Greetings. Welcome to the ClearPoint Neuro Full Year 2020 Financial Results Conference Call. [Operator Instructions]. 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'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 31, 2019, and the company's quarterly report on Form 10-Q for the quarter ended September 30, 2020, 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, 2020, which the company intends to file with the Securities and Exchange Commission on or before March 31, 2021. 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 Joe Burnett, Chief Executive Officer. Please go ahead, Mr. Burnett.

Thank you, Brock, and thank you to all of the investors in ClearPoint listening to today's call. I'm joined here by our Chief Financial Officer, Danilo D’Alessandro. 2020 taught us all a lot about ourselves, from friends and family to work and life balance to everyday priorities and attitudes. We, at ClearPoint, learned a lot about who we are and how we respond to challenges beyond our control. In short, we make the best of the situation in front of us, and we want to lead by example. Our goal back in March of 2020 was to exit the pandemic stronger than we had entered it, and I'm proud to be able to say that we have done exactly that. And while we continue to see disruptions in case volumes and evaluations as many hospitals are still limiting surgical procedures, we are encouraged by the rapid deployment of vaccines and believe that we will return to pre-COVID case volumes in the second half of this year. We are almost there. During the past year, however, we did not stand by ideally waiting or hoping for cases to return. We kept our team fully intact and redeployed our resources to further our development programs and bring new partners in both the biologics and medical devices parts of our business. Our innovative pipeline of products is more exciting than it has ever been, and we are now in a position to prove our role as innovators with a cadence of annual product releases that solve real problems for both surgeons and for patients. Further, our successful capital raise just a few weeks ago, leaves us with more than $65 million in cash on our balance sheet as of today to ensure the funding of these portfolio programs is something that is fully…

Thank you, Danilo. I now want to add some additional color to our four pillar growth strategy. First, let's talk about biologics and drug delivery. We continue to maintain and grow our relationship with more than 25 individual customers in the drug, gene therapy and stem cell space, providing them with products and services to support the various regulatory phases prior to commercial approval. In addition to those 25 relationships, we have identified more than 75 additional potential customers based on their neuro target and their mechanism of action where we believe ClearPoint technology can help. We now have a team in place that is actively reaching out to those companies and academic centers as we speak. In 2020, all of our partnered preclinical and clinical trials were put on hold for at least a while, driven primarily by restrictions caused by COVID-19. And in most cases, those trial stoppages lasted throughout the year. We are encouraged that at least 5 of our pharma partners have resumed enrolling patients already in 2021, which is a step in the right direction and enables us to resume our clinical revenue stream of products used during those procedures. More importantly, it restarts the crucial clinical time line and progression through these necessary regulatory trials. One example is the treatment of AADC deficiency syndrome patients in France under their compassionate-use program led by our partner, PTC Therapeutics. This was highlighted in a recent news article published in France's Le Monde, one of the top newspapers in France. While at the request of some partners, we do not publicly disclose all company names, we do expect multiple new clinical trials to be initiated here in 2021, now that the COVID-19 fears seem to be subsiding with the global distribution and access to vaccine. Now where…

[Operator Instructions]. Our first question today is from Andrew D'Silva of B. Riley Securities.

Congrats on the progress. Just to start, I'd be very interested in additional color into your move into the operating room. And I'd really be curious on maybe a little bit on the margin profile as it relates to differences between the OR versus MRI suite? And then how significant will the human capital overlap be? Should we expect material differences between decision-makers or should we expect you to have to hire additional sales forces to be able to address the OR field team?

Thanks for the question, Andrew. So to kind of break that question into a few different parts here. First, it's important to think about what those target types of procedures are. So where we say that we will have a navigation system that is appropriate for the operating room, it does not necessarily mean that every type of our procedure would migrate there or that we would participate there. Again, live MRI guidance is sort of our bread and butter and where we began, and we still believe that, that is the most accurate way to not only navigate a procedure, but also to monitor the procedure. So procedures, for example, like laser ablation, those procedures are always eventually done in the MRI suite because the MRI is what gives you the information on how hot the temperature is getting inside of the body. Drug delivery, I think, very similarly, there's a huge advantage to being able to monitor the drug infusion and be able to see how much drug is penetrating the patient during the procedure. So that's something else where I think in the MRI suite, that's still going to be the primary arena. So what we are talking about doing more in the operating room are procedures like biopsies, like deep brain stimulation as well, where the procedures are a little bit more predictable because you know the target going in, and there's kind of -- I don't want to say more room for error, but there's other ancillary navigation products like MER, like smart biopsy needles that can actually increase the level of precision in the operating room as well. So where some of our procedures, I think, are destined to stay in the MRI suite and grow there, this new tool in the Array system…

Okay. That's great color. And moving over to just the new Philips Maestro brain model partnership. Can you give a little color on the efficiencies and advantages you expect to unlock relative to the legacy platform? And then I'd also be interested to know just how involved will Philips be during the development and commercialization process?

