year of 2023 that is built into our guidance is very minimal. So as we look to a full market release in 2020 for prison laser therapy capital rentals, and disposables will all be contributing an additional source of revenue that will effectively be new.
New and additive for 2024.
And finally pillar number four are achieving global scale made significant progress as well.
In the third quarter, we began production of Sellable product in our new Carlsbad facility and as of today, we have already shipped product to customers from the new site.
I'm also pleased to report that as of today's call. We have also fully exited our Irvine facility ahead of schedule, which will allow us to enter 2024, having removed many of these redundant manufacturing site cost and construction expenses.
This entire facility transition has been an amazing example of execution across our operations development quality regulatory and legal teams with the transition behind US. We can now turn that execution towards the exciting new product launches that we have planned for 2024.
As products get launched from the new site and revenue grows we expect our gross margins to continue to improve the.
The gross margin in Q3 improved to 57% compared to 53% in Q2. So we are once again moving in the right direction.
Mix of products services and capital from quarter to quarter, we'll always have an impact but directionally. We expect further gross margin improvement in 2024 and 2025.
At this point, we believe that we have the team the portfolio and the infrastructure in place to see our strategy play out for at least the next couple of years.
As a result, it is our intention to keep our head count in our operating expenses relatively flat through 2025, while at the same time launching new products and revenue streams as we fill our capacity of biologics in drug delivery services launch our smart frame navigation platform into the operating room execute a full market release of the prisoners laser.
Therapy system and increase our customer base to 100 global sites.
With that I would like to turn the call over to the operator for any questions.
At this time I'd like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile any questions.
Again, if you would like to ask a question. Please press star one on your telephone keypad now.
Our first question comes from the line of Mathew Blackman with Stifel. Please go ahead.
Good afternoon, everybody. Thank you so much for taking my questions I've got I've got three.
Question on the quarter and the outlook and then a couple of bigger picture questions for you gentlemen, Hello.
If I could start.
On the quarter and the softer revenues in functional neuro and now the lower 2023, I'm just trying to tease out how much of this is demand related versus perhaps a shift to more leases or how much of it if any is being toggled by your profitable growth strategy.
Yes, I can I can go ahead and start and thanks. Thanks for the question, Matt, Yes, it's really a combination of a few things that have.
Let us to go ahead and bring the guidance down slightly.
Yes.
As you mentioned and as I mentioned earlier in the remarks from the capital side of things.
I would say that there has been a transition to more of these rental programs, where like I said in the past we would have a $200000 capital sale for example, and once that system was sold and installed it would actually all get recognized in that particular quarter now we're talking about those same sort of.
<unk>, but in some cases, it's spread over two or three years. So we would may be only for this year. For example recognized three months of one year of that award 15 to $20000 compared to the entire $200000 of sales. So it's not to say that theres not going to be a mix, but I would say historically, 90% to 95% of our deals had been on.
And that capital side of things or an outright capital purchase where as we not only continue to launch our navigation system, but also launch our laser therapy system into sites that may be already purchased the laser therapy therapy system from someone else a few years ago, it's tough to find the allocation for those capital dollars so something that.
More of a rental that can fit into the operating budget is is something that certainly takes place. So I'd say that that's one element I'd point to.
Another element is again last year, we had sort of a significant service side on our functional neurosurgery tied to one particular brain computer interface project.
That project had actually been pause earlier this year. So that's something that impacted our Q2 revenue. We now see that that pause is going to last beyond I think what the original.
Communication I would say was which was to kind of resume it in September or in Q3. So now that we're not really expecting that to resume this year.
<unk> taken that that particular number out out as well so that has been kind of the second impact.
And then the third pad impact is really just timing.
That happens more on the biologic and drug delivery side of things.
As we get more and more into services and we add these capabilities.
Just the sheer dollar amount of a single deal or a single study kind of explodes as a proportion of our revenue set up to give you a tangible example.
Our committed PEO in our hands that has been signed part of the upfront payment is on the way all of those types of things.
For a value between one four and $1 $5 million for one particular deal one particular study and from our standpoint based on when the work actually takes place and the deliverable happens sometimes were not quite sure. If that's going to happen December 20th or is that going to happen in January 15. So just.
Way that those things can move around the scale of that movement is sort of bigger than it has been in the past because of these capabilities and we're trying to be a little bit more conservative based on that as well because it's.
It is kind of the opposite what we're used to in the device world is.
You sell a product use.
