ClearPoint Neuro, Inc. (NASDAQ:CLPT) Q1 2023 Earnings Call Transcript May 11, 2023

ClearPoint Neuro, Inc. misses on earnings expectations. Reported EPS is $-0.23 EPS, expectations were $-0.18.

Operator: Greetings, and welcome to the ClearPoint Neuro Inc. First Quarter 2023 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 [Operator Instructions]. 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 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 31, 2022, which has been filed with the Securities and Exchange Commission and the company’s quarterly report on Form 10-Q for the three months ended March 31, 2023, which the company intends to file with the Securities and Exchange Commission on or before May 15, 2023. All of the company’s filings may be obtained from the SEC or the company’s Web site at www.clearpointneuro.com. I would now like to turn the conference over to Joe Burnett, Chief Executive Officer.

Joe Burnett: Thank you to all of the investors and analysts on today’s call for being a part of the ClearPoint vision and journey. Our mission and our priority is to help patients restore quality of life for patients and their families who are suffering from some of the most debilitating neurological disorders imaginable. 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, therapy and access products and in achieving global scale. Over the last couple of years, we have seen both the opportunity 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.

These strategic adjustments have included expanding preclinical services and capabilities for our pharma partners, entering the therapeutic device market with the Prism Laser Therapy System, and evolving our navigation platform beyond the MRI and into the operating room. These pivots have given us greater confidence in our growth strategy and have led us to commit to our new manufacturing facility, which gives us the room we require for growth in both products and services while deploying lean manufacturing principles. Our first quarter revenue performance keeps us on track to achieve our prior forecast of between $25 million and $27 million for the year, or a growth rate of 22% to 35% year over year. Our cash usage was also on plan 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 call over to Danilo, our CFO, to review our financial performance in the quarter. After which I will add some additional detail to our four pillar growth strategy. Danilo?

Danilo D’Alessandro: Thank you, Joe, and thank you all for joining us today. Looking at the first quarter 2023 results, total revenue was $5.4 million for the three months ended March 31, 2023 and $5 million for the three months ended March 31, 2022, which represents 8% growth versus the first quarter of 2022. Our revenue is made up of three components; biologics and drug delivery, functional neurosurgery navigation therapy, and capital equipment and software. Biologics and drug delivery revenue include sales of disposable products and services related to customer sponsored preclinical and clinical trials utilizing our products. Biologics and drug delivery revenue increased 24% to $2.7 million in the first quarter, up from $2.2 million in 2022.

This increase was fueled by 60% increase in biologics and drug delivery to service revenue, partially offset by $0.3 million decrease in product revenue. Functional neurosurgery navigation revenue consists of commercial sales of disposable products services related to cases utilizing the ClearPoint 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. Capital equipment and software revenue consisting of sales of ClearPoint reusable hardware and software and of related services decreased 38% to $0.4 million in the first quarter from $0.6 million for the same period in 2022 as a result of fewer placement of ClearPoint Capital and Software.

Gross margin for the first quarter 2023 was 59% as compared to a gross margin of 64% for the first quarter 2022. The decrease in gross margin was primarily due to changes in overhead costs and other inventory costs as well as higher costs for biologics and drug delivery services. Research and development costs were $3 million for the three months ended March 31, 2023 compared to $2.9 million for the same period in 2022, an increase of $0.1 million or 4%. The increase was due primarily to increases in personnel costs, including share based compensation of $0.4 million, offset by lower product development costs of $0.3 million as a result of reprioritization of surgeon research and development initiatives. Sales and marketing expenses were $2.9 million for the first quarter compared to $2 million for the same period in 2022, an increase of $0.9 million or 45%.

This increase was due primarily to additional personnel costs, including share based compensation, resulting from increases in headcount of $0.8 million as well as increases in travel costs of $0.1 million. General and 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 personnel costs, including share based compensation of $0.4 million and an increase in the allowance for credit losses $0.2 million. Net interest income for the three months ended March 31, 2023 was $0.1 million compared to $0.1 million net interest expense for the same period in 2022. 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 31, 2022.

