ClearPoint Neuro Inc.

Q4 2021 Earnings Conference Call

3/1/2022

spk07: Greetings and welcome to ClearPoint Neuro, Inc. fourth quarter and full year 2021 financial results conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. 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 expectations, beliefs, estimates, or projections regarding future results of operations. Actual results or trends could differ materially. The company undertakes no obligation to revise forward-looking statements for new information or future events. For more information, please refer to the company's annual report on Form 10-K for the year ended December 31, 2020, and the company's quarterly report on Form 10-Q for the quarter ended September 30, 2021, both of which have been filed with the Securities and Exchange Commission and the company's annual report on Form 10-K for the year ended December 31, 2021, which the company intends to file with the Securities and Exchange Commission on or before March 31, 2022. All the company's filings may be obtained from the SEC or the company's website at www.clearpointneuro.com. I would now like to turn the conference over to your host, Joe Burnett, Chief Executive Officer.
spk05: Thank you, Peter, and thank you to all of the investors and analysts on today's call for being a part of the ClearPoint vision and journey. Our mission and our priority is to help restore quality of life to patients and their families who are suffering from some of the most debilitating neurological disorders imaginable. In the fourth quarter and full year 2021, we have continued to make progress across our four pillars of growth and their strategy, including biologics and drug delivery, functional neurosurgery navigation, therapy and access products, and in achieving global scale. While elective case volumes was once again impacted in 2021 by the Delta and Omicron variants, and supply chain disruptions created very meaningful distractions on a day-to-day basis, our team still achieved record revenue in case volume for the year. We expect that growth to continue here in 2022 as we keep our heads down and focus on the task at hand in a very unsettling geopolitical environment. I will now turn the call over to Danilo, our CFO, to review our financial performance in the quarter and full year 2021, after which I will add some details to our four-pillar growth strategy.
spk04: Danilo? Thank you, Joe, and thank you all for joining us today. Let me start by looking at the full year 2021 results. ClearPoint Neuro total revenues were $16.3 million for the year ended December 31st, 2021, a 27% increase over revenue of $12.8 million in 2020. Our revenue is made up of three components, functional neurosurgery, navigation, and therapy, biologics and drug delivery, and capital equipment and software. Functional neurosurgery navigation revenue consists of commercial sales of disposable products and services related to cases utilizing the ClearPoint system to deliver medical device therapy to the proper target. This revenue segment increased 30% to $8.1 million for the year 2021, up from $6.2 million for the year 2020. Biologics and drug delivery revenue includes sales of disposable products and services related to customer-sponsored preclinical and clinical trials utilizing our products. Biologics and drug delivery revenue increased 31% to $6.8 million in 2021, up from $5.2 million in 2020. This increase was due to an increase in commitments by our current and new pharmaceutical partners. Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software and of related services, was $1.4 million for the year 2021, broadly in line with the year 2020. We believe that 2021 capital spending continued to be somewhat subdued as hospitals face the Delta and Omicron variants. ClearPoint Neuro achieved a gross margin of 69% on its sales for 2021 compared to a gross margin of 71% for 2020. This decrease in gross margin was due primarily to an increase in overhead allocated to cost of sales in 2021 as compared to 2020. Research and development costs were $9 million for the year 2021 compared to $4.7 million for the year 2020, an increase of $4.3 million or 92%. The increase was mainly due to the increases in personal costs of $2.3 million due to growth in headcount. Product and software development expenses increased $2.2 million resulting from our efforts to develop new products and expand the applications of our technology platforms. These cost increases were partially offset by lower amortizations. Sales and marketing expenses were $6.9 million for the year 2021, compared to $5.4 million for the year 2020, an increase of $1.5 million, or 29%. This increase was mostly due to increases in personal cost of $1 million, resulting from our geographical expansion and increases in headcount in our clinical and marketing teams. Travel expenses were also higher by about $0.4 million due to increased activity. General and administrative expenses were $8.8 million for the year 2021, compared to $5.3 million for the year 2020, an increase of $3.5 million, or 66%. This increase was due primarily to increases in share-based compensation of $0.8 million, while personnel costs, professional fees, insurance costs, and state franchise taxes all increased by about $0.4 million each in 2021 compared to 2020. Net interest expense for the year 2021 was $1 million, compared with $1.4 million for the same period in 2020. The decrease in interest expense is primarily due to the repayment of the outstanding 2010 notes in the first quarter of 2020 and the conversion into equity of two tranches of convertible debt in May 2021 and in November 2021. I will now turn to the fourth quarter 2021 results. Total revenues were approximately $4.3 million for the three months ended December 31st, 2021, an increase of 15% over $3.7 million in the fourth quarter of 2020. Functional neurosurgery and therapy revenue increased to $2.1 million for the fourth quarter of 2021, from $1.6 million for the same period in 2020. Biologics and drug