ClearPoint Neuro, Inc. (CLPT) Q4 2014 Earnings Report, Transcript and Summary

Welcome to the MRI Interventions Fourth Quarter and Full Year 2014 Financial Call Conference Call. [Operator Instructions]. It is my pleasure to introduce your host Oscar Thomas, Vice President of Business Affairs for MRI Interventions. Thank you Mr. Thomas, you may begin.

Good afternoon. Thank you for joining us. With me are Frank Grillo, our CEO, and David Carlson, our CFO, Before we begin, I want to point out that some statements we make during today’s call will be forward-looking statements. Any statements we make today whether in our prepared remarks or in our response to questions that are not statements of historical facts may be deemed to be forward-looking statements. Forward-looking statements by their nature address matters that, to different degrees, are uncertain and involve risks and they are made based on current beliefs of MRI Interventions’ management. Uncertainties and risks may cause our actual results and the timing of events to differ materially from those expressed or implied in forward-looking statements we make today. Detailed information regarding the risks and uncertainties that could affect our actual results and the timing of events are described in the Risk Factors section of the Form 10-Q that we filed with the SEC on November 14, 2014 as well as the Form 10-K we will be filing with the SEC later this month. You can find our SEC filings in the Investors Section of our website at mriinterventions.com. With that, I’ll turn the call over to Frank.

Thanks, Oscar. Good afternoon everyone. Thank you for joining us for our 2014 Q4 and full year earnings call. On behalf of the management team and employees of MRI Interventions we appreciate your interest in our company. And for those of you who are shareholders thank you for your support. We’re honored to be working for you in building this great company and we’re product of the care patients are now receiving as a result of the continued adoption of our products and technology. We’re making progress in focusing our company and we will share our progress with you today. However I will first turn the call over to David Carlson, our CFO, to walk you through our fourth quarter and full year numbers. David?

Thanks, Frank. I will first cover the results for the quarter and then we will talk about our full year results. Disposable product revenues were 704,000 in Q4 of 2014 compared with 561,000 in the fourth quarter of 2013 representing growth of 25%. During the quarter we recognized 219,000 in product revenue related to our ClearPoint capital products compared to 546,000 for the same period in 2013. Due to the nature of capital product sales ClearPoint capital product revenues and vary significantly from quarter-to-quarter, other service revenues related to mostly to ClearPoint service agreements and installation services were 37,000 in Q4 of 2014 and 54,000 for the same period in 2013. Total product and other service revenues for the quarter 960,000 compared with 1.2 million in Q4 of 2013 with the decline relating solely to ClearPoint's capital product sales. Development service revenues of 16,000 related to contract product development were earned during Q4 of 2013 and no such revenues were recorded during the fourth quarter of 2014. The decrease reflects the completion of a development project the company performed on a contract basis. The company does not expect development services to be an ongoing source of revenues. Cost of product revenues was 684,000 for Q4 of 2014 compared to 534,000 for the same period in 2013. I will talk more about changes in cost of product revenues when I discuss the results for the full year. Research and development cost were 708,000 in Q4, 2014 compared to 684,000 for the same period of 2013. Selling, general and administrative expenses were 2.2 million in the fourth quarter of 2014 compared to 2 million for Q4 2013. Net other income was 1.1 million for Q4, 2014 compared to 485,000 for the same period in 2013. Net interest expense was 293,000 for Q4 of 2013 compared with a 133,000 for Q4 of 2013. Our net loss for the quarter was 1.9 million or $0.03 per share compared with the net loss of 1.7 million also representing a net loss of $0.03 per share for Q4 of 2013. Or the year disposable product revenues were 2.6 million compared with 1.8 million in 2013 representing growth of 46%. Capital product sales were 767,000 in 2014 compared to 1.1 million for 2013. Other service revenues related mostly of installation services and ClearPoint service agreements were 122,000 in 2014 compared to 82,000 for 2013. Several product and other service revenues were 3.5 million in 2014 compared to 3 million for 2013, an increase of 17%. Development service revenues related to contract product development were a 104,000 in 2014 compared to 284,000 for 2013. The company recorded license revenues of 650,000 during 2013, while no such revenues were recorded during 2014. The decrease was attributable to the expiration of the revenue recognition period for license fees the company received in 2008 from Boston Scientific that were deferred and recognized overtime. Cost of product revenues was 1.9 million in 2014 compared to 1.4 million for 2013, an increase of 36%. The increase in cost of product revenues of 36% was greater than the 16% increase in product revenues as we recorded a higher provision for obsolete products in 2014 compared with 2013. The increase in this provision was approximately 380,000 representing 75% of the overall increase in in cost of product revenues. Upto $380,000 increase, approximately $325,000 of it occurred in the fourth quarter. The increase in this provision relates mostly to reserves recorded for ClearPoint, system reusable products that are not compatible with procedures requiring patients to be in the prone or face down position. This requirement for prone positioning resulted from expanding the range of procedures in which our ClearPoint system may be used. If we excluded the increase related to this provision, cost of product revenues would have grown at a lower rate than the rate of growth in product revenues. Research and development cost were 3.3 million in 2014 compared to 2.9 million for 2013. Selling, general and administrative expenses were $8 million in 2014 compared to 7.1 million for 2013. During 2013 the company recorded a gain of 4.3 million related to the sale of certain intellectual properties to Boston Scientific, the purchase price was satisfied through the cancellation of notes payable previously issued to Boston Scientific in the aggregate principal amount of 4.3 million. The company recorded a gain equal to the purchase price as the asset sold had not been previously recorded on the company’s balance sheet. Net other income was 1.8 million in 2014 compared to $864,000 for 2013. Net other income for 2014 was comprised mostly of the gains on the change in fair value of derivative liabilities associated with warrants. Net other income for 2013 also resulted primarily from the gain on the change in the fair value of derivative liabilities partially offset by a 1.4 million loss on the loan modification. Net interest expense for 2014 was 1 million compared with $476,000 in 2013. The increase was primarily related to interest expense associated with the notes we issued in March 2014. For 2014 the company recorded a net loss of 4.5 million with resulted in a net loss per share of $0.08 compared to a net loss of 7.1 million or $0.12 per share for 2013. Now for a few comments on the balance sheet, the financing transaction we completed in December further strengthened our financial position as we ended the year with a cash balance of 9.2 million. Our accounts receivable collections continue to be predicable and steady as we ended the quarter with DSO of 37 days. Net inventory increased by approximately 488,000 between the end of 2013 and the end of 2014 as a result of planned growth and sales and the impact of product line extensions. And when comparing our December 31, 2014 balance sheet with our balance sheet at the end of 2013 there has been a $5.2 million reduction in current liabilities, this reduction occurred as I noted previously the Boston Scientific notes were cancelled and there was also a reduction in our derivative liabilities. With that I will turn it back over to Frank.

