# ClearPoint Neuro, Inc. (CLPT) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ClearPoint Neuro, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1285550/000095017025027934/clpt-20241231.htm
Accession: 0000950170-25-027934
Filing date: 2025-02-26
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CLPT/
All MD&A years: /company/CLPT/mda/
Previous year: /company/CLPT/mda/fy2023/ (FY 2023)
Next year: /company/CLPT/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes thereto included elsewhere in this Annual 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 “Risk Factors” section of this Annual Report for a discussion of important 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.

Overview

We are a commercial-stage medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain. We have deployed significant resources to fund our efforts to develop the foundational capabilities for enabling MRI-guided interventions, building an intellectual property portfolio, and identifying and building out commercial applications for the technologies developed by our company.

The first foundational component of our business is a medical device company 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 allows for operating room placement of the ClearPoint system, and in 2024, we launched 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, CLS.

The second component 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. Currently, we have more than 60 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 achieving success in completion of clinical trials and subsequent regulatory approvals of their drugs and biologics.

2024 Developments

•
Activated 25 new global centers for the year, reflecting an increase in demand driven by new product offerings, including the PRISM Laser Therapy System and SmartFrame OR.

•
Completed a follow-on public offering of common stock, resulting in net proceeds of approximately $16.2 million, and entered into an At-the-Market (“ATM”) Equity Offering Sales Agreement (the "ATM Agreement") pursuant to which we may offer and sell, from time to time, shares of our common stock, having aggregate sales proceeds of up to $50 million.

•
Repaid prior to maturity all remaining principal and interest on secured convertible notes issued in 2020, resulting in no outstanding debt at December 31, 2024.

•
Reduced cash used in operating activities to $9.0 million in 2024, a 35% year-over-year decrease.

•
Several of our partners advanced through preclinical and clinical review, with seven pharmaceutical partners receiving expedited US FDA review designations.

•
Received the following regulatory approvals:

o
US FDA 510(k) clearance for SmartFrame OR Stereotactic System to support expansion into the operating room;

o
Taiwan Food and Drug Administration approval of SmartFlow cannula for commercial use in Taiwan; and

o
US FDA De Novo marketing authorization of the SmartFlow Neuro Cannula for intraputaminal administration of eladocagene exuparvovec-tneq for the treatment of adult and pediatric patients with AADC deficiency, representing the first-ever FDA marketing authorization of a device used to deliver gene therapy directly to regions of interest in the brain.

Factors Which May Influence Future Results of Operations

The following is a description of factors which may influence our future results of operations, and that we believe are important to an understanding of our business and results of operations.

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Macroeconomic Trends

We continue to monitor the impacts of various macroeconomic trends, such as inflationary pressure, changes in monetary policy, decreasing consumer confidence and spending, the introduction of or changes in tariffs or trade barriers, and global or local recession. Such changes in domestic and global macroeconomic conditions may lead to increased costs for our business. Additionally, these macroeconomic trends could adversely affect our customers, which could impact their willingness to spend on our products and services, or their ability to make payments, which could harm our collection of accounts receivable and financial results. The world’s financial markets remain susceptible to significant stresses, resulting in reductions in available credit and government spending, economic downturn or stagnation, foreign currency fluctuations and volatility in the valuations of securities generally. As a result, our ability to access capital markets and other funding sources in the future may not be available on commercially reasonable terms, if at all. The rapid 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, which will depend largely on future developments.

Revenues

In 2010, we received 510(k) clearance from the FDA to market our ClearPoint system in the U.S. for general neurosurgical procedures; in February 2011 and May 2018, we also obtained CE marking for our ClearPoint system and SmartFlow cannula, respectively; and in June 2020 we obtained CE marking for version 2.0 of our ClearPoint software and our Inflexion head fixation frame. In January 2021, we received 510(k) clearance for the SmartFrame Array Neuro Navigation System. In September 2022, the ClearPoint Prism Neuro Laser Therapy System, for which we have exclusive global right to commercialize, received 510(k) clearance through our Swedish partner, CLS. The Prism laser represents the first therapy product we have commercialized. In January 2024, we received 510(k) clearance from the FDA for the SmartFrame OR Stereotactic System.

