ClearPoint Neuro, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with the three months ended March 31, 2020. Financial statements are unaudited. ClearPoint Neuro develops and commercializes technology for minimally invasive brain procedures guided by intra-procedural MRI.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Product revenue | $3.162 million | $2.179 million | +45% |
| Service and other revenue | $0.868 million | $0.937 million | -7% |
| Total revenue | $4.030 million | $3.116 million | +29% |
| Cost of revenue | $1.416 million | $0.932 million | +52% |
| Gross margin | 65% | 70% | -5 percentage points |
| Operating loss | $2.181 million | $1.209 million | Loss widened |
| Net loss | $2.538 million | $2.055 million | Loss widened 24% |
| Net loss per share, basic and diluted | $0.13 | $0.13 | No change |
| Cash used in operating activities | $2.131 million | $2.331 million | Cash use decreased |
Revenue growth reflected higher ClearPoint-related disposable product sales and biologics and drug-delivery revenue. Functional neurosurgery disposable revenue rose 10%; biologics and drug-delivery revenue rose 61%; and capital equipment and software revenue rose 31%. Management attributed the recovery in procedure-related sales and equipment purchases in part to resumption of elective procedures and hospital purchasing after COVID-19 disruptions in Q1 2020. Gross margin declined due to overhead allocation and a less favorable revenue mix.
Research and development expense increased 91% to $1.563 million, primarily with higher personnel costs and product development. Sales and marketing expense rose 21% to $1.575 million, and general and administrative expense rose 30% to $1.657 million. Net interest expense fell to $0.332 million from $0.842 million, principally because Q1 2020 included a charge related to retiring earlier secured notes.
Liquidity, cash flow and debt
Cash and cash equivalents were $64.858 million at March 31, 2021, versus $20.099 million at December 31, 2020. Cash increased $44.759 million during the quarter, mainly from $46.785 million of net proceeds from a February public stock offering. Investing cash outflow was $0.040 million. Management stated that available cash was sufficient to fund operations and obligations for at least the next 12 months. The company reported a $122.060 million accumulated deficit and continued to incur losses.
Total liabilities were $30.281 million, including $24.515 million carrying value of 2020 senior secured convertible notes and $2.757 million of operating lease liabilities. The notes are secured by company assets; scheduled principal payments of $25.097 million are due in 2025. The balance sheet also included $3.121 million of current liabilities and $0.819 million of deferred product and service revenue. The company reported no material off-balance-sheet arrangements.
Material developments and outlook
- The February 2021 public offering issued 2,127,660 shares and produced approximately $46.8 million in net proceeds. Shares issued and outstanding increased to 20,678,280 at quarter-end from 17,047,584 at year-end 2020.
- The company early adopted ASU 2020-06 on January 1, 2021. Adoption eliminated a $3.1 million convertible-note discount and reduced additional paid-in capital by the same amount; this was an accounting change, not a cash transaction.
- ClearPoint was used in 214 cases, up 14% year over year. The company had more than 60 Active Surgery Centers, comparable with the prior-year count, and more than 25 biologics and drug-delivery partners, versus approximately 20 a year earlier.
- No specific revenue or earnings guidance was provided. Management did not expect meaningful therapy-product revenue in 2021 and targeted a limited market release in 2022, subject to product development and regulatory clearance.
- COVID-19 remained a significant uncertainty. Elective procedures historically represented approximately 80% of cases using ClearPoint; further postponements, reduced hospital spending, or delays to partner clinical trials could hurt revenue. Management said the duration and financial effects of the pandemic could not be predicted.
- Other disclosed risks include uncertain product adoption and commercialization, regulatory and clinical-trial requirements, competition and technology change, reliance on key suppliers and personnel, and product liability. One related-party customer accounted for 17% of Q1 2021 sales, versus 28% in Q1 2020. Approximately $60 million of bank balances exceeded FDIC-insured limits.
The filing reported no legal proceedings and no material changes to the risk factors in the 2020 Form 10-K. Management concluded disclosure controls were effective as of March 31, 2021, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether procedure volumes, hospital capital purchasing, and partner clinical trials continue recovering from COVID-19 disruptions.
- Whether revenue growth can offset rising R&D, sales and marketing, and administrative expenses, and whether gross margin recovers.
- The company’s ongoing cash use and the assumptions behind management’s statement that cash covers at least 12 months of operations.
- The terms, carrying value, security, conversion features, and 2025 maturity of the secured convertible notes.
- The significance and durability of revenue from the related-party customer and the concentration of cash balances above insured limits.