ClearPoint Neuro Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed Consolidated Financial Statements and the related notes thereto appearing in Part I, Item 1 of this Quarterly Report. This discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks, assumptions and uncertainties. You should review the section titled “Risk Factors” appearing in our 2023 Form 10-K and in Part II, Item 1.A of this Quarterly Report for a discussion of important risk factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis. In addition, historical results and trends that might appear in this Quarterly Report should not be interpreted as being indicative of future operations.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed Consolidated Financial Statements and the related notes thereto appearing in Part I, Item 1 of this Quarterly Report. This discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks, assumptions and uncertainties. You should review the section titled “Risk Factors” appearing in the 2023 Form 10-K and in Part II, Item 1.A of this Quarterly Report for a discussion of important risk factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis. In addition, historical results and trends that might appear in this Quarterly Report should not be interpreted as being indicative of future operations.

Previous wording

The foundational part of our business is providing medical devices for neurosurgery applications. Our primary medical device product, the ClearPoint system, is an integrated system comprised of hardware components, disposable components, and intuitive, menu-driven software, which is in commercial use globally. The primary applications for the ClearPoint system are to target and guide the insertion of deep brain stimulation electrodes, biopsy needles, and laser catheters, as well as the infusion of pharmaceuticals into the brain. The ClearPoint system was originally designed for use in an MRI setting. In 2021, we launched the SmartFrame Array Neuro Navigation System and Software, which allow for operating room placement of the ClearPoint system, and in 2024, we commenced limited market release of the SmartFrame OR Stereotactic System, which allows for complete procedures to be performed in the operating room. In 2022, we commercialized the ClearPoint Prism Neuro Laser Therapy System as our first therapy product offering. We have exclusive global commercialization rights to the ClearPoint Prism Neuro Laser Therapy System through our Swedish partner, Clinical Laserthermia Systems AB and its affiliates, or CLS.

Current wording

The foundational part of our business is providing medical devices for neurosurgery applications. Our primary medical device product, the ClearPoint system, is an integrated system comprised of hardware components, disposable components, and intuitive, menu-driven software, which is in commercial use globally. The primary applications for the ClearPoint system are to target and guide the insertion of deep brain stimulation electrodes, biopsy needles, and laser catheters, as well as the infusion of pharmaceuticals into the brain. The ClearPoint system was originally designed for use in an MRI setting. In 2021, we launched the SmartFrame Array Neuro Navigation System and Software, which allow for operating room placement of the ClearPoint system, and in 2024, we released the SmartFrame OR Stereotactic System, which allows for complete procedures to be performed in the operating room. In 2022, we commercialized the ClearPoint Prism Neuro Laser Therapy System as our first therapy product offering. We have exclusive global commercialization rights to the ClearPoint Prism Neuro Laser Therapy System through our Swedish partner, CLS.

Previous wording

The second part of our business is focused on partnerships in the biologics drug and delivery space. Our services include protocol consultation and solutions for preclinical study design and execution for the delivery of pharmaceutical agents to the brain. Currently, we have more than 50 biologics and drug delivery customers who are evaluating using our products and services in trials to inject gene and cell therapies directly into the brain. These partnerships involve drug development programs that are at various stages of development ranging from preclinical research to late-stage regulatory trials for multiple distinct disease states. This part of our business potentially represents the largest opportunity for growth; however, our ability to grow in this market is dependent on our ability to maintain and establish new relationships with customers, such customers' continuation of research and development plans, and such customers' achievement of success in completion of clinical trials and subsequent regulatory approvals of their biologics and drugs.

Current wording

The second part of our business is focused on partnerships in the biologics and drug delivery space. Our services include protocol consultation and solutions for preclinical study design and execution for the delivery of pharmaceutical agents to the brain. We also partner with customers to develop devices used for administration of therapies into the central nervous system. Currently, we have more than 50 biologics and drug delivery customers who are evaluating or using our products and services in trials to inject gene and cell therapies directly into the brain. These partnerships involve drug development programs that are at various stages of development ranging from preclinical research to late-stage regulatory trials for multiple distinct disease states. This part of our business potentially represents the largest opportunity for growth; however, our ability to grow in this market is dependent on our ability to maintain and establish new relationships with customers, such customers' continuation of research and development plans, and such customers' achievement of success in completion of clinical trials and subsequent regulatory approvals of their biologics and drugs.

