Joseph Burnett - Chief Executive Officer Harold Hurwitz - Chief Financial Officer and Secretary.

Jeb Terry - Aberdeen Asset Management.

Greetings, and welcome to the MRI Interventions' 2018 Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

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 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, 2017, which has been filed with the Securities and Exchange Commission and the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 208, which was filed with the SEC today.

All the Company's filings may be obtained from the SEC or the Company's website at www.mriinterventions.com. I would now like to turn the conference over to your host, Mr. Joe Burnett, Chief Executive Officer. Thank you, Mr. Burnett, you may begin..

Thank you, Devin and good afternoon, everyone. Thanks for joining us for the third quarter 2018 earnings call. With me for today's call is Hal Hurwitz, our CFO. We have made terrific progress over the past few months both in terms of our foundational Neuro Navigation System business and each of our four strategic growth pillars.

One key highlight of this performance is a record number of 175 ClearPoint procedures performed in the quarter leading in turn to record disposable revenues. In these procedures, our product and teams are there to help surgeons to decide, guide, treat and confirm these precise therapies for patients.

In short, we have made significant progress towards becoming a full-line Neuro Navigation and therapy provider with products, partnership and services designed to serve some of the most debilitating neurological disorders.

We believe the total addressable markets for our razor/razorblade portfolio of products and services is now in excess of $1 billion annually and that we have turned the corner and returned to growth here in the second half of 2018.

I am going to turn the call over to Hal to address the financial results released earlier today, then I’ll update details regarding our progress on our four strategic pillars. After that, we will open the call for Q&A.

Hal?.

Thank you, Joe. Before I get going with the financial information, just one slight correction to the forward-looking statement that you heard at the beginning of the call.

That was pre-recorded before we realized that the SEC was closed today and so the 10-Q for the quarter ended September 30, 2018, we expect to file by the statutory deadline which is this coming Wednesday. So, just one very slight correction there, it was not filed today, because the SEC was closed.

For the third quarter ended September 30, 2018, total revenues $1.8 million, compared with $1.6 million for the second quarter and $1.7 million for the same period in 2017, a year-over-year increase of 5%.

Breaking that down a bit to the underlying product areas, functional neurology product sales increased 13% to $1.4 million, compared with $1.3 million for the same period in 2017. A record 175 ClearPoint procedures were performed in the third quarter of 2018, compared with 147 in t he prior quarter or 19% growth versus Q2.

Capital equipment product and related service revenue was $162,000 for the third quarter, down 45% from $296,000 for the same period in 2017.

Although capital equipment sales fluctuates from quarter-to-quarter, we believe that this decrease was primarily attributable to multiple capital equipment sales that were put on hold over the past couple of quarters by customers due to the laser ablation issue that began during the 2018 first quarter.

Biologics and drug delivery revenues which includes sales of disposable products and services related to customers-sponsored clinical trials was $191,000, up 40% year-over-year, as we commence sales of custom and commercial cannulaes to seven gene therapy customers during the quarter.

Gross margin for the 2018 third quarter was 69%, compared to gross margin of 60% for the same period in 2017. The increase in gross margin primarily reflected a favorable mix of products sold and reductions in indirect manufacturing costs.

Research and development costs were $617,000 for the three months ended September 30, 2018, compared to $590,000 for the same period in 2017, an increase of 5%. Sales and marketing expenses were $765,000 for the three months ended September 30, 2018 compared to $899,000 for the same period in 2017, a decrease of 15%.

General and administrative expenses were $1.1 million for the three months ended September 30, 2018, compared to $867,000 for the same period in 2017, an increase of 20%. This increase was due primarily to an increase in stock-based compensation and a decrease in activity-based cost allocation to other departments.

Our loss from operations for the 2018 third quarter was $1.2 million, down from $1.3 million in the prior year third quarter. Turning briefly to the balance sheet and cash flow.

During the 2018 third quarter, cash used in operating activities was $975,000, down from the $1.1 million last quarter and down from $1.7 million used in the third quarter of 2017. Also, this number favorably compares to our previously communicated operational cash use forecast of $1.0 million.