Thanks, David. I’ve been at MRI for five months now including two as CEO. I'm excited about the company and I like what I see happening in our markets. I'm pleased with where we’re headed. On this call I want to share with you what I’ve learned over the last five months the opportunities we’re pursuing, the challenges we face and our plans for building significant value in our company. We have made progress over the last five months and we are preparing to do much more. Although my tenure as CEO did not begin until January 1 of this year, I would like to begin by giving you a few comments on the company’s results from the 2014 calendar year as well as the fourth quarter. We saw meaningful growth in revenue from the sale of disposable products in 2014 versus 2013 growing 46% from 1.8 million to 2.6 million. Disposable product sales is our most important metric. Revenue from the sale of capital equipment is important but capital sales are lumpy and they take time. The ClearPoint placement program which we began several quarters ago has been an effective tool in growing the ClearPoint footprint and it will continue to be an important component going forward. We ended 2014 with a total of 38 sites including many of the top academic medical centers in neurosurgery which provides us with a solid base for moving forward into the New Year. Surgeons at these medical centers are utilizing our technology in more procedures and applications than ever before. ClearPoint is now being used to deliver therapies for patients suffering from Parkinson's disease, Dystonia, Epilepsy, and brain tumors among others. Neurosurgeons are using ClearPoint to enable DBS electrode placement, laser ablation of epileptic foci and brain tumors and direct delivery of drugs to neurological targets. This growing list of applications and our ability to deliver therapies to treat a wide range of patients bodes well for our future. Over the last couple of years we have made good progress in building relationships with drugs and biotech companies enabling the delivery of their novel compounds in a clinical trial setting. One of our collaborations is with Tocagen, a company working to pioneer cancer selective immunotherapeutics for the treatment of brain cancer. We recently learned that Tocagen intends to pursue the next phase of their clinical development focused on the delivery of their Toca 511 drug in connection with the surgical resection rather than an intratumoral infusion. ClearPoint is not used in the surgical resection procedure and therefore will not be part of a next phase of this trial. Tocagen remains interested in pursuing a minimally invasive direct infusion approach but their near term focus will be on the surgical resection approach which they believe provides the clearest path to initial FDA clearance of the drug. In addition to Tocagen, our work with other biotech collaborators continue to advance over the course of 2014. During the year we successfully completed a significant number of infusions related to the five additional drug trials we’re involved in. Our ability to deliver drugs with precision directly into neurological targets under real-time MRI guidance is unique and will pay dividends for our company as this new field in biotech continues to develop. Finally we’re very pleased with the financing we completed in December in which we raised gross proceeds of $10.2 million. This financing was important as it gives us capital to build our business. We intend to focus this capital on the commercialization of ClearPoint in a thoughtful and disciplined way. Okay, turning to 2015. Now I would like to take a few minutes to talk about the opportunity we have and the work we need to do to capitalize on that opportunity. The fundamentals of our company and our opportunity are very strong. Our market is large and growing driven by the aging population and the growth in patients who can benefit from the therapies which we deliver. In the U.S. the ClearPoint opportunity is more than 55,000 procedures per year which using our current ASP translates into an annual revenue procedure -- revenue opportunity of over 400 million. What we’re working to accomplish in neurosurgery is simple an extension of a powerful trend that has revolutionized other fields of medicine namely a trend towards real time image guided minimally invasive procedures. It's happened in orthopedics, it's happened in cardiovascular and we’re making it happen in neurosurgery. Our ClearPoint system is a proven product, the technology works and we have a strong base of initial users who realize they can deliver better patient care with ClearPoint. We’re focusing our company on meeting the needs of the practicing neurosurgeon by offering innovative products which enable delivery of next generation therapies to wide range of neurosurgical patients. Our opportunity is great but we have challenges and obstacles to clear in order for our company to capitalize