delivery revenue increased 10% to $1.7 million in the fourth quarter of 2021, from $1.5 million the same period in 2020. The increase was predominantly due to a 61% increase in biological drug delivery product sales, partially set by lower service revenue. Capital equipment product and related service revenue decreased 20% to $0.5 million for the fourth quarter of 2021, as compared with $0.6 million in the same period in 2020, due primarily to timing of system and upgrade placements in the fourth quarter of 2021 relative to the same period in 2020. We realized a gross margin of 77% of sales for the fourth quarter of 2021 compared to a gross margin of 61% for the same period in 2020. The increase was mostly due to a one-time reclassification of certain costs, previously classified as operating expenses, to cost of revenues performed in Q4 2020, and due to lower excess and obsolete inventory reserves taken in the fourth quarter of 2021. Research and development costs were $2.7 million for the fourth quarter in 2020, 21 compared to $1.8 million for the same period in 2020, an increase of 50% resulting primarily from increases in headcount and product development expenses. Sales and marketing expenses were $1.8 million for the fourth quarter compared to $1.5 million in the fourth quarter of 2020, an increase of $0.3 million due mainly to our geographical expansion and an increase in marketing and clinical support expenses. General administrative expenses were 2.7 million for the fourth quarter of 2021 compared to 1.3 million in the fourth quarter of 2020. The increase was due primarily to higher share-based compensation, personnel costs, professional fees, insurance costs, and a one-time reclassification of costs made in the fourth quarter of 2020. With respect to our cash position at the end of December 2021, we held cash and cash equivalent balances of 54.1 million compared to 20.1 million at the end of 2020. Our cash increase resulted primarily from the completion of a public offering of the company's common stock in February 2021. I'd like now to turn the call back to Joe.
spk05: Thanks, Danilo. 2021 was a successful year for our team across our four pillar growth strategy, headlined by record revenue of 16.3 million, record case volume of 929 cases supported, new partnerships in both our medical device and drug delivery businesses, and the successful hiring of talented new employees across product development, quality, legal, and clinical support. Let's break down that progress into our four growth pillars. First, our biologics and drug delivery team continued to add additional partners and services throughout 2021. We currently have approximately 40 individual pharma and academic partnerships across multiple indications up from approximately 25 at the start of 2021, a pace of more than one new partner every month. As a reminder, it is common that each customer or partner has a drug platform of their own, meaning they are not planning to use their drug or vector for only one indication. Our decision to expand into Europe has already helped us to win additional European-based pharma business and academic researchers. We plan to continue adding partners and still believe that an initial commercial gene therapy approval for neuro could take place in 2022, either in Europe or in the United States. In addition, our existing partners continue to progress through the clinical and regulatory pathway and plan to initiate new clinical trials in patients this calendar year. Our many talented new hires in 2021 continue to add new services and productivity to the team, and we expect our biologics and drug delivery business to continue to be our fastest growing segment here in 2022. Second, our functional neurosurgery navigation business expanded as well, achieving record revenue in case volume in 2021, despite the headwinds created by the Delta and Omicron variants impacting elective procedures. Starting with our patients, we launched our first program designed to educate patients and their families about options for deep brain stimulation treatment. At ClearPoint, we always put the patient first, so we would encourage each patient to speak directly with their physician about DBS treatment options, which could be awake MER-guided procedures performed in the operating room or an MRI-guided procedure under general anesthesia using the current ClearPoint platform. In the future, ClearPoint plans to offer devices for both alternatives, allowing each hospital and each surgeon to match the appropriate technique for every individual patient. With the ClearPoint Neuro portfolio, hospitals and surgeons will have both options available to them. From a development standpoint, we continued progress across our portfolio and solidified budgets, schedules, and team members using the significant capital infusion early in 2021. As mentioned on the last call, we did receive FDA clearance for the SmartFrame array, which is meant to streamline workflows and help ClearPoint to cross over into the operating room. Subsequently, we have submitted our pre-planning software module supporting array to the FDA in the fourth quarter and expect our first clinical use of the complete array system and software in the second half of 2022. We have continued development across the rest of our pipeline as well, including the 2.1 ClearPoint software, the Maestro brain model, the Orchestra multi-trajectory headframe, our co-developed MER system in collaboration with BlackRock, and our robotic-assisted system called Revolution in partnership with D&K Engineering. We feel that we have an exciting cadence of new and improved products over the next few years, which will continue to demonstrate ClearPoint as one of the true innovative companies in the neurosurgery space. Our previous timelines remain intact, and after completing our first clinical cases with SmartFrame Array, which was accomplished in the second quarter of 2021, we continue to expect first cases of ClearPoint 2.1 Array 1.1 and Maestro software here in 