CLPT - NASDAQ

Thank you for standing by, and welcome to the ClearPoint Neuro, Inc. Q3 2023 Earnings Conference Call. 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, the size of total addressable markets or the market opportunity for the company's products and services 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, 2022, and the company's quarterly report on Form 10-Q for the three months ended June 30, 2023, both of which have been filed with the Securities and Exchange Commission and the company's quarterly report on Form 10-Q for the three months ended September 30, 2023, which the company intends to file with the Securities and Exchange Commission on or before November 14, 2023. All the company's filings may be obtained on the SEC or the company's website at www.clearpointneuro.com. I would now like to turn the call over to Joe Burnett, Chief Executive Officer to begin the call. Joe, over to you,

Than you, Mandeep [ph]. And thank you to all of the investors and analysts on today's call. ClearPoint Neuro is the premier cell, gene and device therapy enabling company, uniquely focused on precise navigation and quality control delivery to the brain. Our four-pillar growth strategy continued its progress here in the third quarter with some important updates that I will discuss momentarily. The most important highlight or point of emphasis we want to make on the call today is our stated priority of flattening operational expenses and improving cash flow. Our operational cash burn in the third quarter was reduced to only $1.8 million, the lowest quarterly operational cash burn since 2020. The last few years, we have a race to build a foundation, a team and a product portfolio that can prepare us to realize a total addressable market that could treat more than 1 million newly diagnosed patients each year and in doing so, create a $12 billion revenue opportunity for ClearPoint via our products, services and partnerships. That unserved market is still very much our intention and our vision. However, instead of continuing to invest in growing our capabilities and portfolio in the near term, we are going to make sure we focus on extracting value from the existing capabilities that we have already built and invested in, as well as new product launches that we already have planned here in 2024 and 2025. Our deepening partnerships with biologics and drug delivery companies, expansion of our navigation platform into the operating room and the full market release of our Prism Laser Therapy system can sustain top line growth in the years ahead, while the flattening of operational expenses scale in our newly certified Carlsbad manufacturing facility, an improvement to gross margins can create leverage and ensure revenue grows faster than expenses for at least the next couple of years. We continue to believe our goal of operational cash flow breakeven is achievable sometime in the second half of 2025. While the strategy does slightly reduce our forecasted revenue in 2023, and to the range of $23 million to $25 million. We continue to expect operational cash flow to be meaningfully less in the second half of 2023 compared to the first half with our Q3 result being the first tangible example of that commitment. Our strong balance sheet with over $24 million in cash and equivalents, will continue to enable us to launch these key new products and execute on our strategic plan, while at the same time, reduce our operational cash burn. We are more excited for the company and its prospects than ever. As we expect that these launches in 2024 will introduce three new and additive revenue streams to our base, which I will talk about in more detail a little bit later on the call. I will now turn the call over to Danilo to discuss our Q3 financial results, after which I will provide additional color on our four-pillar growth strategy. Danilo?

