2023-08-21 05:45:07 ET
Summary
- ClearPoint Neuro has shown steady improvement in quarterly revenue growth, particularly in the biologics and drug delivery segment.
- Given that this is the most important company segment, this growth is encouraging for future success.
- While risks abound, I continue to rate CLPT stock a Buy.
This is an update to my previous coverage on ClearPoint Neuro ( CLPT ). As with many small cap biotech stocks, CLPT has traded poorly for the past two years, but that doesn't mean it hasn't been advancing its programs and moving forward with its plans.
Indeed, the quarterly revenue growth chart shows steady improvement which is quite encouraging. (The absolute revenue numbers are shown in the next section.)
As discussed in my previous articles, CLPT operates in three segments: biologics and drug delivery, capital and software, and functional neurosurgery. This chart from the latest investors presentation shows the revenue breakdown for the past 10 years including projections for full year 2023.
Let's look at each of the three segments in light of this chart.
Biologics and Drug Delivery
Biologics and drug delivery consists of building partnerships with pharmaceutical and biotech companies who are developing new drugs and treatments. CLPT supplies the drug delivery equipment and technique, leaving the partners to focus on the science of drug development. In my opinion this is the most important company segment because the delivery method is part of any FDA submission, meaning that as a drug or treatment progresses through the clinical trial phases, as well as potential approval, the revenues increase with the increased number of procedures required at each phase and even more so if/when a drug is approved. That the drug delivery method is part of the FDA submission means that it can't be easily changed, hence CLPT has a very strong moat for this segment.
The chart above is quite encouraging, because CLPT seems to be making good on this promise, i.e. revenues in this segment are growing much faster than in the other two segments. Moreover, the company is expecting this growth to continue, as mentioned in the latest earnings release (with my emphasis):
As we look ahead to the second half of 2023, we expect to demonstrate progress toward our continued growth and scale by 1) accelerating revenue growth; 2) adding meaningful strategic and milestone-based biologics and drug delivery agreements ; 3) expanding our PRISM limited market release to multiple new centers; 4) executing as many as five FDA submissions directly or through partnerships for new products; and 5) completing the qualification of our new manufacturing clean room facility in Carlsbad, California and producing sellable product. We believe these milestones will contribute to a reduction in operational cash burn compared to the first half of 2023 with continued revenue growth in biologics and drug delivery being the primary driver. "
Functional Neurosurgery
This segment consists of providing medical devices for neurosurgery. These devices include guidance systems (hardware and software) for surgeries in an MRI setting, as well as a new product line of laser therapy systems. This segment operates on a razor / razor blade model, with the company generating some revenue from initial placement of a system (captured in the capital and software segment below), but then gets the bulk of its revenue for disposables used in each procedure.
Again, the chart above is encouraging as these revenues are growing again, after a serious setback from cancelled procedures during the Covid era.
Currently there are about 65 centers globally using the company's products in the MRI surgery setting and this number is expected to grow to over 100 by 2025. (With the expectation that disposable sales will grow commensurate with the total number of centers.)
The laser business was only started in 2022, but it is now in use in at least three indications (Parkinson's disease, drug resistant epilepsy and brain tumors, with this latter being a very small market). See Pillar 3 of this slide:
Capital and Software
The final segment is really just selling the "razors" mentioned in the above section. The growth here has been disappointing, but if the expectation for installations in 100+ centers by 2025 comes true, then there should be some growth here too.
Innovation
CLPT, in my opinion, has done a good job of balancing the need to generate current revenues with continuing to innovate. This slide has a nice summary of recently launched products as well as those still in development. I'm particularly interested in new products for the brain, including for deep brain stimulation.
Cash on Hand
As shown in the latest 10Q , CLPT has about $26M in cash on hand. It burns about $11M every 6 months, so it only has enough cash available for about a year of operation, unless it can rapidly increase the rate of biologics delivery revenues. As a result, I would expect a small (<$10M) financing to occur over the next six months or so.
Options
For those interested, CLPT does trade options, but they are currently extremely illiquid. However, should enthusiasm in the name grow, then engaging in options strategies may become feasible.
Risks
The risks with CLPT are clear and present.
First, the company may never achieve the revenue growth needed to become profitable.
Second, it may have to continue with dilutive financings, which will result in current shareholders never making money, even if the company survives and eventually becomes profitable.
Third, the company is at the mercy of the schedules and aggressiveness of its partners in the biologics delivery space. Moreover, there's no guarantee that any of its partners' development programs will result in approval and/or commercial success. And a similar dynamic exists in the neurosurgery space, where clinicians control the scheduling of procedures involving CLPT's equipment.
Summary
I believe that on balance, CLPT is progressing and that it will see success in the mid term. I continue to hold my full position but I won't add to it until the company does its next financing AND the company is at, or at least has a near term forecast of, cash flow breakeven.
For further details see:
ClearPoint Neuro Continues To Make Progress