2022, and first clinical cases using Orchestra, MER, and Revolution in 2023. Our recent announcement to enter the brain-computer interface navigation segment with BlackRock Neurotech is a very exciting one. There's tremendous potential around the future of BCIs, both for medical and communication purposes, as you can tell by the significant investment that's taking place in this space. BlackRock is one of the first and most experienced BCI implant companies with approximately 30 cortical implants completed to date in human subjects over the past seven years. Under this agreement, we are leveraging our existing ClearPoint platform to build a custom smart frame solution and software to make the BCI implantation faster, more precise, and more repeatable across multiple surgeons and hospital centers. This partnership is very similar to the work that we do with our pharma partners, where we provide a system, disposables, and clinical support during the infusion of a drug. In this example, we are placing the BCI at target instead of the infusion cannula, but the business relationship is very similar. Our intention is to sell this navigation system directly to hospitals through our commercial channel and see this as another disposable spoke on the ClearPoint platform hub. Another reason that every modern neurosurgery of excellence should have ClearPoint in the future. And we currently expect the first clinical cases of the BCI smart frame sometime in 2023. Now, importantly, while MRI images are used for many, if not all, BCI applications, the surgery itself is designed to take place in the operating room. So this is another application that we are focused on today that is not reliant on MRI access, but rather an additional crossover technology for ClearPoint into the operating room. For our third pillar, our therapeutic products and access devices, we have continued our development progress and remain on schedule for our previously communicated timelines. The ClearPoint exclusive laser ablation system that is in development with CLS in Sweden continues to make progress. As previously predicted, our collaborative team did submit the complete solution to the FDA in the fourth quarter of 2021, and we continue to expect our first clinical cases to be performed here in 2022. We have received our first inventory of access drill solutions from Adior and expect to enter a full market release of the operating room version of the drill in 2022. Similarly, we remain on track to evaluate prototypes of the MRI conditional version here in 2022 with an estimated release date sometime in 2023. Access technologies like our partnership with Adior are important because our entire portfolio These technologies are important across our entire portfolio as they are designed to make procedures faster and more predictable, enabling more and more centers to perform two procedures a day in the same MRI suite. It is also important to note that the majority of our investment into the navigation system mentioned in Pillar 2 applies to biologics and drug delivery, as well as to our therapeutic products. That is the beauty of the platform strategy as much of the investment is applied across many indications, including biologics, deep brain stimulation, laser ablation, biopsy, brain computer interfaces, and perhaps even more in the future. This is crucial from a training standpoint as well. Every biopsy case, laser ablation case, or DBS case that a hospital does with ClearPoint today is in fact training and preparing them to do biologics and BCI cases in the future. Finally, our fourth pillar of achieving global scale has made progress as well. Our quality system has been successfully updated to being compliant with the new European MDR rules that went into effect in May of the past year. This is not a small task and has been daunting enough to some companies that they have decided not to sell certain products in Europe under these new regulations. Although compliance is challenging, we believe our investment is the right one, and the simple fact that we have one of our clinical specialists present at our procedures helps us with that compliance and post-market surveillance, giving us an advantage and an additional clinical service that we can provide to biologics and medical device partners. We have also achieved approval for our current suite of navigation and drug delivery products in Israel. Israel is an important market for innovation across devices and biologics, and having a presence with our products there will enable new therapies and trials to be performed using ClearPoint. We have been successful thus far in securing additional inventory ahead of the supply chain backlog that are very real and quite challenging. We have used our existing capital to purchase materials ahead of time, which you can see by the expansion of inventory investment on our balance sheet. The vast majority of our supply base is domestic, although many of our vendors source raw materials outside of the United States which as previously mentioned is a daily challenge and distraction that our team and just about every device company is currently dealing with. Our gross margins continue to hover near 70% and is something that we will watch very closely given these geographical and inflationary pressures. If you add up the global opportunity across all of our current and future product lines, the results are quite impressive. Today, we are actively working directly or through partnerships on more than 35 different indications, which is estimated to include more than 1 million new patients diagnosed each year. If those 1 million plus patients were all treated with ClearPoint enabling technology, the potential market is in excess of $12 billion annually. These markets, of course, will take time to develop. but the sheer number of partnerships and opportunities we have today has diversified ClearPoint in a way that many individual therapy technologies cannot. We have many ways to win and to positively impact a large number of patient