Clearpoint Neuro, Inc. (then MRI Interventions, Inc.) — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. The company develops and commercializes MRI-guided minimally invasive surgical technology, principally its FDA-cleared ClearPoint system for neurological procedures. ClearTrace, intended for heart procedures, remained a product candidate, and commercialization efforts had been reduced.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $2.93 million | $1.81 million | $8.01 million | $5.08 million |
| Gross margin | 66% | 69% | 64% | 66% |
| Operating loss | $0.91 million | $1.21 million | $3.18 million | $4.27 million |
| Net loss | $1.12 million | $1.43 million | $3.89 million | $4.95 million |
| Basic and diluted loss per share | $0.08 | $0.13 | $0.31 | $0.45 |
Revenue growth reflected higher sales across functional neurosurgery products, biologics and drug delivery, capital equipment, and related services. Q3 product revenue rose 49% and service and other revenue rose 395%; nine-month increases were 48% and 173%, respectively. Management attributed functional neurosurgery growth to an expanded customer base, greater ClearPoint acceptance and utilization, and the resolution of earlier FDA actions affecting third-party laser-ablation providers.
Gross margin declined year over year in both periods. Management cited less favorable product mix, higher disposable-component costs, and increased indirect costs. Operating expenses rose in R&D and sales and marketing, while general and administrative expense declined. Interest expense was lower in Q3, primarily following repayment of the 2014 notes.
Cash, liquidity, debt, and capital
- Cash and cash equivalents were $6.24 million at September 30, 2019, versus $3.10 million at December 31, 2018. Current assets were $11.91 million and current liabilities $4.28 million.
- Cash used in operations was $2.38 million for the first nine months, compared with $4.05 million in 2018. Investing used $0.16 million; financing provided $5.68 million.
- Financing included $7.43 million net proceeds from a May 2019 private placement and $0.39 million from warrant and option exercises. The company repaid approximately $2.0 million of 2014 notes and approximately $0.16 million of 2010 notes.
- At period-end, the 2010 secured notes had $2.84 million of scheduled principal due in 2020; their net carrying amount was $1.87 million after discount. Accrued interest was $0.93 million. The notes were secured by company assets.
- Common shares outstanding were 14.99 million at September 30, increasing from 11.02 million at year-end, including shares issued in the private placement and warrant exercises. There were 6.21 million warrants and 1.60 million options outstanding at period-end.
Outlook, risks, and notable items
Management expected revenue growth from greater utilization at existing ClearPoint sites, new installations, and expansion of product and service platforms. It anticipated expense growth to be modest relative to revenue growth and expected operating losses and cash use to decline, but said operations would continue consuming cash for at least the next twelve months. Management believed period-end cash, together with operational and financing plans, would be sufficient for at least twelve months; it also cited the need for financing activities to support 2020 debt maturities and cautioned that plans were not assured. No specific revenue or earnings guidance was provided.
- In September, the company entered a development-services agreement with a $127,600 upfront payment and a letter of intent with a stockholder customer whose COO served on the company’s board. The LOI provided for a $500,000 upfront, nonrefundable payment; both amounts were recorded in accounts receivable and deferred revenue. The company reported that the LOI was intended to precede a detailed statement of work.
- A new exclusive license for functional neurosurgery product development and commercialization required an initial $150,000 payment, with further payments tied to regulatory and commercialization milestones.
- The company reported accumulated losses of $111 million. Risks included uncertain market acceptance, product development and regulatory costs, reliance on suppliers with limited alternatives, and the need to obtain financing. It reported no material changes to the risk factors in its 2018 Form 10-K and no legal proceedings.
- Adoption of the new lease standard resulted in recognition of operating lease right-of-use assets and liabilities. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether ClearPoint sales growth and utilization can continue, and whether improving losses and operating cash use match management’s expectations.
- The company’s ability to address 2020 note maturities and its dependence on financing, given continued cash consumption.
- Collection and recognition of the $500,000 related-party LOI payment and the $127,600 development-services payment, including progress toward definitive project terms.
- The effect of lower gross margins, rising component costs, and higher R&D and sales-and-marketing spending on future profitability.
- Potential dilution from outstanding warrants and options and subsequent changes in shares outstanding.