ClearPoint Neuro (NASDAQ:CLPT) Q4 2019 Earnings Call

0:00 Greetings. Welcome to the ClearPoint Neuro Incorporated fourth quarter and fiscal year 2019 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. Comments made on this call may include statements that are forward-looking within the meanings of security 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, and management's expectations, beliefs, estimates, or projections regarding future results of operations.

0:49 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, 2018 and the company's quarterly report on Form 10-Q for the quarter ended September 30, 2019, both of which have been filed with the Securities and Exchange Commission and the company's annual report on Form 10-K for the year ended December 31, 2019. which the company intends to file with the Securities and Exchange Commission on or before March 30, 2020.

1:35 All the company's filings may be obtained from the SEC or the company's website at www.ClearPointNeuro.com. I will now turn the conference over to our host, Joe Burnett, Chief Executive Officer. Thank you. You may begin. Thank you, Diego, and good morning, everyone. Good afternoon, rather. Welcome to our fourth quarter and full year 2019 earnings call. With me on today's call is our Chief Financial Officer, Hal Hurwitz. As always, we thank you for your continued support as our team works relentlessly to improve the quality of life for patients battling some of the most debilitating neurological disorders. We believe that 2019 is clearly an inflection point in our company history.

2:21 We deliver growth in all four segments of our business, driven by above-planned performance by our commercial and our clinical specialist teams. In a testament to the dedication of our development and operations teams, we made impressive progress across our portfolio of navigation and therapy programs, which we now expect to result in FDA submissions or market introduction of numerous new products in 2020. In transactions that were completed in May of 2019 and January of 2020, We secured more than $25 million of financing from strategic partners that strengthened our balance sheet and facilitated us becoming a NASDAQ-listed company, an accomplishment driven by our finance and legal teams. And finally, the culmination of all of these individual parts enabled us to win multiple new biologics and gene therapy partnerships, which will lead to exciting new applications in the years ahead. It is not a coincidence that the totality of these developments led us to change our corporate name to ClearPoint Neuro.

3:23 We feel we are a truly new company with an exciting future ahead. Just as important, the numbers that accompany the story are equally impressive. Let me highlight a few metrics of our progress. We posted another record quarter in revenue in the fourth quarter, leading to a record year in 2019. Total revenue for the year grew more than 50%, biologics and drug delivery revenue more than doubled, Cases grew by 20% to a record 801 for the year. We finished the year with 60 active clinical sites, including new installations in the fourth quarter at Beth Israel Deaconess in Boston and at the Cleveland Clinic. And we accomplished all of this with a cash burn from operations of just $2.8 million for the year and just $466,000 for the quarter.

4:14 Hal will cover this in more detail shortly. We are also looking forward to our analyst day and bell ringing ceremony this Friday at the NASDAQ market site in New York City. This is the first time we have hosted an investor analyst day and we are excited to be able to spend more time introducing interested parties to our technology and just as importantly to our team. We have put a lot of work into our portfolio and partnerships and we look forward to sharing that progress with you. In addition to our management team, we will have our development and clinical teams on site for hands-on demonstrations of the ClearPoint platform as well as some future iterations that are currently in development. At this point, I'd like to turn the call over to Hal for a few minutes to highlight our operating results for the fourth quarter and for the full year 2019, and then I'll come back to provide some additional detail on our market and clinical activities and updates to our four pillar growth strategy.

5:07 Hal? Thank you, Joe. For the fourth quarter ended December 31, 2019, total revenues were a record $3.2 million. This is an increase of 41% year over year and our fifth consecutive quarter of record revenue. Breaking that down a bit to the underlying product areas, functional neurosurgery revenues increased 7% to $1.7 million for the three months ended December 31, 2019, compared with $1.6 million for the same period in 2018. The increase was primarily due to an expanded customer base and increased utilization by our existing customers of MRI scanner availability.

5:52 Biologics and drug delivery revenues, which include sales of disposable products and services related to customer sponsored clinical trials, increased 99% to $1.1 million for the three months ended December 31, 2019, from $540,000 for the fourth quarter of 2018, driven primarily by increased product sales to new and existing customers. Capital equipment product sales and related service revenue increased to $446,000 for the three months ended December 31, 2019, versus $174,000 in the prior year fourth quarter. We now have 60 active surgical centers using ClearPoint, 34 of which are utilizing our ClearPoint 2.0 software, up from 29 such centers in the 2019 third quarter.

6:45 Gross margin for the 2019 fourth quarter was 71% compared to gross margin of 70% for the same period in 2018. Gross margin varies slightly quarter to quarter based upon our revenue mix between capital equipment, services, and disposables, and our higher contribution from capital sales in the current year fourth quarter which bears a lower margin than other revenue lines did have an effect. However, as I've mentioned before, sales of capital equipment is the initial building block in expanding our installed base, enabling our razor blade model, and increasing the number of our active centers. Detailing our operating costs, research and development expenses were $880,000 for the three months ended December 31, 2019.