Thank you, Joe, and thank you all for joining us today. Looking at the third quarter 2023 results. Total revenue was $5.8 million for the three months ended September 30, 2023, and $5.1 million for the 3 months ended September 30, 2022, which represents 12% growth versus the third quarter of 2022. As a reminder, our revenue is made up of 3 components: Biologics and drug delivery functional neurosurgery navigation and therapy and capital equipment and software. Biologics and drug delivery revenue include sales of disposable products and services related to customer-sponsored preclinical and clinical trials utilizing our products. Biologics and drug delivery revenue growth accelerated to 55% or $3.5 million in the third quarter, up from $2.2 million in 2022. This increase was fueled by a 109% increase in biologics and drug delivery service revenue as we expand our service offering to pharmaceutical customers. The Biologics and drug delivery service growth was partially offset by a $0.3 million decrease in product revenue. Functional neurosurgery navigation revenue consists of commercial sales of disposable products and services related to cases utilizing the ClearPoint system to deliver medical device therapy to the desired target. This revenue segment declined $0.5 million to $1.9 million for the third quarter. Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software and related services decreased 26% to $0.4 million in the quarter from $0.5 million for the same period in 2022. Gross margin for the third quarter of 2023 was 57% as compared to a gross margin of 71% for the third quarter of 2022. The decrease in gross margin was primarily due to an increase in biologics and drug delivery preclinical services, which to date have had a lower margin than the prior year as we launched new services and increase our presence in the space. Increased costs related to the transition to the new manufacturing facility also contributed to the decrease in gross margin. Research and development costs were $2.4 million for the three months ended September 30, 2023, compared to $2.7 million for the same period in 2022, a decrease of 8% and the decrease was due primarily to reprioritization of certain research and development initiatives, partially offset by higher personnel and share-based compensation costs. Sales and marketing expenses were $2.8 million for the third quarter compared to $2.4 million for the same period in 2022, an increase of $0.4 million or 17%. This increase was due to additional personnel costs, including share-based compensation as we expand our commercial reach and preparation for multiple new product launches over the next 18 months. This hiring reflects the learning curve required to train and educate on the expanding ClearPoint product portfolio, which we'll be targeting new physician customers and new surgical areas within hospitals. General and administrative expenses were $2.9 million for the third quarter compared to $2.4 million for the same period in 2022, an increase of $0.5 million or 21%. This increase was nearly all due to an increase in the allowance for credit losses of $0.5 million, partially offset by lower professional fees of $0.1 million. With respect to our cash position, as of September 30, 2023, we held cash and cash equivalents of $24.3 million compared to $26.5 million as of June 30, 2023. Our operational cash burn in Q3 was $1.8 million, down 54% from the prior year third quarter. We maintained our focus on appropriate resource allocation and cash management and remain committed to effectively and carefully managing our operating expenses. As anticipated in our prior earnings call, our operational cash burn in the third quarter was meaningfully below the operational cash burn of the prior quarters. In fact, it was the lowest quarterly operational cash burn since 2020. The reduction in operational cash burn versus the first half of 2023 will continue enabled by one, the easing of supply chain conditions that allows us to gradually reduce inventory levels. Two, operating leverage due to higher revenue. Three, the completion of the transfer of the company's manufacturing operations, Carlsbad; and four, on the expense side, our existing headcount should be sufficient to support our business for the next 12 to 18 months. We will continue to take measures to reduce and contain cash burn going forward. With that, I'd like now to turn the call back to Joe.

