ClearPoint Neuro, Inc. (NASDAQ:CLPT) Q1 2024 Earnings Call Transcript May 7, 2024

ClearPoint Neuro, Inc. beats earnings expectations. Reported EPS is $-0.16289, expectations were $-0.19. CLPT isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the ClearPoint Neuro, Inc. First Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. Comments made on this call may include statements that are forward-looking within the meaning of securities laws. These forward-looking statements may include, without limitation, statements related to anticipated industry trends, the company’s plans, prospects and strategies, both preliminary and projected, the size of total addressable market 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-K for the year ended December 31, 2023, 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, 2024, which the company intends to file within the Securities and Exchange Commission on or before May 15, 2024. All the company’s filings may be obtained from the SEC or the company’s website at www.clearpointneuro.com. It is now my pleasure to introduce your host, Joe Burnett, Chief Executive Officer. Thank you, Joe.

You may begin.

Joe Burnett: Thank you and 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 restore quality of life to patients and their families who are suffering from some of the most debilitating neurological disorders imaginable. In the first quarter of 2024, 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. In 2024, we expect meaningful contributions from not just one, but from all four of these growth pillars as we launch new products and services throughout the year. These new products will allow us to expand into the operating room, expand into laser therapy, expand internationally, and expand into more comprehensive preclinical and clinical trial services as many of our biologics and drug delivery partner’s progress through the regulatory process and begin first-in-human clinical trials for their therapy.

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 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 of 2024 results, total revenue was $7.6 million for the three months ended March 31, 2024, and $5.4 million for the three months ended March 31, 2023, which represents 41% growth versus the first quarter of 2023. Our revenue is made up of three components, biologics and drug delivery, functional neurosurgery navigation and 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 61% to $4.3 million in the first quarter, up from $2.7 million in 2023.

This increase was fueled by our expanded biologics and drug delivery offering. Functional neurosurgery navigation therapy revenue consists of commercial sales of disposable products and services related to cases utilizing the ClearPoint system to deliver medical device therapy to the proper target and the ClearPoint Neuro PRISM laser applicators. This revenue segment declined 18% to $1.9 million for the first quarter of 2024. The decline in this segment was fully due to lower service revenue of $0.5 million. Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software and related services increased 255% to $1.4 million in the quarter from $0.4 million for the same period in 2023 as a result of multiple placements of ClearPoint capital and software and ClearPoint Neuro PRISM laser systems.

Gross margin for the first quarter of 2024 was 59% in line with gross margin of 59% for the three months ended March 31, 2023. Research and development costs were $2.6 million for the three months ended March 31, 2024, compared to $3 million for the same period in 2023, a decrease of $0.4 million or 13%. In line with prior quarters, the decrease was due primarily to lower product development costs as a result of reprioritization of certain research and development initiatives. Sales and marketing expenses were $3.3 million for the first quarter of 2024 compared to $2.9 million for the same period in 2023, an increase of $0.4 million or 12%. This increase was due primarily to additional personnel costs including share-based compensation resulting from increases in headcount as well as increases in travel costs as we expanded our product and service offering.

General and administrative expenses were $2.8 million for the first quarter, a slight decrease of $0.1 million or 4% compared to $3 million for the same period in 2023. Overall, our operating expenses for the first quarter of 2024 were $8.8 million compared to $8.9 million for the first quarter of 2023. We continue to show operating leverage as OpEx was essentially flat, while we grew our revenue 41% compared to Q1 2023. Net interest income was $0.1 million for each of the three months ended March 31, 2024, and 2023 as a result of interest rates remaining relatively consistent. As of March 31, 2024, we had cash and cash equivalents totaling $35.4 million as compared to $23.1 million at December 31, 2023 with the increase resulting primarily from the completion of a public offering of the company’s common stock in March, 2024, which resulted in net proceeds of $16.2 million.

Our cash burn in Q1 2024 was $3.8 million, down 32% from the prior year’s first quarter. We continue to maintain our focus on appropriate resource allocation and cash management, and we’ll continue to focus on demonstrating operating leverage as we grow our revenue. I’d like to turn the call back to Joe.

