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 2021 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 commercial-stage medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain. We have deployed significant resources to fund our efforts to develop the foundational capabilities for enabling MRI-guided interventions, building an intellectual property portfolio, and identifying and building out commercial applications for the technologies developed by our company. In 2021, our efforts expanded beyond the MRI suite to encompass development and commercialization of new neurosurgical device products for the operating room, as well as consulting services for pharmaceutical and biotech companies, academic institutions, and contract research organizations.
Since 2020, we have evolved to become a company comprised of two parts. The first foundational part is a medical device company providing medical devices for neurosurgery applications. The second part is focused on collaborating with pharmaceutical and biotech companies, academic institutions, and contract research organizations to develop delivery methodologies for neurological drugs. Currently, there are more than 45 such entities who are either evaluating or using our SmartFlow cannula and, in certain cases, in conjunction with our full ClearPoint Neuro Navigation platform.
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
The extraordinary measures taken beginning in 2020 by governmental authorities
in response to the novel strain of the coronavirus ("COVID-19") pandemic led to
reduced economic activity, including the postponement or cancellation of
elective surgical procedures. Although economic activity is returning to
normalized levels, new variants of COVID-19 continue to spread in
Furthermore, the recessionary conditions on the global economy caused by the
COVID-19 pandemic could have a material adverse effect on our business. Although
most segments of
17
--------------------------------------------------------------------------------
future developments, including vaccination rates, the effectiveness of vaccines,
the response by governmental authorities and regulators, and the duration and
scope of the COVID-19 outbreak in
Key Performance Indicators
The key performance indicators we utilize to monitor our progress against our strategic plan are:
•Functional neurosurgery navigation
•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
•Biologics and drug delivery
•Number of "Partners" - Underlying the revenue from sales of products and
services to our biologics and drug delivery customers is the number of direct
customers and end users of our products and/or services ("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 our biologics and drug delivery customers is
indicative of growth, the number of Partner 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
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.
18
--------------------------------------------------------------------------------
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, as well as labor hours for the cost of providing consulting and service revenue. 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; outside 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 SmartFlow cannula; 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 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, information technology and meeting costs. Our sales and marketing expenses are expected to increase due to costs associated with the continued commercialization of our ClearPoint system and the increased headcount necessary to support growth in operations.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and
estimates during the six months ended
19
--------------------------------------------------------------------------------
Results of Operations
Three Months EndedJune 30, 2022 Compared to the Three Months EndedJune 30, 2021 Three Months Ended June 30, Percentage (Dollars in thousands) 2022 2021 Change Product revenue$ 3,457 $ 2,363 46 % Service and other revenue 1,743 1,050 66 % Total revenue 5,200 3,413 52 % Cost of revenue 1,943 1,139 71 % Gross profit 3,257 2,274 43 % Research and development costs 2,284 2,109 8 % Sales and marketing expenses 2,187 1,590 38 % General and administrative expenses 2,990 1,982 51 % Other expense: Other expense, net (8) (96) NM% Interest expense, net (91) (240) (62) % Net loss$ (4,303) $ (3,743) 15 %
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 73% to
Capital equipment and software revenue, consisting of sales of ClearPoint
reusable hardware and software, and of related services, increased 282% to
Cost of Revenue and Gross Profit. Cost of revenue was
20
--------------------------------------------------------------------------------
sales, which carry a higher gross margin relative to other product lines, as well as an increased contribution of sales of capital equipment, which carry a relatively lower gross margin. This was partially offset by slightly higher contribution of service revenue, which carries a higher gross margin relative to other product lines.
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 three months ended
Six Months Ended
Six Months Ended June 30,
Percentage
(Dollars in thousands) 2022 2021 Change
Product revenue $ 6,620 $ 5,525 20 %
Service and other revenue 3,611 1,918 88 %
Total revenue 10,231 7,443 37 %
Cost of revenue 3,728 2,555 46 %
Gross profit 6,503 4,888 33 %
Research and development costs 4,817 3,673 31 %
Sales and marketing expenses 4,032 3,165 27 %
General and administrative expenses 5,722 3,638 57 %
Other expense:
Other income (expense), net 3 (122) NM%
Interest expense, net (197) (571) (66) %
Net loss $ (8,262) $ (6,281) 32 %
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
21
--------------------------------------------------------------------------------
Biologics and drug delivery revenue, which includes sales of disposable products
and services related to customer-sponsored clinical trials utilizing our
products, increased 50% to
Capital equipment and software revenue, consisting of sales of ClearPoint
reusable hardware and software, and of related services, increased 105% 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 six months ended
Liquidity and Capital Resources
We have incurred net losses since our inception, which has resulted in a
cumulative deficit at
In
22
--------------------------------------------------------------------------------
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 6 for additional information with respect to the 2020 Secured Notes.
As discussed in Note 8, on
Based on the foregoing, in management's opinion, cash and cash equivalent
balances and short-term investments at
Cash Flows
Cash activity for the six months endedJune 30, 2022 and 2021 is summarized as follows: Six months ended June 30, (in thousands) 2022 2021
Cash used in operating activities
(21,851) (5)
Cash provided by financing activities 516 47,279
Net change in cash and cash equivalents
Net Cash Flows from Operating Activities. Net cash flows used in operating
activities for the six months ended
Net Cash Flows from Investing Activities. Net cash flows used in investing
activities for the six months ended
Net cash flows used in investing activities for the six months ended
Net Cash Flows from Financing Activities. Net cash flows from financing
activities for the six months ended
Net cash flows from financing activities for the six 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 continue to commercialize our ClearPoint system products and pursue additional applications for our
23
--------------------------------------------------------------------------------
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 ability of our Partners to achieve commercial success, including their use
of our products and services in their clinical trials and delivery of therapies;
•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.
24
--------------------------------------------------------------------------------
© Edgar Online, source
