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spk03: utilizing our products. Biologics and drug delivery revenue increased 24% to $2.7 million in the first quarter, up from $2.2 million in 2022. This increase was fueled by a 60% increase in biologics and drug delivery service revenue, partially offset by $0.3 million decrease in product revenue. 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 5% to $2.4 million for the first quarter, up from $2.2 million in the first quarter of 2022. Capital equipment and software revenue consisting of sales of ClearPoint reusable hardware and software and of related services decreased 38% to $0.4 million in the first quarter from $0.6 million for the same period in 2022 as a result of fewer placement of ClearPoint capital and software. Gross margin for the first quarter of 2023 was 59% as compared to a gross margin of 64% for the first quarter of 2022. The decrease in gross margin was primarily due to changes in overhead costs and other inventory costs, as well as higher costs for biologics and drug delivery services. Research and development costs were $3 million for the three months ended March 31st, 2023, compared to 2.9 million for the same period in 2022, an increase of 0.1 million or 4%. The increase was due primarily to increases in personal costs, including share-based compensation of offset by lower product development cost of 0.3 million as a result of reprioritization of search and research and development initiatives. Sales and marketing expenses were 2.9 million for the first quarter compared to 2 million for the same period in 2022, an increase of 0.9 million or 45%. This increase was due primarily to additional personnel costs, including share-based compensation resulting from increases in headcount, of $0.8 million, as well as increases in travel costs of $0.1 million. General and administrative expenses were $3 million for the first quarter, compared to $2.2 million for the same period in 2022, an increase of $0.8 million or 36%. This increase was due primarily to increases in personal costs, including share-based compensation of $0.4 million and an increase in the allowance for credit losses of $0.2 million. Net interest income for the three months ended March 31st, 2023 was 0.1 million compared to 0.1 million net interest expense for the same period in 2022. With respect to our cash position at the end of March, 2023, we held cash, cash equivalent balances and short-term investments of $31.7 million compared to 37.5 million as of December 31st, 2022. I'd like now to turn the call back to Joe. Thanks, Danila.
spk05: Q1 was a successful quarter for our team across our four-pillar growth strategy, headlined by record revenue of $5.4 million and growth in our biologics and drug delivery business of 24%. Now, let's break that progress down into our four growth pillars. First, biologics and drug delivery team continued to add additional partners and services in order partnerships remains at more than 50, despite some subtractions due to capitalization constraints of some of the smaller partners, as well as the pause of some programs. The vast majority of our partners, however, continue to move forward, and we do expect to add new partners and programs aided by new routes of administration to additional targets for CNS delivery. An example is the new cell delivery device and IP licensed from UCSF and announced just weeks ago ahead of the AAANF conference. We think of the direct infusion market for neurobiologics to fall into four buckets. The two buckets that we currently have partners in represent direct injection to the brain, including gene therapy and now cell therapy. In the future, we plan to demonstrate prototypes of two additional routes of administration, including spinal infusions and longer-term indwelling catheters for treatments that take multiple days. Our plan is to be the leading device partner for infusion therapy to anywhere that a neurosurgeon may or want to go. Our existing partners continue to make progress as well, and we expect to initiate multiple new clinical trials and first patient dosings before the end of 2023. Importantly, our extension into preclinical services has transformed our relationship and duration of partnerships, allowing us to work alongside pharma well before the first patient is enrolled. We have now signed our first milestone-based agreement with a pharma partner, whereby ClearPoint is able to share in the success of important development and regulatory milestones with the drug sponsor. We expect this deal to become the blueprint for future agreements with our pharma partners and allow us to form more creative and sophisticated methods of collaboration that better value the unique support that we believe we offer in drug development. Second, our functional neurosurgery navigation business added new sites to our installed base in the quarter, and we continue to expect more than 10 site installations in 2023. This is keeping us on pace to achieve an installed base goal of 100 individual customers by the end of 2025. As a reminder, our strategy is not