You ship it and in many cases, you end up getting the cash later, but you recognize it upfront some of the servicing is almost the opposite we're actually getting down payments on some of these services in advance, but we might not be able to recognize the revenue at the same time, so it's kind of a little bit different than the device world, which where we're seeing today.
The other part of your question, which I think is an important one too on the demand side of things, we haven't seen a huge change in demand I would say from our core business.
The case volume that we've seen has been relatively the same relatively flat.
At this point I think a lot of the things that we're doing are going to be adding to that.
On the three points that I mentioned that the gas as far as those new product launches in 2024.
I would also point, though that we do have a significant queue of new systems that are on the horizon and each new system when you're when you're opening a new store and you get that system shift.
<unk> enables that volume to increase as well. So so I would say, where we've been a little bit behind on the demand side. This year, but it's been triggered more by the slower capital deployment process or new installations more so than individual accounts slowing down their usage or demand in the product. So hopefully that makes sense.
A lot there but.
Yes happy to answer any follow up questions.
I appreciate that.
Helpful.
It's been a reasonably good segway.
Next question, which is just on the more let's call. It the more refined profitable growth strategy navigate that balance between growth and profitability is there an ROI thresholds youre using just curious how youre, making these decisions now going forward and then if I could ask a specific question on some of these new product Rollouts, let's use the laser.
Our system is an example, how much of the launch costs are still to come and I do have one more follow up question.
Yeah. So I think the first question was around the the threshold that we think about what is profitable growth mean to some extent.
And I think we've.
We certainly responded to two.
Some questions we had in the past when our overall gross margin has dipped down to 53% I think in Q2, and we mentioned one of the reasons for that was one or two significant biologic deals, which were kind of the right thing to do at the time to get our foot in the door with very very large and established farm.
<unk> companies, even at those particular.
Entry fees are entry deals for example, we are at a lower gross margin. Those are the types of things, where I think we're evaluating in a little bit differently with today's capital markets and our prioritization on cash flow. So would we do a deal thats in the 20% to 30% gross margin, especially one where.
To get that deal going we.
We would have to actually hire new people and new team members to add a new capability to accomplish it.
That would be an example of something where we'd say hey last year, we would do it but.
In light of today's environment that might be a not for now its ICL, let's focus on the capabilities that we already have so that these new deals that we signed on the biologic side or in that.
40% to 50 plus percent gross margin as opposed to <unk>.
Something that would maybe be a lower entry fee, but I'd say that that's an example.
Similarly, we've got a very.
Very competitive products I would say on the laser side of things.
There's a few things that we need to do to access more of the market. So an example, there is right now we have approval for the Threet Tesla scanners.
But we have not yet done the regulatory and development work to not that we have to change the laser anything but there is additional work that has to be done to test in a one five scanner to get that approval, that's something where you say well, okay, well how quickly do we need to get that one five approval right now compared to securing cash.
For a little bit longer for example, so so the way I would think about it which leads into your second question is.
Rather I think it was around additional launch costs that we would expect to execute on these product launches pretty much. What we're doing is we're sliding expenses one added the other after the other instead of adding them together.
So for example, it's not to say, we're not going to do the one five Tesla.
Study, we're actually in the process of planning that right now the difference is is that rather than doing it before we finished another project we're going to wait until there's one project is done and then deploy those same resources to the second one in series as opposed to doing a bunch of different things in parallel so.
So.
I would say there are additional expenses, if you will required to launch the products, but those expenses are really coming from people rolling off of current projects and onto the new project instead of us hiring additional development engineers and things like that but hopefully that helps but that's kind of why we're saying Hey, we think we can keep the head count in the.
Expenses, there is some hiring that would come.
Just just fulfilling additional products, but those new hires would likely be happening inside the gross margin line is there either a service provider or an operator on the line that's designed to make more products. So that those costs are counted or elsewhere.
Alright, really really appreciate that Julien.
Try not to be greedy ill get back in the queue. Thanks again for taking my questions.
Sure. Thanks, Matt.
Our next question comes from the line of William <unk> with B Riley Securities. Please go ahead.
Thanks, so much for taking our questions and congratulations on another quarter.
A couple of weeks away from us.
Hum.
Actually the follow up sort of on the expenses, what youre just discussing about sort of.
Rolling one from one project to the next the next I'm, just trying to think about with quarter over quarter.
Burn and just sort of expenses overall, just because as you know if you if you do them all at once you have one maybe two bad quarters in and then you increase up.
