ClearPoint Neuro, Inc. — Q1 2020 Form 10-Q
Business and period. Unaudited results for the three months ended March 31, 2020, compared with Q1 2019. ClearPoint Neuro develops and commercializes MRI-guided technologies for minimally invasive procedures, principally its ClearPoint brain-navigation system. The company changed its name from MRI Interventions, Inc. and began trading as CLPT on February 12, 2020.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Total revenue | $3.116 million | $2.473 million; up 26% |
| Gross profit / gross margin | $2.198 million / 71% | $1.586 million / 64% |
| Operating loss | $1.208 million | $0.972 million |
| Net loss | $2.055 million; $0.13 per share | $1.221 million; $0.11 per share |
| Cash used in operations | $2.330 million | $0.609 million |
| Cash and cash equivalents | $16.976 million at March 31 | $5.696 million at December 31, 2019 |
| Total assets / liabilities | $23.585 million / $20.825 million | At March 31, 2020 |
Product revenue was $2.103 million, down 3%; service and other revenue was $1.012 million, up 228%. Biologics and drug-delivery services drove much of the service increase. Operating expenses rose: R&D 42%, sales and marketing 25%, and general and administrative 37% year over year. Higher interest expense, principally the write-off of the remaining discount on the retired 2010 notes, contributed to the larger net loss.
Q1 investing cash outflow was $0.441 million, mainly for licensing rights. Financing provided $14.052 million, reflecting issuance of the new notes and repayment of the old notes. At March 31, the company had $17.5 million principal outstanding under five-year senior secured convertible notes, presented net at $16.780 million. The notes bear floating interest with a 2% LIBOR floor plus a 2% margin, are secured by all company assets, and are convertible at $6 per share, subject to adjustment. The former $2.8 million junior secured notes were repaid, along with approximately $920,000 of accrued interest. Stockholders’ equity was $2.760 million.
Management stated that cash at quarter-end, the new financing after repayment of the old notes, and an April PPP loan were expected to fund operations and obligations for at least 12 months. The subsequent PPP loan was $896,000, bears 1% interest, and may be eligible for forgiveness; forgiveness is not assured. The filing reports approximately $7.8 million of bank balances above FDIC-insured limits.
Material changes and operating trends
- ClearPoint system case volume increased 7% to 187 cases year over year, but the company said growth was curtailed by COVID-19. Weekly case volume from March 15–30 fell 67% from the January 1–March 15 weekly average.
- Functional neurosurgery product revenue increased 5% to $1.685 million. Biologics and drug-delivery revenue increased 169% to approximately $1.029 million, driven mainly by service retainers; related product revenue declined as clinical-trial procedures were postponed.
- Capital equipment revenue declined 31% to $188,000; related services declined 26% to $156,000. Management cited possible hospital delays in equipment purchases.
- Gross margin improved to 71%, primarily because higher-margin services represented a larger share of revenue. Management cautioned that margins could fall if revenue mix returns to historical levels.
- Cash increased mainly due to the January financing. Operating cash use rose year over year, and the company reported a cumulative deficit of approximately $115 million.
Outlook, risks, and other matters
The filing gives no quantified revenue or earnings guidance. Management expected no meaningful therapy-product revenue in 2020 and targeted a limited market release in 2021. It expected to take initial steps in Europe during 2020 using existing CE marks. Management also anticipated continued investment in product development and commercialization.
COVID-19 caused postponement or cancellation of elective surgeries, which historically represented approximately 80% of procedures using ClearPoint. The duration and financial impact were uncertain; clinical-trial schedules, equipment purchases, supply chains, staffing, and access to capital were also identified as risks. Other disclosed risks include reliance on limited-source suppliers, product acceptance and regulatory requirements, and continuing losses. One customer accounted for 28% of Q1 sales. The company reported no legal proceedings, no material off-balance-sheet arrangements, effective disclosure controls, and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether elective procedures and ClearPoint case volumes recovered, and how that translated into recurring product revenue.
- Whether biologics and drug-delivery retainers and clinical-trial activity continued, given customer and hospital schedule changes.
- Cash burn, working-capital needs, and the timing and terms of any additional financing; the secured notes encumber all company assets.
- PPP loan use, repayment obligations, and whether any portion was ultimately forgiven.
- Revenue concentration, supplier availability, and the sustainability of the elevated service-driven gross margin.
- Progress toward the stated 2021 therapy-product release and initial European commercialization plans.