Clearpoint Neuro Inc (CLPT) 2014 Q1 法說會逐字稿

Greetings and welcome to the MRI Interventions first-quarter 2014 financial results conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to Oscar Thomas, Vice President, Business Affairs for MRI Interventions. Thank you. You may begin.

Good afternoon. This is Oscar Thomas, Vice President of Business Affairs for MRI Interventions. With me are Kim Jenkins, our CEO, and David Carlson, our CFO.

Before we begin with our prepared comments this afternoon, I want to point out that some statements we make during today's call will be forward-looking statements. Forward-looking statements, by their nature, address matters that to different degrees are uncertain and involve risk, and they are made based on the current beliefs of MRI Interventions' management. Uncertainties and risks may cause our actual results and the timing of events to differ materially from those expressed or implied in forward-looking statements we make today.

Detailed information regarding the risks and uncertainties that could affect our actual results and the timing of events are described in the Risk Factors section of the Form 10-K that we filed with the SEC on March 28, 2014. You can find our SEC filings in the Investors section of our website at MRIInterventions.com.

With that, I will now turn the call over to Kim.

Thanks, Oscar. Good afternoon, everyone. Thank you for joining us for our Q1 2014 earnings call. On behalf of the management team and the employees of MRI Interventions, we appreciate your interest in our company. For those of you who are shareholders, thank you very much for your support. We are honored to be working for you in building this great company.

We had another very productive quarter growing our ClearPoint business, improving the ClearPoint product, further reducing cash used in our operations, adding a sixth drug delivery trial, strengthening our financial position, and advancing our ClearTrace program. I'll cover some additional details regarding the quarter with you shortly, but first David Carlson, our CFO, is going to walk you through our first-quarter numbers. David?

Thanks, Kim. For the quarter, we recorded total revenues of $823,000 compared with $1.3 million for the first quarter of last year. The Q1 2013 amount included recognition of $650,000 in license fee revenues. These license fee revenues relate to amounts we received in 2008 under our agreements with Boston Scientific. The revenue recognition period for those fees ended in March 2013, and therefore all revenues related to the license fees we received previously were recognized as of the end of the first quarter of 2013.

For the quarter, we recorded product and other service revenues of $724,000 compared with $460,000 in Q1 of 2013, representing growth of 57%. Disposable product revenues were $565,000 in Q1 of 2014 compared with $347,000 in the first quarter of last year. That represents growth of 63%.

We recognized $92,000 in product revenue in Q1 of 2014 related to our ClearPoint capital products versus $113,000 in Q1 of 2013. Product revenues for the first quarter of 2014 included $56,000 in ClearTrace system components sold to a site for research use.

Other service revenues related to installation services and ClearPoint service agreements were $11,000 for the first quarter of 2014, and no such revenues were recorded during the same period last year.

Development service revenues were $154,000 in Q1 of last year and $99,000 in the first quarter of 2014. These development services were performed on a contract basis for a third party, and the decrease reflects the winding down of the development project we've been working on for them.

Gross margin on product revenues was 51% for the first quarter of both 2014 and 2013.

R&D costs for the first quarter of 2014 were $818,000 compared to $771,000 for Q1 of 2013. The primary driver for the increase was an increase in expenses related to the Company's ClearTrace program.

SG&A expenses for the quarter were $1.8 million compared to $1.6 million for Q1 of 2013. This increase resulted primarily from investments we made in our field sales and clinical support function, as our sales and marketing expenses increased by $369,000 when comparing Q1 of this year with Q1 of last year. This increase was partially offset by decreases in share-based compensation expense and expenses related to patent filings.

During the first quarter, we recorded a gain of $4.3 million related to the sale of intellectual property to Boston Scientific. The purchase price was satisfied through the cancellation of existing notes payable to Boston Scientific in the aggregate principal amount of $4.3 million. We recorded a gain equal to the purchase price as the assets sold had not been previously recorded on our balance sheet.

Net other income was $587,000 in Q1 of 2014 compared with net other income of $642,000 in Q1 of 2013. We recorded gains of $484,000 in Q1 of this year and $1.6 million in Q1 of last year resulting from changes in the fair value of derivative liabilities associated with warrants we issued in our 2012 and 2013 equity private placement transaction. The Q1 2013 gains associated with derivative liabilities were mostly offset by a $1.4 million loss related to our March 2013 note payable modification.

