CLEARPOINT NEURO, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes thereto appearing in Part I, Item 1 of this Quarterly Report. This discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks, assumptions and uncertainties. You should review the section titled "Risk Factors" appearing in our 2020 Form 10-K and in Part II, Item 1.A of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis. In addition, historical results and trends that might appear in this Quarterly Report should not be interpreted as being indicative of future operations.
Overview
We are a medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain under direct, intra-procedural MRI guidance. Our principal product platform is our ClearPoint system, which is in commercial use and is used to perform minimally invasive surgical procedures in the brain. The ClearPoint system utilizes intra-procedural MRI to guide the procedures and is designed to work in a hospital's existing MRI suite. We believe that this product platform delivers better patient outcomes, enhances revenue potential for both physicians and hospitals, and reduces costs to the healthcare system.
In 2010, we received regulatory clearance from the FDA to market our ClearPoint
system in the
Factors Which May Influence Future Results of Operations
The following is a description of factors that may influence our future results of operations, and that we believe are important to an understanding of our business and results of operations.
COVID-19
In
Furthermore, global supply chain disruptions, labor shortages, which may affect
our ability to retain and attract new talent, and inflationary conditions caused
by the COVID-19 pandemic could have a material adverse effect on the Company's
business. The rapid development and fluidity of the situation preclude any
prediction as to the ultimate impact COVID-19 will have on the Company's
business, financial condition, results of operation and cash flows, which will
depend largely on future developments directly or indirectly relating to the
duration and scope of the COVID-19 outbreak in
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Key Performance Indicators
The key performance indicators we utilize on a tactical basis are integrated into our longer-term strategic plan within the following categories:
· Functional neurosurgery navigation
o Case volume - Underlying the revenue from sales of our functional neurosurgery
navigation products reflected in the accompanying Condensed Consolidated
Financial Statements appearing elsewhere in this Quarterly Report are the
procedures, or cases, performed in hospitals or at customer-sponsored contract
research organizations utilizing one or more of our products or our clinical
services. Case volume data is not influenced by variations in pricing or
quantities of product used on a per case basis, and thus provide a more
reliable indicator of the growth of our functional neurosurgery navigation line
of business. Management analyzes case volume by hospital and by type of
procedure to gain information that informs targeted sales and marketing
activities. During the three and nine months ended
ClearPoint system was used in 227 and 690 cases, respectively, as compared to
200 and 507 cases during the same respective periods in 2020, representing
increases of 14% for the comparative three-month periods and 36% for the
comparative nine-month periods. Consistent with the discussion in the section
"Results of Operations - Revenues," we attribute these increases primarily to
the reduced levels of elective neurosurgical procedures resulting from the
initial onset and progression of the COVID-19 pandemic during the three-month
and nine-month periods in 2020.
o Number of "Active Surgery Centers" - For purposes of analyzing this performance
indicator, an Active Surgery Center is a hospital or customer-sponsored
contract research organization that has purchased products from us or has
performed procedures utilizing our ClearPoint system within a rolling 24-month
period, and includes hospital sites having purchased the ClearPoint system, as
well as sites in which the ClearPoint system is being used on an evaluation
basis. The justification for including "evaluation sites" is that our
disposable neurosurgery product is sold to such hospitals for their use in
cases. In addition to signifying growth, the number of Active Surgery Centers,
when analyzed in conjunction with case volume data, further informs targeted
sales and marketing activities and confirms where these activities have led to
increased penetration of our product lines. As of
ClearPoint system was used in approximately 60 Active Surgery Centers, which is
comparable to the number of such centers as of the same date in 2020.
· Biologics and drug delivery
o Number of "Partners" - Underlying the revenue from sales of products and
services to our biologics and drug delivery customers is the number of
customers, or "Partners." Our Partners consist of pharmaceutical and biotech
companies, academic institutions, or customer-sponsored contract research
organizations that are developing methods to deliver a wide variety of
molecules, genes or proteins to targeted brain tissue or structures that would
need to bypass the blood-brain barrier for the treatment of a variety of
disorders. This is a novel area in which commercialization must be preceded by
FDA-mandated clinical trials, which are expensive and time consuming to
conduct, and for which the commercial success is uncertain, pending, in part,
the outcome of those trials. While our revenue from sales of products and
services to these Partners in support of their clinical trials is indicative of
growth, the number of such relationships is also of importance as we recognize
the possibility that some Partners' research will reach commercial success, and
others may not. To the extent our Partners achieve commercial success, our
expectation is that we will share in such success through our Partners' use of
our products and services in their delivery of therapies. At
2021, we had commercial relationships with approximately 40 Partners, as
compared with approximately 25 Partners as of the same date in 2020.
