Clearpoint Neuro Inc (CLPT) 2015 Q4 法說會逐字稿

Greetings and welcome to the MRI Interventions, Inc., 2015 fourth-quarter and full-year 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, Mr. Frank Grillo. Thank you, Mr. Grillo; you may begin.

Thank you, Daryn. Hi, this is Frank Grillo. Good afternoon, everyone. Appreciate you joining us for our 2015 Q4 and full-year earnings call. With me for today's call is Hal Hurwitz, our CFO.

On behalf of the management team and all the 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 have a lot to cover on this call. It's been a busy year. I should also note that this call is later in the year than we would normally like.

However, since we knew we were close to concluding the Brainlab transaction, we figured it made sense to delay a bit until that was concluded. I will cover aspects of the Brainlab deal in a few minutes.

We will also cover Q4 and discussed 2015 in general. 2015 was a year of accomplishments and refocusing of the Company, and our efforts are showing up in the revenue numbers. We are very pleased with our position and progress in the market over the last several months, and that momentum is carrying into Q1 as well.

We're honored to be working for you in building this great Company, and we're proud of the care patients are receiving as a result of the continued adoption of our products and technology. With that, let me turn the call over to Hal for a review of our 2015 fourth-quarter and full-year financial results; and then I will provide further context regarding our progress after he goes through the numbers. Hal, over to you.

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 statements 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 operations. 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 September 30, 2015, both of which have been filed with the SEC, as well as the Form 10-K for the year ended December 31, 2015, that we will be filing with the SEC shortly. All our filings can be obtained from the SEC or by visiting our website at www.MRIInterventions.com.

First let's cover the 2015 fourth quarter. Revenues were $1.5 million for the three months ended December 31, 2015, and $960,000 for the same period in 2014, an increase of $552,000 or 57% attributable increases in our ClearPoint system reusable and disposable product.

ClearPoint disposable product sales for the three months ended December 31, 2015, were $1 million, compared with $704,000 for the same period in 2014, representing an increase of $305,000 or 43%. This increase was due primarily to a greater number of procedures performed using the ClearPoint system within a larger installed base for ClearPoint relative to the 2014 period.

ClearPoint reusable product sales for the three months ended December 31, 2015, were $438,000, and $219,000 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 55% for the three months ended December 31, 2015, compared to 29% for the same period in 2014. This improvement was attributable primarily to: one, a $300,000 decrease from the fourth quarter of 2014 to the corresponding period in 2015 in charges to the provision for obsolete and expired product; two, increased average unit selling prices in the 2015 fourth quarter; and three, decreased unit costs and greater production efficiencies arising from increased volume in the 2015 fourth quarter relative to the same period in 2014; all this partially offset by a $95,000 increase in the 2015 fourth quarter relative to the same period in 2014 in the allocation of indirect labor to production activities, commensurate with our continuing transition from research and development to commercial activities.

Research and development costs were $523,000 for the three months ended December 31, 2015, compared to $708,000 for the same period in 2014, a decrease of $185,000 or 26% attributable primarily to reduced spending on our ClearTrace development program. Selling, general and administrative expenses were $1.8 million for the three months ended December 31, 2015, compared to $2.2 million in the same period in 2014, a decrease of $485,000 or 22%.

This decrease was attributable primarily to the completion of our consolidation in 2015 of all our business functions into our Irvine, California, headquarters, and the closure of our offices in Memphis, Tennessee, which resulted in the $255,000 reduction of administrative compensation costs in the fourth quarter of 2015 relative to the same period in 2014, and a $166,000 increase in the allocation of departmental resources to production activities in the fourth quarter of 2015 as compared to the same period in 2014, partially offset by a $122,000 increase in sales and marketing compensation costs.

During the three months ended December 31, 2015 and 2014, we recorded gains of $559,000 and $972,000, respectively, 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 year ended December 31, 2015. Revenues were $4.6 million for the year ended December 31, 2015, and $3.6 million for the same period in 2014, an increase of $990,000 or 27% attributable to growth in our ClearPoint system disposable and reusable product.