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

Joe Burnett: Thanks, Danilo. Q1 was a successful quarter for our team across our four pillar growth strategy, headlined by record revenue of $5.4 million and growth in our biologics and drug delivery business of 24%. Now let’s break that progress down into our four growth pillars. First, biologics and drug delivery team continued at additional partners and services in the quarter [Technical Difficulty] partnerships remained that more than 50 despite some subtraction due to capitalization constraints of some of the smaller partners, as well as the pause of some programs. The vast majority of our partners, however, continue to move forward and we do expect to add new partners and programs aided by new routes of administration to additional targets for CNS delivery.

An example is the new cell delivery device and IP licensed from UCSF and announced just weeks ago ahead of the AANS conference. We think of the direct infusion market for neuro biologics to fall into four buckets. The two buckets that we currently have partners in represent direct injection to the brain, including gene therapy and now cell therapy. In the future, we plan to demonstrate prototypes of two additional rapid administration, including spinal infusions and longer term indwelling catheters for treatments that take multiple days. Our plan is to be the leading device partner for infusion therapy to anywhere that a neurosurgeon may or want to go. Our existing partners continue to make progress as well, and we expect to initiate multiple new clinical trials and first patient dosings before the end of 2023.

Importantly, our extension into preclinical services has transformed our relationship and duration of partnership, 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 within 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 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. Second, our functional neurosurgery navigation business added new sites to our installed base in the quarter 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. As a reminder, our strategy is not to install ClearPoint 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 in revenue to the company. 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. We continue to host fellows courses throughout the year to train surgeons at these centers and prepare for when these regional centers are doing daily procedures, not weekly or monthly as they are today.

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, biopsy and clinical and commercial drug delivery. Our expanded R&D team has been busy as well continuing development along a number of fronts, including navigation head frames, drill technology, robotic technology and machine learning based software. 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. For our third pillar, our therapeutic products and access devices, we have continued our limited market release and installed two additional Prism laser systems in the quarter with first cases expected here in Q2.

We’ve expanded our clinical trial in Lund, Sweden at the request of the surgeons there and are actively collecting data which we plan to use for CE mark submission under the new European MDR. 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. These cases will help build our educational tools as we look toward a broader relief in 2024. Now it is also important to note that the majority of our investment into the navigation system mentioned in pillar two still applies to biologics and drug delivery, as well as our therapy products. This is the beauty of our platform strategy as much of the investment is applied across many indications.

This is also crucial from a training standpoint. Every biopsy case, laser ablation case or deep brain stimulation case a hospital does with ClearPoint today is in fact training and preparing them to do biologics and brain computer interface cases in the future. Finally, our fourth pillar of achieving global scale has made progress as well, including multiple successful audits, new global regulatory submissions, and the submission of construction plans for our new Carlsbad, California manufacturing facility. This new site is approximately 3 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 and support of pharma partners.

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. From a cash standpoint, we continue to perform in line with our expectations with more than $30 million in cash and equivalents at the end of the quarter, primarily in short term US treasuries. We feel like we have the vast majority of our team already in place to achieve operational cash breakeven and expect future hiring to be focused on scalable personnel in operations and clinical specialists. 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 hands targets and further reduce our operational burn.

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 line performance in the quarter keeps us on track to achieve our prior forecast of $25 million to $27 million in sales or between 22% and 35% growth year over year. With that, I would like to open up the call to any questions.

Q&A Session

Operator: [Operator Instructions] And we’ll take our first question from Neil Chatterji from B. Riley.

Operator: We’ll take our next question from Frank Takkinen from Lake Street Capital.

Operator: [Operator Instructions] And there appear to be no further questions at this time. I’ll turn the floor back over to Mr. Burnett for closing remarks.

Joe Burnett: 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.

Operator: Thank you. Ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.