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.

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.

Generating recurring revenue from the sale of products remains an important part of our business model for our ClearPoint system. Our product revenue was approximately $18.6 million and $10.6 million for the years ended December 31, 2024 and 2023, respectively, and was almost entirely related to our ClearPoint system. Our service revenue was approximately $12.8 million and $13.4 million for the years ended December 31, 2024 and 2023, respectively, of which 92% and 86%, respectively, related to the biologics and drug delivery service line.

Our revenue recognition policies are more fully described in Note 2 to the consolidated financial statements elsewhere in this Annual Report.

Underlying the revenue from sales of products and services to our biologics and drug delivery customers is the number of direct customers and end users of our products and/or services (“Partners”). Our Partners consist of pharmaceutical and biotech companies, academic institutions, or customer-sponsored contract research organizations that are developing methods to deliver a wide variety of molecules, genes or proteins to targeted brain tissue or structures that would need to bypass the blood-brain barrier for the treatment of a variety of disorders. This is a novel area in which commercialization must be preceded by FDA-mandated clinical trials, which are expensive and time consuming to conduct, and for which commercial success is uncertain, pending, in part, on the outcome of those trials. While our revenue from sales of products and services to our biologics and drug delivery customers is indicative of growth, the number of Partner relationships is also of importance as we recognize the possibility that some Partners’ research will reach commercial success, and others may not. To the extent our Partners achieve commercial success, our expectation is that we will share in such success through our Partners’ use of our products and services in their delivery of therapies. At December 31, 2024, we had more than 60 Partners, as compared to over 50 Partners as of the same date in 2023.

Cost of Revenue

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 that we have sold, and for which we have recognized revenue in accordance with our revenue recognition policy, as well as labor hours 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.

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Research and Development Costs

Our research and development costs consist primarily of costs associated with the conceptualization, design, testing, and prototyping of our ClearPoint system products, cannulas, and enhancements. Such costs include salaries, travel, and benefits for research and development personnel; materials and laboratory supplies in research and development activities; outside consultant costs; and licensing costs related to technology not yet commercialized. We anticipate that, over time, our research and development costs may increase as we: (i) develop devices and services for delivery of therapeutics into the central nervous system, (ii) expand products into the OR and therapeutics space, and (iii) expand the application of our technological platforms internationally.

Product development timelines, likelihood of success, and total costs can vary widely by product candidate. There are also risks inherent in the regulatory clearance and approval process. At this time, we are unable to estimate with any certainty the costs that we will incur in our efforts to expand the application of our technological platforms.

Sales and Marketing, and General and Administrative Expenses

Our sales and marketing, and general and administrative expenses consist primarily of salaries, incentive-based compensation, travel and benefits, including related share-based compensation; marketing costs; professional fees, including fees for outside attorneys and accountants; occupancy costs; insurance; and other general and administrative expenses, which include, but are not limited to, corporate licenses, director fees, hiring costs, taxes, postage, office supplies, information technology and meeting costs.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as the reported revenues and expenses during the reporting periods. The accounting estimates that require our most significant, difficult and subjective judgments are discussed below. We evaluate our estimates and judgments on an ongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results.

Revenue Recognition. Revenue is recognized when control of our products and services are transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services, in a process that involves identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when or as the performance obligations have been satisfied.

Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. We evaluate each product or service promised in a contract to determine whether it represents a distinct performance obligation. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. When a contract calls for the satisfaction of multiple performance obligations for a single contract price, we typically allocate the contract price among the performance obligations based on the relative stand-alone selling prices for each such performance obligation customarily charged by us.