Previous wording

Substantially all our revenue for the three months ended March 31, 2024 and 2023 relates to (i) sales of our ClearPoint system products and related services and (ii) consulting services from our customers in the biologics and drug delivery space. We have financed our operations and internal growth primarily through the sale of equity securities and the issuance of notes payable. We have incurred significant losses since our inception in 1998 as we have devoted substantial efforts to research and development. As of March 31, 2024, we had accumulated losses of $176.6 million. We may continue to incur operating losses as we expand our ClearPoint system platform, consulting services to our pharmaceutical and other medical technology customers, and our business generally.

Current wording

Substantially all our revenue for the three and six months ended June 30, 2024 and 2023 relates to (i) sales of our ClearPoint system products and related services and (ii) providing services from our customers in the biologics and drug delivery space. We have financed our operations and internal growth primarily through the sale of equity securities and the issuance of notes payable. We have incurred significant losses since our inception in 1998 as we have devoted substantial efforts to research and development. As of June 30, 2024, we had accumulated losses of $181.0 million. We may continue to incur operating losses as we expand our ClearPoint system platform, services to our pharmaceutical and other medical technology customers, and our business generally.

Previous wording

We continue to monitor the impact of various macroeconomic trends, such as global economic and supply chain disruptions, geopolitical instability (including instability resulting from military conflicts), labor shortages, and inflationary conditions. Impacts from inflationary pressures, such as increasing costs for research and development of our products, administrative and other costs of doing business, and our access to capital markets and other sources of funding in the future could adversely affect our business, financial condition and results of operations. Additionally, these trends could adversely affect our customers, which could impact their willingness to spend on our products and services, or their ability to make payment, which could harm the Company's collection of accounts receivable and financial results. The continued development and fluidity of these situations precludes any prediction as to the ultimate impact they will have on our business, financial condition, results of operation and cash flows.

Current wording

We continue to monitor the impact of various macroeconomic trends, such as global economic and supply chain disruptions, geopolitical instability (including instability resulting from military conflicts), labor shortages, inflationary conditions, and legislative and political developments. Impacts from inflationary pressures, such as increasing costs for research and development of our products, administrative and other costs of doing business, and our access to capital markets and other sources of funding in the future could adversely affect our business, financial condition and results of operations. Additionally, these trends could adversely affect our customers, which could impact their willingness to spend on our products and services, or their ability to make payment, which could harm the Company's collection of accounts receivable and financial results. The continued development and fluidity of these situations precludes any prediction as to the ultimate impact they will have on our business, financial condition, results of operation and cash flows.

Previous wording

In 2021, we started providing consulting services to our pharmaceutical and other medical technology customers for improving outcome predictability and optimizing preclinical and clinical workflows. Our expertise is concentrated in benchtop testing, preclinical studies, clinical trial support, regulatory consultation, and over-arching translation from the preclinical to the clinical setting to enhance accuracy and precision of drug delivery.

Current wording

In 2021, we started providing services to our pharmaceutical and other medical technology customers for improving outcome predictability and optimizing preclinical and clinical workflows. Our expertise is concentrated in benchtop testing, preclinical studies, clinical trial support, regulatory consultation, and over-arching translation from the preclinical to the clinical setting to enhance accuracy and precision of drug delivery. In 2024, we expanded our services to our pharmaceutical and other medical technology customers to include development of devices used for administration of therapies into the central nervous system.

Previous wording

Future revenue from sales of our ClearPoint platform products and services is difficult to predict and may not be sufficient to offset our continuing research and development expenses and our increasing selling, general and administrative expenses.

Current wording

Future revenue from sales of our ClearPoint platform products and services is difficult to predict and may not be sufficient to offset our continuing research and development expenses and selling, general and administrative expenses.

Previous wording

Generating recurring revenue from the sale of products is an important part of our business model for our ClearPoint system. Our product revenue was approximately $3.6 million for the three months ended March 31, 2024, and was almost entirely related to our ClearPoint system. Our service revenue was approximately $4.0 million for the three months ended March 31, 2024, of which 94% is related to the biologics and drug delivery service line.

Current wording

Generating recurring revenue from the sale of products is an important part of our business model for our ClearPoint system. Our product revenue was approximately $4.9 million and $8.6 million for the three and six months ended June 30, 2024, respectively, and was primarily related to our ClearPoint system. Our service and other revenue was approximately $2.9 million and $6.9 million for the three and six months ended June 30, 2024, respectively, of which 91% and 93%, respectively, is related to the biologics and drug delivery service line.