Thanks, Danilo. Our third quarter results represent a shift of priority to cash flow improvement leading to $1.8 million operational burn, while still demonstrating double-digit growth overall and an acceleration to 55% growth in biologics and drug delivery. These preclinical services are arguably our newest product launch and are already delivering great early results. Let's add a bit more detail to our four-pillar growth strategy. First, looking at biologics and drug delivery, our strategy of building deeper and more strategic partnerships continues to make progress with additional sophisticated and long-term agreements signed in the quarter. As a reminder, a couple of years ago, we were very much a product-oriented biologics company, simply selling devices to pharma companies for use in clinical trials as part of an arm's length transaction. Over the last two years, we have invested in tools and talent to add clinical development, regulatory and other preclinical CRO services to our portfolio. That investment or pivot is already yielding terrific results with growth of 55% in that segment and $3.5 million total revenue for the quarter. To say it another way, this new capability in the last two years has already grown to be the largest part of our business today. Our growth strategy is now less focused on accumulating partners, but rather building deeper strategic partnerships. These more sophisticated agreements may include longer duration, quarterly commitments, direct commercial pricing, clinical and regulatory milestones on the drug itself and even royalties on commercial drug sales. Newly signed agreements are expected to be a combination of these different features all of which are designed to demonstrate the long-term commitment and value that we offer. We continue to view ourselves as a device extension of our pharma partners something that by working with us, there is no need for them to replicate internally. Our total number of active partners remains more than 50 despite the challenging capital markets that have forced some companies to delay or shut down programs. Our diversification in biotech has served as well as we continue to be viewed as a sort of lower-risk biotech ETF, if you will, spread across multiple corporate partners, different patient indications, and even redundancy within the same indication with often multiple partners looking to treat the same disease. While the mix of products and services in this segment can change dramatically quarter-to-quarter based on the timing of certain preclinical and clinical trials, we do expect this to remain our fastest-growing segment for at least the balance of 2023. As we look to 2024, we will add a new revenue opportunity in our biologics business as we expect to achieve GLP readiness next year. We have also already built additional capacity for studies into our current expense run rate. This means that in 2024, we will be able to accept pharma company requests for GLP studies that we've had to turn down in the past, and we'll have the added capacity to accommodate these studies without any significant increase to our expenses. This new capability and capacity will act as an additional source of revenue that will be new in 2024. Moving on to Pillar number 2, functional neurosurgery navigation, we made significant strategic process -- or progress rather preparing for our next generation of products designed for use beyond the MRI and in the operating room itself. From a financial standpoint, the segment showed a significant decline of more than 20%. However, the vast majority of that decline are almost $400,000 in the quarter was the result of one development partner who is funding a brain-computer interface project in 2022 and had to pause the program in 2023 due to financial constraints. From a capital standpoint, we see a shift away from outright capital purchases to more rental programs, which can sometimes fit in a hospital operating budget without having to go through lengthy capital committee reviews. Now the economics of the total sale are similar. However, ClearPoint may be receiving and therefore, also recognizing a monthly fee instead of the entire purchase upfront. Now we expect this trend to continue, which spreads the recognition of revenue over a longer period of time, but is still providing the company with healthy gross margins and cash flow. If this strategy can accelerate the install of more ClearPoint systems, then a delay in the revenue recognition still fits our model as the installation enables our disposables to be used and sold into the account. From a strategic standpoint, we submitted multiple new products to the FDA for clearance, including our SmartFrame product for navigation designed in the operating room. Our ClearPoint 2.2 software with the integrated Maestro Brain Model and our Array 1.2 software, which also actually achieved FDA clearance in the quarter. We believe the timing of these submissions will set us up for revenue traction of these products in 2024 with limited market releases starting in the first half of the year and full market releases in the second half of the year. To highlight the theme of new revenue streams via product launches, we currently do not have any revenue at all from the operating room only segment, which is an investment that we have been making for the past two years. The new SmartFrame navigation product for the operating room will act as an additional source of revenue in this segment that will be new for us in 2024 and again, has already been submitted to the FDA for clearance. For pillar number 3, therapy and access products. We continue to execute our limited market release of the PRISM Laser Therapy System and collect real-world product experience as well as develop marketing and training materials. Over the next six to nine months, we expect to submit multiple new hardware and software product improvements, which should enable full market release in the second half of 2024 as well as more substantial revenue traction. This is an exciting second-generation laser therapy system with many clear advantages compared to the currently available systems. While our installation experience has been limited, we have been able to win exclusive business from some early users who plan to use PRISM for all of their cases moving forward. The limited market release revenue for this year of 2023 that is built into our guidance is very minimal. So as we look to a full market release in 2024, PRISM Laser Therapy capital, rentals and disposables will all be contributing an additional source of revenue that will effectively be new and additive for 2024. And finally, pillar number 4 of achieving global scale made significant progress as well. In the third quarter, we began production of sellable product in our new Carlsbad facility, and as of today, we have already shipped products to customers from the new site. I'm also pleased to report that as of today's call, we have also fully exited our Irvine facility ahead of schedule, which will allow us to enter 2024, having removed many of these redundant manufacturing tight costs and construction expenses. This entire facility transition has been an amazing example of execution across our operations, development, quality, regulatory and legal teams. With the transition behind us, we can now turn that execution towards the exciting new product launches that we have planned for 2024. As products get launched from the new site and revenue grows, we expect our gross margins to continue to improve. The gross margin in Q3 improved to 57% compared to 53% in Q2, so we are once again moving in the right direction. Mix of products, services and capital from quarter-to-quarter will always have an impact. But directionally, we expect further gross margin improvement in 2024 and 2025. At this point, we believe that we have the team, the portfolio and the infrastructure in place to see our strategy play out for at least the next couple of years. As a result, it is our intention to keep our headcount and our operating expenses relatively flat through 2025, while at the same time, launching new products and revenue streams as we fill our capacity of biologics and drug delivery services, launch our SmartFrame navigation platform into the operating room, execute a full market release of the PRISM Laser Therapy System and increase our customer base to 100 global sites. With that, I would like to turn the call over to the operator for any questions

[Operator Instructions] Our first question comes from the line of Mathew Blackman with Stifel. Please go ahead.