We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. Product revenue is generally recognized at a point in time, generally upon shipment, however, it may be recognized upon delivery based on the contractual terms with certain customers. Service revenue is generally recognized over time as the services are delivered to the customer based on the extent of progress towards completion of the performance obligation. The selection of the method used to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Depending on which better depicts the transfer of control to the customer, we may use output methods, such as time elapsed, or input methods, such as labor hours expended or costs incurred, to measure our progress toward complete satisfaction of the performance obligation. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control.

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Under certain agreements, we are entitled to receive event-based payments subject to our customer's achievement of specified development and regulatory milestones. Variable consideration is included in the transaction price if, in our judgment, it is probable that these milestones will be achieved and a significant future reversal of cumulative revenue under the contract will not occur. At the end of each reporting period, we re-evaluate the probability of achievement of such milestones, and if necessary adjust our estimate of the overall transaction price. The probability assessment is largely based on communications with our customers and historical, current, and forecasted information that is reasonably available. A revenue reversal is possible if it is determined that achievement of a milestone which was previously deemed probable, will not occur.

Inventory. Inventory is carried at the lower of cost (first-in, first-out method) or net realizable value. Items in inventory relate predominantly to our neurosurgical products, drug delivery and biologic products, therapy products and ClearPoint capital equipment. Software license inventory related to ClearPoint systems undergoing on-site customer evaluation is included in inventory in the accompanying consolidated balance sheets. All other software license inventory is classified as a non-current asset. We periodically review our inventory for excess and obsolete items and provide a reserve upon giving consideration to factors such as its physical condition, sales patterns, and expected future demand in order to estimate the amount necessary to write down any slow moving, obsolete, or damaged inventory. These estimates could vary from actual amounts based upon future economic conditions, customer inventory levels, or competitive factors that were not foreseen or did not exist when the estimated write-downs were made.

Share-Based Compensation. We account for compensation for all arrangements under which employees and others receive shares of stock or other equity instruments (such as restricted stock and options) based on fair value. The fair value of each award is estimated as of the grant date and amortized as compensation expense over the requisite vesting period. In the case of stock options, the fair value is estimated on the grant dates using the Black-Scholes valuation model. This valuation model requires the input of highly subjective assumptions, including the expected stock volatility, estimated award terms and risk-free interest rates for the expected terms. To estimate the expected terms, we utilize the simplified method for “plain vanilla” options discussed in the SEC’s Staff Accounting Bulletin 107, or SAB 107. We believe that all factors listed within SAB 107 as prerequisites for utilizing the simplified method apply to us and to our share-based compensation arrangements. We intend to utilize the simplified method for the foreseeable future until more detailed information about exercise behavior becomes available. Expected volatility is based on historical volatility of our common stock. We utilize risk-free interest rates based on U.S. treasury instruments, the term of which is consistent with the expected term of the share-based award. We have not paid, and do not anticipate paying, cash dividends on shares of our common stock; therefore, the expected dividend yield is assumed to be zero. We do not believe there is a reasonable likelihood that there will be a material change in estimates or assumptions used to determine share-based compensation expense.

Results of Operations

Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023

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[[/GREPCENT_TABLE]]

NM - The percentage change is not meaningful.

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Revenue. Total revenue was approximately $31.4 million and $24.0 million for the years ended December 31, 2024 and 2023, respectively.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Biologics and drug delivery revenue, which include sales of disposable products and services related to customer-sponsored preclinical and clinical trials utilizing our products, increased 27% to $17.3 million for the year ended December 31, 2024, from $13.6 million for the same period in 2023. This increase is attributable to a $3.5 million increase in product revenue resulting from higher demand for disposables as multiple partners progress in their trials, and a $0.3 million increase in service and other revenue related to new preclinical trials and service agreements entered into with our partners for the year ended December 31, 2024, compared to the same period in 2023.