But when you do them in parallel like should we be expecting for Mr sort of trickle loan for multiple multiple quarters or is this more of a limited thing that.
That other revenue and growth or cuts or modifications will.
We will sort of balance out going forward, just a little bit extra I guess color on on that.
Yes, I mean, the way I would think about it.
Tough to think about Q3 or Q4, but if you think a little bit more annually or directionally here.
<unk> 2020 for 2025. These are the years, where we expect revenue to.
Sort of significantly outpace expense growth.
So that's where we get scale from these investments that we've we've really already made.
So one side of the equation is yes, maybe will slow down a little bit of development.
The second part of that question is does that really cost us anything on the top line revenue side in the next two years and the answer is as we look a little bit farther out is I don't think it does.
I think the competitiveness that we have heard from our early development efforts as we roll into the operating room.
I think the competitiveness, we've seen of our laser therapy system as we look at some of the other products that are on the market and some early feedback that we've gone in and simple improvements we continue to make.
I think the.
The addition, as I mentioned have the capability to be able to do GOP studies on the biologic side, which significantly increases the revenue even for the same project at <unk>.
These are all things that I think are really additive to the revenue line.
And coming from a year in 2023, where that base business really hasnt grown from a product standpoint.
Re introducing and re accelerating that through our software improvements and through this queue of new hospitals that are going to get our navigation system, even for our traditional product in the MRI.
Four things together I think put us in a position where if we can keep our operating expenses relatively flat, but then have for these.
Three to four avenues of new additive growth on top that's I think where we're going to see the impact so yes. So.
A long way of saying.
I think we are making a couple of modest sacrifices right now, but we're doing that with the additional insight that we're very pleased with the development we've.
We've made with our products and maybe we just don't have to go as fast as we would have two or three years ago. Because we know these new products that can be competitive and successful.
Alright.
Definitely helpful.
So when thinking about your.
Partnership sorry.
You had mentioned that.
Youre really going to sort of I guess.
Slow down the number of partnerships that you'll be looking to expand into.
The shifting towards.
Rather than more towards I guess, we'll see better value in your partnerships.
Thinking about this going forward.
I guess, if this was a two part how much should we think about the decrease in the new partnerships clearly theres going to be new partnerships. But then also for your old partnerships will you be looking to as those sort of looking forward to be re upped.
You'd be looking to include <unk>.
Better deals for yourself.
And do you think when you when you reassess those.
<unk>.
The.
So does the terms of the deal do you think you'll lose some of your customers because of sort of the new structuring of what Youre looking for.
Yes, yes I.
I understand the question I think I mean, the way I think of it is.
There is always a price to acquire a new customer.
And thats whatever business here and Thats generally less on a percentage basis.
Then keep in an existing customer.
Customer happy so are our strategy to get into the preclinical services and start working with companies way before they ever even think about treating human patient with clinical.
With a seller gene therapy that strategy has always been to prove our value prove that relationship make ourselves an essential part of that team. So that when these drugs get into their clinical trials and the regulatory process and eventually commercial approval. We've been there the entire way so each one of these natural partner.
Shifts that we already have in place we want to continue to develop those so I wouldn't say, we're firing customers. If you will which is a term that's used commonly but as we talk about how to be as productive as we can how much energy should we go and making sure a company that we know is going to be a successful that we've been able.
To to see their own capability to see the progress we have made on the bench and pre clinically how much of our if we have a choice of how we're going to spend our time that day.
Furthering that relationship into a much more kind of lucrative long term partnership.
Is better for us in the near term then signing an early consultative agreement and spending a lot of time and energy for a company. That's just maybe not quite ready yet right. So so I'd say, that's an example, and I think it's very similar to what we would do on the device side as well if we're going to go and we're going to launch our navigation system into the operating room.
Are we going to focus on a small children's hospital in a rural area that is only doing two or three surgery as a quarter or are we going to go after a site that is doing 100 surgeries at quarter.
The return on just our current teams effort and energy is much more beneficial one hospital that can deliver 10 to 20 times. The volume is that other one so we want to we want to go after the targeted ones. During this period of time.
I'd say, we're going to we're going to be doing that on both sides of the business.
Right no that makes sense and then just thinking a little bit I guess ex U S or international I mean.
Just curious if there's any updates.
Whether partnerships or regulatory approval I know there had been some if there was any progress going on in Brazil, and then also if.