Sure. Yes. I think one of the biggest differences of our system and our approach is not just the sense of validation that has gone into Philips developing this tool over the past decade or so, but it also has to do with the speed of the approach. And many of the similar type of segmentation algorithms that are available out there today is very common that you need computer accelerations, a GPU of some kind, and you also need time, anywhere from 14 to 20 minutes is pretty commonplace to do some of the segmentation analysis. With our system, we believe it's fast enough, sub-1 minute for the analysis itself each time to be able to unlock these peri-procedural applications, where if you're running multiple scans for a procedure, it now becomes practical to rely on this model for navigation because you're not waiting 20 minutes after each scan. You can actually do it in 1 minute or so. So I think that's a big tool that we're going to use to unlock it, not to mention all of the additional advanced algorithms that we're building that will be layered on top of the segmentation tool itself. So the future as it kind of plays out is that in early 2022, we expect to launch the baseline segmentation tool, sort of the engine itself and then have a cadence of every 6 to 12 months after that, that a new application is sort of being launched to work with it. And the priority of those applications will sort of be dictated by not only the advancements that we make, but also the ones that will benefit our own therapeutic products the most as well as other ones that our partners have really decided are crucial for them. And in some cases, some of our pharma partners may very well be helping to fund some of these development efforts as well. So that's kind of the vision of the brain model itself. Your second question had to do with Philips involvement. In parallel to the license of the model itself, we also signed a development agreement with Philips, which effectively gives us access to some of their engineering team talent, primarily from the Philips research team. So some of the work we can kind of do ourselves as it relates to turning our own applications into skins that ride on top of the brain model and then some fundamental changes to the brain model that we need to add functionality, those are things that we have a conduit in Philips to help us with.

Okay. Perfect. And just last question for me. As we think about your continued expansion within the biologics and drug delivery segment, what additional overhead really should we expect to see as you look to capitalize on the translational service opportunity that you referenced, particularly as you expand internationally? And then you also talked about the 75 new target partners. How many studies do you think that actually equates to versus partners?

Sure, Andrew. Yes, on the kind of the scale and expansiveness of those translational services, I don't believe we need to go too much further because we will continue to sort of reach into other company's expertise. So for example, I never expect us to -- at this point, to own our own animal center or anything like that rather partner with other companies that do this already and have those resources, where we're going to focus most of our time is on the strategy and then execution of those protocols, whether it's a regulatory strategy, whether it's a benchtop toxicology test. Just having the knowledge of partnering with 20-some-odd companies and being able to learn from their successes and failures on what the right approaches are, I think that's something that's going to benefit a number of our partnerships in the future. So similarly to our partnership with Blackrock for physiology and our partnership with CLS for laser and our partnership with Philips for machine learning, artificial intelligence in the brain model, we want to reach into some of these other firms that already have some of these translational services and just know when to tap it and when they can solve a problem for us. So I think that's kind of one bucket there. Andrew, hopefully, you're still on the call, but I forgot your second question, if you wouldn't mind repeating that one.

Yes. Of the 75 new target drug and biologics partners, how many actual clinical or preclinical studies do you think that equates to?

Yes. It's a really important question and something that's tough to quantify. I would say each one of those targets is at least one potential trial. Now the reality is, does every one of those ideas translate all the way into a human patient in a clinical trial? No, of course not. There's a number of failures along the way. There's a number of acquisitions, consolidation along the way, et cetera. But it's a great starting point. And like I said, we -- each one of these relationships for us is generally cash flow positive from day 1 because of these consulting services, regulatory strategy services, testing, et cetera. So the more that we accumulate, the better offset is, and we get more efficient with each one. So I think it becomes arguably more profitable for us as well. Now it's also common, however, that each one of these ideas that you would find in an academic center is a platform in itself. So the same way, our platform can be applied to multiple different disease states or indications. It's very common that one of our partners would also have multiple shots on goal within their portfolio. So you could argue that not every relationship makes it to a clinical trial, but you could also argue that one relationship could lead to 3 or 4 clinical trials. So somewhere in the middle of those two extremes is the reality.