Joe Burnett: Thanks, Danilo. 2024 is off to a great start for ClearPoint as we have made significant progress toward both financial operating goals as well as strategic product and partnership goals that will benefit the company in 2024 and beyond. This year, we have the potential to grow along a number of different vectors at the same time. This opportunity is a result of the multiple investments we have made into the team and to the portfolio, all of which will start to gain steam [ph] this year. These 2024 growth opportunities include, number one, adding new hospitals and research centers to our installed base at an accelerated rate. Number two, expanding our navigation offering into the operating room where more than 95% of all procedures take place.

Number three, increasing same-store sales with the SmartFrame OR and the PRISM laser therapy system complementing our MRI-guided system with our existing customers. Number four, adding new preclinical and clinical trial services to our biologics and drug delivery portfolio. And number five, participating in the progression of our biotech partners as they move beyond benchtop and preclinical and into first in-human clinical trials. As a result, we expect all of our segments to contribute meaningful double-digit growth to the company in 2024. We continue to expect revenue for the year in the range of $28 million to $32 million, and as already mentioned, we started the year strong with growth of 41% here in Q1. Thus again break that progress down into our four growth pillars.

First, our biologics and drug delivery business, which is our largest segment, continued to perform and grew 61% in the first quarter. Our core ClearPoint navigation system and software and our SmartFlow cannulas continue to be the leading guidance and infusion technology for gene and cell therapy. Due to the confidence of precision targeting with MRI, predictable infusions with our well-studied cannulas and comprehensive documentation of the success of the procedure with live imaging and monitoring using our Maestro AI derived software. We continue to believe our comprehensive solution is second to none and further refinements and add-ons will only extend our leading position. Importantly in Q1, we saw the BLA submission by one of our partners, PTC Therapeutics for their AADC deficiency drug Upstaza.

This is an important milestone and reflects the first-ever neuro gene therapy submission here in the United States and could potentially lead to a first commercial gene therapy product sometime in 2025. We also congratulated another partner, AviadoBio, for their first ever dosing of a human patient with their experimental treatment for frontotemporal lobe [ph] dementia, which is another severely debilitating disease. We continue to expect the phase progression of multiple partners and programs during the balance of this year, leading to additional first in human progress updates as these drug graduate from the bench and preclinical testing into these crucial Phase 1 and Phase 2 trial. We have also added testing and modeling capabilities to our preclinical team which are already showing results with that 61% growth rate.

This includes prototyping of an additional routes of administration as well as new AI derived predictive and monitoring software. These additions to our biologics portfolio allow us to pursue more strategic partnerships with pharma, which may include drug-based clinical milestones, co-development programs, commercial product pricing agreements, and actual drug therapy royalties. Due to the co-labeling or combination device strategy for pharma, our partners fully recognize that we will be an essential part of their supply chain for years to come and we are happy to derisk their programs by providing long-term commitments and other assurances of supply. The most challenging part of our business model is predicting which partners will be successful and when commercialization will be achieved.

Our team has done an amazing job turning these challenges into opportunities. First, we have reduced the success risk by having multiple shots on goal both across indications and across partners. We are currently active in more than 35 different disease states, meaning even if just a few of the diseases we encounter are solved, it could have a significant impact on our current revenue. Similarly, we have created redundancy within these indications, meaning we often have multiple partners looking to treat the same disease and do not need every partner to be successful, only one or two per indication. In this sense, we may be viewed as an attractive [indiscernible] of neuro biotechnology companies where we are diversified across both partners and diseases, but we also do not bear the capital risk of having to fund these expensive clinical trials, limiting our downtime.

Second, we have also reduced the timing risk by adding all of the preclinical services and capabilities to allow us to achieve cash breakeven without having to rely on the commercialization of these drugs. With our current portfolio, we believe that a partner could order each and every one of our existing products and services and create up to a $10 million revenue opportunity for ClearPoint before a drug is ever approved or commercialized. That would equate to an opportunity of close to $500 million over the next 10 years with our existing group of partners. Realizing this opportunity would be more than enough to generate positive cash flow and to fund the company into the commercialization stage of these new-to-world cell and gene therapies.