ClearPoint disposable product sales for the year ended December 31, 2015 were $3.5 million compared with $2.6 million for the same period in 2014, representing an increase of $885,000 or 34%. This increase was due primarily to a greater number of procedures performed using the ClearPoint system within a larger installed base for ClearPoint relative to the 2014 period. ClearPoint reusable product sales for the year ended December 31, 2015, were $907,000, compared with $767,000 for the same period in 2014, representing an increase of $140,000 or 18%.

Gross margin on product revenues for the year ended December 31, 2015, was 55% compared to gross margin of 43% for the same period in 2014. The improvement was attributable primarily to: a $300,000 decrease from 2014 to 2015 in charges to the provision for obsolete and expired product; two, increased average unit selling prices in 2015 as compared to 2014; and three, decreased unit costs and greater production efficiencies arising from increased volume in 2015 to 2014; partially offset by a $95,000 increase in 2015 relative to 2014 in the allocation of indirect labor to production activities, again commensurate with our transition from research and development to commercial activities.

Research and development costs were $2 million for the year ended December 31, 2015, compared to $3.3 million for 2014, a decrease of $1.3 million or 41%. Of this decrease, $649,000 related to a reduction in spending on our ClearTrace development program, and $211,000 related to reductions in sponsored research.

Selling, general, and administrative expenses were $8.4 million for the year ended December 31, 2015, compared with $8 million for the same period last year, an increase of $332,000 or 4%. The increase was primarily attributable to increases in 2015 relative to 2014 of $310,000 in sales and marketing related cash compensation costs, and $371,000 in share-based compensation, partially offset by a $166,000 increase from the allocation of departmental resources to production activities.

The consolidation of our business functions into our Irvine, California, headquarters and the closure of our Memphis, Tennessee, office in 2015 resulted in us not retaining any of our 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 in 2015, primarily related to severance costs, and did the revaluation of the stock options with modified terms and the resulting accrual of additional share-based compensation expense.

During the year ended December 31, 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. Thus, we recorded a gain equal to the purchase price, as the assets sold had not been previously recorded on our balance sheet.

During each of the years ended December 31, 2015 and 2014, we recorded gains of $1.5 million resulting from the 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.

Okay, thank you, Hal. Appreciate the update. Now let me go through some of the highlights, a little more qualitative level in terms of what's going on in the business.

Let me start with the perspective on the full-year 2015, and then I will hit a few highlights for Q4 specifically. 2015 was a big year for us. We had several key accomplishments which included the following.

We grew revenue 27% over the prior year, including 34% growth in disposable products. As I've said before, we consider our growth in disposables as the key indicator of our business, along with growth in procedures.

We significantly expanded our procedure opportunity to include laser ablation, a fast-growing market where our value proposition is very strong. Laser ablation procedures can create very difficult workflow in a hospital, as a patient may have to be transported under general anesthesia with a laser sheet sticking out of their skull through the hospital hallways, and then picked up and placed into an MRI where the ablation must be done.

In addition, these procedures often require a very high degree of accuracy, since you are destroying brain tissue. Our value proposition is excellent in this procedure, and we're seeing some nice growth here.

We advanced our drug delivery strategy with key opinion leaders and potential partners, and expect to see more opportunities in drug delivery over the next year. More and more biotech and pharma researchers and companies are realizing that being able to visualize the real-time infusion of a drug into the brain is very valuable, and the ClearPoint system makes this possible to do under direct visualization with MRI.

We made improvements in the robustness of our installed base of customers by removing evaluation systems from eight dormant sites while adding 10 new accounts. Our installed base is much more robust, and we expect it to grow going forward, based on interest we're seeing now.

We strengthened our team with the addition of several new commercial and management team members, particularly after the Memphis closure. And we restructured and refocused the Company overall, including the closure of the Memphis headquarters and consolidating as much as possible into our Irvine facility. This restructuring, combined with other efforts, has enabled us to reduce quarterly operating expenses overall, and we are utilizing less cash per quarter than we have in the past.