Good afternoon, everybody. Thank you so much for taking my questions. I've got three, a question on the quarter and the outlook and then a couple of bigger picture questions for you, Joe and Danilo. If I could start on the quarter and the softer revenues in functional neuro and now the lower 2023. I'm just trying to tease out how much of this is demand related versus perhaps a shift to more leases or how much of it, if any, is being toggled by your profitable growth strategy?

Yes, I can go ahead and start, and thanks for the question, Matt. Yes, it's really a combination of a few things that have led us to go ahead and bring the guidance down slightly. As you mentioned, and as I mentioned earlier in the remarks, from the capital side of things, I would say that there has been a transition to more of these rental programs where, like I said, in the past, we would have a $200,000 capital sale, for example. And once that system was sold and installed it would actually all get recognized in that particular quarter. Now we're talking about those same sort of economics, but in some cases, it's spread over two or three years. So we would maybe only for this year, for example, recognize three months of one year or $15,000, $20,000 compared to the entire $200,000 in the sales. So it's not to say that there's not going to be a mix, but I would say historically, 90% to 95% of our deals had been on the capital side of things of an outright capital purchase. Where as we not only continue to launch our navigation system, but also launch our laser therapy system into sites that maybe already purchased the laser therapy system from someone else a few years ago. It's tough to find the allocation for those capital dollars. So something that's more of a rental that can fit into the -- an operating budget is something that certainly takes place. So I'd say that's one element I'd point to. Another element is, again, last year, we had sort of a significant service side on our functional neurosurgery tied to one particular brain computer interface project. That project had actually been paused earlier this year. So that's something that impacted our Q2 revenue. We now see that, that pause is going to last beyond, I think, what the original communication, I would say, was, which was to kind of resume it in September or in Q3. So now that we're not really expecting that to resume this year, what we've kind of taken that particular number out as well. So that has been kind of the second impact. And then the third impact is really just timing. And that happens more on the biologics and drug delivery side of things. As we get more and more into services and we add these capabilities, just the sheer dollar amount of a single deal or a single study kind of explodes as a proportion of our revenue. So to give you a tangible example, we have a committed PO in our hands that has been signed. Part of the upfront payment is underway, all those types of things for a value between $1.4 million and $1.5 million for one particular deal, one particular study. And from our standpoint, based on when the work actually takes place and the deliverable happens, sometimes we're not quite sure if that's going to happen December 20? Or is that going to happen January 15th. So just the way that those things can move around, the scale of that movement is bigger than it has been in the past because of these capabilities. And we're trying to be a little bit more conservative based on that as well, because it's kind of the opposite. What we're used to in the device world is you sell a product, you ship it, and in many cases, you end up getting the cash later, but you recognize it upfront. Some of the servicing is almost the opposite. We're actually getting down payments of some of these services in advance, but we might not be able to recognize the revenue at the same time. So it's a little bit different than the device world, which we're seeing today. The other part of your question, which I think is an important one too on the demand side of things. We haven't seen a huge change in demand, I would say, from our core business. The case volume that we've seen has been relatively the same, relatively flat at this point. I think a lot of the things that we're doing are going to be adding to that. On the three points that I mentioned on the day as far as those new product launches in 2024. I would also point though, that we do have a significant queue of new systems that are on the horizon. And each new system, when you're opening a new store and you get that system shipped, it obviously enables that volume to increase as well. So I would say we're -- we've been a little bit behind on the demand side this year, but it's been triggered more by this slower capital deployment process or new installations more so than individual accounts slowing down their usage or demand of the product. So hopefully, that makes sense, there’s lot there, but happy to answer any follow-up questions.