lives. At this point, we are reiterating our full year 2020-2022 revenue guidance of between $20 and $22 million, which corresponds to growth between 23% and 35% for the full year. Our cash balance at the start of the year was in excess of $54 million, and we do not plan to raise additional capital this year. We believe that we have ample cash on hand to continue our programs and to achieve a number of important value-creating milestones this year alone. Our revenue guidance of $20 to $22 million does include the impact of certain risks. First, we assume that the impact of Omicron had on elective procedures at the start of this year will resolve itself this month in March, and that any new variant will have a modest impact on elective procedures that is transient and lasts for a month or two. Second, we assume that supply chain issues persist, but that no meaningful backorders or supply issues take place to our customers for our products or for our therapeutic partners' products. Finally, the geopolitical issues are very difficult to predict relative to travel, new installations, material costs, hospital overcrowding, et cetera. So that risk is not yet understood and not included in that guidance. Our current cash position is very important and a significant advantage for ClearPoint in today's uncertain environment. Despite all of the risks that I just mentioned, if you take our operational cash burn from the second half of 2021 as a baseline, which is about $13.6 million annualized, then we would have close to four years of cash on hand to fund operations, even assuming zero growth, which is obviously not our intention. Our financing strategy and careful cash management will help us to weather this storm and not sacrifice the key aspects of our four pillar growth strategy. With that, I would like to open up the call to any questions.
spk01: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Our first question is from Frank Takanan with Lake Street Capital. Please go ahead.
spk06: Joe, Danilo, thanks for taking my questions. Congrats on all the progress here. I wanted to start with one on the guidance. First, can you parse out expectations around growth in the different business lines? I think I heard you make a comment around you expect drug delivery to grow fastest, but any additional color there would be great. And then second, how should we think about the recognition of those revenues across the year, given we're still seeing some Omicron impact in the first quarter of this year?
spk05: Sure, Frank. Thanks for the question. Yeah, so what you said is correct and what you heard was correct is that we do expect biologics to be the fastest growing portion of that. In fact, I would not be surprised if our biologics revenue for the year comes close to catching up to our functional neurosurgery revenue for the year. So we do think that'll be the fastest. The one other opportunity for growth that I would characterize in there is also on capital sales. So if you remember, we did about 1.4 million in capital sales the last two years. This has not been a large number for us, and I think there's some pent-up demand for our technology. So I do expect capital to grow as well this year, pretty significantly on a percentage basis, maybe not so much on the dollar basis given it's a smaller base. But I do think that's the case. So I would expect biologics and functional neurosurgery to be pretty close this year and for capital to also grow quite a bit. And I'm sorry, Frank, what was the second question?
spk06: Just any color you can provide around seasonality or contribution on a quarterly basis throughout the year given Omicron still lingering in the first quarter.
spk05: That's right. Yeah. So, um, so yeah, we, we did see an impact of Omicron here in January and February so far this year. Um, so I think it is going to be our, our disposable functional neurosurgery sales will be a little muted as a result of it. Uh, by no means was it, you know, nearly as catastrophic as April of 2020 when hospitals were completely shut down. But I would say there were about 30 to 40% of our hospitals particularly in the Northeast, Minnesota, even California in some cases, where these elective procedures had been not necessarily canceled, but postponed until March and April. So, you know, similar to what we've seen, even with the Delta variant in the past, you know, we saw a reduction in elective procedures here in January and February, but then there was a little bit of a catch-up that took place in the month after that. So I expect that to continue here. So if you're looking at just that segment of our business, Yeah, I'd say January and February is a little bit muted, but March we expect to be back to normal based on the cases that we already have scheduled on the books here. As far as the rest of our business, many of those things are actually pretty choppy. So it's hard to figure out month to month what the benefit is. For example, we could sell two or three capital systems in one quarter and then only one in the next. So that type of discrepancy makes capital certainly choppy like we've seen in the past. Similar on the biologic side where you know, enrollment in clinical trials and shipment of products is a little bit more predictable, the timing and delivery of services can change pretty significantly quarter to quarter. You know, an example could be that a customer would pay us to develop a custom software or a custom cannula for them to use for their clinical trial. Based on when that project happens to end, that would trigger the recognition of certain revenue that might happen in one quarter, but not in the next. So it can be a little choppy as well, but You know, similar to discussions we've had in the past, we expect, you know, to grow. And if I were to break down first half versus second half of the year, I do expect the second half of the year to be bigger for us, both on the revenue side of things as well as on the cash burn side of things. We should see an improvement by then.