As far as Q4 2015 goes, here's a few highlights from the end of the year. Q4 we grew revenue 57% over Q4 2014. This was a strong quarter for us, and we achieved a new quarterly record for total revenue, for disposable revenue, and for capital sales in the quarter. This included the first time disposable product revenue exceeded $1 million, which again we view as a key indicator of our business.

We added four new accounts in Q4, increasing our installed base to 41 sites, including our first commercial site in Europe. The Europe site has been specifically set up for drug delivery trials with a world-renowned neurosurgeon there leading the charge.

In this quarter, we did -- I'm sorry. In the quarter, 109 neurosurgical procedures utilized our ClearPoint Neurosurgical Navigation System, our highest quarterly procedure number to date. This is the first time we have reported actual procedure numbers, and we will continue to report procedure numbers in our quarterly calls going forward.

We were very efficient with our resources, and we saw the results of the restructuring reflected on the bottom line for the first time. We reduced use of cash, resulting in a net cash burn of about $1.3 million in Q4, significantly lower than that of several prior quarters. Going forward we expect cash utilization to be much more efficient, particularly with all of the restructuring behind us now.

We executed a successful PIPE for $5.3 million in additional financing for the Company to drive the growth of the Company. We had the opportunity to raise more, but decided to close at a little over $5 million, knowing that we were making progress in the business and in the discussions with Brainlab.

That leads me to the Brainlab transaction, which we just signed up yesterday. As described in our press release from yesterday, we restructured the March 2013 notes with Brainlab, which totaled about $5 million including accrued interest. The Brainlab transaction has four components which I'll quickly summarize, and these were also in our press release yesterday.

The four components of the restructure of that note are as follows. In consideration for the cancellation of about $1.3 million of the principal amount of the March 2013 note, we will issue to Brainlab 3.972 million units, with each unit consisting of a share of common stock, a warrant to purchase 0.4 shares of common stock, and another warrant to purchase 0.3 shares of common stock. These units are substantially similar to the units we sold to investors in the December 2015 PIPE transaction; so basically the same structure of equity purchase as the investors in December.

In consideration for the cancellation of $1 million of the principal amount of the March note, we will grant Brainlab -- we have granted Brainlab a worldwide nonexclusive license to develop proprietary software to support our SmartFrame device for use in neurosurgery. This means that Brainlab can develop a software package that communicates with our SmartFrame products so that they can offer software that works with our products as part of their suite of navigation software.

We're excited about this development, although there are no timelines in place at this point for launch of their equivalent product. This license agreement will not affect our ability to continue independently developing, marketing, and selling our own software for the SmartFrame device, which we will continue to do.

We will issue to Brainlab a new note. The principal amount instead of being almost $5 million will now be $2 million, interest at 5.5% per year, paid quarterly in arrears, and a maturity date of December 31, 2018, so almost three years from now.

Finally as part of the transaction, we'll pay Brainlab all the accrued interest owed on the March note for about $740,000. Overall, we were pleased with the outcome of the transaction and the collaborative discussions held with Brainlab over the last several weeks.

With this concluded, I believe we have eliminated an uncertainty raised by existing and potentially future investors. Going forward, we're excited to have Brainlab as a shareholder, a noteholder, a licensee and a customer.

Okay. In summary we are pleased with our progress. Q4 was a strong quarter. Cases are going well, and we are seeing more and more excitement around our technology.

Our sales and clinical specialty teams are driving hard, and we appreciate the interest in our technology we're receiving from more and more potential customers. To close my comments here I thought I would describe a recent procedure which utilized our technology and shows the true advantages of it.

Our ClearPoint system is the only neurosurgical navigation system utilizing direct visualization under MRI. We're the only system that enables real-time visualization and imaging of the brain during a procedure.

Recently, this capability was highlighted at a recent procedure at a large academic medical center. A patient came into the hospital early last year after an unexplained seizure, a middle-aged patient, and as a result had an MRI. The MRI showed there was a deep, small lesion, so the attending neurosurgeon tried to biopsy this small, deep tumor, utilizing standard stereotactic navigation in the operating room. That's without MRI and that's without real-time visualization.