to install ClearPoint at every local hospital, but rather treat these patients with chronic conditions at regional therapy centers that have the benefit of scale and experience. Just 100 centers doing two procedures a week could potentially deliver 100 million in revenue to the company. At present, we have more than 50 hospitals active in our acquisition funnel, meaning we need just a 20% closure rate this year to achieve our 2023 goal. We continue to host fellows courses throughout the year to train surgeons at these centers and prepare for when these regional centers are doing daily procedures, not weekly or monthly as they are today. In the future, these cases will be made up of both MRI and operating room surgical arenas, and across deep brain stimulation, brain computer interfaces, laser ablation, biopsy, and clinical and commercial drug delivery. Our expanded R&D team has been busy as well, continuing development along a number of fronts, including navigation headframes, drill technology, robotic technology, and machine learning-based software. We expect multiple new FDA submissions for new products this year and also expect the expansion of our current portfolio in additional countries around the world. For our third pillar, our therapeutic products and access devices, we have continued our limited market release and installed two additional PRISM laser systems in the quarter, with first cases expected here in Q2. We've expanded our clinical trial in Lund, Sweden, at the request of the surgeons there, and are actively collecting data which we plan to use for CE-Mark submission under the new European MDR. We expect to remain in limited market release for PRISM throughout 2023 as we gain experience with the system across multiple sites and surgeons, but also with different scanners and different patient indications. These cases will help build our educational tools as we look toward a broader release in 2024. Now, it is also important to note that the majority of our investment into the navigation system mentioned in Pillar 2 still applies to biologics and drug delivery, as well as our therapy products. This is the beauty of our platform strategy, as much of the investment is applied across many indications. This is also crucial from a training standpoint. Every biopsy case, laser ablation case, or deep brain stimulation case a hospital does with ClearPoint today is in fact training and preparing them to do biologic and brain computer interface cases in the future. Finally, our fourth pillar of achieving global scale has made progress as well, including multiple successful audits, new global regulatory submissions, and the submission of construction plans for our new Carlebad, California manufacturing facility. This new site is approximately three times the size of our current facility in Irvine and will enable us to design product flow and efficiencies from the ground up, as well as add additional services and capabilities in support of pharma partners. We believe the new facility will not only be a cost reduction tool, but also a sales tool, giving greater confidence to our biologics partners that we are truly a state-of-the-art delivery solution. From a cash standpoint, we continue to perform in line with our expectations, with more than $30 million in cash and equivalents at the end of the quarter, primarily in short-term U.S. Treasuries. We feel like we have the vast majority of our team already in place to achieve operational cash break-even and expect future hiring to be focused on scalable personnel in operations and clinical specialists. Although we have allowed our inventory and prepaid expenses to expand in order to navigate supply chain challenges, as those supply risks start to wane, we expect to bring down that inventory level to more historical days on hand targets and further reduce our operational burn. We believe that as we approach the end of 2023 and move into 2024, we plan to hit an inflection point and expect to see sales growth outpace expense growth, especially when the new facility is up and running in 2024. As mentioned earlier, our top line performance in the quarter keeps us on track to achieve our prior forecast of 25 to 27 million in sales, or between 22 and 35% growth year over year. With that, I would like to open up the call to any questions.
spk01: Thank you. Ladies and gentlemen, the floor is now open for questions. If you do have a question, please press star one on your telephone keypad at this time. Again, that's star one. If you do have a question or comment, please hold as we poll for questions. And we'll take our first question from Neil Chatterjee from B. Reilly. Please go ahead, Neil.
spk04: Hi, everyone. This is R.T. Shepherd. I'm for Neil. Thanks for taking our questions today. This very weekend update. You guys hear me? Sorry.
spk05: Yeah, we can hear you.
spk04: Sorry. I just wanted you guys to give us an update on how your extended agreement with Philips for Maestro includes kind of the fully automatic subnuclei segmentation for DBS procedures and how that helps kind of expand into the operating room.