on the opportunity and to reach it's potential. My job is to address those challenges and to clear the obstacles. I'm confidence we will be successful in doing so. Let me give you some detail. Awareness of ClearPoint in the marketplace is growing but we must have a stronger and more impactful voice in the marketplace. In my past I’ve had success with peer to peer marketing programs, doctors speaking to other doctors about their successes with a given product. This is a powerful tool and we have worked aggressively through the end of last year to put this type of program in place at MRI Interventions. Our efforts are beginning to pay-off as we have six peer to peer events scheduled in Q1 showcasing ClearPoint and MRI guided surgery to around 100 neurosurgeons, neurologist and other clinicians. At this point in the development of ClearPoint we’re not selling just a product or just a procedure, we’re changing the paradigm for the way minimally invasive neurosurgery is performed. Our peer to peer program is a key component to accomplishing this goal. Our prior ClearPoint marketing effort has been narrowly focused on electrode placement. This is a great application for ClearPoint but additional applications for ClearPoint are strong as well particularly the laser ablation application as well as brain biopsy. Our ClearPoint sales team is now selling what I call the three legged stool at all hospitals including new accounts as well as existing accounts. The legs of the stool as I just said are electrode placement, laser ablation and biopsy. This broader sales approach and strategy is appropriately for our market and I believe it will bear fruit for us in the company quarters. We have a great sales and clinical support team and I believe we can do a better job of training them. We need to prepare them fully for the wide range of interactions they must have in the hospital in order to be successful. Interactions with the neurosurgeons, some of whom are focused on Parkinson's patients, some on epilepsy, and some on tumor. Interactions with radiology, who have questions about how ClearPoint will interface with their scanner equipment. Interactions with finance who have questions about how ClearPoint will impact the hospitals bottom line and so forth. To address this we began assembling new sales training materials and programs at the end of last year under the guidance of our new VP of Marketing, Wendelin Maners. We began rolling out these sales training and materials at our First National Sales Meeting which took place in January. Proper training takes time and the impact is not immediate but these efforts are building a strong foundation that will serve us well going forward. Our company has been spread out geographically, in it's earlier development stages when the focus was on product designs, prototyping, receiving input from clinicians etcetera having two primary locations was workable. However now that the company is focused on commercial execution we must bring all key functions under one roof. To this end we’re consolidating our operations into Irvine, California and we will be closing our Memphis, Tennessee office a process which should be completed by the end of May. This consolidation will have two benefits for our company. First it will enable the daily face to face interactions among the leadership of the company that should accelerate the pace of progress. Secondly it will reduce our expenses and cash burn. This chapter in the growth of our company is all about focus, a disciplined focus on commercializing our ClearPoint product offering, leveraging all of our resources on building out the commercialization engine and growing revenue. We previously discussed a commercial launch related to ClearTrace in Europe in Q4 of this year. With our focus on ClearPoint we do not believe it is prudent to push for the launch of ClearTrace in 2015. I’ve evaluated the ClearTrace technology and my assessment is it's a terrific technology with great potential to address another very large market with real time MRI guided therapy. Our ClearTrace technology represents a very valuable asset for the company and another strong opportunity. However at this point in our growth we will focus our energies and resources on growing our ClearPoint neuro business. When I arrived last fall the company had great technology and a great opportunity and made a good start towards building out it's commercialization capabilities. The changes we’re implementing now are further transforming the company to a commercialization focused entity. This is a transition I'm comfortable with, it's an endeavor for which I’ve significant prior experience. This transition will take time, however I believe our progress over the last five months points to the success I'm confident we will achieve. MRI Intervention has a solid foundation, a tremendous opportunity and a plan for the future. With that I will open the call to questions.

