ClearPoint Neuro, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The company develops and commercializes MRI-guided minimally invasive procedure technology, principally its ClearPoint system. It changed its name from MRI Interventions, Inc. in February 2020 and trades as CLPT.
Financial performance
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Total revenue | $2.48 million | $2.61 million | $5.59 million | $5.08 million |
| Operating loss | $1.47 million | $1.29 million | $2.68 million | $2.27 million |
| Net loss | $1.66 million | $1.55 million | $3.72 million | $2.77 million |
| Net loss per share | $0.11 | $0.13 | $0.24 | $0.24 |
| Gross margin | 74% | 60% | 72% | 62% |
- Q2 product revenue fell 27% to $1.59 million, while service and other revenue rose 115% to $885,000. First-half product revenue declined 15% to $3.70 million; service and other revenue increased 163% to $1.90 million.
- Q2 gross margin improved mainly because services made up a greater share of revenue, overhead allocation was lower, and the inventory reserve declined. Management cautioned that margins could fall if revenue mix and overhead allocations return to historical patterns.
- First-half research and development expense increased 29% to $1.65 million; sales and marketing rose 11% to $2.42 million; general and administrative expense increased 35% to $2.64 million. First-half interest expense doubled to $1.04 million, reflecting debt discount amortization and the new secured notes.
- Cash and cash equivalents were $16.03 million at June 30, versus $5.70 million at year-end 2019. Total assets were $23.03 million; total liabilities were $21.69 million; stockholders’ equity was $1.34 million.
- Operating cash use was $4.04 million in the first half, compared with $1.42 million a year earlier. Investing cash use was $441,000, primarily for licensing rights; financing provided $14.82 million.
Material changes and financing
- ClearPoint system procedures totaled 127 in Q2 and 308 in the first half, down 36% and 17%, respectively, from the comparable 2019 periods. Active Surgical Centers exceeded 60, versus more than 50 a year earlier.
- Functional neurosurgery revenue fell as elective procedures were postponed or canceled. Biologics and drug-delivery revenue increased substantially, primarily from service retainers and additional customer relationships supporting clinical trials. Capital equipment revenue declined.
- In January 2020, the company issued $17.5 million of five-year senior secured convertible notes, receiving approximately $16.8 million net of financing costs and discount. The notes bear interest at three-month LIBOR subject to a 2% floor, plus 2%, are secured by company assets, and are convertible at $6 per share, subject to adjustments. The company used proceeds in part to retire approximately $2.8 million principal of its 2010 secured notes and accrued interest.
- The company received an $896,000 Paycheck Protection Program loan in April. It may seek forgiveness, but stated there is no assurance forgiveness will be obtained. The loan has a two-year term and 1% interest.
- Management stated that cash at June 30, together with financing proceeds and the PPP loan, should fund operations and obligations for at least the next 12 months.
Outlook, commentary and risks
- COVID-19 disrupted elective procedures, which historically represented approximately 80% of ClearPoint procedures, and delayed customer-sponsored clinical trials. Management could not predict the duration or ultimate business impact; hospital capital spending and supply chains were also identified as risks.
- No formal revenue or earnings guidance was provided. Management expects no meaningful therapy-product revenue in 2020 and targets a limited market release in 2021. It planned initial steps to expand ClearPoint sales and clinical advisory services in Europe during 2020.
- The company has incurred recurring losses and had an accumulated deficit of approximately $116 million. Future cash needs depend on pandemic conditions, market adoption, product development, clinical trials, regulatory work and commercial expansion.
- One customer accounted for 22% of Q2 revenue and 21% of first-half revenue. The company also disclosed approximately $7.9 million of bank balances above FDIC-insured limits.
- ClearTrace, a cardiac product candidate, remained in development, but the company had reduced commercialization efforts. The filing identified risks including market acceptance, regulation, supplier concentration, financing access and product liability.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing reported no legal proceedings.
Important facts for investors to verify
- Whether elective procedure volumes and biologics/drug-delivery clinical trials recover, and how that affects recurring revenue and cash burn.
- Whether management’s stated minimum 12-month liquidity outlook remains valid as operating cash use continues.
- The secured notes’ interest cost, collateral terms, conversion dilution and any future additional-note financing; also whether PPP funds are forgiven or repaid.
- Customer concentration, above-insured cash balances, and the company’s ability to maintain improved gross margins.
- The revenue-service detail in Note 3 reports first-half biologics and drug-delivery service revenue of $1,616,428 and capital-equipment and other service revenue of $280,493, which sum to $1,896,921; the note’s stated total service revenue is $1,896,121. Verify the $800 discrepancy.