Business context and reporting period
MRI Interventions, Inc. (the registrant named in this filing; its commercial system is ClearPoint) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2017. The company develops and commercializes MRI-guided minimally invasive surgical technology. ClearPoint is commercially marketed for neurological procedures; ClearTrace, a cardiac product candidate, remains suspended, with resources focused on ClearPoint.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $1.72 million | $1.62 million | $5.70 million | $4.11 million |
| Gross margin | 60% | 54% | 61% | 52% |
| Operating loss | $1.33 million | $1.71 million | $4.50 million | $5.70 million |
| Net loss | $1.43 million | $2.56 million | $5.09 million | $6.39 million |
| Net loss per share | $0.14 | $0.92 | $0.75 | $2.59 |
Q3 revenue increased about 6% year over year; nine-month revenue increased about 39%. Growth mainly reflected greater disposable-product sales as ClearPoint utilization and the installed base expanded, plus rental and service revenue. Nine-month product revenue rose 36%; service and other revenue rose 155%. Gross-margin improvement reflected lower inventory-related costs and favorable product mix. Q3 SG&A and R&D declined year over year; nine-month R&D increased 6%, partly due to $552,000 of payments under license and co-development agreements.
At September 30, cash and cash equivalents were $11.03 million, versus $3.32 million at December 31, 2016. Current assets were $14.31 million and current liabilities $2.65 million. Operating cash use for the first nine months was $4.25 million, compared with $4.71 million in 2016; investing cash use was $25,000. Financing provided $11.98 million net, principally from the 2017 private placement.
Total liabilities were $8.18 million, including $2.00 million senior secured notes, junior secured notes reported net of discounts and costs, and $735,000 accrued interest. Scheduled note principal payments total $6.975 million: $2.0 million in 2018, $1.975 million in 2019 and $3.0 million in 2020. The filing reports no material off-balance-sheet arrangements.
Material changes and unusual items
- In May 2017, the company sold 6.625 million units at $2.00 each, comprising one common share and one warrant per unit. Gross proceeds were $13.25 million; offering costs were approximately $1.3 million. The warrants have a $2.20 exercise price. Common shares outstanding were 10.34 million at September 30, versus 3.62 million at December 31, 2016; 10.40 million were outstanding November 1. The filing reports 8.95 million warrants outstanding at September 30.
- Net loss improved in both comparisons, but prior-year periods included debt-restructuring items and larger gains from derivative remeasurement. Nine-month 2017 derivative fair-value gain was $48,000 versus $748,000 in 2016; 2016 also included debt-restructuring gains and losses and $203,000 of grant income that did not recur.
- In October, stockholders approved an additional 1.8 million shares for the incentive plan. CEO Francis Grillo agreed to resign effective November 7, 2017, and Joseph Burnett was named to succeed him. The disclosed transition and new-hire arrangements include cash payments, shares, options and restricted stock.
Outlook, risks and contingencies
Management said the $11.0 million cash balance was sufficient to support operations for at least the next 12 months and alleviated substantial doubt about going concern. Management anticipated higher ClearPoint revenue from increased use at existing sites and installations at new sites, with operating expenses also expected to rise. It expected continued operating cash consumption for at least the next 12 months and cautioned that forecast results were not assured. No specific revenue or earnings guidance was provided.
Key risks include achieving broader ClearPoint adoption, ongoing losses and future financing needs, dependence on suppliers with limited alternatives, customer concentration, regulatory requirements, competition, product liability and access to customer capital. One customer accounted for 11% of Q3 revenue and 18% of receivables at September 30. The company reported no material changes to the risk factors in its 2016 Form 10-K and no legal proceedings. Management reported disclosure controls were effective and no material change in internal financial controls during the quarter.
Important facts for investors to verify
- Whether ClearPoint installations and procedure volumes continue to drive recurring disposable-product revenue and whether gross margins remain improved.
- Actual cash burn and runway relative to management’s at-least-12-month estimate, including the timing and cost of future financing.
- Potential dilution from the substantial warrant balance, the 2017 placement and expanded incentive-plan share authorization.
- Debt repayment capacity and the terms, security and maturities of the notes, particularly scheduled 2018 payments.
- Execution of the CEO transition and the operational and financial implications of the disclosed compensation arrangements.