Just this week, we are again participating in the American Society of Cell and Gene Therapy Annual Meeting in Baltimore, which is on the heels of the European counterpart meeting, which took place last month in Rome, Italy. These meetings often show an immediate return and represent a significant part of our B2B sales process to pharma and biotech companies. It is especially reassuring that many of our partners have successfully raised capital and we seem to be seeing a pickup in the investment into the biotech market. Bottom line is that the market appears to be putting significant capital again into this space and we seem to be in the right place at the right time as both small and mid-cap device companies and biotech both rebound at the same time.

Moving on to pillar number two or functional neurosurgery navigation here we have made progress on a few very important fronts. First, we saw our highest demand ever for our traditional MRI guided system, leading to the opening of eight new customers and approximately $1.4 million in capital revenue, which was a new record. To put this in perspective, in 2023 we added seven new customers the entire year, and this year we have already added eight customers in just the first quarter alone. This shows the accelerated demand for our products and the realization that we offer a unique capability for Neuro Navigation. Even if you do not use ClearPoint for every patient case, having access to ClearPoint is becoming an essential capability for any modern neurosurgery department.

While we do not expect every quarter this year to have eight new customers, $1.4 million in revenue we do continue to have a healthy bundle and expect to keep adding in 2024 at around double the historic rate. Next, we saw the release of our 2.2 software that includes the optional Maestro Brain Model capability. This will be a key feature for our future software releases supporting drug delivery, deep brain stimulation navigation and laser ablation planning and prediction. Finally, we achieved FDA clearance of the SmartFrame OR solution designed to move ClearPoint out of the MRI suite and into the operating room. We announced our first clinical cases just last week and have had all of our early customers either schedule additional cases or already reorder product, which is a great early fun.

As a reminder, this product does not require any hardware or software capital components from ClearPoint and can often plug and play within existing hospital equipment. This will allow SmartFrame OR to likely be our fastest launch to date and we expect to move out of limited market release and into full market release here in the third quarter with meaningful revenue traction in the second half of the year. All in all, this expansion of our customer base is a very positive early indicator as the placement of the razor will allow the razor blade sales to follow in the coming quarters. For our third pillar therapy and access products, we made some terrific progress in the quarter as well. First, our Prism laser therapy limited market release continues to progress with multiple new users and new installations in the quarter, including our very first laser capital sale.

Just to provide some clarification when we talk about adding a new customer to our customer base that means we took a customer who was not using ClearPoint at all and shipped our first product to them. This does not include customers who were already using ClearPoint and then added a new technology like Prism. This example would expand our Prism installed base but would not count as a new customer. Second, we just announced FDA clearance for an important prism accessory that will enable the Prism laser fibers to not only be placed with ClearPoint Navigation in the MRI suite, but to also place Prism laser fibers in the operating room with commonly available navigation and robotic systems. This significantly expands the accessible market as the vast majority of laser ablation procedures are done today with navigation systems other than ClearPoint.

We believe we will be successful in converting some of these customers to ClearPoint Navigation, but as step one, we can now provide a laser solution that fits into their existing workflow and focus on the many best benefits of Prism compared to earlier generation laser therapy options. If you look at our Q1 revenue for navigation and laser disposables, you will see that the segment showed an 18% decline versus prior year. However, if you remove the brain computer interface service revenue, our actual product revenue was pretty much flat. Given the addition of new customers, new operating room navigation and new therapy revenue we expect to return to positive double-digit growth for this segment starting here in the second quarter. And finally, pillar number four of achieving global scale, we have made significant progress as well.

Our international installations continue to grow and we continue to work on regulatory submissions for new geographies on behalf of our pharma partners. We look forward to adding new countries to our set of regulatory approvals to further solidify the global nature of ClearPoint, which is crucial for many drug delivery strategies. As we mentioned on the last earnings call, we want to show progress towards operational cash breakeven by growing revenue and margin dollars while keeping operating expenses relatively flat. In the first quarter you can see we grew revenue by 41% while keeping OpEx essentially flat, which in turn reduced our operational cash burn by 32% for the quarter. The successful execution of a limited and targeted capital raise in March yielded net proceeds of just over $16 million, which solidified our balance sheet with more than $35 million in cash and equivalents, putting us in a solid position to repay our only outstanding convertible debt if necessary in January of 2025.

With that, I would like to open the call to any questions.

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