During the quarter, we required – I am sorry, we retired $2 million in debt and extended another $2 million of debt by 18 months to September 2020 resulting in cash-on-hand at September 30, 2018 of $3.7 million.

We expect further reduction in cash used in the fourth quarter and are maintaining our previously communicated expectation of cash used in operations of approximately $800,000 for that quarter. With that, I will now turn the call back to Joe..

number one, growing our core functional Neurosurgery Navigation System and disposables for deep brain stimulation, laser ablation, and tumor biopsy; number two, positioning our biologic and drug delivery portfolio of products and services to become the premier provider for gene therapy and other partners as they navigate the regulatory and later commercial stages of their program; number three, launching our own new therapy products to increase our revenue share and profitability per procedure; and number four, creating operating efficiency and scale through global expansion and better monetizing our established sales channel to distribute additional products and services.

I am pleased to report that the third quarter marks a terrific period of progress on all of these four pillars. For our first pillar focused around our core business of functional neurosurgery navigation, we did see a return to growth in procedure volume for a record quarter of revenue and case volume.

News of the FDA clearance from Monteris's new laser ablation probe did not help our third quarter, but should further boost case volumes in Q4 and beyond.

In the first half of the year, the team did a great job compiling a list of hip-centric for streamlining procedure into workflow, so that hospitals could get the most out of their time inside of the MRI magnet and be able to schedule multiple cases in a single day.

In the third quarter, we saw six such hospitals schedule multiple procedures any single day, up from three that we had earlier in the year.

We also announced an exciting headframe collaboration project with Monteris that we believe will further benefit patient mobility and procedure time when that joint product becomes commercially available in the coming years.

Anything that moves the needle towards faster, more efficient procedure time is beneficial to our functional neurosurgery business.

During the quarter, we also saw that, Abbott updated their deep brain stimulation lead labeling to be MRI conditional removing a barrier at some hospitals replacing DDS leads inside of an MRI scanner unit using our ClearPoint system.

And to wrap up our update on pillar one, we just last week announced FDA clearance of our new ClearPoint 2.0 software platform. Importantly, this is a full platform upgrade incorporating new fusion software features that are designed to help save procedure and pre-planning time.

These enhancements represent a hardware, software and service sales opportunity for us that could contribute before the end of the year and throughout 2019 through incremental upgrade revenue, as well as new system placements.

This upgrade will be made available to our entire installed base of more than 55 units and represents a significant capital upgrade opportunity in addition to becoming our flagship platform for new site installations. Turning to our second pillar, Biologics and drug delivery.

We made important progress in expanding our overall activity with additional partners and geographies. We shipped more than $100,000 of SmartFlow cannulae to Europe under our new CE Mark, which was received in the second quarter, with an additional $49,000 in purchase orders pending shipment at quarter end.

We are excited about progression of Axovant’s Parkinson’s program progressed to a clinical dosing stage including the first treatment in that trial using our cannulae for gene therapy.

We see this is not only an important trial with an additional partner, but also as a gateway to system placements and additional clinical trial activity in Europe and the years ahead. In total, we shipped products of seven different biologics and drug delivery partners in the quarter.

Importantly, our partnership with Voyager Therapeutics continues to progress as five of our clinical specialists have been trained on the infusion and clinical procedure in order to cover clinical cases on behalf of Voyager Phase 2 and3 study for Parkinson’s.

This important development drives additional per procedure revenue from our clinical specialist and expands MRI’s role and revenue share in the procedure room. Voyager recently announced that it has selected 24 clinical sites to-date for its randomized placebo-controlled study.

We believe this study will be additive to our overall case volumes throughout 2019 due to a notable increase in the number of patients to be enrolled compared with the Phase 1 cohort.

Our collaboration with Voyager has also expanded beyond their Parkinson’s program as we are currently producing products for use in their Huntington and ALS preclinical programs as well.

And pillar three, developing our own therapeutic solution, we announced an agreement with Clinical Laserthermia Systems, in Sweden to acquire a worldwide license to their FDA-cleared Tranberg laser ablation system for use in neurosurgery and spine application.

