Clearpoint Neuro Inc (CLPT) 2015 Q3 法說會逐字稿

Greetings and welcome the MRI Interventions Inc. 2015 third-quarter financial results conference call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today Mr. Frank Grillo, the CEO of MRI Interventions, Inc. Thank you, sir. You may begin.

Thank you. Good afternoon, everyone. Thank you for joining us for our 2015 Q3 earnings call. With me for today's call is Hal Hurwitz, our CFO. On behalf of the management team and employees of MRI Interventions, we appreciate your interest in our Company.

And for those of you who are shareholders, thank you for your support. We are honored to be working for you and building this great Company, and we are proud of the care patients are receiving as a result of the continued adoption of our products and technology.

To open this call, let me start by saying we are pleased with our progress in Q3 on many fronts. Revenues were up nearly 100% from a year ago, cash burn was down nearly 40% from the last couple of quarters, and we are making great progress in many aspects of the business.

Let me turn the call over to Hal for a review of our first quarter and -- I'm sorry, our third quarter and nine-month financial results, and I will provide further context regarding our progress after he goes through that. Hal?

Thank you, Frank. Before we begin, I want to point out that the comments made on this call may include statements that are forward looking within the meaning of securities laws. These forward-looking statements may include without limitation statements related to anticipated industry trends, the Company's plans, prospects and strategies, both preliminary and projected, and management's expectations, beliefs, estimates or projections regarding future results of operation.

Actual results or trends could differ materially. We undertake no obligation to revise forward-looking statements in light of new information or future events. For more information, please refer to the risk factors discussed in our Form 10-K for the year ended December 31, 2014 and the Form 10-Q for the quarter ended June 30, 2015, both of which have been filed with the SEC, as well as the Form 10-Q for the quarter ended September 30, 2015, that we will be filing with the SEC shortly.

All of our filings can be obtained from the SEC or by visiting our website at www.mriinterventions.com.

First, let's cover the three-month period ended September 30, 2015. Revenues were $1.2 million for the three months ended September 30, 2015 and $633,000 for the same period in 2014, an increase of $613,000 or 97% attributable to increases in our ClearPoint system reusable and disposable products. ClearPoint disposable product sales for the three months ended September 30, 2015 were $970,000 compared with $577,000 for the same period in 2014, representing an increase of $393,000 or 68%. This increase was due primarily to a greater number of procedures performed using the ClearPoint system within the larger installed base for ClearPoint relative to the 2014 period.

ClearPoint reusable product sales for the three months ended September 30, 2015 were $239,000 and $11,000 for the same period in 2014. Reusable products consist primarily of computer hardware and software bearing sales prices that are appreciably higher than those for disposable products and historically have fluctuated from quarter to quarter.

Gross margin on product revenues was 54% for the three-month period ended September 30, 2015 compared to 46% for the same period in 2014. The improvement was attributable primarily to increased average unit selling prices, decreased unit costs and greater production efficiencies arising from increased volume in the 2015 period related, or relative rather, to the 2014 period.

Research and development costs were $480,000 for the three months ended September 30, 2015 compared to $873,000 for the same period last year, a decrease of $393,000 or 45%. Approximately $229,000 of the decrease related to reduced spending on the ClearTrace development program and $61,000 related to reductions in sponsored research.

Selling, general and administrative expenses were $2.1 million for each of the three-month period ended September 30, 2015 and 2014. During the three months ended September 30, 2015, we recorded a gain of $1.95 million, and during the three months ended September 30, 2014, we recorded a loss of $781,000 from changes in the fair value of derivative liabilities associated with certain warrants we issued in private placement transactions.

Now let's turn our attention to the nine months ended September 30, 2015. Revenues were $3.1 million for the nine months ended September 30, 2015 and $2.6 million for the same period in 2014, an increase of $438,000 or 17% primarily attributable to growth in our disposable product sales driven by growth in ClearPoint-enabled procedures.

ClearPoint disposable product sales for the nine months ended September 30, 2015 were $2.5 million compared with $1.9 million for the same period in 2014, representing an increase of $580,000 or 30%. This increase is due primarily to the aforementioned growth in procedures and the size of the ClearPoint system installed base.

ClearPoint reusable product sales for the nine months ended September 30, 2015 were $469,000 compared with $492,000 for the same period in 2014, representing a decrease of $23,000 or 5%. Gross margin on product revenues for the nine months ended September 30, 2015 was 55% compared to gross margin of 49% for the corresponding period in 2014. The improvement was attributable primarily to increased average unit selling prices, decreased unit costs and greater production efficiencies arising from increased volume in the 2015 period relative to the 2014 period.