spk05: Yeah, happy to. The first version of Maestro that's clinically cleared today is more of a radiology tool. So it's not embedded into our navigation system itself. However, that's the next logical step. Our regulatory strategy was to clear it as an individual product. And then our next submission would be to merge it together when we already have a product and a predicate there on the market. So we expect in 2024 that Maestro will be part of our navigation software moving forward. After that, we're going to continue to add additional features. So one feature is exactly as you described, the sub-nuclei, which is something that, you know, the primary target that's used in many deep brain stimulation procedures. You know, today, a lot of different technologies are used to sort of find your way to the exact target or node in particular cases. Many surgeons believe that these subnuclei is the desired anatomical target for the lead of a DBS system. However, it's not something that's currently available, and the surgeon has to draw this themselves or find it looking at the MRI scanner. So if we can automate that process, that will make it more attractive and easier to see in the MRI space. The second step, which is a very, very important one that you brought up, is how do we translate that success into the operating room itself? So our current pathway is that we've also licensed the ability to use the auto-segmentation tool on CT scans and not only MRI scans. So the workflow we see in the future is a patient will have a prior MRI, as they always do, as part of their routine diagnostic workup. They would then do a live CT the day of the procedure, and we would fuse those two images together. And because of Maestro's unique properties, we'll be able to compare not just a couple of fiducial points, but actually the entire surface of those subcortical structures. So we believe that we're going to have a very, very accurate fusion algorithm that will take all of the power of maestro in the MRI and still be able to apply that into the operating room in a pretty seamless fashion that honestly fits the way, you know, 90 plus percent of DBS procedures are done today in the operating room. So hopefully it's a lot of information there, but hopefully that helps with your question.
spk04: Yeah, that was great. A lot of color there. And then to follow up here, kind of just staying with Maestro, do you elaborate kind of on the benefits you expect to deliver from any scientific partnership and with integrating the gene therapy infusion tool with Maestro's brain model?
spk05: Yeah, sure. They're very complementary technologies. So NES, or New England Scientific, is effectively a biophysics modeling company. And what we do is we use the Maestro framework to find the anatomy. Think of that as the map itself, which is showing you where the different destinations are that you're trying to get to. What NES does is more of the modeling of how the therapy is going to impact that patient. So in the example you gave on drug delivery, if I were to inject a certain viscosity of drug into this specific location, into this specific patient, at this volume, where do I expect that drug to go? So can I, in fact, predict and almost pre-plan an entire drug infusion procedure to help me decide what dose, what location, how many infusions I want to do, et cetera? So it's almost like where Maestro is giving us the map, NES is helping us to determine traffic patterns and flow and, you know, how long it will take to get to a certain destination. It's kind of a simple analogy.
spk04: Thanks. Yeah, that's helpful. And then maybe one more here. If you could give, like, maybe an update, too, on just the status of your app. your trial you have ongoing right now in Europe that's evaluating the safety and feasibility of the PRISM Neural Laser Therapy System. Do you have any other update on that?
spk05: Yeah, I think in the first quarter we reported that we completed the first five patients of the cohort. And we've actually extended to another additional 10 patients under the same protocol. This study is, like you said, it's designed to just, you know, really collect first in human data of the complete PRISM system. And that data will one day be used as part of the submission for European approval. We were able to get U.S. approval based on a 510K simply doing benchtop testing and preclinical work. And no actual clinical evidence was required or clinical enrollment. That's not the case for Europe under the EU MDR. So we are going to have to collect data in some combination of Europe as well as in the United States to be able to complete that submission. So it's giving us great experience in tumor cases, which I can say of, you know, most of the procedures that ClearPoint does today, they're heavily weighted on the functional side of things and much less on the oncology side. So it's giving us some terrific experience and feedback with, you know, with a couple surgeons that appreciate some of the features and benefits of the PRISM system.
spk04: All right. Thank you. That's it for me, and congratulations on the quarter. Great. Thanks so much. Thanks so much.
spk01: Once again, star one if you do have a question or comment. And we'll take our next question from Frank Tankenen from Lake Street Capital. Please go ahead, Frank.
spk02: Great. Hey, thanks for taking the questions. All the elements have been laid out, but I think it'd be kind of helpful to boil it down, Joe. I think maybe can you help us just bridge from this $25 million revenue run rate we're looking at for 2023 to the 50 million in the last quarter of 2025? Just what are the top three most important elements to get us there and how confident do you feel that we'll see progress within those this year?
