ClearPoint Neuro Q3 2024 Earnings Call Transcript

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November 7, 2024

There are 6 speakers on the call.

Operator

Greetings, and welcome to the ClearPoint Neuro, Inc. 3rd Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

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 or the market opportunity for the company's products and services and management's expectations, beliefs, estimates or projections regarding future revenue, results of operations or the adequacy of cash and cash equivalent balances to support operations and meet future obligations. 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 ks for the year ended December 31, 2023, and the company's quarterly report on Form 10 Q for the 3 months ended June 30, 2024, both of which have been filed with the Securities and Exchange Commission and the company's quarterly report on Form 10 Q for the 3 months ended September 30, 2024, which the company intends to file with the Securities and Exchange Commission on or before November 14, 2024.

Operator

All the company's filings may be obtained from the SEC or the company's website at www.clearpointneuro.com. And now, I would like to turn the call over to Joe Burnett, President and CEO. Please go ahead, sir.

Speaker 1

Thank you. And thank you to all of the investors and analysts on today's call for being a part of the ClearPoint Neuro vision and journey. Our mission and our priority is to help restore quality of life to patients and their families who are suffering from some of the most debilitating neurological disorders imaginable. In the Q3 of 2024, the entire ClearPoint Neuro team contributed to a record revenue quarter of $8,100,000 and in our view, the strongest financial and strategic performance in our history. We made significant progress across all four of our growth pillars including number 1, biologics and drug delivery number 2, neurosurgery navigation number 3, therapy and access products and number 4, in achieving global scale.

Speaker 1

As we commented on our last earnings call, we are beginning to see the return on the investments we made over the past 3 years in the form of growth across all four of our pillars and not only biologics and drug delivery. We are thrilled to report that all 4 of our growth pillars grew more than 20% in the 3rd quarter with each segment contributing to the overall top line results, while at the same time achieving scale and continuing our reduction in operational cash burn. And as continued from the Q2, we believe we have entered an exciting next phase of ClearPoint Neuro. We have gone beyond being just an MRI navigation focused company. We have added operating room navigation with SmartFrame OR.

Speaker 1

We have added our own laser therapy solution with Prism. We have added significant preclinical services to support early partnership with biopharma and we continue to see progress with our cell and gene therapy partners through the clinical and regulatory pathways to commercial approval on a global basis. The first of such gene therapy approvals has the potential of FDA clearance in the months ahead. We are very excited about how these new products and initiatives are performing in the field as well. I will now turn the call over to Danilo, our CFO to review our financial performance in the quarter after which I will add some details to our 4 pillar growth strategy.

Speaker 1

Danilo?

Speaker 2

Thank you, Joe, and thank you, ladies and gentlemen, for joining us today. Looking at the Q3 2024 results, Total revenue was $8,100,000 for the 3 months ended September 30, 2024, in comparison to $5,800,000 for the 3 months ended September 30, 2023, which represents an acceleration to 41 percent growth versus the Q3 of 2023 and the 4th quarter in a row of growth above 30%. As a reminder, our revenue is made up of 3 components, biologics and drug delivery, Neurosurgery, Navigation and Therapy and Capital Equipment and Software. Biologics and Drug Delivery revenue includes the sales of disposable products and services related to customer sponsored preclinical and clinical trials utilizing our products. Biologics and drug delivery revenue grew 27 percent or $4,400,000 in the 3rd quarter, up from $3,500,000 in 2023.

Speaker 2

This increase was fueled by a 3 53% increase in biologics and drug delivery product revenue as our pharmaceutical customers progress in their preclinical and clinical trials. The biologics and drug delivery product growth was partially offset by $700,000 decrease in service revenue. Neurosurgery navigation therapy revenue consists of commercial sales of disposable products related to ClearPoint navigation system, our Smart Premoire product and Prism laser therapy disposables. This revenue segment grew 49 percent to $2,900,000 for the Q3 as we activated new accounts and expanded the introduction of SmartFrame OR and the Prism Laser Therapy. Capital equipment and software revenue consists of sales of ClearPoint neuro navigation hardware and software and the Prism laser system and of related services increased 133 percent to $800,000 in the 3rd quarter from $400,000 for the same period in 2023.