Sorry, I have one more question just kind of thought in my head. So as far as partnering with maybe earlier stage studies that are preclinical with academic institutions, for example, could you like work as a facilitator with the academic institutions with some of the actual biopharma companies that you partnered with to actually drive some of those products from preclinical studies at academic institutions and to maybe M&A or joint ventures with some of your partners? I mean, it seems like you'd be in a perfect position to actually facilitate a lot of introductions.

Yes. No, the facilitation is certainly something we do today. Obviously, we get permissions of all the parties involved before we try to connect the dots, but it is certainly something that we've kept our kind of eyes and ears open to as well. Again, we sort of have a unique chance to kind of peak behind the curtain a little bit. And while we don't share any confidential information, it's still knowledge that we have as far as which ideas seem to work and which ones are a little bit challenged. So we'll continue to do that. And if the opportunity presents itself to participate in some fashion, whether it's through an introduction or through different risk-sharing model of our partnership early for future royalties or something like that, those are -- those more sophisticated models are certainly things that we consider.

The next question is from Frank Takkinen of Lake Street Capital Markets.

And I also echo Andrew's comments on congrats on a great year in such a challenging environment.

Thanks, Frank.

Starting with the Philips agreement. Just had a question on thinking about the business model behind the Maestro. I heard your comments about, it's a matter of first installing the engine and then there's some algorithm enhancements that you will roll out as needed and as they are developed. So maybe you could help us out understanding the economic model when it's -- the engine itself is first put in place and then if there's add-on opportunities and how that works and then how that could impact the margin profile of the business.

Yes. It's a question, and I do want to be clear that we have not released it yet. So we're still building our strategy. But what I can tell you is that some of the similar tools that are commercialized already on the market that -- obviously, they take a very different approach, but their goals are very similar. And the fact that they can segment and quantify regions of the brain in different patients or the same patient over time. These are things that are commonly used to follow patients. These are things that are commonly used in clinical trials, especially in pharmaceutical trials as well. Being able to compare a patient at time 0 versus time 2 years versus time 5 years in the same way each and every time in a predictable fashion and controlling that variability is something that's out there today. And I think it's important to note that if you look at some of the models that are out there, the way that companies have commercialized their product is to sell not just the access to the model itself, the workstation for lack of a better term, but then they also sell an additional service contract each year and then they also sell an additional per-click speed per patient. So it's almost like turning software into a consumable or a disposable in that fashion. And I think if that's what the market has accepted at this point, that's certainly something that we are going to consider. Now the benefit in a surgical procedure, where we're selling navigation, we're selling lasers, we're selling cannulas, we're selling biopsy needles, we have the benefit versus some of these other companies where we have already a disposable product in there. But by no means are we limiting the scope of the deployment of this model only to our own surgical cases. Really, any candidate that could potentially be a target for one of our device therapies or one of our drug therapies, whether they get the therapy or not, it's something that we think we can help with.

Got it. That's helpful. Secondly, just a little bit broader question on the biologics and delivery side of the business with as many moving pieces as they are with the COVID environment as well as you guys continuously adding new partners all the time, I was hoping you could help us just rank and file the opportunities you see based on the size of the opportunity once an indication is potentially approved as well as their time to market.

Yes. There's really two buckets that I like to think about the opportunities in, maybe a third bucket, I'll complicate things with at the end. But the first one are these rare inherited pediatric disease states, so like AADC or Friedreich's ataxia or Angelman syndrome or Sanfilippo A syndrome, these are situations where there's very seldom an effective additional treatment. And these kids, their families, their health care professionals are all struggling to figure out what to do in many of these cases. These are the ones that we really see accelerating through the process a little bit faster. So I'll use PTC as an example. They've already filed their MAA in Europe to get commercial clearance for their AADC treatment. Similarly, I think they just communicated last week that they expect their BLA submission here in the United States to go in some time in the second quarter. So these are situations where regulatory agents are just like, "Look, we know that this is still experimental. We know that there's a lot more work that could be done, but are we really going to keep a number of these very sick children from getting treated when there is something that could potentially help?" And if it means that the post-market surveillance is a little bit more stringent and more comprehensive so that we continue to follow these patients closely. Certainly, the companies, companies like ourselves, and certainly the parents, that's certainly something that they seem willing to work with. So that's -- those are the ones that we kind of see happening in the next, let's say, 12 to 24 months when you start to see maybe those first commercial approvals come through. And they are, as you pointed out, sort of smaller opportunities because they are rare childhood…