7:33 compared to $481,000 for the same period in 2018, an increase of 83%. Sales and marketing expenses were $1.5 million for the three months ended December 31, 2019 compared to $879,000 for the same period in 2018, an increase of 72%, attributable primarily to increases in incentive compensation tied to increased sales, and in the expansion of our field's clinical team. General and administrative expenses were $1.3 million for the three months ended December 31, 2019, compared to $1.2 million for the same period in 2018, an increase of 8%.

8:20 With respect to the 2019 full year results, a few key highlights. Total revenues were $11.2 million, an increase of 53% from $7.4 million the prior year. Functional neurosurgery revenue increased 29% to $6.9 million, driven by a record 801 cases, as Joe has mentioned, utilizing the ClearPoint Neuronavigation System in 2019, an increase of 20%. Biologics and drug delivery revenue increased 116% to $2.6 million for 2019, due primarily to the growth of both clinical services and product sales. Capital equipment sales and related service revenue approximately doubled to $1.7 million for 2019 due primarily to an increase in sales of ClearPoint systems.

9:15 Gross margin for the year ended December 31, 2019 with 66%, down slightly from 67% in 2018. primarily due to the increased contribution from lower margin capital equipment sales substantially offset by an increase in sales mix from sales of services which bear higher margins relative to other lines of revenue. Cash at December 31, 2019 was $5.7 million compared to $3.1 million a year ago, which reflects the completion of an equity private placement in May 2019 that was led by PTC and as Joe has mentioned, the continued reduction of our operational cash burn. With that, I will now turn the call back to Joe.

10:02 Thank you, Hal. 2019 represented a year of execution, growth and preparation for an exciting future, navigating both therapeutic devices and gene therapy, biologics and drug delivery. We could not think of a more powerful way to emphasize our excitement about this new future than to change our company name to ClearPoint Neuro. a name that underlines both the value of our ClearPoint navigation platform and our focus on patients struggling with debilitating neurological disorders. As of today, our company began trading on the NASDAQ under the ticker CLPT for ClearPoint. As we have been doing on each call recently, let me cover a few highlights within our four growth pillars to bring you up to date on our efforts.

10:48 In pillar number one, continued growth in functional neurosurgery navigation, Sales continued to accelerate as demand for our products grew. We completed a record 801 cases in 2019, up 20% from 670 in the prior year. In the quarter, we installed ClearPoint at two additional sites for a total of 60 active surgical centers using ClearPoint. The two sites in the fourth quarter, as I mentioned before, were Beth Israel Deaconess in Boston and at the Cleveland Clinic. We have also focused heavily on improving site utilization this year. and particularly our two-a-day approach that is fully supported by the ClearPoint 2.0 software upgrade. We now have 10 sites using our two-a-day procedures protocol, which we believe provides better economics to our hospital partners and encourages greater adoption of our platform by other neurosurgeons.

11:42 Additionally, our ClearPoint 2.0 platform is now installed in 34 of our 60 active surgical centers, up from 29 last quarter. This platform is commercially available to every center today and offers many tailored workflow and planning enhancements designed specifically to meet our users' needs based on the feedback across more than 3,500 ClearPoint cases that have been completed to date. Our development team has also made significant progress in our next generation ClearPoint system and SmartFrame, which we will showcase at our Investor Day on Friday. This next-gen system is designed to facilitate faster procedures eliminate the need for a clinical specialist to be present at the simpler cases and enable part of the procedure to be formed in the operating room to address some hospital's desired workflows.

12:30 We expect this next generation system to be submitted for FDA clearance by the end of 2020 and begin cases in the first half of 2021. For pillar number two, growth in our biologics and drug delivery business, we continued our relationship with approximately 20 different partnerships in 2019. As I mentioned last quarter, these efforts include an additional development agreement with a new partner that we expect will contribute meaningful revenue in the next 12 months as we seek to increase our activity in this pillar and replicate our groundbreaking blueprint agreements with new partners. We are very excited about our increasingly proven partnership approach as it further demonstrates the unique and important benefits of precise navigation and real-time monitoring for critical and high-cost clinical programs.

13:18 We are also thrilled in the confidence of many gene therapy companies that now feel commercial approval for these types of new-to-world therapies may be measured in the months ahead and not necessarily years. Pillar number three is the launch of our own therapy products. We successfully shipped our first therapy revenue in the laser ablation and aspiration space in 2019. While we do not expect meaningful revenue from therapy products in 2020, Our team has made substantial progress working with our laser therapy partners in preparation for a 2021 limited market release. We currently expect to complete our FDA submission by the end of 2020 and perform our first human clinical cases using the NeuroLaser in the first half of 2021.

14:06 Turning to pillar number four, global scale and efficiency, we achieved 53% year-over-year growth rate on a smaller increase in OpEx as we continue to gain operating leverage. With our strengthened balance sheet, we can now continue to focus on top-line revenue growth as we take advantage of the opportunities in front of us in various therapies, but especially in our gene therapy and biologics partnerships. I hope that you can feel the excitement and optimism that we all share here at ClearPoint Neuro. We plan to publicly announce preliminary guidance for revenue in 2020 on Friday of this week at our Investor Analyst Day. Also on Friday, we'll help to expand on other aspects of what is taking place in the year ahead.

