CLPT - NASDAQ

[Audio Gap] 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, the company's expectation for future development, regulatory approval, timing, commercialization and the market for cell and gene therapies and the anticipated adoption of the company's products and services for use in the delivery of gene and cell therapies, and management's expectations, beliefs, estimates or projections regarding future revenue and results of operations. You are cautioned not to place undue reliance on forward-looking statements, which speak only of the date on which they were made. 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 about the company's risks and uncertainties, please refer to the company's filings with the SEC, including the company's recent filings on Form 8-K, Form 10-K and Form 10-Q. All the company's filings may be obtained from the SEC or the company's website at www.clearpointneuro.com. I'll now turn the call over to Joe Burnett, Chief Executive Officer.

Thank you, Danilo. Now one part of the commentary that I want to make sure is clear from the financials is the impact that the transition to our new ClearPoint controlled CRO facility in Torrey Pines had on the quarter. First, our overall revenue growth for the quarter was lower than in prior quarters, but the source of that reduced growth rate came from the fact that the same team that would normally be supporting biopharma studies and our partner drug pipeline was temporarily reprioritized to transition out of the prior facility and to open the new facility. This effort includes a onetime and significant coordination of moving people and equipment, setting up standard operating procedures and then obtaining all of the necessary certifications with appropriate federal and state agencies. The fact that our lease was signed in June of this year and in just 3 months, we were already certified and running preclinical studies for our partners is a huge testament to the capability, effort and focus of this team. We expect that the biologics and drug delivery pillar will return to double-digit growth here in the fourth quarter and accelerate further in 2026 and 2027 as we are already bidding on large partner studies for the coming years. Now let's dig into our 4-pillar growth strategy a bit further. And I will start with one important note for those of you who have been following our 4-pillar mantra since we started about 8 years ago. We will be adjusting the definitions a bit given the announced acquisition of IRRAS and our 2-part strategy that we have transitioned to here in 2025. Pillar #1, we now define a little differently, and we call it pre-commercial biologics and drug delivery. We have renamed this segment because we want to differentiate between the future commercial drug delivery market that is still in its infancy with the current and existing pre-commercial drug delivery market that ClearPoint Neuro has access to today. We estimate that this pre-commercial market is approximately $300 million annually across preclinical studies and services, co-development contracts and clinical trial products and support for our more than 60 biopharma partners. Today, we have less than 10% share of this existing market with plenty of room to grow. Pillar #2 is also defined a little differently as we now call it neurosurgery navigation and robotics. This is reflective of our recent announcement of plans to enter into the cranial robotic space and to become the only company that would offer one preplanning and software workflow that could be deployed by surgeons using 3 different techniques: one, single-use frames in the MRI; two, single-use frames in the operating room with CT; and three, multi-use robotic systems that guide other ClearPoint products to target. This strategy is important for both our biopharma partners and neurosurgery customers. For biopharma, we plan to solve a commercial problem. Pharma companies prefer not to be overly prescriptive in the way that our cannula is navigated to the target and want to provide some level of flexibility to surgeons, so they can use a technique they are familiar with. However, pharma also realizes that this crucial surgical technique will never become fast, efficient and predictable if they allow hundreds of different navigation options without some level of consistency. Think of a lean manufacturing line with pods all around the world. There is a huge benefit to each one of those pods doing the same procedure with the same technique and the same equipment. Our navigation strategy will enable one preplanning software and one step-by-step workflow to always be used, but the surgeon will still maintain choice across our 3 hardware solutions, finding a balance between control and flexibility. For surgeons and hospitals, we plan to solve a slightly different problem, which is that of time and training. There are many different ways to perform both cranial and spinal navigation surgery, and the market is incredibly fragmented across multiple companies and products. For a hospital to invest not only their capital, but also their training time of their staff, they need to make sure that the technology is versatile and can be applied widely. Again, enter ClearPoint, where we plan to have the best cranial navigation platform uniquely positioned to support biopharma, but also capable of standard minimally invasive cranial procedures like deep brain stimulation, lead placement, biopsy sampling, laser ablation therapy and stereotactic EEG. The hospital team will be able to learn a single software interface and deploy that across pretty much all cranial procedures, including the new cell and gene therapy procedures that are coming. We believe this is an efficient and productive investment of their time. Our goal is that every hospital can choose their favorite corporate partner for spine procedures, but that they will prefer the unique ClearPoint solution for their cranial procedures. In fact, our vision is that one day to have a dedicated ClearPoint room for those cranial patients. We believe that the Neurosurgery Navigation and Robotics segment represents an existing market worth more than $125 million. And again, ClearPoint has less than 10% share today and plenty of room to grow. Pillar #3 remains unchanged and focuses on laser ablation therapy and access products, including OR and MRI Power Drill components for cranial procedures, applicator introducers and cranial access bolts. We estimate this total existing market to be in excess of $75 million, and you guess it, we have less than 10% of the market today and plenty of room to grow. Finally, for our anticipated Pillar #4, which we will begin with the planned closing of our acquisition of IRRAS in the neurocritical care space. This pillar will be named cranial irrigation and aspiration. As detailed in today's press release, the IRRAflow system is used today to treat patients with intracerebral hemorrhage, chronic subdural hematoma and other conditions requiring intracranial fluid management. The IRRAflow platform is unique and potentially disruptive today in that it enables both irrigation and aspiration of these fluids in a controlled systematic way. This technology has been evaluated in multiple peer-reviewed articles, highlighting the device's clinical advantages, including reduction in catheter occlusions, the potential to reduce infection rates and shorter treatment times, which may equate to lower hospital costs as well. Today, we estimate the existing market for this intracranial fluid management space to be in excess of $500 million, and we estimate that the IRRAflow system currently has less than 5% market share today and plenty of room to grow. I think you can sense a theme building for this initial fast-forward strategy. We are talking about an expected aggregate $1 billion-plus existing market where we currently have less than 5% total market share, and we have plenty of room to grow into it. It is important to note that we believe the portfolio we have available today and the pipeline of products we plan to launch in the next few years are capable of increasing our share and delivering