Research and development costs were $1.4 million for the nine months ended September 30, 2015 compared to $2.6 million for the same period in 2014, a decrease of $1.2 million or 45%. Approximately $592,000 of the decrease related to a reduction in spending on the ClearTrace development program and $200,000 related to reductions in sponsored research.

Selling, general and administrative expenses were $6.6 million for the nine months ended September 30, 2015 compared with $5.8 million for the same period last year, an increase of $817,000 or 14%. The increase was primarily attributable to an increase during the nine months ended September 30, 2015 and cash compensation costs of approximately $466,000, a portion of which was associated with overlapping executives terms of employment so as to provide for a coordinated transition of duties during the period in which we as previously announced consolidated our business functions into our Irvine, California headquarters and closed our executive offices in Memphis, Tennessee. Also contributing to the increase was an increase in share-based compensation of $417,000.

In March 2015, we announced the consolidation of all major business functions into our Irvine, California headquarters. In connection with this consolidation, we closed our Memphis, Tennessee office in May 2015. We did not retain any of the Memphis-based employees. A total of seven employees were impacted by the consolidation, including three executives whose termination of employment triggered a modification in the terms of stock options previously granted to them.

In connection with this consolidation, we recorded restructuring charges of $1.3 million during the nine months ended September 30, 2015, primarily related to severance costs and to the revaluation of the stock options with modified terms and the resulting accrual of additional share-based compensation expense.

During the nine months ended September 30, 2014, we recorded a gain of $4.3 million related to the sale of certain intellectual property to Boston Scientific. The purchase price was satisfied through the cancellation of related party convertible notes payable we previously issued 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.

During the nine months ended September 30, 2015 and 2014, we recorded gains of $981,000 and $578,000, respectively resulting from changes in the fair value of derivative liabilities associated with certain warrants we issued in private placement transactions.

I will now turn the call back over to Frank.

All right, Hal. Thanks for the update on the financials. As I stated earlier, we are pleased with the progress we made this quarter. Revenue came in at about $1.25 million in the third quarter, and as Hal mentioned, this was an increase of 97% over a year ago. More importantly, we achieved record procedures and disposable sales this quarter.

To talk about procedures for a moment, DBS cases were strong this quarter and continue to be the largest portion of our cases overall. These cases are going very smoothly, and case times continue to fall often to well under four hours for a bilateral case and under three hours for a unilateral case which compares favorably to stereotactic cases.

In addition, the patient is not locked into a head frame for eight to 10 hours, which is often the case for a stereotactic approach.

Laser ablation trends were also encouraging to us this quarter. About a quarter of our cases in Q3 were laser oblation cases, similar to Q2, and Q4 has started off with an even higher mix of laser. In Q3, we had a couple of sites come on board and ramp up for laser ablation of tumors, while others continue to utilize laser ablation for hippocampal ablation.

At this point, I believe we are doing about the same number of cases with Monteris and Visualase, and these cases are going better and better with better accuracy and shorter case times as accounts come up to speed. Our value proposition in laser is strong based upon the accuracy and real-time visualization of the placement of the laser fiber that is possible with our ClearPoint system, while eliminating the need to transport the patient through the hospital hallways from the operating room to the MRI suite with a hole in his or her head.

We believe ClearPoint is the ideal neuro-navigation system for laser ablation and expect that this new procedure will drive growth for us for some time to come.

In addition, we continue to see progress on the use of our system for a variety of other case types as well. For instance we heard an interesting story from one of our surgeons in the Northeast regarding a brain tumor biopsy. Earlier last month, he was on call and a patient presented with a mass that required biopsy.

As head of stereotactic and functional surgery of his institution, he did the biopsy stereotactically, which means he did not use ClearPoint and did not have real-time MRI guidance. Typically such a procedure would take two to three hours; however, the procedure took over seven hours, and specimen after specimen did not yield a diagnostic sample, indicating an error in the targeting because he did not see the tumor in real time.

A few days later, the same surgeon redid the biopsy utilizing the ClearPoint system. The entire ClearPoint procedure took only a little over two hours, and with the ClearPoint accuracy and the real-time visualization in the MRI, he was able to obtain a diagnostic biopsy sample with confidence on his first attempt.