Unfortunately, they missed the tumor and were unable to definitively diagnose it. The patient was sent home simply to watch and wait.

Several months later they tried again at one of our ClearPoint sites. Using our ClearPoint system they were able to accurately navigate to the target tumor and get a biopsy of it. They could tell they were in the tumor because they could see it real-time under MRI.

A sample was quickly sent to pathology, and the tumor was determined to be benign. So good news.

In this same procedural session, they then did a laser ablation of the tumor and destroyed most of it. This patient woke up knowing the cause of the seizures was from a benign tumor and not life-threatening. And the doctor now plans to taper the patient off of seizure medications over the next several -- over the next few months.

This is a great example of how our technology is being used to improve the lives of patients. 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 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 in use of our products.

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

(Operator Instructions) Tracy Marshbanks, First Analysis.

Good afternoon, guys. Just a couple questions here, more on the quantitative side. You talked about price increases, improving your gross margin. You didn't really talk about it being a significant impact on the top line, but the majority was volume.

Can you give us a sense of what type of magnitude we're talking about on price increases?

Hi, this is Frank. I'll pick that one up. Yes, at the beginning of the year we did some price increases, Tracy. Most of them were on the capital side and the systems side of our product line, not so much on the disposable side.

I think as you know, our systems and capital are a little bit lower in gross margin than our disposables. We just felt like it was an appropriate raise given the value we are creating.

Okay, yes; that makes sense. Frank, looking out a bit, you now have a balance sheet that's in much better shape. You guys did a lot a really hard work in 2015.

Can you just look out at 2016 and -- what are you looking for? What should investors look for? Are there some key milestones, events, data? Anything that people should just be on the watch for and use as a gauge of how things are going.

Well, Tracy, I always appreciate you getting on the phone and asking forward-looking projections which --

(laughter) I didn't ask for a projection.

Yes; which, as you know, we're not yet doing. We did -- for this quarter we are starting now to put out procedure numbers.

As I've said on calls in the past, I really view us -- I want everyone to understand that MRI is a procedure-driven company. So as we do more procedures, that is the key metric to look at, is number of procedures.

Disposable revenue growth will more or less track procedure growth, although laser procedures are a little less revenue per procedure than deep brain stimulation procedures. So it does depend a little on the mix that quarter. So that's -- procedure growth is the number one metric.

New account growth? In 2015, we had a bit of a churn in our account base, shutting down some dormant sites, but also adding a number of nice sites. It looks like 2016 will be a good year to expand our account base as well, to see new sites come onboard.

Then finally, on both laser -- well, first on laser ablation. I think we'll see more and more publications come out this year, and more and more data talking about the benefits of laser ablation for both epilepsy and tumor. I think you will also start to see publications that say accuracy matters with laser ablation, particularly in the epilepsy procedures.

In those procedures, a full ablation of the hippocampus is going to get better seizure reduction than a partial ablation of it. So that's something we've really got our eye on, and we're encouraging our customers to publish on.

Finally, drug delivery continues to be very interesting for us. In 2016, I think we'll continue to make progress and we'll see some of our partners get closer to Phase II type trials, although I don't expect any of them to actually start this year. Looking more towards next year for that.

So those are just a few events for you to keep an eye out for.

Okay. I appreciate the comments. Thanks.

Kris Tuttle, SoundView Technology Group.

Hi there. Thanks; I had a couple. Apologize if any of these are too basic. But one concerns the -- need a little more color on the number of procedures per site. I think I heard you say you had 41 sites, 109 procedures in the quarter.

How variable was that? Are there like a small number of sites that are doing a lot of procedures? Or what does the distribution look like?

Sure; thanks for the question, Kris. Welcome to the call.

First of all, 41 sites. Of those, four were brand-new in the quarter, so I really wouldn't expect a whole lot out of them to start.

