Business context and reporting period
MRI Interventions, Inc. (identified in the request as ClearPoint Neuro, Inc.) filed this unaudited Form 10-Q for the quarter ended March 31, 2019. The company develops and commercializes MRI-guided minimally invasive procedure technology. Its commercial product is the ClearPoint system for brain procedures; the ClearTrace heart-procedure platform remains a product candidate, and commercialization efforts have been reduced.
Financial performance and condition
| Metric | Q1 2019 | Q1 2018 / prior balance date |
|---|---|---|
| Total revenue | $2.473 million | $1.623 million |
| Gross margin | 64% | 64% |
| Operating loss | $972,000 | $1.427 million |
| Net loss | $1.221 million | $1.641 million |
| Net loss per share | $0.11 | $0.15 |
| Operating cash flow | $(609,000) | $(1.961) million |
| Cash and cash equivalents | $2.492 million | $3.101 million at December 31, 2018 |
Product revenue rose 41% to $2.164 million; service and other revenue increased to $309,000 from $85,000. Revenue growth reflected higher functional neurosurgery product sales, increased biologics and drug-delivery activity (including clinical-trial services), more capital equipment sales, and equipment service revenue. Management attributed neurosurgery growth to an expanded customer base, greater system acceptance and utilization, and the resolution of prior FDA actions affecting third-party laser-ablation providers.
Cost of revenue was $886,000. Management cited lower direct product costs as a share of revenue and a favorable product/service mix, offset by higher allocated overhead. Research and development expense increased 7% to $585,000; sales and marketing rose 8% to $1.041 million; general and administrative expense declined 2% to $933,000. Interest expense, net, was $254,000.
At March 31, 2019, total assets were $7.626 million, current assets $6.082 million, and current liabilities $2.274 million. Stockholders’ equity was $443,000, down from $1.511 million at year-end, primarily reflecting the quarterly loss. Notes payable had a carrying value of $3.650 million, plus $892,000 of accrued interest. Principal outstanding was $4.975 million: $1.975 million under 12% 2014 secured notes and $3.0 million under 2010 secured notes. Both mature in 2020 and are secured by company assets; the 2014 notes have first priority.
Material changes, outlook and risks
- Revenue increased 52% year over year while net loss narrowed 26%. Operating cash use was substantially lower than in Q1 2018, although cash declined by $609,000 during the quarter.
- In May 2019, the company agreed to a private placement of up to 2.6 million shares at $3.10 per share. Investors committed to purchase approximately 1.743 million shares, for minimum gross proceeds of about $5.4 million; additional shares depend on participation rights being exercised. The company expected the transaction to close around May 17, subject to customary conditions, and estimated offering expenses of about $100,000. Management stated that proceeds plus March 31 cash would fund operations for at least 12 months.
- Management expects higher ClearPoint revenue from increased use at existing sites and installations at new sites, with operating expenses growing more modestly and operating losses and cash use declining. It nevertheless expects continued operating cash consumption for at least the next 12 months; the filing provides no quantified revenue or earnings guidance and gives no assurance the anticipated growth will occur.
- The company reported cumulative losses of approximately $108 million and remains dependent on ClearPoint commercialization and access to additional capital. Risks include uncertain market adoption, competition and technological change, regulatory requirements, limited alternative sources for some components, customer access to capital, and product liability. One customer accounted for 15% of quarterly sales, compared with 13% a year earlier.
- ASC Topic 842 lease accounting was adopted January 1, 2019, recognizing $480,395 of operating lease right-of-use assets and corresponding liabilities. The company reported no material change in risk factors, no legal proceedings, and effective disclosure controls as of quarter-end.
Important facts for investors to verify
- Whether the May 2019 private placement closed as expected, the final shares issued and proceeds received, and resulting dilution.
- Whether ClearPoint procedure volumes, new installations and recurring disposable sales sustain the reported revenue growth.
- Whether the company’s cash runway and management’s stated 12-month liquidity assessment remain adequate given ongoing cash burn.
- How the $4.975 million of secured note principal due in 2020 and accrued interest will be addressed.
- Whether customer concentration and reliance on key suppliers create material revenue or production exposure.