These kind of stories, combined with peer-reviewed articles such as the article in the Journal of Neurosurgery which we highlighted in our press release yesterday, are proof that we have a great technology and that surgeons are realizing the same thing.

In drug delivery, we began conversations with a few additional pharma and biotech companies this quarter regarding using our ClearPoint system in additional drug delivery trials. We are excited by these early discussions. These companies are coming to us with a problem. They need to ensure the drugs they are delivering reach their targets and do not simply reflux back up the needle track.

The combination of our ClearPoint system for navigation and our proprietary drug delivery cannulas are a great solution to these needs, and we intend to initiate as many partnerships as possible in this area.

Drug delivery is also generating interest for our technology around the world. This quarter, we sold a system to an account in Warsaw, Poland where the neurosurgeon is very involved in local drug delivery trials. The hospital is building a new intraoperative MRI center devoted to neuro interventions and for use in these kinds of drug delivery trials and specified having ClearPoint as part of the new center.

Now, I should caution we have not actually recognized the revenue from this sale, even though we have received the purchase order and shipped the system as the installation is not yet complete. But we are excited about having this account come up to speed. We expect the install to become completed in Q4 at which time we will recognize the revenue and the first cases to occur in Q1 of next year.

It's also interesting to note as we look across our account base that nine of our top 10 accounts are now using ClearPoint for multiple types of procedures, and seven of our top 10 now have multiple surgeons using our technology. The surgeons and their colleagues typically start with just one procedure in mind, and then when they see the utility of the ClearPoint system, they proceed to use it in multiple types of procedures. This is exactly the kind of trend we like to see.

On the capital side, we had two capital sales in the third quarter, and we had two additional new accounts sign up to evaluate ClearPoint.

In addition, we pulled systems from two sites where we expect -- where the evaluations did not look like they would turn into a capital purchase, so we pulled them after the 90-day eval.

When you wrap it all up, we ended Q3 with 39 sites and better and better utilization at these sites. Including all sites in the US, we have 39 ClearPoint sites and strong interest from additional new customers continues, and we expect Q4 to be a good quarter for us in terms of evals, sales and growth in our revenue.

Marketing, during this quarter, we had one of our two biggest tradeshows of the year, the Congress of Neurological Surgeons held in New Orleans, Louisiana. We supported several events at this meeting, the highlight of which was a luncheon lecture we cosponsored with Medtronic entitled The Emergence of Real-time Imaging in Neurosurgery: How MRI Guided Navigation and Laser Ablation Are Increasing Minimally Invasive Surgical Options. Over 140 attendees heard lectures regarding the use of real-time MRI for a variety of neurological procedures with a focus on laser ablation and also a discussion around drug delivery. The session was very well received and is evidence of the growing interest in our technology.

Let me turn to the expense side of our business. As we mentioned on the last call and as Hal has mentioned, we have completed the consolidation of our Memphis facility into Irvine, California. All of the restructuring charges are pretty much behind us, and the benefits of a more focused and streamlined organization are showing up in our day-to-day business activities and also in our use of cash.

Our cash used in operations this quarter was $1.6 million, which compares to cash used in operations of $2.8 million and $2.9 million in Q1 and Q2, respectively. This reduction of over 40% in use of cash is reflective of our new streamlined operating expenses. With our expectation of rising revenues and a few further cost reductions going forward, we expect to see this net use of cash continue to decline over the next several quarters. We aim to be excellent stewards of investor cash, and with a disposable product line with 65% to 70% gross margins, revenue growth goes a long way in reducing cash burn.

So, in summary, we are pleased with the progress we made this quarter. Cases are going well, and we are seeing more and more excitement around laser for both tumor and hippocampal ablations. We had a great CNS and encouraging discussions with a number of drug delivery companies regarding new studies. Our sales and clinical special teams are driving hard, and we appreciate the interest in our technology we are receiving from more and more potential customers.

We are changing how neurosurgery is done, where it is done and in some instances what can be done. We are confident of the benefits of our technology brings to patient care, and we are committed to bringing these benefits to more and more hospitals, surgeons and patients, and the marketplace is responding with growing interest and use of our products.

With that, I would like to open the call for questions.

Operator?

(Operator Instructions) [Bruce Conway], a private investor.

Thank you, Frank. I just want to comment that's impressive revenue growth in Q3. Can you tell us how October is going? Are we having a good follow-through on that turnaround?