[Operator Instructions]. Our first question comes from the line of Tracy Marshbanks with First Analysis. Please proceed with your question.

Couple of questions really focusing more on the sales force and the additional training and as you pointed out last quarter one of your key metrics was increasing utilization. Could you just take me through maybe the focus of the training, were there particular elements in gaps that the new training and the launch focused on and what type of metrics are you looking at on the utilization -- what might be achievable versus where you sit?

So first let me hit the training side of your question. when I came into the company and really through I would say mid-2014, the company was very focused on electrode placement and our folks in the field were fairly comfortable with both that procedure but also the value proposition, how to speak to doctors about it, how to speak to hospitals and radiology about it. But what we have seen over the last six months is growing interest in a few other applications particularly laser ablation and biopsy. There are quite a few subtle differences between these procedures and how our technology is utilized in them and that’s been the focus of a lot of our training to make sure that our sales and clinical people can speak and assist in the -- with their surgeons in these procedures. So that’s really been the focus of our training is to make sure all our folks are up to speed on multiple procedures. As far as utilization, yes that is definitely an area that we’re focused on and we’re already seeing few accounts where they have expanded beyond just their DBS application and other accounts that are actually driven by non-DBS procedures. So that’s something we’re very focused on going forward.

And on utilization it's really more adding procedures versus going deeper and getting all the DBS aside or is it a sort of a mixed bag?

You know it's probably a mix bag and there is couple of ways you go about that, if a surgeon is a doing multiple types of procedures, a single surgeon it actually begins to happen fairly naturally where they see the advantages of ClearPoint on one procedure and they start using it on another. For given accounts there might be different surgeons who do different procedures that can benefit from ClearPoint, we’re really working with our sales team to learn how to essentially sell horizontally within an account and show the value of ClearPoint to additional surgeons within the account.

And historically I think you’ve had fairly strong economic rationale for adoption of your technology but maybe on the strategic front, you weren't viewed was strategic or have to have given your background and given your time at the company. What are your thoughts on getting there and the elements you need to get in place to get there if you think you can.

Well it's an interesting perspective, I think the economics of the system are good. I think for an accounts, if an account is doing a small number of ClearPoint procedures per quarter you’re right, we will not end up in the strategic must have column for that account. But it relates right back to this whole utilization discussion. If an account starts to use ClearPoint in 3 to 4 procedures a month and then they add a different application that adds another 3 to 4 procedures per month and then they add another application that adds a couple more, suddenly you’re upto 10 or 15 procedures a month and you become a strategic need for that account. So this utilization thing that we have talked about and growing utilization within a given account relates exactly to your question on how we become more strategic to an account.

Okay. A little bit more just on the financial side, in the transition, maybe David, how do you expect that to sort of flow through the P&L one charges coming and any cash usage -- what do you think your cash burn during the year might be and then on the personnel front, any people that you’re losing that you have to replace as you consolidated?

So in terms of the transition itself as Frank mentioned in his comments, we would look to see an overall net reduction in our SG&A cost as a result of that with a reduction in facility cost and would also look to have a net reduction in people cost. We would plan in our first quarter call to talk in some more detail about quantifying what that impact would be on our burn-rate overtime and also what the -- any restructuring charges might be.

Maybe did you expected in 2015 to be positive to cash?

We really haven't given guidance on revenues or the date at which we would expect it to be cash flow positive. So we’re just not in a position to comment on that at this point.

I was just talking about the move. Do you think the move is positive or negative to cash for the year?

Yes, I would look for that move to have a net positive impact over the next 12 months.

[Operator Instructions]. Gentlemen, there appear to be no further questions at this time. I would like to turn the floor back over to management for closing comments.

Okay. Thank you for joining us for this call. We’re excited about the future we have and we certainly appreciate the interest of those of you who have joined the call. Thanks very much.

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