Speaker 2

Gross margin for the Q3 of 2024 was 60% as compared to gross margin of 57% for the Q3 of 2023. The increase in gross margin was primarily due to an increase in volume and lower costs related to the transition of our manufacturing facility in 2023. Research and development costs were $3,300,000 for the 3 months ended September 30, 2024, compared to $2,400,000 for the same period in 2023, an increase of $900,000 or 36%. The increase was due primarily to an expansion of our research and development initiatives and investments in further innovation. Sales and marketing expenses were $3,500,000 for the 3rd quarter compared to $2,800,000 for the same period in 2023, an increase of $700,000 or 25%.

Speaker 2

This increase was mainly due to additional costs as we expand our commercial reach to support and accelerate our product launches. General and administrative expenses were $3,200,000 for the Q3 compared to $2,900,000 for the same period in 2023, an increase of $300,000 or 9%. This increase was mostly due to higher headcount costs. With respect to our cash position, as of September 30, 2024, we held cash and cash equivalents of $21,600,000 compared to $32,800,000 as of June 30, 2024. In August 2024, we proceeded with an early repayment of the entire principal and interest outstanding on our existing convertible loan for a total amount of $10,100,000 As of September 30, 2024, we have no outstanding debt.

Speaker 2

In line with the prior quarters, we continue to meaningfully reduce our operational cash burn. Our operational cash burn in Q3 was down to $1,200,000 a 33% reduction from the prior year's Q3. In the past trailing 12 months, our operational cash burn was $8,900,000 This represents a 43% reduction compared to the corresponding prior 12 months period that is from October 2022 to September 2023. With that, I'd like now to turn the call back to Joe.

Speaker 1

Thanks, Danilo. As mentioned previously, 2024 continues to be a great year of execution with a 38% year over year to date increase in revenue, a 39% reduction in operational cash burn, multiple new product launches, additional long term pharma partnerships, global expansion of our portfolio and a strong cash position with a debt free balance sheet. As always, let's break that progress down into our 4 growth pillars. Starting with pillar number 1, biologics and drug delivery. We had a terrific quarter on numerous fronts.

Speaker 1

Let's talk about 4 recent key milestones in our gene and cell therapy business. First, as Danilo mentioned, we saw a significant increase in actual product sales to pharma partners. This is very important as it shows the progression of our partners who are advancing along the regulatory pathway. Our early engagement with pharma is normally heavily weighted towards service revenue. We begin with strategy discussions, discovery consultancy, pilot studies and bench top testing, which generally have limited product sales and higher service sales.

Speaker 1

Later in the engagement, we generally move into supporting non clinical studies, clinical trials, post procedural data analysis and eventually commercialization where the partners or the hospital is purchasing actual navigation and infusion products. This is where we see product sales to biopharma generally outpace service sales and demonstrates that continued progression of our partners through this regulatory process. 2nd, we have now seen multiple partners selected for various accelerated FDA pathways designed to speed the clinical trial execution and eventual regulatory approval of these new to world cell and gene therapies often referred to as regenerative therapies. We now have 7 partnered programs that have been designated as either fast track, priority review or RMAT, which highlights the importance that the FDA has placed on the entire cell and gene therapy market and the recognition of the life altering impact that these drugs may have to patients. While there's never a guarantee of timeline or approval, it is very reassuring and exciting that the FDA has created these accelerated pathways and that many of our partners have demonstrated significant enough progress and clinical results to be eligible for these programs in the 1st place.

Speaker 1

In total, if we added together all of the indications that are now included in these expedited programs alone, the total patient prevalence is measured in the millions of patients globally. 3rd, we continue to make progress expanding our preclinical services and capacity with the next stage goal to be GLP ready and to commence with our initial ClearPoint driven GLP studies later in 2025. Our team continues to feel confident in the demand for our products and services as well as our unique expertise. We believe in our ability to execute larger studies under GLP compliant procedures and facilities in the very near future. This further evolution of our drug delivery business will continue to expand not just in the value that we provide, but also in the potential to build even stronger and earlier long term structured relationships with the pharmaceutical industry through the continuum of services.