Previous wording

Cost of revenue includes the direct costs associated with the assembly and purchase of components for functional neurosurgery navigation products, biologics and drug delivery products, non-neurosurgery therapy products, and ClearPoint capital equipment and software that we have sold, and for which we have recognized the revenue in accordance with our revenue recognition policy, as well as labor hours and materials for the cost of providing pre-clinical, consulting, and service revenue. Cost of revenue also includes the allocation of manufacturing overhead costs and depreciation of loaned systems installed under our ClearPoint placement program, as well as provisions for obsolete, impaired, or excess inventory.

Current wording

Cost of revenue includes the direct costs associated with the assembly and purchase of components for neurosurgery navigation products, biologics and drug delivery products, non-neurosurgery therapy products, and ClearPoint capital equipment and software that we have sold, and for which we have recognized the revenue in accordance with our revenue recognition policy, as well as labor hours and materials for the cost of providing preclinical, consulting, and service revenue. Cost of revenue also includes the allocation of manufacturing overhead costs and depreciation of loaned systems installed under our ClearPoint placement program, as well as provisions for obsolete, impaired, or excess inventory.

Previous wording

There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2024, as compared to the critical accounting policies and estimates described in our 2023 Form 10-K.

Current wording

There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2024, as compared to the critical accounting policies and estimates described in our 2023 Form 10-K.

Previous wording

Revenue. Total revenue was $7.6 million for the three months ended March 31, 2024, and $5.4 million for the three months ended March 31, 2023, which represents an increase of $2.2 million, or 41%.

Current wording

Revenue. Total revenue was $7.9 million for the three months ended June 30, 2024, and $6.0 million for the three months ended June 30, 2023, which represents an increase of $1.9 million, or 32%.

Previous wording

Functional neurosurgery navigation and therapy revenue, which primarily consists of disposable product commercial sales related to cases utilizing the ClearPoint system, decreased 18% to $1.9 million for the three months ended March 31, 2024, from $2.4 million for the same period in 2023. The decrease is driven by lower service revenue of $0.5 million as a result of pausing a co-development program with one of our Brain Computer Interface partners, partially offset by higher product revenue of $0.1 million during the three months ended March 31, 2024, compared to the same period in 2023.

Current wording

Neurosurgery navigation and therapy revenue, which primarily consists of disposable product commercial sales related to cases utilizing the ClearPoint system, increased 17% to $2.6 million for the three months ended June 30, 2024, from $2.2 million for the same period in 2023. The increase is driven by higher product revenue of $0.8 million as a result of increased case volume, new capital placements, and new product offerings (SmartFrame OR and Prism) during the three months ended June 30, 2024, compared to the same period in 2023. This is partially offset by a decrease of $0.4 million in service and other revenue primarily as a result of pausing a co-development program with one of our Brain Computer Interface partners, during the three months ended June 30, 2024, compared to the same period in 2023.

Previous wording

Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software and related services, increased 255% to $1.4 million for the three months ended March 31, 2024, from $0.4 million for the same period in 2023 due to a large increase in the placements of ClearPoint navigation capital and software and Prism laser units.

Current wording

Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software and of related services, increased 148% to $0.9 million for the three months ended June 30, 2024, from $0.4 million for the same period in 2023 due to an increase in the placements of ClearPoint navigation capital and software and Prism laser units.

Previous wording

Cost of Revenue and Gross Profit. Cost of revenue was $3.1 million, resulting in gross profit of $4.5 million for the three months ended March 31, 2024, and was $2.2 million, resulting in gross profit of $3.2 million for the three months ended March 31, 2023. Gross margin was 59% for the three months ended March 31, 2024, in line with the same period in 2023.

Current wording

Cost of Revenue and Gross Profit. Cost of revenue was $2.9 million, resulting in gross profit of $5.0 million and gross margin of 63%, for the three months ended June 30, 2024, and was $2.8 million, resulting in gross profit of $3.1 million and gross margin of 53% for the three months ended June 30, 2023. The increase in gross margin was primarily due to lower costs for the three months ended June 30, 2024 due to the transition to the new manufacturing facility, occurring in 2023, and higher volumes for the three months ended June 30, 2024.

Previous wording

Sales and Marketing Expenses. Sales and marketing expenses were $3.3 million for the three months ended March 31, 2024, compared to $2.9 million for the same period in 2023, an increase of $0.4 million, or 12%. This increase was due primarily to additional personnel costs of $0.3 million, including share-based compensation, resulting from increases in headcount, as well as increases in travel costs of $0.1 million.