spk06: Okay, that's helpful. I wanted to ask one on a smart frame array. I don't know if I caught exactly when your, your expectation is around the software clearance, but my assumption is a second half 2022, given I think that's when you guided to first procedures, maybe one, can you confirm that too? Can you just kind of walk us through how you think about the ramp of smart frame as you look out over the next couple of years and how you think that's going to plug into the already established installed base today of MRI customers?
spk05: Sure. Yeah, so what you defined I think is exactly right. We did submit for the array 1.1 pre-planning module, which as we've kind of rolled out the first version of array last year in a limited market release, the feedback was pretty consistent to say, yes, we like the product. We'd like to continue using it. Our reorder rate of our limited market release sites was very positive. I think it was 100%. But I think some of the feedback would be that we want some more traditional navigation tools, like we're planning to embed it into the software. Our team reprioritized a couple of projects after the project completes, submitted it to the FDA. We currently expect approval from the FDA sometime in the second quarter, which would set us up for sort of first clinical cases with that complete solution, as you mentioned, in the second half of next year. So I think that's kind of positive. We've also gained significant experience with the array and the cases and the sites that we've already worked with, so we do think we're going to accelerate moving from a limited market release to a full market release very quickly after that clearance. I think we've talked about it in the past, but just for everyone on the call, a limited market release is where we select a few certain sites that have either particular volumes or particular diversification in cases where they can use a particular technology in a number of different ways. And we isolate our sales to those sites so that we can collect feedback from an R&D standpoint, so that we can work on clinical publications, white papers, marketing messaging, things like that. And then when we move to a full market release, it symbolizes more of a full launch where there's no longer a governor on which sites we're able to move to that our commercial team can actually place it at any site or even a new site that doesn't use clearpoint at all so that's the terminology that we use and we do expect a full market release in the second half of this year which would enable a much more rapid adoption of the technology as we move forward i still believe a lot of our current existing customers will continue to use the traditional smart frame but we'll also use Array in some cases. However, the more exciting part of Array is some new hospitals and opportunities that we'll be able to be using ClearPoint for the very first time because it's a simpler procedure and it's designed for specific types of workflows.
spk06: Okay, that's perfect. And then maybe I'll just end with a question on the biologic side of things. I know something we spoke about in the past is just thinking about how ClearPoint is positioned into FDA approval documentation. Any renewed thoughts there on how ClearPoint's technology or cannulas will be written into the technology and any chance that you must use ClearPoint type of verbiage in order to do the infusion for the patient or anything of that nature?
spk05: I'd say all the conversations we've had with the FDA and with a number of our pharma and academic partners is very consistent with the last time we spoke, meaning that there's two ways that ClearPoint is involved in these procedures. The first one is a navigation tool, which gets a particular drug and a cannula to a target in the brain. This is one where there's most of the protocols that we see today and that we work with today, even if they're using ClearPoint, the protocol states to use any commercially available navigation system. So, you know, clearly the pharma partner would benefit from having a very broad label so that if there's a country that we didn't happen to be approved in, they would still be able to use a particular navigation tool. I think it remains to be seen how the FDA and other notified bodies treat that. You know, there's three things that could take place. The first is that the company would be granted a very broad label like that that says, yes, even though you use ClearPoint navigation, we're going to allow you to say that any commercial navigation is fine because we would have reviewed any of those commercial navigation options in the past. So we know that there's validation verification that's take place. It must be safe if we said it's OK. So, you know, go ahead and go that approach. That's that's one extreme versus the other extreme is to say, look, I appreciate you'd like this very broad label. but every patient you treated happened to be using ClearPoint navigation. So until you show us data on an additional navigation tool, you know, we're going to go ahead and, uh, and, and keep it isolated in a, in a particular product. Now we're not really necessarily expecting that. However, there's an intermediary or a middle ground where I think the FDA or a notified body could say, look, we're not going to call out ClearPoint by name and say, you have to use their navigation. But all of your procedures were done under MRI guidance. So we are going to ask you to do live MRI guidance for your infusion, which, you know, de facto would be a benefit to ClearPoint given, uh, our position as a leader in that space. So, you know, any three of those, I've kind of captured the, uh, sort of the extremes there, but I think, you know, a potential outcome is something probably closer to the middle, which, which I still think would be a positive for us, but, but not a guarantee. So that's, that's how we're thinking about navigation. Now the cannula itself, the SmartFlow cannula or any custom needles or catheters or other devices we're making specifically for these companies, that we believe is a very different story. And the reason for that is that every single cannula, the materials of the cannula, the size, the length, the stickiness of different drugs and vectors as they travel through these tiny, tiny little spaces, the dead space, the tip length, all of these things are very, very specific. and absolutely impact the delivery of the drug itself, which is why, you know, the FDA and other notified bodies, the data that they've been collecting with our device and with different drug partners is very much in line with what a traditional combination device would look like. Toxicology studies, flow rate studies, you know, everything you can imagine. So whereas navigation, I don't know that they would specifically call it ClearPoint, you know, the protocols we're participating in with pharma companies specifically say, this drug will be delivered through the SmartFlow cannula manufactured by ClearPoint Neuro, Irvine, California. So that's a very, very different story. And that's one where I believe the default is going to be more of a combination product where when the drug gets approved, it is approved specifically to be delivered through our cannula, unless that company were to do multiple trials, multiple testing with a bunch of different devices, which, again, is just not you know, really isn't practically from a time standpoint or even from a cost standpoint. So long answer to, you know, nothing has really changed in our mind. If anything, we have more examples and more conversations with the FDA that support our strategy.