Speaker 1

And 4th, speaking of those relationships with pharma, we are excited to share that we have now executed strategic agreements across all of our desired frameworks, proving that we do in fact provide unique capabilities that are valued by the cell and gene therapy community. These frameworks also demonstrate our creativity and our flexibility on how we can collaborate based on the needs of each individual biopharma partner. We obviously cannot provide specific individual pricing or confidential strategic information, but what I can share is that we have now successfully signed agreements representing 4 different revenue structures and sometimes a combination of all 4. These can be number 1, co development where a partner pays a development fee and development milestones to ClearPoint for the custom development of a delivery device or software that will be used in their preclinical and clinical trials. Number 2, commercial pricing where a partner intends to provide their drug once FDA approved in a kit with the ClearPoint Neuro technology to simplify the commercial delivery of the product and purchase the devices directly from ClearPoint instead of ClearPoint Neuro selling the product to hospitals.

Speaker 1

The commercial pricing is at a premium when compared to non clinical and clinical trial device pricing. Number 3, clinical milestones whereby ClearPoint Neuro receives cash payments upon progression of a therapy through its regulatory pathway. For example, approval of an IDE or IND study granted by the FDA or the 1st patient enrolled in a trial. Importantly, these milestones can happen during the drug discovery and regulatory process and do not have to take place at the very end with a commercial approval. And finally, a royalty payment to ClearPoint Neuro on the drug itself based on commercial sales of the gene or a cell or gene therapy, which is delivered using ClearPoint delivery devices.

Speaker 1

As a reminder, while not assured, we believe it is likely that these new 2 world drugs will be approved as combination devices with the ClearPoint neuro cannulas and catheters as we have seen in the European Union for the very first neuro gene therapy approved. Our company therefore becomes an essential supplier to our pharma partners. As a result, our partners are looking for very long term agreements, assurances of supply, access to ClearPoint Neuro's unique intellectual property, redundancy of manufacturing and even more. It is this long term need and partnership that puts us in a unique position to earn increased future revenues for our products and services beyond simply the price of a single disposable device. Moving on to pillar number 2, which is neurosurgery navigation, we saw continued and accelerated customer site activations and product sales in the quarter fueled by both placements of our traditional MRI guided navigation system as well as the continuation of the full market release of our SmartFrame OR or operating room system designed for use with CT scanners in the operating room.

Speaker 1

We have also seen 2 very exciting developments in the DBS space that took place in the Q3. First, Medtronic got approval or approved labeling for a sleep DBS procedures based on the wealth of compelling clinical evidence that excellent outcomes are achieved when the patient is comfortably asleep versus awake for these DBS procedures. This new labeling will allow a large company like Medtronic to begin educating patients on the technique, which was not possible without this new FDA labeling historically. 2nd, Abbott has announced that the TRANSCEND study, which is designed to study the use of DBS to treat severe depression. While it will likely take years before this new indication is achieved, the TRANSCEND study itself will enroll 100 patients and many of the participating in centers have communicated to us that they plan to use ClearPoint technology as their preferred navigation system.

Speaker 1

This will allow ClearPoint to participate in these trial patients and also be involved from the very beginning of this new indication. As a reminder, we have historically activated approximately 6 to 8 new customers each year. With the 5 that we added here in the Q3 that brings our total up to 19 for this year and actually more than 20 at the time of this earnings call. These accelerated placements have helped fuel not only our disposable product sales which we will talk about in a second but also capital, rental and service sales, which more than doubled versus a year ago. We had communicated an earlier goal of achieving 100 global activated sites by the end of 2025, but given this new pace of placements, we believe we will achieve 100 by the first half of twenty twenty five, if not sooner.