We also have three or four research sites which are preclinical and aren't doing human cases. So we actually don't count them in our counts for procedures, even though they might be driving revenue, because they do purchase product from us. But our procedure numbers are human cases.

Okay.

Then, finally, in terms of the customer concentration, it's a question we get asked a lot. We have three -- well, that quarter I think we had four or five sites that I would call decent-volume sites, high-volume sites, with I think around eight or more procedures per quarter. We have a bunch of sites that are in the three to eight range per quarter right now; and a couple sites just getting started, in the one to three range.

What's encouraging for us is we are seeing some of those folks in the middle move up. A year ago we only had I think two or three sites in that top category; now we've got four or five.

Folks in the middle were in the lowest tier a year ago, and so several of those have moved up as well. So we're starting to see some momentum within the existing sites.

It's not quite an 80/20 rule. It's not that concentrated, certainly. But it is, as you would expect, a handful of sites do a lot of the procedures; and then the others are continuing to grow and pick up.

Okay; that's helpful. What do you think -- eight a quarter or so is the high-water mark now. What do you think the effective, like, full utilization would be in terms of number of procedures per quarter?

Yes, I don't know that I can throw out a number yet. Eight is not the high-water mark, by the way; the high-water mark is quite a bit higher than that. I think we've had -- not in Q4 so much, but in earlier quarters I think we had a site do 16 or 18 in a quarter, so that would probably be the high-water mark, in that kind of range.

For a site to be doing, I always say 60 to 80 a year, that's a pretty decent volume site. What's interesting to me right now, though, is -- you know what's really moved to some of these mid-tier guys up into the top tier, and I expect more of that -- is they've gone from doing just DBS to doing DBS and laser. In fact, I think virtually all of our sites in the top tier, except for one, one is still pretty -- well, no. All of our sites in the top tier are doing multiple types of procedures.

So as we get stronger, greater share in laser, as drug delivery starts to pick up, as people see the value in biopsy in addition to DBS, which is kind of our classic procedure, we're seeing that top end number rise more and more. So that's very encouraging to us.

There are still some limits even in our busiest sites on the amount of MRI time they can get. We're working with customers to try and open up more and more MRI time for them in their hospitals.

Okay, great; that's really helpful. Just two other relatively quick ones. One of them is -- I think I heard you say that the reusable supplies are much higher margin. Or at least, I should say, I thought I heard you say they are higher margin than disposable. Is that correct?

No, actually that's the inverse. It's the other way around. The reusable products are lower margin. Yes.

Okay. Is it like a double-digit percentage difference? Or -- like give me an order of magnitude, something like that.

Yes, I mean, on an order of magnitude I'd say the disposable products are in the 65%, 70% margin range right now, given our volumes. The reusable products are probably more in the 40%, 45%. Is that about right, Hal? I should let Hal chip in on this one.

Yes. Yes, that's a fair estimate.

Okay. That's helpful. Then historically -- so I'm not asking any forward projection question -- historically, has there been Q4/Q1 seasonality to the business?

I would not say it's a Q4/Q1 seasonality; I would say where -- the only seasonality -- we're still relatively low share here, so I don't think we're all that impacted by seasonality. In Q2 of this year we're going to have two major trade shows with our customer base, so that will take a lot of our customers out-of-pocket for close to two weeks of the quarter in Q2.

In September there is always a big trade show, so we always feel the hit in September. Then July and August, I think Q3 for the world these days, or the northern hemisphere anyway, tends to be a little bit slower just due to summer vacations and the like.

So I would not say it's a classic seasonality so much as just a fairly concentrated customer base, that all of these guys go to the same trade shows and so we do feel it that week or those weeks.

Okay, okay. All right. Well, thanks very much. I'll step off the box here to give other folks a chance. Thanks again.

(Operator Instructions) [David Zenker], a private investor.

Hi, Frank; nice to meet you. My question is: How many DBS procedures are performed in the United States every year?

Our estimate -- and we don't have perfect numbers on it, since it's not our product. But our estimate is that there's probably 5,000 to 6,500 new DBS patients a year in the United States, somewhere in that range.