spk06: Perfect. I'll stop there. Thanks for taking my questions. Thanks, Frank.
spk01: Thank you. Our next question is from Mark Weisenberg with BYD Securities. Please go ahead.
spk03: Thank you. Good afternoon. Turning back to the 2022 revenue guidance, I'm wondering if you could talk about base case procedures that are assumptions that are embedded in there and where we stand in terms of kind of the patient backlog and how that evolved in the second half of the year and thus far into 2022. Yeah, sure.
spk05: It's a great question, Mark. So, you know, you're right to notice that in the past we have given out some sort of patient procedure guidance. I think last year we said we'd do between 900 and 1,000. We have not done that yet this year. The reason for that is sort of twofold. You know, number one is that we, at least as far as January and February, we were still seeing some delays or postponements caused by Omicron. And until we really were super, super 100% confident that Omicron was behind us, we really didn't want to put out a number there that we didn't have as much control over, if you will. We wanted to make sure that things are back to normal here in March before we gave any sort of case guidance. So that's one reason. The second reason is that our revenue performance of the company is becoming less and less correlated only to Omicron. procedure volume. In the past, it was pretty much a one-to-one. If we had a good quarter relative to cases, then we also had a good quarter relative to revenue and vice versa. That is really changing rapidly as biologics and drug delivery and even capital become larger and larger components of our revenue. We didn't want to get people concerned either way, either positive or negative, based on just procedure volume when it's no longer a one-to-one correlation. As I mentioned, we're not going to support a ton of biologics cases this year, but it's also going to be our fastest segment. So we don't want to create any confusion there. So those are the two reasons we didn't provide that procedure guidance. To go to your second question relative to a backlog, I already commented that about 30% to 40% of our hospitals had issues with Omicron and Not always the drug, but maybe staffing was more commonly in January and February. In March, we currently have what would be our highest volume case month ever. So again, it is exactly what you described where this is sort of backlogged from the end of December and the first two months of this year where a lot of hospitals have said, look, you know, we can't do these procedures, but the main difference versus April of 2020 is they're not just postponing patients indefinitely. They're saying, hey, we can't do them today, but come back in six weeks and we have the MRI suite and your surgical team available to you. So we're starting to see a lot of that catch up in March and April, and I do expect, you know, March to be probably one of our biggest case volume months if everything goes according to, you know, the schedule that we have in front of us today.
spk03: Got it. That's very helpful. And as you guys get more visibility, hopefully look forward to getting some more insight into that as the year evolves. In terms of the growth from new offerings in the year, how much can that contribute to, I think you're guiding up 29% year over year at the midpoint. What kind of growth can new offerings provide this year?
spk05: So in general, I'd say there's very little. baked into that number from new offerings because of our historical approach where the moment we get FDA clearance for a new product, we generally enter a limited market release before a full market release. So where we, you know, if you look at our investor presentation, I think we have seven or eight new technologies that we expect first clinical use here in 2022. The broad assumption is to say, hey, those will be in a limited market release here in 2022, and then 2023 is when we start to see some of that sales benefit. The laser is a perfect example of that. Of the 29% midpoint growth that you just pointed out, pretty much zero of that is associated with the laser, even though we expect to be doing our first clinical cases this year. So hopefully that kind of puts it in perspective. The one place where we will see growth from new product offerings is more on the services side of things so as i mentioned in my statement we've hired a number of people that have add added new capabilities to uh the company uh for example our ability to do certain toxicology studies our ability to act as study director for pre-clinical studies you know these are capabilities we did not have in 2020 we hired these people in 2021 along with their expertise and their relationships and then 2022 is when they're going to become productive so Part of the biologics and drug delivery services growth that we expect to see here in 2022, part of that will be from new service offerings, but not necessarily new products. Hopefully that makes sense.