Perfect. Helpful. And then last one for me. Just from -- regarding the COVID environment, I heard your comments about getting back to pre-COVID levels in the second half of this year. Just curious if your surgeons are seeing a backlog of patients building and maybe there's a chance to have some outsized growth in the coming quarters as that's addressed?

Yes. I think -- I mean, as with anything, there's kind of a mix. COVID has not impacted the entire country the same way, although there's certainly some commonalities there. So there are some hospitals that have continued to schedule and prioritize these procedures. The other end, there's a number of hospitals that have completely stopped. And there's that backlog exactly like you described, that's waiting to be cleared. So I think again, the reality is somewhere in the middle of that. The important part for us is, again, we are not the first -- when our products are used, that is not the first time a patient sets foot in the hospital. They need to be meeting with their neurologists. They need to be doing their presurgery diagnostic MRI scans. There's a number of steps that have to take place as well. So in some cases, that -- in some hospitals, that health funnel has actually been somewhat disrupted. So we've got some hospitals that have really been operating the same. We have some with a huge backlog ready to be resolved immediately. And then we have a some that are going to take even a little bit longer because they have to get all those neurologists and workup visits done before that surgery is going to be centered. So I think as we kind of see it, I think in the summer of -- the Q3 of this year, that's when we expect to kind of start releasing some of this backlog, if you will.

[Operator Instructions]. Our next question is from [indiscernible].

I just wanted to follow up on the question that Andrew had. Actually, I have a couple of questions. But the first one, you mentioned something about potentially negotiating royalties in the clinical trials. Is that something that you guys are looking at or like milestone payments?

Yes, I'd say it's something we're working on. I mean, the recipe we're following right now is really to work and help kind of a fee-for-service model in the preclinical stages, supply of products that get written into the protocols during the clinical trial stages and then additional product supply once commercialized, including our own clinical services. So an important part of that, as I shared before, is if you are a pharma company, you generally have been calling on a neurologist as far as what your sales channel does, you might not know that neurosurgeon very much. So the ability to effectively hire us as your neurosurgery channel, I think, is something else that -- where it's not a widget. It's not a product that's used. It's still a per-procedure fee that can drop to the bottom line of our model, right? So those -- I'd say that's the kind of the recipe or the blueprint that we've been following. I can say is that recently as we started talking with more and more of these earlier stage companies and academic centers, I think that opportunity is absolutely there, where you could say, "Look, instead of the partner -- the pharma partner or the academic center taking on some of that risk in the early stages from a preclinical standpoint, if we were to supply our expertise and take on some of that risk, exchange that for a milestone, a clearance or Phase I trial or even a royalty. Those are things that, as we've had some of those preliminary conversations, I think the appetite is there, although the norm is what I've already described before.

Got you. Okay. And then I wanted to talk a little bit about the sleep DBS. You mentioned that you're going to potentially go for a direct-to-patient marketing indication. Curious first, how long that might take? And then what's kind of instigating going after that now?

It's always been something that we've wanted to do. I mean, again, our -- any time a partner or a hospital has a patient that's extremely anxious, in some cases, pediatric procedures as well, where they know it's simply not practical to keep them awake and do the procedure in the operating room, that's kind of our entry point into a hospital. Where even if a hospital doesn't use us for every DBS procedures, they know that, that patient comes along every once in a while. And as a result, they consider us for that. So it's always something that we know that the patient would prefer if they were given the option, the reality is that patients are, in fact, becoming more and more sort of in control of their own health care. And it's one thing if you're trying to decide which one of the vaccines to get, that's a little bit less harmless, and maybe you're willing to challenge your health care practitioner a little bit. When it comes to neurosurgery, I think it's still a situation where the patient and the family very much still rely on the expertise of the surgeon or the expertise on the neurologist. So part of this direct-to-patient approach that we would like to take really isn't only going to be directly to the patient, but it's going to be a little bit more in educating the neurologists as well as to how much farther the technology has come. Now in the past, we've always thought of that as a pretty expensive endeavor to go after it and to solidify all of the clinical evidence and labeling required to do so. So we've been somewhat reliant on the budgets of a few of the other DBS companies to kind of pursue it. And I think they have made progress. I think even if you look at -- I think it was Medtronic in their remarks at JPMorgan, a fleet DBS was one of their bullet point priorities, if you will, for their DBS platform. So I think it is coming, but I think it's also -- it's something that we expect to progress into in the years ahead as opposed to flipping a switch and all of a sudden that being out there. There's -- these procedures have been done a certain way for the last 20 years. And sometimes, it does take time to do that. But the important part and part of the reason we raised the funds that we did just a couple of weeks ago is to again put that a little bit more into our control where we don't necessarily need to follow the DBS companies, but we think we have an opportunity to lead there.