· Therapy products - We do not expect meaningful revenue from therapy products in
2021 insofar as we are targeting a limited market release of such products in 2022. As a result, our milestones in the therapy space are focused on refining the product and obtaining regulatory clearance. Should we be successful in achieving these milestones, we believe our initial performance indicators will focus on case volume and number of Active Surgery Centers, as are currently used in measuring our performance in functional neurosurgery navigation.
· Global scale and efficiency - We have been cautious in setting our goals for
operations beyond theU.S. so as to conserve our resources and not establish a foreign presence in advance of being assured of a corresponding revenue stream. In late 2020 we took the first steps in leveraging the CE Marks we have for our ClearPoint system and SmartFlow cannula by establishing an initial presence inEurope for product sales and clinical advisory services. From this initial presence, we believe that future global key performance indicators will be similar to those described above for ourU.S. business: case volume, number of Active Surgery Centers and number of biologics and drug delivery Partners. 17 Revenue
In 2010, we received 510(k) clearance from the FDA to market our ClearPoint
system in the
Generating recurring revenue from the sale of products is an important part of
our business model for our ClearPoint system. Our product revenue was
approximately
Our revenue recognition policies are more fully described in Note 2 to the Condensed Consolidated Financial Statements included above in Part I, Item 1 in this Quarterly Report.
Cost of Revenue
Cost of revenue includes the direct costs associated with the assembly and purchase of components for functional neurosurgery navigation products, biologics and drug delivery products, non-neurosurgery therapy products, and ClearPoint capital equipment and software which we have sold, and for which we have recognized the revenue in accordance with our revenue recognition policy. Cost of revenue also includes the allocation of manufacturing overhead costs and depreciation of loaned systems installed under our ClearPoint placement program, as well as provisions for obsolete, impaired, or excess inventory.
Research and Development Costs
Our research and development costs consist primarily of costs associated with
the conceptualization, design, testing, and prototyping of our ClearPoint system
products and enhancements. Such costs include salaries, travel, and benefits for
research and development personnel; materials and laboratory supplies in
research and development activities; consultant costs; and licensing costs
related to technology not yet commercialized. We anticipate that, over time, our
research and development costs may increase as we: (i) continue to develop
enhancements to our ClearPoint system and software; and (ii) seek to expand the
application of our technological platforms. From our inception through
Product development timelines, likelihood of success, and total costs can vary widely by product candidate. There are also risks inherent in the regulatory clearance and approval process. At this time, we are unable to estimate with any certainty the costs that we will incur in our efforts to expand the application of our technological platforms.
Sales and Marketing, and General and Administrative Expenses
Our sales and marketing, and general and administrative expenses consist primarily of salaries, incentive-based compensation, travel and benefits, including related share-based compensation; marketing costs; professional fees, including fees for outside attorneys and accountants; occupancy costs; insurance; and other general and administrative expenses, which include, but are not limited to, corporate licenses, director fees, hiring costs, taxes, postage, office supplies and meeting costs. Our sales and marketing expenses are expected to increase due to costs associated with the commercialization of our ClearPoint system and the increased headcount necessary to support growth in operations.
Critical Accounting Policies
There have been no significant changes in our critical accounting policies
during the three or nine months ended
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Results of Operations
Three Months Ended September 30, 2021 Compared to the Three Months Ended
September 30, 2020
Three Months Ended September 30,
Percentage
(Dollars in thousands) 2021 2020 Change
Product revenue $ 3,338 $ 2,371 41 %
Service and other revenue 1,236 1,148 8 %
Total revenue 4,574 3,519 30 %
Cost of revenue 1,486 903 65 %
Gross profit 3,088 2,616 18 %
Research and development costs 2,630 1,143 130 %
Sales and marketing expenses 1,826 1,493 22 %
General and administrative expenses 2,436 1,252 95 %
Other expense:
Other income (expense), net 62 (11 ) NM %
Interest expense, net (238 ) (201 ) 18 %
Net loss $ (3,980 ) $ (1,484 ) 168 %
NM - The percentage change is not meaningful.