We had net income for the quarter of $2.6 million, which resulted in earnings of $0.04 per share, compared to a net loss of $824,000 in Q1 of 2013, which resulted in a net loss of $0.02 per share.

Moving over to the balance sheet, we completed two transactions during the quarter that further strengthened our financial position that Kim will elaborate on further in his remarks. The steps we took during the first quarter, excluding the effect of changes in non-cash derivative liabilities, decreased our current liabilities by almost 70% when comparing March 31 of this year to December 31 of 2013.

We ended the quarter with $5.8 million in cash. Lastly, I would highlight that this cash balance reflects a cash burn of $1.4 million for the first quarter of 2014. We have now reduced our cash used in operations for four consecutive quarters.

With that, I will turn it back over to Kim.

Thanks, David. So, we had another very productive quarter and I'd like to take a minute to provide some additional color on a few of the items.

First, we're continuing our success in building the ClearPoint business. During the quarter, we expanded our ClearPoint footprint, adding three sites in Q1. Those are Akron General Medical Center, Le Bonheur Children's Hospital, and Swedish Medical Center, all great hospitals, and bringing our total now of ClearPoint sites to 34. That's 32 in the United States and two in Europe.

As David mentioned, our disposable product revenues for the quarter were $565,000, up 63% versus Q1 of last year. On a sequential basis, our disposable revenues were up slightly, which is good, but reflect lower quarterly sequential growth than what we have delivered in recent periods.

As mentioned in our earnings release just earlier today, the growth in our product revenues was moderated by a decision we made to implement improvements in our ClearPoint workflow, our ClearPoint software, and the fixation of our SmartFrame device to the patient. We made these changes based on feedback we receive from our ongoing interactions with neurosurgeons. The primary purpose of the changes was to enable our ClearPoint system to accommodate a broader range of patient positioning for certain procedures, such as procedures for laser ablation. To be more specific, to enable reaching certain targets in the brain, neurosurgeons wanted to position the patients prone rather than supine, I mean on their stomachs instead of their backs.

Our ClearPoint system was originally designed for patients to be positioned on their backs, so we needed to make changes to ClearPoint to facilitate a smooth procedure with patients positioned on their stomachs. Although this may sound like a simple change, it wasn't. And as noted before, it required changes to multiple elements of the ClearPoint product and procedure. Now, I'm pleased to report that this effort was a success, and all the major assets of the project are complete and implemented.

However, a consequence of the project was that it negatively impacted our first-quarter results. Some of the sites, including one of our highest volume centers, held back on the number of ClearPoint procedures performed while they awaited completion of our work. This effort also had an impact on a few new potential customers. While we would like to have avoided the negative effects on our results for the first quarter, we're confident we made the right decisions. I'm pleased to report that we're now back on track and we expect to see sequential quarterly growth rates consistent with what we saw in the second half of last year.

As David mentioned, for the fourth consecutive quarter, we have again reduced our cash burn. During Q1, we used $1.4 million in operations. To put this in perspective, we used over $2.2 million in Q2 of last year, so this is very meaningful to our Company.

I'd also note that throughout last year and continuing through the first quarter, we have made ongoing investments in building our sales, marketing, and clinical support capability to accelerate adoption and utilization of our system.

I'm very pleased to report further progress related to our drug delivery activities. We announced today our involvement in a sixth drug delivery clinical trial. The trial is being done in collaboration with Merrimack Pharmaceuticals and the National Institutes of Health. The University of California San Francisco is sponsoring the trial. This trial is a Phase I study for the direct delivery of a promising cancer drug in adults for the treatment of certain recurrent high-grade gliomas.

We are excited to add a sixth trial to our five other ongoing trials, and we're excited to be involved in a trial with Merrimack Pharmaceuticals. For those of you that don't know, Merrimack is a sizable operation, a $650 million market cap company.

In Q1 of this year, we took two important steps to further strengthen our financial position. David mentioned those to you.

First, we consummated the transaction with Boston Scientific that extinguished a $4.3 million debt obligation to the Company and, in a separate transaction, we closed a long-term debt financing that netted proceeds of $3.5 million, which provides us cash to execute our business plan. These two transactions taken together significantly improved our working capital, eliminating $4.3 million in short-term liabilities and providing us with an additional $3.5 million in cash. In the aggregate, this represented a $7.8 million positive swing in our working capital position.