that growth. In pre-commercial biologics and drug delivery, we expect to participate in numerous new and larger clinical trials alongside our biopharma partners as well as increase our preclinical capacity, begin doing higher-value GLP studies and provide additional services at the cow to serve our pharma partners more comprehensively. In neurosurgery navigation and robotics, we will continue the full market release of our 3.0 software into the operating room. And we anticipate the launches of our next-generation DUET Frame, our 4.0 Harmony software and our robotic platform, all against the backdrop of a much larger sales organization and global regulatory approvals. In laser therapy and access, we will continue the full market release of the PRISM system, which now includes 1.5 Tesla labeling, and we'll plan for the releases of the 4.0 Harmony software, compatibility with our robotic system, CE mark expansion and an MRI conditional velocity drill to speed up procedures inside the MRI suite. In our anticipated fourth pillar, cranial irrigation and aspiration, we will continue to leverage the peer-reviewed clinical data that highlights the use of the IRRAflow system now with a much larger ClearPoint sales organization, and we'll also add our cranial access bolt, a more intelligent system control software and a forward tunneling device in the next couple of years. And we were able to do all of this using our much larger combined sales organization of more than 50 commercial team members and an existing installed base of more than 150 combined customers after the anticipated closing of the IRRAS acquisition. If we can grow our share of this combined and existing $1 billion market by just a couple of percentage points each year, then we can achieve 20% overall share, a $200 million revenue run rate at 70% gross margins and a meaningfully profitable business. And remember, this does not include arguably the largest opportunity that we have in front of us, which is the commercial cell and gene therapy delivery. This is part 2 of our strategy, which we call Essential Everywhere and involves building a new multibillion-dollar market around our ClearPoint drug delivery ecosystem, which is commonly referred to as the gold standard in this space. We have worked very hard over the last decade and have built a significant head start. When these cell and gene therapies are launched, we expect to offer not just a single product, but rather a complete drug infusion ecosystem, including co-labeled cannulas and routes of administration that are written into the label of the drug itself, flexible navigation platforms that include MRI guidance, CT guidance and robotic guidance, AI predictive modeling and monitoring software to ensure efficient high-quality infusions, and in delivery. We did the same way across these specialized treatment centers, so we increase quality, lower costs and make these procedures more predictable. When these cell and gene therapy programs achieve FDA clearance and CE mark approval, our team will have already been working with these partners for years in advance. We will no longer be viewed as only an extension of their development team, but as an extension of their commercial team as well. In some cases, our products will be sold directly to hospitals, but in other cases, we believe our products may be sold directly to our pharma partners and then provided as a kit to the hospital alongside the drug. This way, the pharma partners can ensure supply and consistency of these essential products and can even maintain an inventory of their own to further derisk their drug delivery supply chain. Many of our existing partners, including uniQure, Blackrock, AskBio and Aona have all updated patients and investors on their progress over the past few months. We obviously must let our partners take the lead for any updates on the status of their programs. However, we continue to work side-by-side with them as we navigate the clinical regulatory pathways and prepare for eventual commercialization. Now let me provide a bit of perspective on this market. We are effectively pre-revenue in this phase as there is only one available neuro gene therapy that is approved in the United States and the European Union. The drug is, in fact, co-labeled with the ClearPoint SmartFlow cannula and is designed to treat a very rare childhood disease called AADC deficiency syndrome. Nonetheless, this is a very important strategic proof point of our capability even if this rare disorder is a smaller revenue opportunity and is just getting started. As you are aware, we are now supporting more than 20 different clinical indications across our entire portfolio, which include more than 30 million existing patients in the United States alone. That is often too large a number to make meaningful, so let's get a little bit more specific. Let's forget about the 60-plus partners that we have today, and let's focus only on the 9 that are now working with the FDA through the expedited review process. Also, let's forget about the 20-plus total indications, and let's focus only on the 7 indications that are currently accepted under FDA expedited review, meaning they are the furthest along in the neuro regulatory pathway. These indications under expedited review include AADC deficiency, Hunter Syndrome, Huntington's disease, drug-resistant epilepsy, Parkinson's disease, frontotemporal lobe dementia and Friedreich's Ataxia. They have a total patient population of approximately 2.1 million patients diagnosed and symptomatic here in the United States alone, where our commercial infrastructure is the strongest. Now if we only looked at a fraction of our partners and only looked at a fraction of our partner indications that are under FDA expedited review and only looked at the United States where our commercial team is the strongest, and then we only treated 1% of the patients that could potentially benefit from these therapies each year, we anticipate that this would amount to approximately 20,000 annual procedures or about the same number of DBS, laser ablation and stereotactic procedures performed annually. At current ASPs used in the clinical trials, this would equate to approximately $300 million of additional annual revenue if you believe those assumptions. While the drug development and regulatory process have proven to be inherently hard to predict, our strategy is built for this uncertainty as number one, we do not have the same binary risk as pharma because we have a portfolio of multiple partners, multiple indications and often redundancy with multiple partners that are pursuing the same indication. Number two, while we might not have the largest per patient revenue upside as the cell or gene therapy drug itself, we also do not have the high cost of executing the clinical trial for the therapy. In fact, we are able to sell investigational products and generate revenue during the preclinical and clinical trials themselves. And number three, we have the benefit of a parallel device strategy that is generating revenue today and as discussed earlier, has a credible path to profitability. Our long-term vision is to have these 2 strategies merge together into a company generating $500 million a year in revenue with a single commercial and operational infrastructure generating scale. This is the path that we are on, and we have an incredible team here at ClearPoint that plans to see it through. Now instead of looking to the horizon, let's quickly look at the steps directly in front of us. Although there are still many moving parts, including the CAL expansion status and the completion of the IRRAS merger and planned integration this year, we are narrowing our full year 2025 revenue forecast to between $36 million and $38 million, which is still within our prior guidance. We also currently expect total revenue of the merged companies in 2026 to be between $54 million and $60 million, but we will provide an additional update in mid-January after we have closed the IRRAS transaction and integrated the 2 commercial teams together. With that, I would now like to open up the call to any questions.

