ClearPoint Neuro Inc.

greetings and welcome to the clearpoint neuro inc third quarter 2022 financial results conference call at this time all participants are in a listen only mode a brief 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 and as a reminder this call is being recorded comments made on this call may include statements that are forward-looking within the meeting 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. 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 31st, 2021, and the company's quarterly report on Form 10-Q for the three months ended June 30th, 2022, both of which have been filed with the Securities and Exchange Commission and the company's quarterly report on Form 10-Q for the three months ended September 30th, 2022, which the company intends to file with the Securities and Exchange Commission on or before November 14th, 2022. All the company's filings may be obtained from the SEC or the company's website at www.ClearPointNeuro.com. It is now my pleasure to introduce Joe Burnett, Chief Executive Officer. Thank you, sir. You may begin.

Thank you. And thank you to all of our investors and analysts on today's call for being a part of the ClearPoint vision and journey. Our mission and our priorities are to help restore quality of life to patients and their families who are suffering from some of the most debilitating neurological disorders imaginable. We cannot do this without your support. In the third quarter of 2022, we continued to make progress across our four pillar growth strategy, including biologics and drug delivery, functional neurosurgery navigation, therapy and access products, and in achieving global scale. Despite a continued high cancellation rate due to COVID, historically high surge in transitions, and daily supply chain and hospital staffing challenges, our team was able to achieve near record revenue of $5.1 million representing 13% year-over-year growth. As a company, we believe we remain well capitalized with over $40 million in cash and short-term investments, and we'll continue to execute against our strategy and carefully manage our expenses. We continue to expect total revenue for 2022 to be in the range of 21 to 22 million, representing 30 to 35% growth for the year, depending on timing of revenue recognition for some capital sales and biologic services. I will now turn the call over to Danilo, our CFO, to review our financial performance in the third quarter, after which I will add some detail to our four-pillar growth strategy. Danilo? Thank you, Joe. And thank you all for being here with us today. Looking at the third quarter 2022 results, total revenue was $5.1 million for the three months ended September 30th, 2022, and $4.6 million for the three months ended September 30th, 2021, which represents 13% growth versus the third quarter of 2021. 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 12% to $2.4 million for the third quarter, up from $2.2 million in the third quarter of 2021. 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 9% to 2.2 million in the second quarter, up from 2.1 million in 2021. Capital equipment and software revenue consists of sales of ClearPoint reusable hardware and software and of related services increased 32% to 0.5 million for the third quarter from 0.4 million for the same period in 2021, following an increase in the placements of ClearPoint capital and software. We achieved a gross margin of 72% in the third quarter of 2022, 6% higher than the 66% gross margin recorded in the third quarter of 2021. The increase in gross margin was mostly due to an increased contribution of service revenue and lower overhead expenses. Research and development costs were $2.5 million in Q3 compared to $2.6 million for the same period in 2021, a decrease of $0.1 million or 6%. The decrease was due primarily to lower product development costs, as a result of reprioritization of certain research and development initiatives. Sales and marketing expenses were $2.1 million for the third quarter compared to $1.8 million for the same period in 2021, an increase of $0.3 million or 18%. This increase was due primarily to additional personnel costs resulting from an increase in headcount of $0.2 million as we expanded our clinical team, as well as increases in travel costs of $0.1 million. General and administrative expenses were 2.9 million in Q3 compared to 2.4 million for the same period in 2021, an increase of 0.5 million or 20%. This increase was due primarily to increase share-based compensation of 0.5 million. Net interest income in the third quarter was $30,000 compared to 2.2 million of net interest expense for the same period in 2021. The increase in interest income was due to the company's investment in United States Treasury bills and the resulting higher interest rates, as well as lower debt principal due to the conversion of a portion of the 2020 secured convertible notes in May and November 2021. In the third quarter, our operational cash burn was $3.8 million, which was lower than our Q1 and Q2 operational cash burns. As we continue to face a challenging supply chain environment, we deployed more capital near-term to solidify vendor supply and our supply chain reliability. We continue to expect a further step down in our operational cash burn in the upcoming fourth quarter. And remaining confident, we are well-capitalized to achieve our mid-term growth ambitions. With respect to our cash position, we finished the quarter with cash and short-term investments. of $40.5 million compared to $54.1 million as of December 31st, 2021. At this point, I'd like to turn the call back to Joe. Thank you, Danilo. The third quarter of 2022 was another quarter of progress and execution against our four strategy. This included FDA clearance of three new navigation and therapy products, the addition of multiple new biotech partners, the installation of systems at new hospitals, and the hiring of talented professionals across multiple functions, bringing our total direct employee count to just under 100. This is not including the support and teamwork we receive from our pharma, biotech, and device partners that make us look and feel much larger. Let's break that progress down into those four growth pillars. First, our biologics and drug delivery team continued to add additional partners and services in the third quarter, adding multiple new partners to our count, which is now approximately 50 active relationships in the space. We continue to keep pace with our past two years' history of adding approximately one new partner every