Current wording

Sales and Marketing Expenses. Sales and marketing expenses were $3.8 million for the three months ended June 30, 2024, compared to $3.5 million for the same period in 2023, an increase of $0.4 million, or 10%. This increase was due primarily to higher travel costs of $0.3 million, increased personnel costs of $0.2 million, including share-based compensation, resulting from increases in headcount, partially offset by lower marketing expenses of $0.1 million.

Previous wording

General and Administrative Expenses. General and administrative expenses were $2.8 million for the three months ended March 31, 2024, compared to $3.0 million for the same period in 2023, a decrease of $0.1 million, or 4%. This decrease was due primarily to lower bad debt expense of $0.3 million mainly as a result of subsequent recoveries, partially offset by higher share-based compensation and occupancy costs, each in the amount of $0.1 million.

Current wording

General and Administrative Expenses. General and administrative expenses were $2.8 million for the three months ended June 30, 2024, compared to $3.2 million for the same period in 2023, a decrease of $0.4 million, or 13%. This decrease was due primarily to lower bad debt expense of $0.6 million mainly as a result of subsequent recoveries, partially offset by higher personnel costs and share-based compensation of $0.2 million.

Previous wording

Interest Income (Expense). Net interest income was $0.1 million for each of the three months ended March 31, 2024 and 2023, as a result of interest rates remaining relatively consistent. We continue to earn interest income from our investment in U.S. Government debt securities, offset partially by the interest paid on the Outstanding First Closing Note. See Note 6 to the Condensed Consolidated Financial Statements included above in Part 1, Item 1 in this Quarterly Report for additional information with respect to the Outstanding First Closing Note.

Current wording

Interest Income (Expense). Net interest income was $0.3 million for the three months ended June 30, 2024, compared to $0.1 million for the same period in 2023, as a result of increased investment in U.S. Government debt securities stemming from the capital raise in March 2024.

Previous wording

Biologics and drug delivery revenue, which includes sales of disposable products and services related to customer-sponsored pre-clinical and clinical trials, increased 61% to $4.3 million for the three months ended March 31, 2024, from $2.7 million for the same period in 2023. This increase is attributable to a $1.7 million increase in service revenue related to new pre-clinical trials and consulting agreements entered into with our Partners during the three months ended March 31, 2024, compared to the same period in 2023.

Current wording

Biologics and drug delivery revenue, which includes sales of disposable products and services related to customer-sponsored preclinical and clinical trials, increased 43% to $8.6 million for the six months ended June 30, 2024, from $6.0 million for the same period in 2023. This increase is attributable to a $1.3 million increase in service and other revenue related to new preclinical trials and service agreements entered into with our Partners during the six months ended June 30, 2024 and $1.3 million increase in product revenue as a result of increased demand for disposables as multiple partners progress in their trials, compared to the same period in 2023.

Previous wording

Research and Development Costs. Research and development costs were $2.6 million for the three months ended March 31, 2024, compared to $3.0 million for the same period in 2023, a decrease of $0.4 million, or 13%. The decrease was due primarily to lower product development costs as a result of reprioritization of certain research and development initiatives.

Current wording

Research and Development Costs. Research and development costs were $5.7 million for the six months ended June 30, 2024, compared to $6.6 million for the same period in 2023, a decrease of $0.9 million, or 13%. The decrease was due primarily to lower product and software development costs of $1.1 million as a result of reprioritization of certain research and development initiatives, partially offset by increased personnel costs of $0.2 million.

Previous wording

We have incurred net losses since our inception, which has resulted in a cumulative deficit at March 31, 2024 of $176.6 million. In addition, our use of cash from operations amounted to $3.8 million for the three months ended March 31, 2024, and $13.7 million for the year ended December 31, 2023.

Current wording

We have incurred net losses since our inception, which has resulted in a cumulative deficit at June 30, 2024 of $181.0 million. In addition, our use of cash from operations amounted to $6.5 million for the six months ended June 30, 2024, and $13.7 million for the year ended December 31, 2023.

Previous wording

Since inception, we have financed our operations principally from the sale of equity securities and the issuance of notes payable. In 2020, we issued secured convertible notes to two investors which raised gross proceeds of $25 million, of which $15 million has been converted to common stock and $10 million remains outstanding.