Speaker 1

Next, let's move on to pillar number 3, which is the therapy and access products. In the Q2, we obtained FDA clearance for the Prism Anchor Bolt accessory, which has opened the door for use of our Prism laser system with some existing robotic systems at sites that prefer to use robotic navigation in place of our ClearPoint navigation. Here in the Q3, we released new product packaging and compatibility with 3rd party anchoring mechanisms that can help us to get access to hospitals quicker by not needing to put additional new ancillary devices through the hospitals back approval process. These new releases may seem simple, but they are important steps to adoption and they show our customers that we are listening to their feedback, iterating quickly and doing everything we can to make adoption of Prism fit comfortably into their existing hospital workflow with as few changes as possible. While we do remain somewhat limited to about half of the laser market today as our system is currently only approved for 3 Tesla scanners, we are there are plenty of target hospitals to keep us busy while we develop the regulatory pathway for 1.5 Tesla scanner approval, which we do anticipate becoming available in 2025.

Speaker 1

We are also making significant progress toward being able to commercialize an MRI conditional power drill, which we believe will be a powerful complement to our therapy and access products. This tool developed by our partner Adior Medical is designed to provide significantly faster access for surgeons than our current hand drill and has the potential to meaningfully reduce procedure times. Once development is finalized and the drill is ready for commercialization, ClearPoint Neuro will be the exclusive worldwide distributor for this new product. Now when we report numbers for neurosurgery navigation and therapy, we bucket them together into medical device disposables. As Danilo mentioned, this segment grew 49% in the quarter and is again driven by from 3 disposable revenue sources, MRI navigation, operating room navigation and laser therapy.

Speaker 1

Overall, our product sales once again more than doubled versus a year ago, which has a positive impact on gross margin due to the increased throughput at our factory. Finally, let's talk about pillar number 4, which is in achieving global scale and profitability. This was another disciplined quarter from a spending standpoint that saw 41% revenue growth while reducing operational cash burn down to only $1,200,000 which represents a 33% reduction versus Q3 of 2023. We continue to believe that a cash flow breakeven quarter by the end of 2025 is possible and we feel that our strong cash position today with over $21,600,000 in cash and cash equivalents and no debt on our balance sheet. By retiring our only outstanding debt in the quarter, we have significant optionality to service any future capital needs and we'll review our capital planning in the context of driving profitable growth.

Speaker 1

We continue to believe our revenue for the full year will fall between our previous guidance of 30 $1,000,000 to $33,000,000 representing growth of between 25% 38% for the full year. With that, I will now open up the call to any questions.

Speaker 3

Your first question comes from Matt Blackman with Stifel. Your line is open.

Speaker 4

Hi, this is Emily on for Matt. Congrats on a great quarter again.

Speaker 1

Thanks, Emily.

Speaker 4

Just looking to 2025, and I understand there's no guidance today, but can you just call out some of the general headwinds, tailwinds that should be on our radar, maybe any inflection points with the GLP or what have you?

Speaker 1

Yes. I mean, we're not quite prepared to get too far into 2025, Emily, as I think you pointed out. But there's certainly some factors that I think are making us feel pretty good about our growth prospects. From a practical standpoint, we don't see any reason or any headwinds relative to market development or growth of the underlying surgeries. If anything, we expect more surgeries to take place next year related to continued use of deep brain stimulation.

Speaker 1

The fact that as I mentioned earlier on the call, Medtronic now has clearance to be able to promote sleep DBS. There's a number of studies and publications that have shown that one of the primary reasons that patients are indicated for DBS, but don't go through with the procedure is because they find out that they would be awake during the procedure. And quite frankly, that's scary to many patients. With this new indication, companies like Medtronic as well as the surgeons themselves can promote and educate these patients that there is in fact another option, which we believe is going to drive more patients to go through with the procedure. It's coupled with the fact that there are a number of new indications for DBS around epilepsy, around OCD, and new studied indications, like I mentioned, for severe depression that I think will grow those underlying markets.