Neurosurgery navigation and therapy revenue, which primarily consists of disposable product commercial sales related to cases utilizing the ClearPoint system, increased 21% to $10.3 million during the year ended December 31, 2024, from $8.5 million for the same period in 2023. Product revenue increased $2.7 million, or 36%, resulting from newly activated accounts, increased case count, and new product offerings, including SmartFrame OR and Prism Laser Therapy, compared to the same period in 2023. This was partially offset by a decrease in service and other revenue of $0.9 million primarily as a result of pausing a co-development program with one of our Brain Computer Interface partners.

Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software and related services, increased 107% to $3.8 million for the year ended December 31, 2024, from $1.8 million for the same period in 2023, due to an increase in the placements of ClearPoint navigation capital equipment and software and Prism laser units.

Cost of Revenue and Gross Profit. Cost of revenue was $12.3 million, resulting in gross profit of $19.1 million and gross margin of 61%, for the year ended December 31, 2024, compared to $10.3 million, resulting in gross profit of $13.6 million and gross margin of 57% for the year ended December 31, 2023. The increase in gross margin was primarily due to lower costs for the year ended December 31, 2024 due to the transition to the new manufacturing facility, occurring in 2023, and higher volumes for the year ended December 31, 2024.

Research and Development Costs. Research and development costs were $12.4 million for the year ended December 31, 2024, compared to $11.7 million for the same period in 2023, an increase of $0.7 million, or 6%. The increase was due primarily to increases in personnel costs, including share-based compensation expense, of $1.2 million due to growth in headcount, partially offset by a decrease of $0.5 million in research costs as a result of reprioritization of certain initiatives.

Sales and Marketing Expenses. Sales and marketing expenses were $14.5 million for the year ended December 31, 2024, compared to $12.6 million for the same period in 2023, an increase of $1.9 million, or 15%. This increase was primarily due to higher personnel costs, including share-based compensation expense, of $1.6 million resulting from increases in headcount in our clinical team, increases in travel expense of $0.4 million, partially offset by $0.1 million in other marketing activities.

General and Administrative Expenses. General and administrative expenses were $12.0 million for the year ended December 31, 2024, compared to $11.8 million for the same period in 2023, an increase of $0.2 million, or 2%. This increase was due primarily to higher personnel costs, including share-based compensation of $1.2 million, an increase in rent and occupancy costs as a result of the new Carlsbad site of $0.5 million, partially offset by a decrease in the allowance for credit losses of $1.5 million mainly as a result of subsequent recoveries.

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Interest Income (Expense). Net interest income for the year ended December 31, 2024 was $0.9 million, compared with $0.4 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 as well as lower interest expense due to the early repayment of the First Closing Note.

Liquidity and Capital Resources

We have incurred net losses since our inception, which has resulted in a cumulative deficit at December 31, 2024 of $191.4 million. In addition, our use of cash from operations amounted to $9.0 million for the year ended December 31, 2024. Since inception, we have financed our operations principally from the sale of equity securities and the issuance of notes payable.

In March 2024, we completed a public offering of 2,653,848 shares of our common stock from which the net proceeds totaled approximately $16.2 million after deducting our payment of underwriting discounts and commissions and other offering expenses. In November 2024, we entered into an ATM Agreement pursuant to which we may offer and sell, from time to time, shares of our common stock, having aggregate sales proceeds of up to $50 million, subject to the terms and conditions of the ATM Agreement. As of December 31, 2024, we did not issue any shares of common stock under the ATM Agreement.

In August 2024, we repaid in full the remaining $10 million outstanding under the secured convertible notes issued in 2020 to two investors raising gross proceeds of $25 million, of which $15 million had been previously converted to common stock.

Additional information with respect to the public offerings and 2020 secured convertible notes is in Note 9 and 7, respectively, to the consolidated financial statements included elsewhere in this Annual Report.

As a result of these transactions and our business operations, our cash and cash equivalents totaled $20.1 million at December 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 December 31, 2024, are sufficient to support our operations and meet our obligations for at least the next twelve months.