We intend to co-develop hardware, disposables and software to make the ClearPoint platform work together with the Tranberg system in a single coordinated and efficient workflow. We believe doing so will increase accuracy and reduce procedure time in these laser ablation cases benefiting both hospitals and patients.

We are now redeploying existing resources in our operating budgets to this development project. Having these products in our portfolio has the potential to turn our lowest revenue and margin procedures into our highest, making this program one of our top priorities.

We also continue to advance our work in ClearPoint Pursuit which is the brand name for our neuro aspiration device developed in concert with the Mayo Clinic. Our FDA application is still pending and we believe that we remain on track for the first human case using ClearPoint Pursuit before the end of this year.

This is an exciting first opportunity for us to enter the therapeutic market directly and to do so with the device that serves a significant unmet need for some very sick patients. And finally, in pillar four, gaining global scale, our distribution agreement with CLS for a non-neuro application in the U.S.

and Canada is a great example of how we can gain additional operating cost leverage within our commercial infrastructure. Our clinical specialists will be able to cover local cases on non-neuro days, increasing their average cases per week and further reducing travel expense versus revenue generated.

Additionally, our Irvine facility will serve as a joint U.S. location for both our company and CLS, leveraging G&A, inventory and production costs. This is a kind of innovative thinking that will characterize MRI going forward in our therapeutic development and operating decisions.

We want to not just be a leader, but be a high growth profitable company for our shareholders. I believe the progress we have made this quarter is a tremendous step in that direction.

We are transforming from a single-play neuro navigation company into a full-line neuro therapy portfolio, guidance ablation, aspiration and deep partnerships in gene therapy.

Finally, and importantly, we accomplished all of these strategic growth initiatives while still achieving our prior forecasts for cash flow from operations which came in at just under $1 million and without expending significant cash or equity to put these programs in place. With that, I will turn the call over to the operator for our Q&A session. .

[Operator Instructions] Our first question comes from the line of Mark Abrams, private investor. Please proceed with your question. .

Yes, lot of good things happening, but when do you think you may get to profitability?.

Hey, Mark. Thanks for the question. I think we’ve done a few things this past quarter to get us on that pathway. However to get the full profitability, there is a few different levers that we need to be able to pull. One of them for example is, continued growth in the overall procedure volume. Order of magnitude here.

I would say, if our case volume in a given quarter could get into the 250 to 300 case volume side of things, then potentially, we could be in that type of breakeven scenario. However, again, that’s not the only lever for us to continue. A big part of what we do and we rely on is having a high per procedure profitability.

So, the mix of the type of procedure is very important to that number, as well. What I mean by that is, so for deep range stimulation procedures, we generally sell two kits for each one of those making that a very profitable procedure for us. For a single kit biopsy procedure, where we only sell one kit, that’s not nearly as profitable to us.

So, that’s one of the reasons we did the deal with CLS is to be able to – in that one single kit procedure be able to sell not only the kit, but potentially sell the laser applicators as well taking again our least profitable procedure and arguably making it into our most profitable ones.

So, from a timing standpoint, we are still going through our 2019 strategic plan and operating budget. So, I can’t comment on the timing right now. But, order of magnitude, again that 250 to 300 per quarter case volume will get us really close. .

The other thing was, at the beginning of the call, you said this is a $1 billion market. You guys can do about $8 million.

How do you get to a big share of $1 billion market?.

Yes, it’s a $1 billion potential addressable market. If you look at how many diseased patients are out there and how many total surgical procedures could be possible, that – what that number was in reference to, definitely not supporting that that the market is currently that size at all. .

What is the market size? I am not going to invest for years in this company. Where can you go? Can you get the $20 million? Can you get the $30 million? I mean….

Yes, we absolutely believe we can get there. I think, the – what I would consider and what some of the obstacles that we are overcoming along the way, by far the biggest obstacle we have is time inside of that MRI magnet. There are so magnets that are out there.

There are so many surgical sites where trained surgeons are capable of doing these types of procedures and in many cases these surgeons are negotiating with the radiology department of the hospital to be able to get access to scanner time. So, if we could take down that barrier, I think that’s where you start seeing some of the rapid growth.