I appreciate that. That was helpful. Reasonably good segue to the next question, which is just on the more -- let's call it the more refined profitable growth strategy, how do you navigate that balance between growth and profitability, is there an ROI threshold you're using? Just curious how you're making these decisions now going forward? And then if I could ask a specific question on some of these new product rollouts, let's use the laser system, as an example, how much of the launch costs are still to come? And I do have one more follow-up question.

Yeah. So I think the first question was around the threshold that we think about of what does profitable growth mean to some extent. And I think we certainly responded to some questions we had in the past when our overall gross margin had dipped down to 53%, I think, in Q2. And we mentioned one of the reasons for that was one or two significant biologics deals, which were kind of the right thing to do at the time to get our foot in the door with very, very large and established pharmaceutical companies, even if those particular entry fees or entry deals, for example, were at a lower gross margin. Those are the types of things where I think we're evaluating a little bit differently with today's capital markets and a prioritization on cash flow. So would we do a deal that's in the 20% to 30% gross margin, especially one where to get that deal going, we would have to actually hire new people and new team members to add a new capability to accomplish it. That would be a same example of something where we'd say, hey, last year, we would do it. But in light of today's environment, that might be a not for now type deal. Let's focus on the capabilities that we already have, so that these new deals that we signed on the biologics side are in that 40%, 50% plus gross margin as opposed to something that would maybe be a lower entry fee. I'd say that's an example. Similarly, we've got a very competitive product, I would say, on the laser side of things. There's a few things that we need to do to access more of the market. So an example there is, right now, we have approval for the three Tesla scanners. But we have not yet done the regulatory and development work to -- not that we have to change the laser anything, but there's additional work that has to be done to test in a 1.5 scanner to get that approval. That's something where you say, well, okay. Well, how quickly do we need to get that 1.5 approval right now compared to securing cash for a little bit longer, for example. So the way I would think about it, which leads into your second question is rather -- I think it was around additional launch costs that we would expect to execute on these product launches. Pretty much what we're doing is we're sliding expenses one at the other -- after the other instead of adding them together. So for example, it's not to say we're not going to do the 1.5 Tesla study. We're actually in the process of planning that right now. The difference is that rather than doing it before we finished another project. We're going to wait until this one project is done and then deploy those same resources to the second one in series as opposed to doing a bunch of different things in parallel. So I would say, there are additional expenses, if you will, required to launch the product, but those expenses are really coming from people rolling off of current projects and on to the new project instead of us hiring additional development engineers and things like that. So hopefully, that helps. That's kind of why we're saying, hey, we think we can keep the headcount and the expenses flat. There is some hiring that would come, just fulfilling additional products, but those new hires would likely be happening inside the gross margin line as they're either a service provider or an operator on the line that's designed to make more products, those costs are accounted for elsewhere.

All right. Really appreciate that, Joe. I'm going to try not to be greedy. I'll get back in the queue. Thank again for taking my questions.

Sure. Thanks, Matt.

Our next question comes from the line of William Wood with B. Riley Securities. Please go ahead.

Thanks so much for taking our questions and congratulations on another quarter.

Thanks, William.

A couple from us. Just actually, the follow-up sort of on the expenses, which you were just discussing about sort of rolling on from one project to the next to the next. I'm just trying to think about with quarter-over-quarter burn and just sort of expenses overall just because, as you know, if you do them once you have one, maybe two bad quarters, and then you increase up but when you do them in parallel, like should we be expecting for this to sort of trick along for multiple, multiple quarters? Or is this more of a limited thing that other revenue and growth or cuts or modifications will sort of balance out going forward? Just a little bit extra, I guess, color on that.