Revenue. Total revenue was
Functional neurosurgery navigation and therapy revenue, which primarily consists
of disposable product commercial sales related to cases utilizing the ClearPoint
system, increased 17% to
Biologics and drug delivery revenue, which includes sales of disposable products
and services related to customer-sponsored clinical trials utilizing our
products, increased 39% to
Capital equipment and software revenue, consisting of sales of ClearPoint
reusable hardware and software, and of related services, increased 78% to
Cost of Revenue and Gross Profit. Cost of revenue was
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Research and Development Costs. Research and development costs were
Sales and Marketing Expenses. Sales and marketing expenses were
General and Administrative Expenses. General and administrative expenses were
Interest Expense. Net interest expense for each of the three months ended
Nine Months EndedSeptember 30, 2021 Compared to the Nine Months EndedSeptember 30, 2020 Nine Months Ended September 30, Percentage (Dollars in thousands) 2021 2020 Change Product revenue$ 8,863 $ 6,186 43 % Service and other revenue 3,154 2,927 8 % Total revenue 12,017 9,113 32 % Cost of revenue 4,015 2,636 52 % Gross profit 8,002 6,477 24 % Research and development costs 6,251 2,774 125 % Sales and marketing expenses 5,081 3,916 30 % General and administrative expenses 6,062 3,742 62 % Other expense: Other expense, net (60 ) (5 ) NM % Interest expense, net (809 ) (1,240 ) (35 )% Net loss$ (10,261 ) $ (5,200 ) 97 %
NM - The percentage change is not meaningful.
Revenue. Total revenue was
Functional neurosurgery navigation and therapy revenue, which primarily consists
of disposable product commercial sales related to cases utilizing the ClearPoint
system, increased 28% to
20
Biologics and drug delivery revenue, which includes sales of disposable products
and services related to customer-sponsored clinical trials utilizing our
products, increased 39% to
Capital equipment and software revenue, consisting of sales of ClearPoint
reusable hardware and software, and of related services, increased 24% to
Cost of Revenue and Gross Profit. Cost of revenue was
Research and Development Costs. Research and development costs were
Sales and Marketing Expenses. Sales and marketing expenses were
General and Administrative Expenses. General and administrative expenses were
Interest Expense. Net interest expense for the nine months ended
Liquidity and Capital Resources
We have incurred net losses since our inception which has resulted in a
cumulative deficit at
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In
The SPA also gave us the right, but not the obligation, to request one of the
2020 Convertible Noteholders to purchase an additional
See Note 5 for additional information with respect to the 2020 Secured Notes.
In
As discussed in Note 7, on
Based on the foregoing, in management's opinion, cash and cash equivalent
balances at
Cash Flows Cash activity for the nine months endedSeptember 30, 2021 and 2020 is summarized as follows: Nine Months Ended September 30, (in thousands) 2021 2020
Cash used in operating activities
(130 ) (441 )
Cash provided by financing activities 46,827 14,816
Net change in cash and cash equivalents
Net Cash Flows from Operating Activities. We used
During the nine months ended
During the nine months ended
Net Cash Flows from Investing Activities. Net cash flows used in investing
activities for the nine months ended
Net cash flows used in investing activities for the nine months ended
22
Net Cash Flows from Financing Activities. Net cash flows from financing
activities for the nine months ended
Net cash flows from financing activities for the nine months ended
Operating Capital and Capital Expenditure Requirements
To date, we have not achieved profitability. We could continue to incur net losses as we continue our efforts to expand the commercialization of our ClearPoint system products and pursue additional applications for our technology platforms. Our cash balances are primarily held in a variety of demand accounts with a view to liquidity and capital preservation.
Because of the numerous risks and uncertainties associated with the development and commercialization of medical devices, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to successfully commercialize our ClearPoint system products and pursue additional applications for our technology platforms. Our future capital requirements will depend on many factors, including, but not limited to, the following:
? the ultimate duration and impact of the COVID-19 pandemic;
? the timing of broader market acceptance and adoption of our ClearPoint system
products;
? the scope, rate of progress and cost of our ongoing product development
activities relating to our ClearPoint system;
? the cost and timing of expanding our sales, clinical support, marketing and
distribution capabilities, and other corporate infrastructure;
? the cost and timing of establishing inventories at levels sufficient to support
our sales;
? the effect of competing technological and market developments;
? the cost of pursuing additional applications of our technology platforms under
current collaborative arrangements, and the terms and timing of any future
collaborative, licensing or other arrangements that we may establish;
? the cost and timing of any clinical trials;
? the cost and timing of regulatory filings, clearances and approvals; and
? the cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
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