spk03: It does. Very helpful. Thank you. And then, and looking at OpEx, I think it was up kind of just over 60% year over year. Obviously you talked about that was associated with a lot of increased head count and such. How should we think about that evolving in 2022? And then also, you did talk about kind of the cash position, and you've got kind of four years of runway. But how do we think about the cash burn in 2022 and the cadence throughout the year?
spk05: Yeah, so a couple thoughts there. You know, so number one, just going back into history a little bit, when we did our significant capital raise back in February of 2021 – You know, part of our use of proceeds estimates and documentation was that we were going to accelerate our product pipeline. So what that sort of meant to me and, you know, what I tried to communicate to others as well is to say, look, you know, we had a great strategy in front of us, but it was going to take some time. So why don't we use this capital to hire faster and get a very competent team in place now rather than slowly growing into it? so that we get the benefit of an additional 18 months to 24 months of productivity by hiring these people sooner. So really, that's exactly what we did. And the two primary places that those investments took place was in product development, where we fired a number of people, as well as signed partnerships with outside companies like BlackRock, like DNK Engineering, Rev1 Engineering, etc. So it allowed us to not only hire new people, but higher expertise from other companies so that they could accelerate things. That's one place where that added spend has come up. And the second part has been in our quality system, you know, where, you know, we were operating as more of a startup company. If you look back to 2019 and 2020, I believe we hired five or six additional quality people, just terrific folks here in 2021, which are really primarily all on staff in the second half of 2021. If you notice, there's a a much higher burn rate in the second half of last year than the first half. This is really an essential part of the business too because we have to remember we are going to be an essential part of the supply chain for multiple pharma partners in this gene therapy and stem cell space. And as a result of that, there's requirements that pharma companies have that many device companies might not necessarily have. Even something as simple as audits. If we're working with 40 or 50 different pharma companies and each one of those companies wants to audit us once a year, You know, that's people, that's time, that's support, that's processes that all have to be in place. So our quality system got a lot more mature here in 2021. And that's what gave us, you know, confidence going into our notified body audit to apply for the European MDR approval and achieve that. So those are the two primary hiring things that took place in 2021. And, you know, so the burn relative to product development and quality support and operations is, we don't expect another massive increase like we saw in 2021. It's going to get down to a more reasonable, reasonable growth number. And, you know, so most of the hiring that we're going to see moving forward are going to be focused primarily on clinical support. As our case volume increases, as we place new hospitals, we need to hire additional clinical specialists to support that. And that'll probably be five or six people this year as an example. So from a, Your second question around a burn rate standpoint, we have not given specific guidance around cash burn. However, I would sort of, if you wanted an estimate, it's closer to the second half of 2021 than the first half of 2021, because a lot of the investments and commitments we made to people, as well as to these outside consultants, they're going to take place not just in the second half of 2021, but continue in 2022 as well. So that's probably a closer estimate. you know, closer proximity to what we'd expect this year on a quarterly basis.
spk03: Got it. Helpful. And then just the final one for me, um, if you could talk about kind of how your conversations with, with VACs have evolved over the second half of, of last year and into 22 thus far, and kind of the cadence for, for new system additions, uh, in 2022. Thank you.
spk05: Sure thing.
spk03: Yeah.
spk05: So we, you know, we continue to have VAC committees, uh, And now that we're global, we're having them in each and every language, which is a fun experience for everybody. But I think, like I said before, there's some pent-up demand for our technology where, you know, if you're limiting access to the hospital and you're counting ICU beds, you know, it's very rare that a hospital is going to prioritize bringing a new technology in. But it's not to say that the opportunity didn't remain. It was more of a timing issue. So... So I would say that there's probably between 30 and 40 hospitals around the world right now that we are in active communication with. I do not expect us to place that many this year, but I would expect, if you look back in our history, I think the most that we've ever placed in a single year was maybe eight systems or eight hospitals. I expect this year to absolutely be a record number for placements for us as we kind of catch up for what we lost in 2020 and 2021. Um, we haven't run into too many issues with the vac side of things. Uh, with this receiving one, one of the significant barriers we're seeing more commonly today than, than value committees, uh, has been it departments at hospitals with significant concerns about ransomware and access to patient data. Um, you know, so that's, that's, that's been more challenging to overcome than sort of justifying our place in the value chain at a hospital. So hopefully that gives you a little additional color.
spk03: It does. Very helpful. Appreciate it. Thanks for taking the questions. Sure. Thanks, Mark.