Thank you for the question, Bruce. As always, I have to be a little careful about how much we say given forward-looking statements, but October has been a good month for us. We have seen a very nice and continued increase in laser ablation growth, and it's been a great way to start off the quarter. So we've been pleased with the quarter to date in Q4, and we'll certainly provide a full update when the quarter concludes.

Great and just one follow-up question. It seems like we're becoming more an ablation company. The growth there is really picking up. Don't lasers have to be done in an MRI suite?

So what we're finding with the lasers side of the business is it's definitely picking up nicely, and we are getting traction with both laser companies: Visualase and Monteris. Those procedures, as we've discussed on prior calls, often start in the operating room, but have to be concluded in the MRI as the thermal mapping that you can get in an MRI while during the ablation is needed for the procedure.

So what we're finding in hospitals is rather than transporting a patient from the operating room to the MRI, they are really starting to see the advantage of doing a whole procedure in the MRI, being able to get much better accuracy when they are placing the fiber with real-time MRI visualization. And the other advantage with our system is, if multiple trajectories are required, that can also be done with real-time guidance under the MRI, rather than trying to go back and forth to the operating room to replace the laser.

So the value proposition of laser is very strong, and it is starting to really drive the growth for the Company, and we do expect to see that happen more so in the future.

That's great and just one last question on that. You mentioned accuracy. Are you getting comments from the doctors that both Monteris and Visualase about the improvement in accuracy from using us?

We are definitely getting those kind of comments from doctors not only in laser ablation cases where, obviously, we're getting those accuracy comments across the board. In laser, particularly for the hippocampal ablations where it is a long thin structure, you're trying to ablate and you are destroying tissue in that instance, accuracy is really critical. I mean, it is brain surgery after all.

Secondly, you know I cited this example of the biopsy we heard about in the Northeast this quarter where using stereotactic equipment in the operating room, they kept missing the target, and then once they were in the MRI a few days later with ClearPoint and the real-time MRI visualization, they were able to accurately get to target and get the sample without a problem.

So we continue to hear many comments on accuracy that relates to being able to -- our system enabling the real-time MRI guidance.

Great. I assume that word is getting around. Thank you for a great quarter.

Thanks.

Alberto Fernandez, Information Capital. Ben De Jacamo, a private investor.

Excellent, excellent quarter. Nice work and I realize as you guys are just kind of starting out there in your first year, it will probably not be the fastest sales growth that we'll experience under your new management, but overall I commend you guys on a great quarter.

My question is more on the not revenue side but actually on the cash situation at the Company. Do you have any color on the cash situation? I know you talked about the burn rate coming down to like [1.5], [1.6] this quarter. Can you just talk a little bit more about what your goals are for cash burn for the year? Not like if sales were to, say, stagnate for instance or something like that. Just overall do you guys have a target for the year at all?

Ben, we do have internal targets, but as you are likely very aware, we do refrain from giving guidance. So I can't respond to the totality of that question.

As you can tell from our prepared remarks, we are certainly in touch with where we are from a cash standpoint, and we look forward to communicating developments with respect to that in the future.

Is there a way that you could disclose what the cash position is before the 10-Q comes out?

Well, yes, the balance sheet, the financial statements in total were appended to the press release. So what you'll see there is that we had cash balance at the end of the quarter of $1.8 million.

So total cash is $1.8 million?

Correct.

Thanks, guys.

Thank you, Ben.

(Operator Instructions) Alberto Fernandez, Information Capital.

I'm sorry. My mic was off. Thanks for your information on this last quarter. I have a question concerning the number and the growth of CP sites. Can you tell me what the number of growth is year on year in the last quarter?

So the number of sites we have now, Alberto, we have 39 sites in the United States versus a year ago. It's actually about flat as we've been fairly aggressive on removing equipment from hospitals where the evaluations were not heading towards purchase.

So, I think we're somewhere in the range of eight up and eight down. I would expect over the next few quarters that there's not very many sites now that are in evaluation where we do not expect them to come to close. So I think we'll start to see the sites grow going forward.

So your statement, you're basically flat, is that it?

For installed base, yes. Procedures, as you can tell from the disposable product revenue, are up significantly.

Right. Thank you very much.

There are no further questions in queue at this time. I would like to turn the call back over to management for closing comment.

All right. Well, thank you to LaTonya for your assistance on the call, and thank you everyone for your participation and your continued interest and support. We look forward to reporting our fiscal year 2015 results in early 2016 and appreciate your support of the Company. Bye-bye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a great day.