Okay. My understanding is that when you compare using your platform versus the traditional method of performing DBS, it's a pretty stark comparison. I'm trying to understand why the traction in terms of usage is not greater.

I gather the MRI constraint has some impact. And obviously, doctors tend to be conservative in adopting new ways of doing things.

But given the real-time digitalization, 3D, the kinds of results you've had to date, are you making more -- plan to make more presentations to conferences? Or what really gets the ball rolling? I guess that's my basic question.

Yes. No, it's a great question, David. What I would say in comparing placement of DBS leads with our ClearPoint system versus a stereotactic approach, which is the classic approach, certainly stereotactic placement works; people get the lead deep into the brain; and then they turn on the stimulator and the patient's symptoms of Parkinson's are typically improved considerably.

The patient experience between the two is very different. For the patient to have a stereotactic procedure, they are put in this big metal headframe that is literally screwed to their head while they're awake, so that they can do this triangulation of prior-day images to get to the target in the brain. With MRI, with our system, with ClearPoint, they go into the MRI; they go under general anesthesia; and surgery works the way it's supposed to. You go in, they put you to sleep, you wake up, and it's done.

So why isn't it instantaneously clear that you would want it done with ClearPoint? Well, for the doctor -- so I think from a patient point of view it's a pretty clear win for ClearPoint. From the doctor point of view, they all learn stereotactic navigation in med school; we're not yet ingrained in the med schools -- although we're starting to get there. We are in large academic medical centers, and several of our sites that are now using our system are fellows from some of these institutions.

But for the doctor, they typically learn stereotactic early in their career. And since it's done in the operating room, the hospitals are often well set up for staff, support, equipment in the operating room.

We take them to a new environment, so it's a learning curve, and we have to work with the radiology teams to get time on the MRI for that surgeon. So these things happen; we're making nice progress; but they don't happen overnight.

In some institutions the radiology groups just don't feel like they have excess capacity on the MRI. I often find when you dig into the numbers they do, and it's really just an issue of control.

So it just takes some blocking and tackling, overcoming objections, touching a lot of different points in the hospital to get there and get into that new environment. I often say that the easiest part of our whole sales process is convincing the neurosurgeon to give it a try. The hardest part is getting him into the MRI with support staff and ready to roll just due to all the politics in a hospital.

From a patient standpoint, it's a hands-down better procedure. From a surgeon, well, there's a learning curve.

And you're right, brain surgeons are conservative, as I think we all want them to be. You don't want a cowboy for a brain surgeon. But it's just some blocking and tackling to make it happen; and we are.

It should, enlarge the market, too, because -- do they perform DBS on children? Or obviously the squeamish don't want to be in that situation, so it would seem that it would capture more potential patients as well. It's what, roughly a 2- to 3-hour process versus a 6- to maybe 8-hour process?

Wow, so a lot of questions built into that. Let me hit them one at a time.

On children, yes, they do do DBS on children. Obviously, not for Parkinson's, which, let's face it, is an old people disease. On children, they're often treating other types of movement disorders such as dystonia and then some even rarer types of procedures that can be very debilitating.

For children -- and we are having great success in children's hospitals. We're in several children's hospitals around the country, and it's a much friendlier way of dealing with these kids.

You can't put a headframe on a kid. You can't have a kid wide awake during neurosurgery. And even if the kid had the constitution for it, chances are the kid's mother, who is right there, does not.

So with children we're actually having great success. The market for kids who have movement disorders severe enough that they need a DBS is a relatively small market, however. There is maybe I'm going to guess 1,000 to 2,000 of those cases a year. But again, great offering there.

For patients, it's interesting. When people talk about procedure times, I often ask: Are you talking from the doctor's point of view or are you talking from the patient's point of view? Because for a doctor I think our procedure times are about equivalent to stereotactic surgery: anywhere from 2 to 4 hours depending on the complexity of the case.

For the patients, however, a patient who is going into a hospital to have a stereotactic procedure is probably going to be going into the operating room 2 hours or more before the surgeon shows up, because someone is going to put this metal cage and screw it into their head, and that's a tricky process. You don't just slam screws into someone's skull while they're awake.