spk05: Sure thing. Just to clarify one comment, by Q4 of 2025, we want to be on a 50 million run rate, not actually do 50 million in the quarter. So just to set expectations correctly here. But I think it's a great question, and I think it's going to come in a number of different phases. So if you think about 2023, if we break it up into three years, for example, 23, 24, and 25, I think the majority of growth this year is going to come from expanded partnerships and preclinical services, which you've already seen part of with the 24% growth in Q1. I continue to expect that to be our fastest grower. You know, at least from a dollar percentage here in 2023 and probably exiting 2023 at a much higher run rate than we are today. So think of 2023 growth coming from biologic services and the initiation of some clinical trials and new partnerships. 2024 could be a little bit different, right? There, a lot of the growth is likely going to come from our laser therapy system. where this year we're only in a limited market release, so, you know, maybe five to ten centers by the end of the year, but specifically targeting centers, different scanners, different surgeons that do both oncology and functional neurosurgery so that we can get kind of a broad-based, you know, training material, as kind of I said in the press release and the prepared comments, so that we can start launching and going into a broader market release in 2024. So, you know, whereas revenue in 2023 directly from the laser system will be pretty muted based on a limited market release, 2024, we would expect to accelerate those penetrations. And then importantly, more and more laser catheters being used in each one of the sites. So, you know, growth in 2024 might actually be supplemented by the laser system. You get to 2025, you know, that's when we expect to have completed the limited market release for our operating room navigation system and begin a full market release, you know, where we're actually penetrating the OR. And that's more of a deep brain stimulation target, where, as I mentioned, more than 90% of DDS procedures today are done in the OR. So this is going where the cases are. And I'd say we've had very positive feedback on initial prototypes relative to our research and development efforts. And as we prepare for that submission, as well as limited market relates, that might be a larger contributor to growth in 2025. So there is a staged approach, but, you know, as we outlined those key pillars, we really see all three of those pillars firing by the end of 2025, which is what gives us confidence that we can get to that cash flow breakeven number by then.
spk02: Got it. Maybe just a follow-up on the 2024 mostly commentary around laser systems. I know it's early in the launch and I think I may have asked even a similar question last quarter, but I think it's an attractive opportunity. But can you just position your laser versus the other lasers on the market and rehash what you think are the key differentiators and why you think this is a right market for the taking?
spk05: Yeah, there's two I'd probably bring up and kind of bring to the top here because there are some subtle differences as well. Number one, our system is what we describe as a non-cooled system, meaning that we do not need to push either saline or liquid CO2 or some other coolant into the catheter apparatus to keep the catheter and the temperature done. So it effectively serves as a traditional way to do these procedures is it serves as a heat sink and it kind of pulls heat away from the catheter so that it doesn't necessarily overheat. We don't require that because of the unique design at the tip of our device. So what that means is that we can deliver less energy and likely, although we don't have data to prove it at this point, but our goal is to generate that data over time, is that we think we can do faster. It's logical that we could do faster ablations as well because you don't have that heat sink. So if you can do these ablations at lower cost, in shorter times, we think that's a benefit, not to mention the simplicity itself. You know, anytime you're hooking something up to a pump or a CO2 device or something like that, you know, not only is the installation more difficult because sometimes you have to build it physically into the room, but it's just one more thing that can go wrong during a procedure. And some of these procedures can be two hours, four hours, six hours. We've been in procedures even longer than that. You know, the last thing you want, you want to simplify it as much as you can. And we believe we have a very, very simple system. So I think that's one key benefit. The second one is the expertise of our team as well. You know, we're not new to this space. We've been navigating laser procedures for quite some time. We've been able to sort of listen to the requests of what surgeons would like to see different and done differently, whether it's the laser itself, the software, the thermometry, the navigation, et cetera. So we're kind of in a unique position to deploy all of that different learning into a complete system. which comes with a companion being the actual ClearPoint clinical specialist. So think of it as, in a lot of cases today, there might be a handoff between someone doing the navigation and helping versus someone helping with the therapy itself. With ClearPoint, you'll be able to do the entire procedure with one person assisting the entire way. And that's something that, again, our surgeons have told us is a big advantage. So those are the two I would lean on that I think I would bring to the top of the importance list.
spk02: Got it. Okay. That's helpful. I'll stop there. Thanks for taking the questions. All right. Thanks, Frank.
spk01: As a reminder, that's star one if you do have a question or comment. And there appear to be no further questions at this time. I'll turn the floor back over to Mr. Burnett for closing remarks.
spk05: Thank you, Karen. And once again, thank you to everyone interested in being a part of our team's journey here at ClearPoint. As a team, we have never been more excited about our strategy and vision as we are today. We look forward to continue to update you on all of this progress in the months and years ahead. Thank you very much.
spk01: Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.
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