[Operator Instructions] Our first question is from Frank Takkinen with Lake Street Capital Markets.

Congrats on the agreement in the quarter. It sounds like a lot of exciting developments. I was hoping to start with one on market sizing around the neurocritical care market. I heard the comments around $500 million market, 400,000 procedures. Maybe just bring us a little bit deeper into that, if there's any subsegments you can talk to, where you think you can focus, how much of that market you can penetrate over time? And then it would be interesting to also hear about competitive landscape, what you're going up against and how you feel the device will fare in the marketplace?

Yes, absolutely. Thanks for the question, Frank. Yes. So when we think about the U.S. market for this neurocritical care, we're talking more specifically about where these external ventricular drains or EVDs would be located. It's a market that's pretty much looks like it did 20, 30, 40, 50 years ago with a very underserved population and a very simple solution today, which is effectively a gravity drainage system to pull excess blood and clot out of the brain. And in many cases, surgeons will inject a bolus of some kind of antibiotics or anticoagulant drug like TPA to go ahead and break up the clot and facilitate the drainage a little bit more. Despite all this time passing, there really hasn't been that much innovation in that sector. And IRRAS is a company that has really decided to focus and provide a truly next-generation and disruptive solution there. So what the IRRAS system can do is not only drain the system actively or drain this excess fluid out of the brain actively, but it also aspirates by providing a continuous flow into the brain that would allow the surgeon to administer saline to break up the clot or to administer any of those other drugs that I mentioned. So I think about 75% of estimated use cases involves the delivery of some type of drugs into the brain as well. So the early peer-reviewed data and registry data that's been performed seems to show that by doing this type of active irrigation and aspiration, that facilitates the early release of patients by a significant margin. It seems to reduce the amount of clogging, which is one of the most annoying things neurosurgeons have to deal with when an EVD clogs in the middle of the night and they're the ones that are on call that has to deal with it. It seems to trend towards fewer shunt placements. And there's a meta-analysis going on right now of all of the published data, which I think will provide some very, very interesting insights on the technology. So when we think about anything an EVD might be worked for, this is where we're going to start operating. And we estimate there's probably around 400,000 or so EVD type procedures that are here in the United States and obviously, more globally. Now this is a premium product, so the ASP is higher than a typical EVD system would be. So you could argue the market should be higher than maybe that $500 million number here in the U.S., but we're really just getting started, and we haven't begun the integration yet. So we're trying to err on the conservative side.