We may offer and sell additional equity or issue additional notes payable to raise funds for working capital, capital expenditures, or other general corporate purposes. Our primary uses of cash and operating expenses relate to paying employees and consultants, marketing our products, and supporting our research and development of future product offerings. Our short- and long-term liquidity requirements include the following obligations:

•
We have lease arrangements related to our office and manufacturing facilities under non-cancellable operating leases. See Note 8 to the consolidated financial statements included elsewhere in this Annual Report.

•
We typically enter into short-term agreements with vendors and suppliers of goods and services in the normal course of business through purchase orders, which are settled in cash upon our receipt of such goods or services. We may also at times enter into long-term commitments or license and collaboration agreements which require commitments that are noncancellable. The total amount as of December 31, 2024 for unfulfilled purchase orders and long-term purchase commitments is $5.4 million, of which approximately 28% is expected to be paid in 2025.

Cash Flows

Cash activity for the years ended December 31, 2024 and 2023 is summarized as follows:

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[[/GREPCENT_TABLE]]

Net Cash Flows from Operating Activities. Net cash flows used in operating activities for the year ended December 31, 2024 were $9.0 million, a decrease of $4.8 million from the year ended December 31, 2023. This decrease was due to a lower net loss of $3.2 million, and a net decrease in operating assets and liabilities of $1.8 million, partially offset by a net decrease in non-cash items of $0.2 million. The change in operating assets and liabilities is primarily due to higher accounts payable and accrued liabilities, partially offset by lower deferred revenue. The change in the non-cash items results primarily from recoveries in the allowance for credit losses, partially offset by higher share-based compensation expense.

Net Cash Flows from Investing Activities. Net cash flows provided by investing activities in 2024 were $0.3 million and related to equipment acquisitions.

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Net cash flows provided by investing activities in 2023 were $8.9 million and consisted of proceeds from the maturities of short-term investments, partially offset by equipment acquisitions related to our new manufacturing site in Carlsbad, California, and acquisition of licensing rights.

Net Cash Flows from Financing Activities. Net cash provided by financing activities in 2024 consisted of proceeds, net of offering costs, of $16.2 million received from the public offering of our common stock and $0.4 million in proceeds from the issuance of common stock under the employee stock purchase plan. This is partially offset by the repayment of the remaining $10 million outstanding under the secured convertible notes issued in 2020 and payments of $0.4 million for taxes related to shares withheld in connection with vesting of restricted stock awards.

Net cash provided by financing activities in 2023 consisted of proceeds of $0.5 million from the issuance of common stock under the employee stock purchase plan, partially offset by payments of $0.2 million for taxes related to shares withheld in connection with vesting of restricted stock awards.

Operating Capital and Capital Expenditure Requirements

To date, we have not achieved profitability. We could continue to incur net losses as we continue our efforts to expand the commercialization of our products and services and pursue additional applications for our technology platforms. Our cash balances are primarily held in a variety of demand accounts with a view to liquidity and capital preservation.

Because of the numerous risks and uncertainties associated with the development and commercialization of medical devices, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to successfully commercialize our products and pursue additional applications for our technology platforms. Our future capital requirements will depend on many factors, including, but not limited to, the following:

•
the ultimate duration and impact of macroeconomic trends, including inflationary pressures, changes in monetary policy, decreasing consumer confidence and spending, the introduction of or changes in tariffs or trade barriers, global or local recession, and geopolitical instability;

•
the timing of broader market acceptance and adoption of our products;

•
the scope, rate of progress and cost of our ongoing product development activities relating to our products;

•
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;

•
the cost and timing of expanding our sales, clinical support, marketing and distribution capabilities, and other corporate infrastructure;

•
the cost and timing of establishing inventories at levels sufficient to support our sales;

•
the effect of competing technological and market developments;

•
the cost of pursuing additional applications of our technology platforms under current collaborative arrangements, and the terms and timing of any future collaborative, licensing or other arrangements that we may establish;

•
the cost and timing of any clinical trials;

•
the cost and timing of regulatory filings, clearances and approvals; and

•
the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.