spk01: Thank you. Our next question is from Bijan Ng with 10X Capital. Please go ahead.
spk02: Hey Joe, great quarter of meeting the guidance, especially when lockdowns are in effect. I think it's a testament to the strength and superiority of the ClearPoint platform. So I have two questions here. My first question is on the expected guidance of 20 to 22 million. Could you share with us the breakdown you are expecting from both the functional neurosurgery as well as the biologics and drug delivery segment?
spk05: Yeah, I can give you a little bit extra color there. You know, I would expect both of those categories to fall somewhere in the $9 to $10 million range for the year. You know, so that could be anywhere from $18 to $20 million just from those two segments. And then the balance to be coming from capital sales, which, you know, we do expect to be higher than the $1.4 million we saw last year. You know, if we can place four, six, eight, maybe even 10 systems, not to say that we get the PO for all of them this year, but we could at least get them placed, then I think capital could be another, you know, two plus million, give or take. So, again, it's nice to see that all of our segments we expect growth from. But if you do the math on what I just said, it is showing that, you know, again, biologics and drug delivery is going to be growing faster in our view today than our traditional neurosurgery navigation platforms.
spk02: Got you. So back in Q2 2021, you shared with us that our complete portfolio covering both the OR and MRI surgeries, that our next phase of growth is getting to 100 sites, each to doing 100 cases per year. So that puts us at about 100 million revenue runway. So from the latest investor presentation, some products, you know, expected clinical use have been shifted from 2023 to 2025. So could you share some colors if this 100 million revenue runway would still be, you know, realistic and achievable?
spk05: Yeah, I mean, I think, you know, everyone at this company is here because we want to help patients and we want to be part of a successful growth story. So, you know, one day achieving that $100 million milestone, which again, back at the envelope is 100 centers that are doing 100 cases a year. That's part of our strategic plan. The timing is something that's, you know, much more difficult to predict. You know, what I would say today is that if the only product we have is neuro navigation for DBS placements in an MRI suite, we would not get to that $100 million. That's why we are expanding our portfolio. That's why we're adding our therapeutic products. That's why we're expanding into the operating room. That's why we're adding additional clinical services. That's why we're going globally. So we're kind of moving out in a bunch of different directions. But the reality is that for us to achieve $100 million, we do need a number of these new products to hit the market and be commercialized. And that would include some biologics, gene therapies being approved. That would include some clinical and commercial use of brain computer interfaces. But, you know, the good news is, is that we don't need to reach 100 procedures from any one indication. You know, we just need a hospital to do 100 procedures, including biopsy, laser ablation, DBS, BCI, biologics and drug delivery, you know, aspiration, you name it. So we need to fill out the rest of our portfolio. And we need to make our procedures more efficient, like some of the access technologies, like drills and pumps and things like that will provide for us. So I would not read anything into the change in the slide where we sort of changed the format a little bit to talk about how some projects are now going to do first clinical use in 2022. And then some will be in between 2023 and 2025. The rationale for that is to say, look, based on our budget and our current R and D schedules, we have line of sight and predictability to everything in 2022. Uh, we also recognize that things change, decisions change, priorities change. So we have another bucket of things that we're working on and based on new opportunities that come our way or reprioritization of some of those opportunities. Some of those other ones might be accelerated. Some of those other ones might be put on a lower priority. So, you know, just kind of buckets the time a little bit differently. But it's not to say that, you know, any of these primary projects, you know, have failed in any meaningful way. It's more of us just saying, look, you know, as we try to get to $100 million of revenue and 100 sites doing 100 cases, which are the technologies that are going to help us get there first? And let's make sure we work on those and get them done before moving on to some of these lower priority projects.
spk02: Great, that's very helpful. Thanks a lot, Joe. So that's all I have. I just want to say that I think you are an amazing CEO, the way that you have brought ClearPoint over the past few years. I have no doubt that ClearPoint will be the standard go-to option for neurosurgery in the future. And as always, it's a privilege to be your shareholder, and we are supporting you all the way. Thank you for all your hard work.
spk05: I appreciate it. Thanks so much.
spk01: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. And I would now like to turn the call back to Joe Burnett for closing remarks.
spk04: All right, thanks, Peter.
spk05: Once again, thank you to everyone interested in being a part of our team's journey here at ClearPoint. We recognize the challenging global environment that we are all forced to live in today. We assure you that we are gonna help patients around the world as best as we possibly can by keeping our heads down, staying focused, and executing against our strategy to develop products that truly improve the quality of life for our patients and for their families. Good night, everyone.
spk01: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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