Got it. Very helpful. And then I was hoping to ask one about the pro forma business that you laid out $54 million to $60 million revenue guidance for next year. Maybe help us understand kind of what portion of that is related to ClearPoint versus IRRAS here for 2026? And then as a second part to that, how should we think about gross margin profile and burn profile?

Sure. Yes. I think our -- I think we mentioned in the commentary that the IRRAS gross -- I'll start with gross margin. The IRRAS gross margin is closer to that mid-50s range. And as you heard from Danilo's comments, the ClearPoint gross margin in the quarter is around 63% Obviously, both companies are still subscale. We've got a lot of additional product we could put through our factory today. And I think the eventual consolidation, given that IRRAS is based here in San Diego, and we would plan to bring the facilities together would actually immediately increase margin just on the simplest form. But at scale, there's no reason to believe that IRRAS would be any sort of drain on our current gross margin trajectory. And we feel, given those assumptions I mentioned in that sort of pro forma estimate of gaining 2% share each year kind of thing, we could -- we believe that we have a clear path to 70% plus gross margins across both sides of the portfolio. And the IRRAS system itself, as I mentioned, it is a razor-razorblade system. So there is a capital component. However, more than 90% of the revenue from IRRAS at least today is on the disposable side. So we imagine that the capital component is probably going to be trending down from 10% to 9% to 8% to 7% over the years as well.

Okay. And then...

What was the first part of that question? Yes.

Just any thoughts around kind of burn profile and then of that $54 million to $60 million break out ClearPoint versus IRRAS?

Okay.

And Frank, one way to think about the commercial side of things is that we were going to have to expand our commercial footprint to prepare for not just our own sort of device growth, but also prepare for these larger clinical trials and eventual commercialization of cell and gene therapy. So we were going to continue to do some of the hiring into that commercial organization. Now it's as if we get a huge bolus of that personnel all at once, along with another product that helps support the cost of that personnel. So I think our individual hiring plans will actually flatten out compared to the growth that we would expect in the future. So it's almost like we're getting some of these people a couple of years early. So that's where a lot of the burn will come from.

Got it. That's helpful. And then if I just have one more on the current quarter. Congrats on getting the CRO site set up and launched. Maybe talk through potential orders in that space. It sounds like you're already having some of those conversations now, but magnitude, how large could those orders be and when could they come?

Yes. So there's sort of 3 vectors of growth that we expect to get out of the new facility. One is a simple one, which is just excess capacity. We were only able to do smaller studies at our prior facility because we were effectively leasing space inside of another CRO that was dedicated to the neuro work that we were doing. We currently -- in the new facility, we estimate that we could do studies that are 4 to 5x the size of the largest study we did in the past. So if we were doing work in the past, maybe our largest pilot studies would be 1.5. I don't know that we did any individual ones more than $2 million at the old facility. Here, we are bidding on projects that are $5 million, $10 million, even $10-plus million for a single study. And that's a combination of the study being larger as well as our plans to be performing GLP studies. We believe we've got a lot of the kind of the paperwork and standard operating procedures in place, and we should be fully functional and able to execute our own higher-margin GLP studies next year, which is kind of like a more -- think of it as a more rigorous testing protocol that's used for FDA and CE mark submissions. So those are 2 -- 2 of those vectors of growth. Again, one is higher capacity; two is higher value GLP studies. The third one is with the excess space that we've got as well, we're going to continue to add additional sort of services to handle our pharma partners a little bit more comprehensively. So these could be imaging technologies. These could be hostology (sic) [ histology ] technologies. We've got a few additional ones that we're looking at as well. So we're not ready to unmask the entire plan at this point. But certainly, by early in Q1, I think the vast majority of our pharma business are going to be able to sort of appreciate everything that we can bring with the touch of it all being neuro focused with ClearPoint expertise.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Joe Burnett for any closing comments.

Well, thanks again, everyone, for joining today's call. This is an incredibly exciting time for our company. We have a clear vision, a comprehensive strategy, a competitive portfolio and the right team in place to not only win in all 4 markets that we play in today, but to also prepare to become essential and everywhere as we get ready for the commercialization of neuro cell and gene therapies in the coming years. Thank you, and good night.