How sort of this I guess shift towards rental and some of these partnership changes.
<unk>.
How you think that will be received ex U S. Do you think that'll fit in better or if theres been any any feedback there.
That's a that's a great question William.
The O U S is something where I'd say, we're only doing whats required to support our pharma partners.
So what I mean by that is.
If we had unlimited capital dollars, yes, we could go and hire.
Our full commercial team across Europe, and start selling navigation into.
Centres for use in <unk> and.
Laser therapy, or DDS or something like that in the current environment, where we're being a little bit more thoughtful pretty much. What we're saying is hey, we're going to respond to the pull and the needs of our pharma partners and what that really looks like right. Now is our priority is one or two or five may be pharma companies 10 pharma companies that are in.
Interested in starting their clinical trials abroad.
That pull of knowing where that site is and that theyre going to have to use our navigation and our cannula is for this clinical trial allows us to have a strategy alongside that pharma partner to be able to work with the regulatory authorities and supported in that fashion.
That's very different than sort of if you build it they will come strategy.
Just hiring a team of folks and knocking on doors and trying to find some demand. So I think thats. An example of where I'd say, we probably making some.
Probably we have made some decisions to slow or.
Traditional commercial efforts abroad, and focus more of those efforts and resources here in the United States, where the product portfolio is a bit more complete and we have line of sight to these new FDA submissions, which I shared or are already in into the FDA.
Got it.
Really helpful. I think I will leave it there.
I appreciate you taking my questions. Thanks very much.
Sure. Thanks Lee.
Our next question comes from the line of Frank <unk> with Lake Street Capital markets. Please go ahead.
Great. Thanks for taking my questions I apologize if I am a little repetitive been hopping between calls, but I was hoping you could talk a little bit more about the laser business. I know you spoke about some competitive pressures in that business as well as when you do end up moving towards or in just thinking about prudently investing in those areas, but maybe just talk more about where you are.
Turning in that initial pilot launch and if Thats changed your strategy for when he spoke to.
A full commercial launch in that and that laser market given some of the competitive factors offset by some of your cost controls that you're speaking to.
Sure Yeah, no I I don't know I would say there is one.
Let me let me answer the question in a few different parts here. So the first is I think the market is actually still a very interesting and potentially exciting market I know the.
Results of the actual market expansion over the past few years has been Jay did a little bit by Covid and certainly more growth on the tumor side than on the epilepsy side of ablation, but nonetheless, I still think that the market certainly worthy of investment and if youre starting from zero, you've got a lot of places.
And existing share that can be taken let alone the market growth itself. So from that standpoint, I wouldn't say that there's a big change in the way that we've spoken about in the past.
From a competitive openness of our system I think we've gotten some very very good early results.
And being able to highlight how our particular device performs in certain certain patient types and be able to document that performance and collect feedback on on why certain parts of the software or certain parts of the laser design or flexibility of the capital and hardware itself, how those things provide.
A meaningful advantage for us in the near term so I feel I feel very good about that as well.
As far as an access in a speed of access standpoint.
There is there is two different axes that I would consider one is one that I did mentioned a little bit ago, which is there's.
There is two types of scanner powers that are out there there is the three Tesla scanners in the one five Tesla.
We currently only have approval for the three Tesla power, which you can argue is more complicated to do with the bigger system, but nonetheless that is where we decided to start.
So all of our installs to date has been in three Tesla scanners and for a customer that's interested in using us but in one five we have to simply say hey, it's on our horizon, but it's not something that we have.
<unk> available to you. So so that's kind of one access where we only have part of the market or access to part of the market. The other access is where does the entire laser procedure take place.
So in the past we've talked about the laser market is as clear point navigation, having an inherent advantage because even if the laser catheter is placed in the operating room.
Patient still has to be transported to the MRI suite, because that's where the laser is turned on inside of the MRI to give you all of the crucial key information or the thermometry information.
So the thought the advanced the thought or advantage, we have a clear point is to say well if you do it with clear point you can do the entire procedure in the MRI and you don't have to worry about transporting that patient right that that was kind of an inherent advantage that we thought made a lot of sense and it still makes sense, what we've run into practically I would say is.
Some hospitals, if it's an older diagnostic magnet and diagnostic room.
It sounds a little strange, but trust me on this one.
Hospital will allow you to do the ablation of the patients in the MRI, but they won't let you do the placement of the device. So it's almost like they say based on the airflow in the hospital or.
