ClearPoint Neuro, Inc. (then MRI Interventions, Inc.) — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. The filing registrant was MRI Interventions, Inc.; its commercial product platform is ClearPoint. Financial statements are unaudited.
Business context
The company develops and commercializes MRI-guided minimally invasive procedure technology. ClearPoint is its commercial brain-procedure system; substantially all product revenue came from ClearPoint products. ClearTrace, a cardiac product candidate, remained suspended and was not cleared for commercial sale.
Financial results and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $1.98 million | $1.10 million | $3.98 million | $2.50 million |
| Operating loss | $1.82 million | $2.06 million | $3.18 million | $3.99 million |
| Net loss | $2.00 million | $1.78 million | $3.66 million | $3.83 million |
| Net loss per share | $0.32 | $0.90 | $0.74 | $1.66 |
- Q2 revenue rose 79% year over year; six-month revenue rose 59%. Product revenue increased 77% and 57%, respectively, primarily from higher ClearPoint system utilization and a larger installed base. Disposable sales drove most product revenue; reusable system sales also increased.
- Management reported gross margin of 60% for Q2 versus 53% a year earlier, and 61% for the six-month period versus 51%. It attributed improvement to production efficiencies and a more favorable mix of complete systems.
- Q2 operating loss narrowed, but net loss increased, partly because derivative-liability gains and other income were lower than in Q2 2016. Six-month net loss improved modestly; lower interest expense was partly offset by an adverse derivative fair-value change and reduced grant income.
- Cash and equivalents were $12.74 million at June 30, up from $3.32 million at year-end. The May 2017 private placement raised $13.25 million gross; offering costs were approximately $1.26 million. Management said cash was sufficient for at least 12 months and alleviated substantial doubt about going concern, while expecting continued operating cash consumption.
- The cash-flow statement reports $2.57 million used in operating activities for the first six months, $0.003 million used in investing, and $11.99 million provided by financing. The MD&A instead reports operating cash use of $2.42 million and financing cash proceeds of $11.84 million; the filing text does not reconcile these conflicting figures.
- Debt included $2.0 million principal on the senior secured Brainlab note and junior secured notes. Scheduled principal payments total $6.98 million: $2.0 million in 2018, $1.98 million in 2019, and $3.0 million in 2020. Accrued interest was $0.70 million; carrying values are reduced by unamortized discounts and financing costs.
- Total assets were $16.85 million and stockholders’ equity was $8.53 million, versus a $0.76 million stockholders’ deficit at December 31, 2016. Common shares outstanding increased from 3.62 million to 10.34 million during the period, principally reflecting the equity financing.
Material changes, outlook, and risks
- ClearPoint disposable revenue growth reflected more procedures at existing and new installations. Other revenue rose with equipment rentals and service agreements. A single customer represented 11% of Q2 sales; one customer accounted for 18% of receivables at quarter-end.
- Research and development expense increased 45% in Q2, mainly due to approximately $522,000 in upfront payments under April license and co-development agreements, mostly paid in shares. Selling, general and administrative expense was broadly flat in Q2.
- Management anticipated higher ClearPoint revenue over the next 12 months from greater use at existing sites and installations at new sites. It also expected higher operating expenses, lower operating losses and reduced operating cash use, but cautioned that these results were not assured and cash consumption would continue.
- Risks include uncertain adoption and revenue growth, continued losses and financing needs, reliance on key customers and suppliers, medical-device regulatory requirements, competition, product liability, and the possibility that customer capital constraints could slow purchases. No material changes to the risk factors in the 2016 Form 10-K were reported.
- Derivative liabilities were $182,000 at quarter-end and are valued using Level 3 assumptions, including volatility and future financing estimates. The company reported no legal proceedings, no material off-balance-sheet arrangements, and effective disclosure controls.
Investor verification points
- Reconcile the conflicting MD&A and cash-flow-statement figures for operating cash use and financing proceeds.
- Assess cash runway against ongoing losses, management’s expected continued cash burn, and scheduled debt maturities.
- Review dilution and potential share overhang from the 2017 PIPE warrants, placement-agent warrants, and increased share count.
- Evaluate whether installed-base growth and procedure volume can sustain disposable-product growth and reported margins, including customer concentration.
- Review the terms and execution of the Mayo and Acoustic Medsystems collaboration and licensing agreements, and the status of any ClearTrace development or regulatory plans.