ClearPoint Neuro, Inc. (then MRI Interventions, Inc.) — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. The filing is under the name MRI Interventions, Inc. The company develops MRI-guided minimally invasive medical-device systems. ClearPoint was commercially marketed; ClearTrace, a cardiac product candidate, remained suspended from development and was not cleared for commercial sale.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $1.65m | $1.98m | $3.27m | $3.98m |
| Gross margin | 63% | 60% | 64% | 61% |
| Operating loss | $(1.64)m | $(1.82)m | $(3.06)m | $(3.18)m |
| Net loss | $(1.88)m | $(2.00)m | $(3.52)m | $(3.66)m |
| Net loss per share | $(0.17) | $(0.32) | $(0.32) | $(0.74) |
- Revenue mix: Q2 product revenue was $1.41m and service revenue $234,000. For the first half, product revenue was $2.95m and service revenue $319,000. Product revenue declined, while service revenue grew, including new biologics and drug-delivery clinical-support revenue.
- Cash flow: First-half operating cash use was $3.07m, versus $2.57m in 2017; investing cash use was $51,000. Financing provided $532,000 from warrant exercises, compared with $12.0m from the 2017 private placement in the prior-year period. Cash declined $2.59m to $6.70m.
- Liquidity and balance sheet: At June 30, cash was $6.70m, current assets $10.45m, current liabilities $5.95m, and working capital approximately $4.50m. Total assets were $11.59m and stockholders’ equity $3.56m.
- Debt: Notes had $6.975m aggregate scheduled principal outstanding: $2.0m due December 2018, $1.975m due March 2019, and $3.0m due November 2020. The first two maturities total $3.975m due within the next year. The company reported $496,000 of net interest expense for the first half.
Changes versus comparable periods
- Revenue decreased 17% in Q2 and 18% for the first half. Functional neurology revenue fell 14% in Q2 and 20% in the first half; capital-equipment revenue fell 69% and 55%, respectively.
- Management attributed lower functional neurology sales to fewer ClearPoint cases or kits, citing early-2018 FDA actions affecting third-party laser-ablation providers and a new deep-brain-stimulation system not yet approved for use in the MRI suite. The filing says resolution and timing are uncertain.
- Biologics and drug-delivery revenue increased, largely from clinical-trial services. Research and development costs fell 39% in Q2 and 26% for the first half, principally because 2017 included about $522,000 of upfront license and co-development payments. General and administrative expense rose 16% in Q2 and 6% year to date.
- Gross margin improved by three percentage points in both comparisons, attributed to lower overhead as a share of revenue in Q2 and a more favorable sales mix year to date. Net loss narrowed modestly, while cash used in operations increased.
Outlook, risks and notable items
- Management expected ClearPoint revenue to grow over the following 12 months through increased use at existing sites and installations at new sites, with operating-expense growth modest relative to revenue growth. These are expectations, not quantified formal guidance; management still expected continued operating cash consumption.
- The company said it would need additional financing through equity or debt, a credit facility, or a strategic or collaborative arrangement. Financing might be unavailable on acceptable terms or sufficient; equity financing could dilute shareholders. Failure to obtain funding could prevent the company from meeting obligations and create substantial doubt about its ability to continue as a going concern.
- Key risks include uncertain ClearPoint adoption and revenue, regulatory and competitive developments, reliance on suppliers with limited alternatives, customer access to capital, and product-liability and intellectual-property risks. A customer expected to begin Phase 2–3 of a clinical trial in Q4 2018; related service revenue depended on that trial proceeding as expected.
- The company adopted ASC Topic 606 on January 1, 2018 and reported no material effect. It reported no material changes to the risk factors in its 2017 Form 10-K and no legal proceedings.
Investor facts to verify
- Progress on the two near-term note maturities and the company’s ability to secure refinancing or other funding.
- Cash burn and runway relative to the $6.70m cash balance, including whether operating cash use declines as management anticipated.
- ClearPoint procedure volumes, installations, and the effects of the cited FDA and MRI-suite developments on sales.
- Whether the customer’s expected clinical trial starts on schedule and generates the anticipated service activity.
- Potential dilution: 8.65m warrants were outstanding at June 30, 2018, in addition to stock options; 11.01m common shares were outstanding as of August 14, 2018.