Current wording

Since inception, we have financed our operations principally from the sale of equity securities and the issuance of notes payable. In 2020, we issued secured convertible notes to two investors which raised gross proceeds of $25 million, of which $15 million has been converted to common stock and $10 million remains outstanding. See Note 6 to the Condensed Consolidated Financial Statements included above in Part I, Item 1 in this Quarterly Report for additional information with respect to the Outstanding First Closing Note. As discussed in Note 8, in March 2024, the Company completed a public offering of 2,653,848 shares of its common stock from which the net proceeds totaled approximately $16.2 million after deducting underwriting discounts and commissions, and other offering expenses paid by the Company.

Previous wording

As a result of these transactions and our business operations, our cash and cash equivalents totaled $35.4 million at March 31, 2024. In management’s opinion, based on our current forecasts for revenue, expense and cash flows, our existing cash and cash equivalent balances at March 31, 2024, are sufficient to support our operations and meet our obligations for at least the next twelve months.

Current wording

As a result of these transactions and our business operations, our cash and cash equivalents totaled $32.8 million at June 30, 2024. In management’s opinion, based on our current forecasts for revenue, expense and cash flows, our existing cash and cash equivalent balances at June 30, 2024, are sufficient to support our operations and meet our obligations for at least the next twelve months.

Previous wording

Cash activity for the three months ended March 31, 2024 and 2023 is summarized as follows:

Current wording

Cash activity for the six months ended June 30, 2024 and 2023 is summarized as follows:

Previous wording

Net Cash Flows from Operating Activities. Net cash flows used in operating activities for the three months ended March 31, 2024, were $3.8 million, a decrease of $1.8 million from the three months ended March 31, 2023. This decrease was primarily due to a lower net loss of $1.5 million, lower accounts receivable balances as a result of increased cash collections, and lower inventory purchases after ramping up of inventory stock in response to supply chain disruptions, offset partially by lower deferred revenue.

Current wording

Net Cash Flows from Operating Activities. Net cash flows used in operating activities for the six months ended June 30, 2024, were $6.5 million, a decrease of $4.2 million from the six months ended June 30, 2023. This decrease was primarily due to a lower net loss of $4.1 million.

Previous wording

Net Cash Flows from Investing Activities. The Company did not have any net cash flows from investing activities for the three months ended March 31, 2024.

Current wording

Net Cash Flows from Investing Activities. The Company did not have any net cash flows from investing activities for the six months ended June 30, 2024. Net cash flows provided by investing activities for the six months ended June 30, 2023, were $9.4 million and consisted of proceeds from the maturities of short-term investments, partially offset primarily by equipment acquisitions related to our new manufacturing site in Carlsbad, California.

Previous wording

Net Cash Flows from Financing Activities. Net cash flows provided by financing activities for the three months ended March 31, 2024, consisted of proceeds, net offering costs, of $16.2 million received from the public offering of our common stock, partially offset by payments for taxes related to shares withheld in connection with the vesting of restricted stock awards of $0.2 million.

Current wording

Net Cash Flows from Financing Activities. Net cash flows provided by financing activities for the six months ended June 30, 2024, consisted of proceeds, net of offering costs, of $16.2 million received from the public offering of our common stock and $0.3 million in proceeds from the issuance of common stock under the employee stock purchase plan. This is partially offset by payments of $0.3 million for taxes related to shares withheld in connection with the vesting of restricted stock awards.

Previous wording

Net cash flows used in financing activities for the three months ended March 31, 2023, consisted of payments for taxes related to shares withheld in connection with the vesting of restricted stock awards.

Current wording

Net cash flows provided by financing activities for the six months ended June 30, 2023, consisted of proceeds from the issuance of common stock under the employee stock purchase plan, partially offset by payments for taxes related to shares withheld in connection with the vesting of restricted stock awards.

Previous wording

•the ability of our Partners to achieve commercial success, including their use of our products and services in their pre-clinical studies, clinical trials and delivery of therapies;

Current wording

•the ability of our Partners to achieve commercial success, including their use of our products and services in their preclinical studies, clinical trials and delivery of therapies;

Previous wording

•the ultimate duration and impact of macroeconomic trends, including inflationary pressures, supply chain disruptions, and geopolitical instability (including military conflicts);

Current wording

•the ultimate duration and impact of macroeconomic trends, including inflationary pressures, supply chain disruptions, geopolitical instability (including military conflicts), and legislative and political developments;