Often that is done by operating room staff or most likely a neurosurgical resident or a fellow, not the surgeon himself. The surgeon swings into the case when it's time to really get going.

So from a surgeon perspective we're probably about equivalent. From a patient perspective, we're probably a much shorter case. So that's a very nice offering we have.

Just anecdotally, I'll tell you, I just heard today one of our busier surgeons is going to administration to ask to get an additional day a week on DBS, because the reputation of what he's doing in his market has grown so much that he is now booked now nine months in advance for DBS. Now, that tells you that patients are figuring it out.

Right, right.

The automatic question you're going to now answer is: Why don't we market directly to patients? I'll tell you, as a small company reaching patients is a tough thing to do just financially. We'll get there, but I just don't think we're prepared to do that quite yet.

I have one very quick question. How many hours of training does it take a neurosurgeon to learn your system? And that's my last question. Thank you in advance for this extra time you've given me.

Yes, thanks for the question again. I don't know that I can peg an hour number for you. But what typically happens when a neurosurgeon get started up with our system is we have a clinical specialist who attends pretty much all cases. We have one or two sites where they are so far down the learning curve that's not the case; but for the most part a clinical specialist will show up.

For the first case a surgeon does they will often show up the day before. What they'll do is just using a head model, they'll run through a mock case in the MRI. So we will have already installed our system on the diagnostic MRI or -- excuse me, intraoperative MRI, whatever they have; and then they'll work with them the day before to run through a mock case.

The next stage, you're in the case. Chances are that case is going to be a lot longer than what they've been doing stereotactically when they do their first one. Then over the course of maybe five cases they get accustomed to the system, so that the times get closer and closer to what they were doing.

Now one thing I will say is that that learning curve that I'm describing, I view that as a fairly short learning curve. And I'm very confident that there's never any patient risk there. So I think what I view as the training and the learning curve for a neurosurgeon.

Great. Well thank you, Frank.

Bruce Conway, a private investor.

Hi, Frank. I first want to say congratulations on a great quarter. We waited a long time for a quarter like that, as an investor, and I just want to say it feels good.

I have a question that is a little similar to David's, and it's about the ablation accuracy you mentioned. I just wanted to know if the difference between our system and the stereotactic procedure is wide enough to be a concern for liability issues.

Oh, a concern for liability issues? Boy, I don't know the answer to that quite yet, Bruce -- and thanks for the question, by the way. I don't know if I could answer that quite yet. We're still early in the adoption of laser ablation, let alone ClearPoint.

One thing I think about for accuracy a lot of times -- and I've described this to some investors -- the target for some of these ablations, for instance, is the hippocampus. The hippocampus is not a straight type of structure; it's a little bit curved in its shape. What our system allows you to do is you can ablate, say, three-quarters of it through one trajectory with a laser fiber; and then pull the fiber out, make a slight adjustment to our navigation system, and then go right back in, in the same setting, without moving the patient, and ablate the rest of it.

You can't really do that stereotactically. You would have to go back and forth to the operating room a couple times. It just wouldn't work.

It's those kinds of things that people are starting to talk about. Does that create a liability issue? Neurosurgeons I believe get sued more than any other doctor than gynecologists, so they probably have a better perspective on that than I do.

Okay. No, it just seems pretty compelling.

Oh, I absolutely think it's compelling. Also just being able to do multiple trajectories, being able to see exactly where you're placing that fiber, those are very powerful value propositions. And we're feeling real good about that.

Thank you, Frank.

Tracy Marshbanks, First Analysis.

Yes, thanks for taking the follow-up. I think building on the previous gentleman's questions, but going after a different organization point, in the world of accountable care organizations, capitated payments, Value Analysis Committees, some of your therapies are fairly new, whether it be drug delivery or laser. Where do you think you stand in building the case?

Because patient quality scores -- there's going to be a lot of other things that are factoring into business decisions for some of the larger organizations. Can you position yourself to, if you will, help that drive your business?