And the few of the different ways we are doing that are important ones. Number one, is we are helping to support installations at interoperative MRI locations.

So these are generally MRI scanners that are not owned by radiology, but are rather owned by the surgical team itself at a hospital and as a result, that surgical team can schedule as many cases as they want, because they have, the scanner belongs to them, so they have access to all those days.

Every time one of the interoperative MRI scanners get installed, we celebrate, because we see that as the future where these types of procedures takes place. That’s kind of one tactic. Second tactic is what I touched on a little bit, which is developing new products and workflows to reduce the time per procedure.

So, in today’s environment, most of our procedures are three to four hours in length, meaning you could absolutely do two in a single day.

However, every once in a while, there might be one procedure that could be six hours long and if it’s not predictably under four hours, hospitals are reluctant to schedule multiple in the same day, because they don’t know if that first case is going to go too long.

Anything we can do to get these procedures predictably under three hours in time will allow that same day of magnet time to produce not just one, but maybe two or three cases and we are seeing some early results from that as well.

And then, the third thing that we are working on is a next-generation frame platform that is designed to be placed in the operating room and not inside of the MRI scanner and what that will allow us to do is to do some of the initial parts of the procedure in an operating room without having to take up MRI scanner times and only focus the time in the scanners to be the therapeutic portion of the procedure.

So we are doing as many things as we can right now to really knock down some of these barriers, but if that’s the thing more than anything that slowed the adoption of the technology. .

One more thing, you’ve also touched on that you are involved in Parkinson’s therapy that can help Parkinson’s disease.

Where do you see that going?.

Yes, I mean, I think there is a few very exciting ways that we are involved there. The core part of our business in deep brain stimulation. Companies like Medtronic and Boston Scientific and Abbott St.

Jude, they make deep brain stimulators where leads are placed deep into the structure of the brain and once they are turned on, that stimulation seems to – in many patients, be able to counteract the symptoms of Parkinson’s.

So, whether it’s the shaking or the muscle contraction that you see in many of these patients, it can be resolved by this constant stimulation. So, in that sense, we are involved and actively helping guide those procedures today.

In the future, we are involved in a different direction, which is in gene therapy, with companies like Voyager and like Axovant who have developed specific tailored gene biologics that can be injected into the brain and can stimulate the brain to start producing enzymes that make it respond to different drug therapies.

So, one way to think about it is, the goal of these studies and these therapies is that, after a patient has been on a drug like Levodopa, and the effect of that drugs starts to wain and the symptoms come back.

By doing a single one-time injection, you would in theory be able to get another five to ten years of responsiveness to that drug without having to a do more invasive procedure. So, as far as Parkinson’s goes, we are very excited about the two different pathways that we are participating in that.

Because, really the impact, when you see these patients who are having very, very severe tremors and then turning on a stimulator and seeing the tremors go away to the point where they can eat a meal or drink or sleep, it’s a pretty powerful place to be. .

Okay, thank you. .

Thanks, Mark..

[Operator Instructions] Since there are no further questions left in the queue, I would like to turn the call back over to – oh, one question has popped up. Our next question comes from the line of Bruce Conway, private investor. Please proceed with your question. .

Hi, Joe. Very encouraging quarter.

Could you tell us a little more about the Mayo business? Do you have a date yet for that trial? And after that single trial, would you have to go with further trials? Or when will it be expect to be commercial?.

Bruce, thanks for the question. So, we have submitted a 510(k) to the FDA. We submitted that 510(k) back, I believe the last day of the second quarter. So, we are about four-and-a-half months, little under four-and-a-half months into the review period and we are simply waiting for a feedback at this point.

Our goal is to still do that first human clinical case before the end of this year. So we feel little challenging right around the holidays, but knocking on the sides.

But one thing getting the clearance and then finding the right patients who would actually benefit from the therapy, but we are doing everything we can internally to be ready for that first case.

At this point, we do not believe that this would start a new clinical trial, but rather these first – the first procedure is done out of the 510(k) would be as part of a limited market release where we would be doing complete post-market surveillance of those procedures. .