Yes. The way I think about it, it's tough to think about just Q3 or Q4, but if you think a little bit more annually or directionally here, 2024, 2025, these are the years where we expect revenue to sort of significantly outpace expense growth. So that's where we get scale from these investments that we've really already made. So one side of the equation is, yes, maybe we'll slow down a little bit of development. But the second part of that question is, does that really cost us anything on the top line revenue side in the next two years. And the answer is, as we look a little bit further out is I don't think it does. I think the competitiveness that we have heard from our early development efforts as we roll into the operating room. I think the competitiveness we've seen of our laser therapy system as we look at some of the other products that are on the market and some early feedback that we've gone and simple improvements we continue to make. I think the addition, as I mentioned, of the capability to be able to do GLP studies on the biologics side, which significantly increases the revenue even for the same project, if it's a GLP one. So these are all things that I think are really additive to the revenue line. And coming from a year in 2023, where that base business really hasn't grown from a product standpoint. Just reintroducing and reaccelerating that through our software improvements and through this queue of new hospitals that are going to get our navigation system even for our traditional product in the MRI. Those four things together, I think, put us in a position where if we can keep our operating expenses relatively flat, but then have these 3 to 4 avenues of new additive growth on top, that's, I think, where we're going to see the impact. So a long way of saying, I think we are making a couple of modest sacrifices right now, but -- we're doing that with the additional insight that we're very pleased with the development we've made with our products. And maybe we just don't have to go as fast as we would have two or three years ago because we know these new products are going to be competitive and successful.

Right. No, that's definitely helpful. So when thinking about your partnership, sorry, you had mentioned that you're really going to sort of, I guess, slow down a number of partnerships that you'll be looking to expand and sort of shifting towards rather than more towards, I guess, let's say, better value in your partnerships. Thinking about this going forward, I guess it's sort of a two-part. How much should we think about the decrease in the new partnerships? Clearly, there's going to be new partnerships. But then also for your old partnerships, will you be looking to as those sort of looking for it to be re-upped, Will you be looking to include better deals for yourself? And do you think when you reassess those -- so the terms of the deal, do you think you'll lose some of your customers because of sort of the new structuring of what you're looking for?

Yes. I understand the question. I think -- I mean, the way I think of it is, there's always a price to acquire a new customer. And that's whatever business you're in, that's generally less on a percentage basis than keeping an existing customer happy. So our strategy to get into the preclinical services and start working with companies way before they ever even think about treating a human patient with clinical with seller gene therapy. That strategy has always been to prove our value, prove that relationship, make ourselves an essential part of that team so that when these drugs get into their clinical trials and the regulatory process and eventually commercial approval, we've been there the entire way. So each one of these natural partnerships that we already have in place, we want to continue to develop those. So I wouldn't say we're firing customers, if you will, which is a term that's used commonly but as we talk about how to be as productive as we can, how much energy should we go in making sure a company that we know is going to be successful that we've been able to see their own capability to see the progress we have made on the bench and pre-clinically, how much of our -- if we have a choice of how we're going to spend our time that day, furthering that relationship into a much more kind of lucrative long-term partnership is better for us in the near-term than signing an early consultative agreement and spending a lot of time and energy for a company that's just maybe not quite ready yet, right? So I'd say that's an example. And I think it's very similar to what we would do on the device side as well. If we're going to go and we're going to launch our navigation system into the operating room, are we going to focus on a small children's hospital in a rural area that is only doing two or three surgeries a quarter? Or are we going to go after a site that is doing 100 surgeries a quarter. The return on just our current team's effort and energy is much more beneficial with one hospital that can deliver 10 to 20 times the volume as that other one. So we want to go after the targeted ones during this period of time. So that's -- I'd say we're going to be doing that on both sides of the business.

Right. No, that makes sense. And then just thinking a little bit, I guess, ex US or international, I mean, just curious if there's any updates whether partnerships or regulatory approval? I know there had been some -- if there's any progress going on in Brazil? And then also, if how sort of this, I guess, shift towards rental and some of these partnership changes – how you think that will be received ex U.S., do you think that will fit in better or if there's been any feedback there?

That's a great question, William. The OUS is something where I'd say we're only doing what's required to support our pharma partners presently. So what I mean by that is if we had unlimited capital dollars, yes, we could go and hire a full commercial team across Europe and start selling navigation into centers for use in laser therapy or DDS or something like that. In the current environment where we're being a little bit more thoughtful, pretty much what we're saying is, hey, we're going to respond to the pull and the needs of our pharma partners. And what that really looks like right now is a priority is one or two or five maybe pharma companies, 10 pharma companies that are interested in starting their clinical trials abroad – that pull of knowing where that site is and that they're going to have to use our navigation and our Cannulas for this clinical trial allows us to have a strategy alongside that pharma partner to be able to work with the regulatory authorities and support it in that fashion. That's very different than sort of if you build it, they will come strategy of just hiring a team of folks and knocking on doors and trying to find some demand. So I think that's an example of where I'd say we're probably making some -- probably, we have made some decisions to slow our traditional commercial efforts abroad and focused more of those efforts and resources here in the United States, where the product portfolio is a bit more complete, and we have line of sight to these new FDA submissions, which I shared are already into the FDA.

Got it. That's really helpful. I think I'll leave it there. I appreciate you taking our questions. Thanks very much.

Sure. Thanks.

Our next question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please go ahead.

Great. Thanks for taking the questions and apologies if I am a little repetitive have been hopping between calls, but I was hoping you could talk a little bit more about the laser business. I know you spoke about some competitive pressures in that business as well as when you do end up moving for the OR and just thinking about prudently investing in those areas. But maybe just talk more about what you're learning in that initial pilot launch and if that's changed your strategy for when you look to a full commercial launch in that laser market, given some of the competitive factors offset by some of your cost controls that you're speaking to?

Sure. Yes. No, I don't -- I say there's one -- let me answer the question in a few different parts here. So, the first is, I think the market is actually still a very interesting and potentially exciting market. I know the results of the actual market expansion over the past few years has been gated a little bit by COVID and certainly more growth on the tumor side than on the epilepsy side of populations. But nonetheless, I still think it's the market certainly worthy of investment. And if you're starting from zero, you've got a lot of places and existing share that can be taken, let alone the market growth itself. So, from that standpoint, I wouldn't say that there's a big change in the way that we've spoken about in the past. From a competitiveness of our system, I think we've gotten some very, very good early results and been able to highlight how our particular device performs in certain patient types and be able to document that performance and collect feedback on why certain parts of the software or certain parts of the laser design or flexibility of the capital and hardware itself, how those things provide a meaningful advantage for us in the near-term. So, I feel very good about that as well. As far as an access and a speed of access standpoint, there's two different axes that I would consider. One is one that I did mention a little bit ago, which is there's two types of scanner powers that are out there. There's the 3 Tesla scanners and the 1.5 Tesla. We currently only have approval for the 3 Tesla power, which you can argue is more complicated to do with the bigger system. But nonetheless, that is where we decided to start. So, all of our installs to-date have been in 3 Tesla scanners. And for a customer that's interested in using us but in 1.5, we have to simply say, hey, it's on our horizon, but it's not something that we have available to you. So, that's kind of one axis where we only have part of the market or access department of the market. The other access is where does the entire laser procedure take place. So, in the past, we've talked about the laser market as ClearPoint Navigation having an inherent advantage because even if the laser catheter is placed in the operating room, the patient still has to be transported to the MRI suite because that's where the laser is turned on inside of the MRI to give you all of the crucial heat information or the thermometry information. So, the thought -- the thought or advantage we have at ClearPoint is to say, well, if you do it with ClearPoint, you can do the entire procedure in the MRI and you don't have to worry about transporting that patient, right? That was kind of an inherent advantage that we thought made a lot of sense. And it still makes sense. What we've run into practically, I would say is that some hospitals, if it's an older diagnostic magnet and diagnostic room, it sounds a little strange, but trust me on this one. The hospital will allow you to do the ablation of the patients in the MRI, but they won't let you do the placement of the device. So it's almost like they say, based on the air flow of the hospital or other state-by-state parameters, they might say, "Hey, this older room is simply not designed for this. So you're not allowed to drill the holes or insert the catheter in the diagnostic magnet. You have to do that and -- you have to do that in the operating room and then transport the patient. So I think that realization has been a little newer to us. But the reaction for us is to say, well, that's fine. We will simply provide you next year with an option to be able to place our laser catheter in the operating room as well. We're working on our own operating room navigation. So it's another example instead of trying to force change of how a doctor is doing their procedure today, we're simply going to adapt our products to fit into their existing workflow. So that's the other access. So if you think about it, we probably today only have access to 10% or 20% of the overall patient volume as part of our limited market release. But as we add 1.5 Tesla and as we add our operating room navigation and operating rig laser solution, we'll go from 10% access to 80% or 90% access pretty quickly. So that's a big part of our 2024 strategy.

Got it. Okay. That's helpful. And then maybe on the shift to the OR opportunity. I think we spoke about this in the past, but I think it's worth talking about again. Just talk about once you have that entire portfolio of products in place to do those placements in the operating room. Can you just talk about how the selling process changes at that point and your excitement around when that is commercializing

Yes, I think that will help us quite a bit. First, from just a market dynamic standpoint, 95-plus percent. If you look at laser and biopsy and deep brain stimulation, the three primary procedures that stereotactic navigation is used for, more than 95% is in the operating room today. So we're dominant in the MRI navigation, but it's a tiny, tiny little piece of the market today. So first off, it allows us to go where the procedures are actually taking place, which is obviously an important part. I think MRI guidance will continue to grow. There are certain procedures, doctors will tell you, yes, I do some of my stuff in the OR, but when this patient comes in and needs this particular therapy, I'm doing this one in the MRI when the stakes are highest. And I think that's going to continue to be the case because those procedures are growing, et cetera. But as far as where the volume is today, that is in the operating room. And this new tool or series of tools will allow us to directly go after that. So that's one element is we'll be playing where the procedures are. The second part is we'll be able to play at a kind of a lower price point to some extent in that space, which, again, makes it much more competitive to existing procedures and existing budgets that maybe are a little bit more routine, where doctors might say, "Hey, I would love to have the precision of ClearPoint MRI guidance. But for this particular patient, I can probably get away with a little bit maybe less precise, less accurate options. And certainly, if that's the type of procedure I can save a little money on and having a lower ASP as a hospital operator, I require that to balance out the overall cost. So this will also allow us to play there. And one of the reasons that allows us to play there is that the workflow is a bit simpler if you're not worried about communicating to an MRI magnet and adjusting coils for image quality and all those types of things. So what that means is that we would not have to supply a clinical specialist for every single procedure, which brings our overall cost down. So I think in the operating room, you're going to see more of a model where ClearPoint is there for the first five procedures, the first 10 procedures, something like that. But our clinical sport because of the lower ASP our clinical support starts to roll off over time and we'll still train on new software and new developments and things like that, but it won't be a necessity that we have to be there for every case so our clinical team will focus on laser cases and these more complicated MRI procedures and not so much having that added clinical cost in the operating room. So that's another very, very key difference. And then the final one I bring up is, in some cases, our system will not require new ClearPoint software to be used, but rather we'll be able to use our hardware with -- our disposable hardware, I mean, alongside other navigation systems that are already in the hospital. So everything I was talking about before of capital budgets and maybe delaying revenue recognition because we do want to do rentals. All of that goes away. If we can just walk in and say, "Hey, here's a new better mousetrap on the disposable side and it can work with some of the existing hardware and software that's already in your lab. So we don't need to even deal with the capital process in that endpoint. So those are kind of the three elements I would point to on the operating room side of thing.

Got it. That's good color. I'll stop there. Thanks for taking the questions.

Thanks, Frank

There are no further questions at this time. I would now like to turn the call over to Joe Burnett for closing remarks.

Once again, thank you to everyone interested in being a part of this team's journey here at ClearPoint. This is an exciting time as we plan for new product and service launches across all four of our growth pillars. We've worked hard to get to the spot and are incredibly excited for the team, but also for the patients that we hope to treat with new devices and therapies in the very near future. At the end of the day, the patient and their family are why we are here and ultimately, who we are working for. So with that, thank you, and have a good evening.