Sure. Great question, Tracy. Thank you. To start with, the drug delivery stuff is all in clinical trials, so I don't know that I could really respond on that one yet. It's a little too early to tell.

But let's face it, if you cure someone's Parkinson's disease, you're going to be able to demand quite a premium for that procedure. That's not where we are quite yet, but as you look out, that's something to think about.

Or if you extend someone's life when they have a glioblastoma by three to five years, you're going to be able to demand a nice price.

As far as Value Analysis Committees and accountable care organizations, most situations where our equipment is purchased, we are going through a VAC. We're going through a VAC. So we've got all the documents that our sales guys used to justify the purchase and justify the procedure.

For the most part, that's going fairly well. We get pushback, of course, like everybody these days; but so far that doesn't seem to be that big a challenge for us.

In the broader scheme of accountable care and the full cost of treating a patient, I think that if ever you ablate an epilepsy patient and stereotactically find that ablation is not complete, so six months later the patient has to come back in for another one, that's very expensive. And where you can do multiple trajectories in the same setting with our system, that's a great argument, and we are eager to get more publications out like that.

But frankly, we're a small player in the grand scheme of things so far. So it's not top of mind in terms of the challenges we have and objections we need to overcome. Although, like I said, we typically are in front of Value Analysis Committees on every purchase these days.

Right. Okay; thank you.

[Jeff Prichard], a private investor.

Yes, hi, Frank. Your and some of the other comments about how positive the last quarter was, and we're pretty excited about it, my question talks a little bit about history. The devices -- can you give us some color on the devices that you removed that weren't being used? And have you found any remorse from any of those sites where you saw the removal?

My second question is -- you've been pretty specific on the marketplace for the number of sites you've identified in the United States for bringing the ClearPoint product to. I believe it was 500 or 600, I can't remember exactly.

Have you done that same analysis on a more international scale? That's my questions.

All right. Great questions, Jeff. Thank you. On the systems that we pulled out of the field, it was a full gamut. One was a research system that they had completed their project and they didn't want to purchase, so we just pulled it.

Some of the times we're pulling these systems, I'm anxious to do that, because it's very valuable inventory that I just don't want sitting there in terms of just asset management. We had a couple sites where the surgeon after or during the evaluation, the surgeon moved on to a new hospital.

Then we had a couple where the surgeon said: Yes, let's go. We got it in the hospital, and they just never got going with us. And no great answer there.

It's interesting you asked the question about regret. In fact, of the eight or 10 that we pulled last year two ended up turning around and purchasing the system. One of them is now in the top tier of our accounts, so I think that's a great anecdote. I'm not sure I can say it's a trend yet, but I was very pleased to see that.

In terms of hospitals and number of hospitals, I have not gone through the analysis for international at this point. I think it is a smaller set of hospitals in Europe than in the United States.

Asia is a little bit harder for me to tell. In Japan, South Korea, and China, my own experience -- in South Korea and China in particular, my own experience has been their hospital system tends to be a little more concentrated. They have like more community-style clinics and fewer big academic medical centers, which could be great customers for us but we just haven't geared up to go internationally yet. International is virtually always an investment but for -- it's a profitable endeavor, and we're just watching our cash right now before we go do that.

The other issue is, in the United States I still think we have a lot of very fertile ground to cover. The number of sites that we can approach, because laser is used not just in movement disorder type surgeries but also in oncology, that opens up more sites for us than previously were available.

I think I've spoken on previous calls about MD Anderson, where that's a site where they did a lot of cases in Q4, none of which were functional neurosurgery. They were all oncology. So that starts to change the dynamic for us a little bit, too, and just makes the United States still a very fertile ground for us.

Thank you.

There are no further questions. I would like to turn the call back over to management for closing remarks.

All right. Well, thank you, Daryn. Thanks for your assistance with this call; and thank you, everyone, for joining us and for your participation and continued interest. We look forward to reporting our 2016 first-quarter results later in April, and we appreciate your support of the Company. Thanks again. Bye-bye.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.