ClearPoint Neuro(CLPT) - 2021 Q4 - Annual Report

Special Note Regarding Forward-Looking Statements This section cautions that forward-looking statements in the Annual Report involve inherent risks and uncertainties, advising investors to review the 'Risk Factors' section for potential impacts - Forward-looking statements are identified by terms such as 'anticipates,' 'believes,' 'could,' 'estimates,' 'expects,' 'intends,' 'may,' 'plans,' 'potential,' 'predicts,' 'projects,' 'should,' 'will,' 'would,' and similar expressions[18] - The company does not undertake to update any forward-looking statements after the report date, except as required by applicable securities laws[19] Risk Factor Summary This section summarizes key risks and uncertainties that could materially and adversely affect the company's business, financial condition, and operational results - Key risks include[20] - COVID-19 could adversely impact the business - The ClearPoint system may not achieve broad market adoption - Long-term growth depends on developing and commercializing new products and services through R&D - Inadequate coverage and reimbursement from third-party payors could adversely affect product adoption and revenues - Significant customer concentration poses risks if key customers face economic difficulties or change purchasing policies - Internal manufacturing operations at a single location may limit supply and increase expenses if disrupted - Reliance on single-source suppliers could harm the ability to meet product demand - Failure to obtain necessary FDA clearances or approvals for new product indications or claims could harm business growth - Clinical trial results may not support product claims or may reveal adverse side effects - Highly competitive medical device markets may prevent effective competition against larger or emerging players - International operations are subject to various economic, political, and regulatory risks - Disruptions of critical information systems or security breaches could harm business and customer relations - Acquisitions, joint ventures, or investments may not result in commercial success and could lead to losses - Inability to hire and retain qualified personnel could seriously harm business and growth - Incurred losses since inception and may continue to do so, potentially never achieving or sustaining profitability - Need for additional funding, which may not be available on acceptable terms and could cause dilution or restrict operations - Inability to secure and maintain intellectual property protection could harm competitive ability - Third-party claims of intellectual property infringement could lead to costly disputes - Loss of access to third-party software integrated into the ClearPoint system could increase costs and delay installations - Rights to develop and commercialize products are subject to third-party license terms - Failure to comply with extensive government regulations could result in fines and penalties - Federal legislation and other payment/policy changes may materially adversely affect the business - Products may be subject to recalls, harming reputation and financial condition - Medical Device Reporting regulations apply if products cause death, serious injury, or malfunction - Significant liability may be incurred if promoting off-label uses of products - Failure to comply with FDA's QSR or state equivalents could interrupt manufacturing - Subject to environmental laws and regulations imposing significant costs - Subject to federal and state healthcare fraud and abuse laws and regulations - Subject to laws protecting confidentiality and security of personal information, with non-compliance leading to penalties - Bylaws include exclusive forum provisions, limiting stockholders' ability to obtain a favorable judicial forum - Common stock becoming subject to penny stock rules may make trading difficult - Market price of common stock may be highly volatile - Sales of substantial shares in the public market may depress stock price - Ability to use net operating losses to offset future taxable income may be limited - No past dividends and no expectation to pay dividends in the future - Anti-takeover provisions could prevent or delay a change in control - Failure to meet publicly announced guidance or expectations could cause stock price decline - Securities analysts may not continue coverage or may issue negative reports - Dependence on senior management and key teams, with loss potentially harming business Part I - ClearPoint Neuro, Inc. was incorporated in 1998 as a Delaware corporation[25] - The company has two main business parts: medical devices for neurosurgery and partnering with pharmaceutical companies in the biologics and drug delivery space[26] - The ClearPoint system has been used in over 5,000 clinical and clinical trial procedures at approximately 60 neurosurgery centers[25] - In 2021, the company supported 929 procedures, demonstrating steady growth[25] - The biologics and drug delivery segment