Other state by state parameters, they might say hey. This this older room is simply not designed for this so you are not allowed to drill the holes or insert the catheter in the diagnostic magnet you have to do that and you have to do that in the operating room, and then transport the patient. So I think that realization has been a little newer to us but the <unk>.
Reaction for US is to say well that's that's fine we will simply provide you next year with an option to be able to place our laser catheter in the operating room as well where we are.
Working on our own operating room navigation so.
It's another example of in trial instead of trying to force change of how a doctor is doing their procedure today, we're simply going to adapt our products to fit into their existing workflow so that.
That's the other access so when you think about it we probably today only have access to 10 or 20% of the overall patient volume as part of our limited market release, but as we add one five Tesla and as we add our operating room navigation and operating room laser solution.
We'll go from 10% access to 80%, 90% access pretty quickly. So that's that's a big part of our 2024 strategy.
Got it Okay. That's helpful and then maybe on the <unk>.
Shifting to the <unk> opportunity I think we've spoke about this in the past, but I think it's worth talking about again just talking about.
Once you have that entire.
<unk> portfolio of products in place to do those placements in the operating room can you just talk about how the selling process changes at that point.
Your excitement around when that is commercializing.
Yeah, I think I think that will help us quite a bit first from just a market dynamic standpoint.
95 plus percent.
You look at laser and biopsy and deep brain stimulation.
The three primary procedures that stereotactic navigation is used for more than 95% is in the operating room today. So we.
We're.
We're dominant in the MRI navigation, but its a tiny tiny little piece of the market today. So first off it allows us to go where the procedures are actually taking place which is obviously an important.
Important part I think MRI guidance will continue to grow there are certain procedures doctors will tell you, yes, I do some of my stuff, but when this patient comes in and needs of this particular therapy I'm doing this one in the MRI, where the stakes that when the stakes are highest.
And I think that's going to continue to be the case, because those procedures are growing et cetera, but as far as where the volume is today that is in the operating room and this new tool or a series of tools will allow us to directly go after that so that's one element is we'll be playing where the procedures are.
The second part is we will be able to play at a kind of a lower price point to some extent in that space, which again makes it makes it much more competitive to existing procedures and existing budgets that maybe are a little bit more routine where doctors might say, hey, I would love to have the precision of clear point MRI guidance, but for this particular page.
I can probably get away with a little bit maybe less precise less accurate option.
And certainly if I if that's the type of procedure I can save a little money on and having a lower ASP as a hospital operator.
Require that to balance out the overall costs. So this will also allow us to play there and one of the reasons that allows us to play there is that the workflow is a bit simpler if youre not worried about communicating to an MRI magnet and adjusting coils for image quality and all those types of things. So what that means is that we would not have to supply a click.
Nicole specialist for every single procedure, which brings our overall costs down so I think in the operating room youre going to see more of a model where clear point is there for the first five procedures. The first 10 procedures or something like that but our clinical support because of the lower ASP.
Our clinical support starts to roll off over time, and we will still train on new software and new developments and things like that but it won't be a necessity that we have to be there for every case. So our clinical team will focus on laser cases in these comp more complicated MRI procedures and not so much having that added clinical costs in the operating room. So that's in.
Very very key difference.
And then the final one I'd bring up is in some cases, our system will not require new clear point software to be used but rather will be able to use our hardware with.
Our disposable hardware I mean.
Alongside their navigation systems that are already in the hospital. So everything I was talking about before of capital budgets.
Maybe delaying revenue recognition because we didn't wanted to be rentals all of that goes away. If we can just walk in and say hey, Here's a new better mouse trap on the disposable side and it can work with some of the existing hardware and software that's already in your lap. So we don't need even deal with the capital process and that endpoint. So.
So those are kind of the three three elements I would point to on the on the operating room side of thing.
Got it I'll stop there thanks for taking my questions.
Thanks, Greg.
There are no further questions at this time I would now like to turn the call over to Joe burner for closing remarks.
Once again, thank you to.
Everyone interested in being a part of this team's journey here a clear point.
This is an exciting time as we plan for new product and service launches across all four of our growth pillars. We've worked hard to get to this spot and are incredibly excited for the team, but also for the patients that we hope to treat with new devices and therapies in the very near future.
At the end of the day to the patient and their family are why we are here and ultimately who are working for us so with that thank you and have a good evening.
I would like to thank our speakers for today's presentation and thank you all for joining US just now concludes today's call and you may now disconnect.
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