month. We have also hired multiple new team members and expertise to the biologics and drug delivery team, increasing the scope of services we can provide and, in turn, the total potential revenue opportunity with these pharma partners prior to commercializations. Now, this is an important distinction that I want to make sure to highlight. If one of our partners or even one of the programs within a partner would purchase the entire suite of products and services that our team can now provide, the total value of those products and services from initiation of the program through the completion of a phase three clinical trial could potentially add up to $10 million per program before the drug or biologic is even approved. Therefore, our newly added capabilities will allow to access a total addressable market of several hundred million dollars in the pre-commercial space. This is one of the reasons that we believe that we can ramp revenue and achieve profitability without requiring the contribution of large commercially available drug therapies during that time horizon. Arguably, our biggest milestone in the past three months was the first commercial patient treated with PTCs of stasis gene therapy products for the treatment of AADC deficiency in Europe under CE-MARC authorization. Our multi-year strategy has played out as expected, where the labeling for Upstaza includes our SmartFlow cannula directly in the surgical guide as the only infusion cannula to be used in combination with this gene therapy. To say it another way, the very first gene therapy ever approved for direct injection into the brain is co-labeled with our device in the marketing authorization for administration of a therapy. We believe this first approval, along with the exhaustive bench preclinical and clinical testing required for submission, is a sign of things to come for many of our approximately 50 active partners that could see a similar path to approval. Our goal for our SmartFlow family of cannula products is to achieve co-labeling globally across multiple partners and indications. and that ClearPoint is the go-to delivery mechanism for pharma delivery to the brain and spine. Second, our functional neurosurgery navigation business achieved a number of key milestones in the quarter, including the FDA clearance of the 2.1 version software and the Maestro brain model. These two software tools represent our second and third software approvals this year and show the cadence of new product introductions that we plan to continue as depth and demonstrate ClearPoint as an innovator in the neurosurgery space. There's still a tremendous amount we can do to make our procedures faster, more informative, and more predictable, which will help to drive utilization, increase two a day procedures in the same MRI magnet, and enable some procedures to be done without a ClearPoint representative present at the case. Currently, we now have installed 10 systems year to date, which is a new record. with a couple of months still to go in 2022. We have more than 40 additional hospitals in our active funnel, which again is the strongest installation and capital funnel that we have had in our history. Our cancellation or postponement rate does remain at a very high level, with the most common reason being patient or surgeon sickness, be it COVID or the flu or other. As we move into the winter months, we expect this high rate to continue for the time being. For our third pillar, therapy products and access devices, in collaboration with our Swedish partner, CLS, we achieved FDA clearance of the PRISM laser therapy system, which was granted here in the third quarter. This product will enable our team of clinical specialists, not only navigation, but also therapy to do distinct markets in epilepsy and in neuro-oncology. We are in the process of working with a handful of existing ClearPoint users to get the laser system installed, and continue to expect first clinical cases under a limited market release before the end of this year. It is also important to note that the majority of our investment into the navigation system mentioned in pillar two applies to biologics and drug delivery, as well as our therapy products. That is the beauty of our 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 others in the future. This is crucial from a training standpoint as well. Every biopsy case, laser ablation case, or deep brain stimulation case a hospital performs with ClearPoint today is in fact training and preparing them to do biologics and brain-computer interface cases in the future. Finally, our fourth pillar of achieving global scale has made progress as well. In addition to receiving MDSAT and EU MDR certification earlier in the year, we have placed additional systems in Europe to expand our global footprint and prepare for future drug delivery trial enrollment. As Danila mentioned earlier, a significant portion of our cash burn went toward working capital, including prepaid inventory and expenses and raw material and component purchases. We believe some of these inventory purchases will start to slow down here in the fourth quarter. which will be offset by inventory of new products, for example, laser systems, to support the limited market release. We also just signed a 10-year lease under favorable terms for a new 20,000-square-foot manufacturing facility in San Diego, close by our training and innovation center. We have outgrown our current facility in Irvine, and the new facility will add space and capacity to support a more than $100 million revenue business. We will take possession of the building in Q2 of 2023 and be able to design from the ground up following lean principles to support greater efficiency. This year, we have also hired eight additional clinical specialists, which adds significantly more capacity to our surgical team in preparation for growth in 2023 and 2024. We are reiterating our full year 2022 revenue guidance of between 21 and $22 million. which corresponds to annual growth between 30% and 35% for the year. We also continue to believe that our current cash and short-term investment position of more than $40 million does not require us to raise additional capital to support our current portfolio and strategy this year. With that, I would like to open up the call to any questions.

If you have a question at this time, please press star 1. If you have a question at this time, please press star 1 on your telephone keypad. Waiting for callers to join the queue. Our first question comes from Mark with B. Riley Securities. Please go ahead.