14:53 With that, I will go ahead and turn the call over to the operator for our question and answer session. Thank you, sir. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. That's a star key followed by the one key on your telephone keypad. Confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Our first question comes from Brandon Hedgepass with RTM3.

15:40 Please state your question. Hi, guys. Yeah, I was just wondering if you could shed some light on who you guys view as your competition, what companies, and then what technologies that would compete with the ClearPoint system at this time. All right. Well, thanks for the question, Brandon. There's a couple different ways to think about competitors. I think, without a doubt, our biggest competitor these days is just the lack of the number of surgical procedures that are being done. As an example, there are more than a million people here in the United States that suffer from Parkinson's disease, yet there's only about 6,000 that are treated with deep brain stimulation each year. So one big competitor is the continued development of drugs that kind of delays this eventual surgical treatment, and that's certainly something where we need to be able to move higher up in the funnel.

16:36 From a technology standpoint, Our biggest competitor is really some of the optical navigation systems that enable the procedures to take place in the operating room and not necessarily in the MRI suite. Again, we're one of the very few companies that enable live MRI guidance where a surgeon can actually physically see the movements that they're making inside the scanner. When these procedures are done in an operating room, they've taken a patient's prior MRI scan and they fuse it to a live CT. So the surgeon is actually looking at movement on a CT and hoping everything is still in the same place based on the fusion to the prior MRI image. So again, more than 90, maybe even 95% of procedures today are still done using optical navigation systems and stereotactic head frames in the OR versus what we do in the MRI scanner. So without a doubt, that's our biggest competitor today, I would say.

17:38 But the two types of procedures do different things. So in some cases, for very complex cases, for cases where a biopsy, for example, where you're very close to the brainstem and you want to make sure you're sampling the right tissue, in those cases, we're very much a compliment because most surgeons would be reluctant to do that under CT guidance. And some of those, just by name, some of those technologies, Brandon, are... The Medtronic Stealth System is an example of something that's used in the OR. The Brain Lab System is the other large, kind of large player in the space. Those are the two biggest. I agree. That's helpful. And then a quick follow-up question. So given that you guys are doing these procedures in the MRI suite, is it, are the hospitals, or is it tough to get hospitals to schedule that time for those procedures? Or is that something, given that MRIs are Fairly, you know, booked up in hospitals given throughout the day.

18:39 Is that, you know, is that a hard sell for the hospital, for you guys to the hospitals given that there's limited time for an MRI suite? Yeah, you know, it's a very fair question and it's absolutely one of the barriers that we do run into. I'd say about 70 to 80 percent of our procedures are done in diagnostic MRI scanners. where our company and our team come in and we really turn a diagnostic scanner into a surgical suite for the day. So we put a drape over the bore. The surgeon, just like you say, the surgeon has to kind of negotiate for MRI scanner time with the radiology department. And in some cases they don't always get the time that they need. Now the reality is that a couple things do work in our favor here.

19:28 Number one is that the Revenue that a hospital can generate by doing two of our, let's say, deep brain stimulation implant cases in an MRI suite is significantly more than the eight or ten diagnostic scans they would do that day. So from a financial standpoint to the hospital, at least on the top line, absolutely it's beneficial to do our types of procedures. The second thing that benefits us is that there's a movement towards something described as interoperative MRIs. or iMRIs. Really all the big scanner companies make it. A company based in Minnesota called Imris, it's owned by Deerfield. They kind of have the sort of the high end version or a high end version of the suite.

20:16 These hospital suites, when they go in, these interoperative MRIs, they are designed specifically for surgery. And in the vast majority of cases, they are owned by the surgical team, not the radiology team. So scheduling in those MRI scanners is really not an issue at all. And then the third thing that works in our favor is that we're not necessarily treating patients with stroke where you have 45 minutes or 90 minutes to get to some level of suitable treatment. When we're treating some rare genetic disorders or Parkinson's disease or epilepsy, these are normally procedures that are scheduled at least three or four weeks in advance. It's really only some of the very aggressive tumor cases where we need to say, hey, we have to be in there in the next 48 hours. So those are a bit more rare.

21:01 Okay. All right. Thanks for that. Sure. Thank you. Once again, if you'd like to ask a question at this time, press star 1 on your telephone keypad. We'll pause for a couple moments for additional questions. Ladies and gentlemen, there appears to be no additional requests for questions, and I'll turn it back to management for closing remarks. Thank you. All right, Diego. Well, thank you for joining us today and for your continued confidence in our ability to provide important medical advances in treating patients who suffer from these very debilitating neurological diseases. We expect to see growth ahead in our core neurosurgical cases, our biologics partnerships, and in developing our own therapeutic tools.

21:52 We are also excited for the year ahead in 2020 and for our event this Friday at the NASDAQ market site to kick off what we hope will be another excellent year of exciting progress and of results. If you have interest in joining us this Friday or at one of our upcoming investor conference events, please contact Matt Kreps at Darrow Associates, our investor relations firm, using the contact information in our press release. He will work to ensure you're added to the meeting rosters at these or other upcoming events. On behalf of our entire team, we thank you for your continued support and look forward to reporting on our progress ahead. Thank you very much.