Lastly, we're continuing to make very good progress with our ClearTrace program. We announced a significant progression in our relationship with Siemens Healthcare. This arrangement is exclusive. It puts us in a strong position to enter the large cardiac EP market in close partnership with a major healthcare company.

Awareness and interest in ClearTrace continues to grow among clinicians, researchers, and industry players. And as mentioned on our previous calls, we expect commercial release of our first ClearTrace products in Europe by the fourth quarter of next year.

Our company is in great shape. We have a strong Board, dedicated management, seasoned employee base, and a stable financial footing. We've developed and are commercializing a unique and revolutionary product that is transforming how minimally-invasive neurosurgery is performed. The market opportunity remains large, over 2 million patients in the United States and growing. And there is no other product like ours in the market, so we're in a great position.

Changing an area of medicine takes time, and we are making major strides each and every day in accomplishing this call. As one neurosurgeon commented, real-time, MRI-guided, minimally invasive neurosurgery is inevitable. We are working hard at MRI Interventions to make the inevitable a clinical reality.

And lastly, regarding the stock price, as I'm sure all of you have noticed, despite our strong operational results, the success we have had in growing our ClearPoint platform, our stock price over the last year has not reflected our progress. This is a frustration for us and I'm certain it is a frustration for you, our shareholders. We believe the primary reason for the disconnect between our operational accomplishments and our stock price is a lack of investor awareness of our company.

Accordingly, we will be taking additional steps in the coming quarters to broaden awareness of our company among potential investors. I'm hopeful these additional efforts will help close the gap between our strong operating performance and the price of our shares.

And with that, operator, I'll open the call to questions.

(Operator Instructions). Lawrence Burnett, SWS.

Kim, congratulations on another good quarter. I'd like for you -- can you estimate how much revenue was lost due to the changeover, or the adding the additional procedure?

Sure, Lawrence. Thanks for the question and appreciate you dialing in. As we said in our prepared remarks, the changes we made were driven by feedback and input that we got from neurosurgeons who were using the system. And we knew it was the right decision because it's enabling us to treat -- or physicians to treat a wider range of patients.

One thing you've heard us talk about over the last number of quarters is ClearPoint is a platform, and that's what we envisioned years ago. It's a product that could treat -- really, again, change neurosurgery and put in the hands of neurosurgeons a very powerful tool to deliver a range of different therapies for a wide range of different patients.

And that said -- and I think we had a pretty good vision on it years ago. That said, when neurosurgeons came back to us and said, look, we really want to start doing these patients on their stomach -- some of these patients on their stomach instead of just on their back, it took us by surprise. And it did take a significant effort on the part of many folks at our company to enable that, and to enable it quickly. We really worked around the clock to get this change made.

It certainly reduced the number of cases that we were able to perform. Again, as I mentioned before, we know specifically that some of our sites, including one of our highest volume sites, held back on cases, just waiting for us to complete this project. In addition, again, I know firsthand of several folks that are potential customers looking at bringing ClearPoint into their hospitals that also said, let me -- I just want to see you get this work done.

So, we know it impacted the business. We know it reduced the case volume. We know that it slowed some progress with some potential sites. The specific number I'm not sure it's really possible to calculate, but again we know it dinged us.

Now, also, just to reiterate, we are pleased to have completed the work. Implementing these changes, we've implemented them, and it's in our rearview mirror, so we're glad to get -- to be done with it and, as I said before, we are confident that we're back on track. And when I say back on track, I mean consistent, well, consistent with the growth rates we were seeing in the second half of last year.

Well, I can appreciate you can't -- it's difficult to estimate the amount of revenue lost, which I guess is what you were saying. Is it possible -- how long did it take for the implementation for the redirection on the stomach procedure?

It was an effort that went on throughout the quarter, so it was across the majority of the quarter.

(Multiple speakers) entire quarter then?

Yes. Again, I'm trying to remember, Lawrence. We work pretty hard around here and weeks can run together but, yes, I believe it was the entire quarter, certainly the vast majority of the quarter.

Thanks very much and congratulations on the good work.

Okay, Lawrence. Thank you for dialing in.

Steve Schwartz, First Analysis.

So, Kim, the way you described that, it almost sounds like there was this element of the market that you guys didn't quite realize was out there, but there is certainly a demand for. So how much do you think this opens up of an opportunity for you?

So, that's a great question. The kinds of procedures that we've envisioned are consistent, so we're still talking about electrode placement; we're still talking about catheter placement for drug delivery; we're still talking about laser ablation and biopsies. What we found, though, is that the best way to get to some of those targets was to flip the patient over. It's just more efficient, worked better. That is, again, is what doctors are telling us they want to do.

So at one level, Steve, my answer is it's the same population that we're going after. However, on another level, we have been pleased to learn that by making this additional capability available, that there appear to be other things that can be done with ClearPoint. So, I don't know that we've quantified that, but this platform notion of ClearPoint is a powerful idea. The number of treatment resistant narrow disease patients is very large, and this puts us in a better position to take care of more of those patients.

Yes, okay. Yes, it certainly sounds positive. So good to hear. No problem taking a short-term hit like this if there's long-term benefit.

Well, that's what we thought. You hate to take a short-term hit, but on the other hand, as I've said before, it was absolutely the right decision for us to make.

Okay. Thank you for the color.

Greg Storm, private investor.

Thanks for the great results here. The question I have is on getting other people to help us sell a little bit faster. And my question is, with the reregulation of the insurance industry, it would seem like it's in the benefit and the interest of insurance companies to being helping us sell this to hospitals. Have you guys been able to reach out to any insurance companies to help, or does that make any sense at all?

Thanks for the comment, the question. So, the short answer is it's early, very early, for that for us. But a little longer answer is that this is a theme we're hearing. We're hearing this from neurosurgeons and we're hearing it from hospital administrators alike. And I think you're absolutely right, spot on.

What's interesting in the drive and all the changes that are going on in healthcare, there is a renewed interest or a heightened interest in delivering the most cost effective solutions to treating patients possible, and tracking that, and making people accountable for that, making hospitals who are doing two procedures now -- or were doing two procedures to treat a patient now saying, hey, you know what? You do a second treatment on a patient you're going to have to pay for that one. So all of those themes I think are good themes and powerful themes for us. Why do I say that?

So, if you look at DBS electrode placement for a Parkinson's patient. There have been some studies done -- I don't have them at my fingertips -- but there have been studies done that say when a Parkinson's patient undertakes DBS therapy and receives DBS therapy, there the cost of that patient over the next five years -- it may have been a 10-year study; I think it was a five-year study -- the cost of taking care of the patient goes down and the productivity of that patient goes up.

And so there is an effort I know from Medtronic, one example, to make sure that insurance companies realize this. Hey, there's a real positive economic delta in some of these therapies, these therapies for treatment-resistant neuro diseases.

Another example is epilepsy. Epilepsy is -- certainly treatment-resistant is a very debilitating disease, just awful for quality of life for patients and has an impact of just making it hard for them to work, and in many cases, they can't work.

So, to the extent you can deliver a treatment for them like laser ablation and return a lot of that quality of life, return those patients to productive -- to be more productive, then that's all great. Now, so why am I going off on this?

I don't know, 10 or 15 years ago, I don't think insurance companies were tracking this, not as closely as they are today. So this is a theme. As we establish ClearPoint as a more broad-based therapy, one that is in more on more hospitals, more and more common, we absolutely intend to make these points clear to all the relevant parties, including the insurers.

Did I put you to sleep with that answer?

No, you're good (laughter). With the changes in the industry, it would seem like the insurers are at the forefront of helping hospitals manage their costs down now, and we've got a great product to help them with that, right?

Again, I couldn't agree with you more. Absolutely.

If we could get those insurance companies helping us when they negotiate their reimbursement rates with hospitals to mention our product, it would be huge.

Yes, you know, it's one of the things that -- one of the reasons why it's so important that we continue to grow the footprint, to grow the utilization, to grow the awareness. As I've said over and over again, we are the pioneers in this field. We are the pioneer in this field. We're out on the forefront here and we're changing an area of medicine, and in doing that comes the opportunity to educate folks. And the further we go, the more momentum we build, I think the bigger our impact can be. And the onus is on us to educate folks like the insurance companies and say, look, hey, this is a big deal to you. This now impacts you. This can be a benefit to you and your insured population.

Yes, thanks.

(Operator Instructions). There are no more questions at this time. I would like to turn the call back over to Kim Jenkins for closing comments.

Thanks a bunch. As always, we very much appreciate your interest in our company. We very much appreciate your support. Please know that we are working hard to deliver value for patients, for the doctors, and most importantly and very importantly, for our stakeholders. So, we wouldn't be here without you. Thank you for your support and hope you have a good evening.

Thank you. This does conclude the teleconference. Thank you for your participation.