All right. Okay, well. Thank you and again, I like what you are doing. Thank you, Joe. .

Okay, thanks, Bruce. .

Our next question comes from the line of Jeb Terry with Aberdeen Asset Management. Please proceed with your question. .

Hey, Joe. .

Hey, Jeb..

Yes, great. I am sorry, I’ve been in and out of some other things. So you may have addressed some of these points, but particularly, the drug delivery, a business that you’ve made progress with Voyager and looking at participating in their other drug efforts beyond the Parkinson’s drug.

But did you address what other drug delivery deals might be in the pipeline and how you are kind of prosecuting that effort?.

Yes, I am happy to. We didn’t go into too much detail, because as a good partner, again, our goal is to become the medical device arm of these biologic and dug delivery companies.

So, we handle the device side for them and with that comes a certain level of confidentiality where we make sure that we are only announcing things publicly in situations that they are comfortable with.

But at the same time, I think as Voyager has now announced their Huntington’s and ALS program, it was appropriate for us to talk about our participation coming down the pipeline in that portfolio. You saw the press release from Axovant who also has a gene therapy portfolio for Parkinson’s where our cannulae was used in that first patient.

And we did also make the comment on the call about how we have, in Q3 alone, we actually shipped to seven different shipped product either navigation or cannulae or both to seven different gene and biologic companies during the quarter. So, having access in CE marks to the cannulae I think is something that benefited us.

But also the partnership that we’ve been building over the past years and doing very early prototyping and preclinical work is starting to bear some fruit as we are now selling products that being prepared to be used in human. .

That’s very encouraging. Thank you very much on that, that point.

And then, the – I may have missed, just how many hospitals now can do multiple cases a day?.

We believe there is a number that can. I would tell you that there are six hospitals that actually schedule multiple cases in the second – or the third quarter. So, I think that’s always the best as that one thing in thinking that a hospital could probably do it, if another one when they actually put two cases on the buck in the same day.

So that’s kind of the metric we are sort of checking. .

Okay.

And have you repositioned all your clinical specialists as you were planning for the turn out – forward deployed if you will, where you want them?.

We are very close. I would say, as – I believe our people are now in the right place of our current employees and it sort of cleared the door for us or highlighted where we want to place any new additional clinical specialists in 2020 – or 2019 and 2020.

That has become a kind of reap and hot topic, because number one, as you are aware, we signed that deal with CLS not just for neuro and spine which we have control over. But for areas outside of neuro and spine like urology, like prostate, few other places there, where we are going to cover cases on their behalf.

So, we are working closely to match our installed base or our location of our clinical specialists with where they believe is going to be kind of highlight centers that we want to make sure we are growing that laser ablation business. So that’s one thing we are considering as we go into our 2019 operating plan.

The second thing that we are considering too is that our participation in covering some of these gene therapy and biologic trials is that, where these sites will start to enroll patients, we need to make sure that there is coverage in place as well.

So, I believe, our nine or ten clinicals are all in the right spots and I think we now identified those next two or three hires that we would make where they are going to take place. .

I see. It’s very good. Well, thanks very much and congratulations on a great recovery quarter and I am sure the fourth quarter could be even better. .

All right. Thank you, Jeb..

Ladies and gentlemen, since there are no further questions left in queue, I would like to turn the call over back to Joe Burnett for closing remarks. .

All right, thanks, Devin. And thank you everyone for joining us today. I hope you can feel our excitement for the record cases and overall progress that we have made this year.

We are very excited for the quarter ahead and for 2019 as MRIC quickly transforms into a more complete, more diverse and more integrated leader in MRI-guided neurosurgical procedures as we continue along our four pillar growth strategy.

In addition to continuing to report our progress and key milestones, we will be taking meetings around the JP Morgan Healthcare Conference in January. If you have interest in meeting in person at this event or another, please contact Matt Kreps at Darrow Associates our investor relations firm using the contact information on our press release.

They will work to ensure you are added to our meeting rosters at these or our upcoming events. Thank you very much. .

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation..