MRI Interventions, Inc. (ClearPoint Neuro) — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. The filing registrant was MRI Interventions, Inc. The company develops and commercializes MRI-guided minimally invasive neurosurgical technology, principally its ClearPoint system; ClearTrace, its heart-procedure product candidate, received reduced commercialization effort.
Financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $2.61 million | $1.65 million | $5.08 million | $3.27 million |
| Product revenue | $2.19 million | $1.41 million | $4.36 million | $2.95 million |
| Service and other revenue | $412,204 | $233,736 | $720,767 | $318,504 |
| Gross margin | 60% | 63% | 62% | 64% |
| Operating loss | $(1.29) million | $(1.64) million | $(2.27) million | $(3.06) million |
| Net loss | $(1.55) million | $(1.88) million | $(2.77) million | $(3.52) million |
| Net loss per share, basic and diluted | $(0.13) | $(0.17) | $(0.24) | $(0.32) |
At June 30, 2019, cash and cash equivalents were $7.46 million, current assets $11.79 million, current liabilities $3.25 million, and total stockholders’ equity $6.91 million. Cash used in operating activities was $1.42 million in the first half, versus $3.07 million a year earlier; investing activities used $150,000 and financing activities provided $5.93 million. The resulting increase in cash was $4.36 million.
Debt included $3.0 million principal on the 2010 junior secured notes, presented net of discount at $1.87 million, plus $910,000 accrued interest. The 2010 notes bear 3.5% interest and mature in October and November 2020. The company repaid the 2014 secured notes in June 2019 for approximately $2.0 million including accrued interest; the related asset security interest was terminated.
Changes versus the prior comparable period
- Q2 revenue rose 58%, and first-half revenue rose 55%. Management attributed growth principally to higher ClearPoint-related case volume, a broader customer base, improved utilization at existing sites, more system sales, and increased equipment service contracts. The company reported no price increases expected to materially affect typical orders.
- First-half net loss narrowed by 21%; operating loss also declined. However, gross margin fell by three percentage points in both the quarter and first half, primarily because of product and service mix.
- In May, the company sold 2,426,455 shares at $3.10 per share in a private placement, raising approximately $7.5 million gross (about $7.43 million net of stated offering costs). It also received $383,000 from warrant exercises.
- In June, the company paid $150,000 for exclusive functional-neurosurgery license rights, with additional payments dependent on regulatory and commercialization milestones.
Outlook, risks, and other notable items
- Management expected revenue growth from increased use at installed ClearPoint sites and new installations, with operating expense growth modest relative to revenue growth. It expected lower operating losses and cash use, but said cash-consuming operations were likely to continue for at least the next 12 months.
- Management believed June 30 cash, together with the private-placement proceeds, would fund operations for at least 12 months; this depended on anticipated results and was not assured. The company had incurred cumulative losses of approximately $110 million.
- Key risks cited include market acceptance and competition, product development and regulatory uncertainty, reliance on certain suppliers, customer access to capital, intellectual property protection, and product liability. The filing reported no material changes to risk factors from the 2018 Form 10-K.
- The company adopted lease accounting Topic 842 on January 1, 2019, recognizing operating lease right-of-use assets and liabilities. It reported no material off-balance-sheet arrangements or legal proceedings. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
- The common stock began trading on NYSE American on July 3, 2019. Two 2010 notes with aggregate principal of approximately $162,000 were repaid at holders’ request in July. Common shares outstanding were 13,998,130 as of August 8, 2019.
Important facts for investors to verify
- Whether ClearPoint utilization, new installations, and recurring disposable-product sales continue to support the reported revenue growth.
- Whether the company can meet its stated 12-month liquidity expectation while continuing to incur operating cash outflows, and how it will address the 2010 notes maturing in 2020.
- Whether gross margins recover or remain pressured by revenue mix, and whether planned sales, clinical-support, and development spending stays consistent with management’s outlook.
- The terms and potential financial impact of milestone payments under the new license agreement, and the extent of future equity dilution from financing needs and outstanding warrants or options.