Speaker 1

We've also heard positive results relative to demand for laser therapy, particular on the tumor side of things, where hospitals have realized that if they do a number of laser procedures for tumor, the patients are generally discharged from the hospital in under 24 hours compared to 2 or even 3 days sometimes with an open resection. So cleaning up these past procedures, if you will, including radiation necrosis and getting the patient out of that hospital bed in under 24 hours so that a new patient can take their spot is something that's very attractive to these hospitals. So we do see them continuing to grow their position there. And then finally, the progress that we're seeing with a lot of our cell and gene therapy partners, even if nothing is commercially approved yet, albeit the first one is on the horizon here, we hope. Even the entry or the progression from 0 patients to a safety study or from a Phase 1 safety study into a Phase 2, even Phase 3 pivotal or combination study can drive significantly meaningful revenue to us as well.

Speaker 1

To put it in perspective, we've seen clinical trial Phase 2, Phase 3 protocols for things like Parkinson's disease, which could be anywhere from 180 to 220 patients. So you stack 4 or 5 of these studies on top of each other and that's pretty close to the total number of procedures we did in all of 2023. So these could be meaningful as well. So we do see quite a bit of opportunity still that I would think is tailwinds in the underlying markets, let alone the new technology that we're advancing. The other thing I'd bring up that I've been asked about in the past as well is this past year, the company just barely missed the cutoff relative to the Russell Index, the Russell 2000.

Speaker 1

So as a result, a lot of our sort of index fund holders had to cycle out of the stock itself, which created a significant headwind. As you can tell from our market cap today, we'd be very, very comfortably in that Russell qualifier for next year. So assuming nothing significant changes, that tailwind we saw in 2024 could become a I'm sorry, the headwind that we saw in 2024 could be a tailwind for our stock in 2025. And we just have to do everything we can to continue to execute between now and then.

Speaker 4

Okay, great. And just a follow-up if I could. Up to 20 new placements today, year to date, is that a new normal? I mean, it has been 6, 8, 10 maybe, but should we be thinking more 2025 going forward?

Speaker 1

I would expect that the new normal for us is certainly in the double digits. I don't see us returning to a 6 to 8 number. I'd say, we're probably in very advanced conversations with at least 50 additional hospitals today, and we're at least in some level of conversation with more than 100. So, I think there's plenty of room for us to grow, especially as we start to do more and more in the operating room. One of the really one of the biggest things that held us back in the past was that so many hospitals would like to work with ClearPoint that they simply did not have access to an MRI magnet, maybe the magnet was owned by radiology or maybe certain certifications at the hospital would not allow a surgery to take place in the MRI.

Speaker 1

So we were completely shut out of those hospitals and that's simply not the case anymore now that we can launch our technology into just an everyday operating room with equipment like CT scanners and interoperative CTs that are readily available for any one of those centers.

Speaker 4

Right, great. Okay. Thank you very much.

Speaker 1

Yes. Thanks, Emily.

Speaker 3

Your next question comes from Frank Tuck in with Lake Street Capital. Your line is open.

Speaker 5

Great. Thanks for taking the questions. Congrats on all the progress. I'm going to follow-up on the last line of questioning a little bit on the new system activations. Can you maybe parse out which or how many of those or how many year to date are just SmartFrame OR activations and just how much I know you touched on that a little bit in the tail end, but just how much that has contributed to the new activation and then where that disposable revenue can go?

Speaker 5

Yes,

Speaker 1

happy to give you a couple of examples there. So I would say, I have to think of the exact number, it might be a little off, but the magnitude will be there. I believe of those 19 activations this year, I think only 2 or 3 of those we would count as new activations from SmartFrame OR. And it doesn't mean that we're only using the OR product at 3 centers. What it means is that, we do not count a new activation if they were already using ClearPoint in the MRI and then they also added SmartFrame OR.

Speaker 1

We don't count that as a new activation. That's an existing customer that we're going deeper into that customer because we have additional complementary technology. So to directly answer your question, Frank, of those 19, I think it's 3 that the operating room enabled for us. So it shows you we really have quite a long way to go. We're absolutely just getting started.

Speaker 1

But I think that's also the nature of a limited market release. You generally go to customers that are familiar with ClearPoint first to make sure that the product is doing exactly what it's supposed to before you go into sites that have had no experience, if you will. The second part of your question, it's kind of meaningful and a really, really important part is to where the disposables can go. We had a webcast that was performed by Doctor. Connor at the University of Oklahoma recently and I think he's a very good example of what the potential here is.

Speaker 1

This is a surgeon whose hospital the surgery group did not own the MRI magnet. It was owned by radiology. So he had been able to negotiate about one day of magnet use every month. So even if he had 50 or 60 DBS procedures he wanted to do each year, he could only do about 10 to 12 with us because that's what he got the magnet time for. Now that we've enabled him to use ClearPoint in any environment, either the MRI or the operating room, we're routinely doing maybe 4 or even 5 a month with Doctor.

Speaker 1

Connor. So you can put in perspective, now we're not leaving 80% of his volume on the table because we were not in the operating room. We're now able to actually win and earn his business for that other 80% because he and the team have gotten familiar with the ClearPoint system in the MRI as well as the ClearPoint OR. So if we can replicate that experience at a number of different centers, this is not this technology is not only about going to new hospitals, but it's actually increasing utilization and same store sales at existing hospitals as well.

Speaker 5

Got it. That's helpful. And then maybe one follow-up directly on that again. How many smart or how many of your 90 accounts have SmartFrame OR today?

Speaker 1

I would say there's maybe 6 or 7 or so in that order of magnitude. And then I'd say there's another 10 or so accounts where we're what I would say is in advanced conversations in front of the back committee. So for those who are not familiar, the value analysis committee is a standard process of any hospital. Once anytime you have a new technology, you have to establish pricing, you have to show that it's got legs and benefit to the hospital, to the surgeon and certainly to the patient. So there's a review process that takes place.

Speaker 1

Sometimes the back committee meets every week, sometimes it meets once every 3 months. So you have to really get in line, get on the schedule and get going. But we have at least 10 of those committee meetings that are going on as we speak.

Speaker 5

Got it. And then last one for me. Gross margins have trended favorably. How should we think about where gross margins can go with some of the new products in the bank?

Speaker 1

From a disposable standpoint, if we get to any meaningful scale at our Carlsbad facility, there's no reason we can't be at 70% gross margin on the disposable side. And that includes cannulas as well for drug delivery trials. That certainly involves cannulas where they're not using our navigation at all. In some cases, there might be 1 pharma customer that doesn't want to use our navigation, but they're going to use 5 or 6 of our cannulas. That's a very profitable procedure for us because the cannulas is easier to make than the navigation frames.

Speaker 1

The drag that sometimes we get quarter to quarter on the margin standpoint is really if we have a really good capital quarter, for example, our capital margins of selling the head frames, some components, for example, we don't make any money on. They're just a necessary piece of equipment that the hospital needs to do the procedure from another vendor. So our margins are in that 35% to 45% range there. So it's not a bad deal for us. We actually still make money on that transaction.

Speaker 1

However, if you happen to have 1 quarter where we sell 3 or 4 systems like we did in the Q1 of this year, I think our overall capital revenues were around $1,300,000 or $1,400,000 That can actually drag the total margin down a little bit just from a mix standpoint. But when we get to scale and you can imagine us doing 50 dollars 60,000,000 $70,000,000 of disposable revenue each year and capital revenue kind of staying flat, our margin should be comfortably in the 70s at that point.

Speaker 5

Got it. That's helpful. Thank you.

Speaker 1

Thanks, Rick.

Speaker 3

There are no further questions at this time. I'd like to turn the call back to Joe Burnett, President and CEO of ClearPoint Neuro for any closing remarks.

Speaker 1

Once again, thank you to everyone interested in being a part of this team's journey here at ClearPoint. This is an exciting time as we plan for new product and service launches across all four of our growth pillars. We have worked hard to get to the spot and we are incredibly excited for our team, but also for the patients that we hope to treat with these new devices and therapies in the near future. The patient and their family is why we are here and ultimately who we are working for. Thank you and please have a good night.

Speaker 3

This concludes the ClearPoint Neuro Q3 2024 Financial Results Conference Call. Thank you for attending and have a wonderful rest of your day.

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