Okay. And then so that kind of leads into -- I know in your investor presentation, you mentioned the potential addressable market for -- I think, for eligible patients within the Parkinson's population is about 0.25 million patients that are eligible for DBS. Is that -- that's for awake DBS, is that correct? And then I think you mentioned there's only 6,000 patients that get it a year. What do you think is the major barrier there?

Well, I think the fact that as soon as the patient finds out they have to be awake, I think that immediately becomes a barrier. And I think we've seen data. There have been a couple of trials in the past where -- or registries, where they try to enroll patients in between and awake and in a sleep procedure. And when the patient found out that they could be randomized to sleep, they pulled themselves out of the trial. So these are the types of realities, where fear of awake for a few minutes here or there to do some testing, I think that's something that's absolutely adequate, and I think a patient can deal with. But the thought of being awake for a 3- to 4-hour surgery is, obviously, a very scary conversation that, that patient is having. So I think that is absolutely one of the barriers. From our standpoint, there's a number of other reasons that -- or things that could absolutely grow that DBS market and penetrate more of those 240,000 patients that you're describing. There was some great article in The Neurologist, I think, maybe September of last year, which showed long-term outcomes of patients that have been treated with DBS much earlier into their progression. So again, imagine if you're a DBS patient or a Parkinson's patient, rather, you have been taking levodopa or some drug for 5 or 6 years. The more drug you take, the less impactful it is until finally you're a nonresponder. And then once you're a nonresponder, you're not sleeping, you're not eating well, you become malnourished, your body generally deteriorates pretty quickly. And that's when you get referred to DBS, when you've already had that deterioration and it's only a last resort. This trial was designed to…

Got you. Okay. And then just last question. You mentioned on the clinical trials that there were no -- I think you said all of the trials were halted. Does that imply that all of the revenues that you generated, there was no dosing revenues related to disposables on the cannulas in 2020? And then when do you expect that to resume or are you expecting that to resume in 2021?

Yes. Let me clarify there because you're dead on, you're right there. So I would say all of the trials were halted for some period of time and some of them, that halt extended all the way through the end of 2020. Again, if you're a pharma partner and you've got a Phase I trial that's only 8 patients, the last thing you want to do is complicate the risks of that patient getting COVID or something at a hospital. So I think the safest route and most appropriate route was to say, "Hey, we need to pause things and sort of wait until these things come." So to answer the rest of your question is we did still have some disposable sales in biologics. It was almost half. I think it was $2.7 million of services versus $2.3 million of kind of nonservices. Where that kind of comes from? Those nonservices are often benchtop testing. So for example, if you're doing a toxicology study, you might need 120 of our cannulas to test in various situations to ensure that there's no sort of crossover effects of the drug with a cannula or something like that. So where these disposables aren't necessarily being used in a patient, they're still used very commonly in the benchtop setting.

Okay. Got you. And do you expect that to totally resume in 2021?

I do. I think by the second half of the year, I think all of our partners will have certainly resumed by then. Like I shared with you, I think at least 5 have actively already in 2021 resumed. And we do expect some announcements before the end of the year of additional partners kind of enrolling their first patients in trials.

There are no additional questions at this time. I'd like to turn the call back to Joe Burnett for closing remarks.

All right. Well, once again, thank you to everyone for showing their interest in ClearPoint and attending the call today. We thank you for being a part of our important journey to help patients and their families who struggle with some of the most debilitating neurological disorders imaginable. Our company is in the strongest position we have ever been, and we look forward to continuing to update you on our expansion and execution in the years ahead. Thank you very much.

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