has approximately 40 pharmaceutical company customers and an estimated market potential of $7 billion[26] Item 1. Business ClearPoint Neuro is a commercial-stage medical device company specializing in minimally invasive brain surgical platforms, operating in neurosurgery devices and biologics/drug delivery partnerships - ClearPoint Neuro, Inc. was incorporated in 1998 as a Delaware corporation[25] - The company has two main business parts: medical devices for neurosurgery and partnering with pharmaceutical companies in the biologics and drug delivery space[26] - The ClearPoint system has been used in over 5,000 clinical and clinical trial procedures at approximately 60 neurosurgery centers[25] - In 2021, the company supported 929 procedures, demonstrating steady growth[25] - The biologics and drug delivery segment has approximately 40 pharmaceutical company customers and an estimated market potential of $7 billion[26] Overview ClearPoint Neuro is a commercial-stage medical device company developing platforms for minimally invasive brain surgery, expanding into operating room neurosurgical devices and pharmaceutical consulting services - The company was incorporated in 1998 and develops innovative platforms for minimally invasive surgical procedures in the brain[25] - In 2021, efforts expanded to include neurosurgical device products for the operating room and consulting services for pharmaceutical companies[25] - The ClearPoint system is in commercial use in the United States, the EU, and the United Kingdom, primarily for inserting deep brain stimulation electrodes, biopsy needles, and infusing pharmaceuticals and laser catheters[27] - New technologies under development include the ClearPoint Maestro Brain Model, a laser ablation system, pre-clinical development services, and a robotic-assisted navigation system[28] Industry Background The industry background highlights MRI as a superior imaging technique for soft tissue visualization in neurosurgery and the growing trend towards minimally invasive surgical procedures requiring advanced image guidance - MRI offers superior soft tissue imaging, unlimited orientation, 3D data acquisition, evaluation of organ structure and function, and no harmful ionizing radiation[36] - Approximately 400-500 functional neurosurgery centers worldwide are capable of performing MRI-guided minimally invasive neurosurgical procedures[37] - The trend in medicine is towards minimally-invasive approaches, which increases patient eligibility and surgeon reliance on live image guidance[38] - ClearPoint has adapted stereotactic tools using MRI-safe materials for precise navigation inside an MRI scanner[40] - The SmartFrame Array Neuro Navigation System, launched in 2021, expands ClearPoint system placement to the operating room, detectable by optical imaging and intra-operative CT[41] Our Current Products and Product Candidates ClearPoint Neuro Navigation System, including the SmartFrame Array, provides guidance for various neurosurgical procedures in MRI suites and operating rooms, with FDA 510(k) clearance and CE marking approvals - The ClearPoint software and system were initially designed for minimally invasive brain procedures in MRI suites[42] - The ClearPoint Array Neuro Navigation System, released in 2021, can be used in both MRI and operating room settings[42] - The system provides guidance for placement and operation of instruments during neurosurgical procedures like biopsies, catheter insertions, electrodes, and fiber lasers[42] - Received FDA 510(k) clearance in June 2010 and CE marking approval in February 2011 for the ClearPoint system[42] - In January 2021, received 510(k) clearance for the SmartFrame Array Neuro Navigation System[42] The Need for Minimally Invasive Neurosurgical Interventions Millions suffer from neurological diseases requiring local, minimally invasive therapies like focal ablation, DBS, and RNS, which demand extreme precision to target small brain regions - Millions suffer from neurological diseases such as Parkinson's, essential tremor, dystonia, psychiatric disorders, and brain tumors[43] - Systemic drugs often become less effective as diseases progress, leading to a focus on local therapies[43] - Local therapies include focal ablation (LITT) for disorders like Parkinson's, epilepsy, and brain tumors, and deep brain stimulation (DBS) and responsive neurostimulation (RNS) for various neurological conditions[44][45][46] - Minimally invasive brain interventions require precision to reach small therapeutic targets (few millimeters) and avoid damaging adjacent neurological functions or blood vessels[47] U.S. Market Opportunities The U.S. market offers over 140,000 potential neurosurgical procedures annually for ClearPoint's system, with the gene therapy and drug delivery market alone estimated at $7 billion by 2025 - Over 140,000 potential neurosurgical procedures per year in the U.S. could use the ClearPoint system[48] - Electrode Placement: Estimated 120,000 Parkinson's disease and essential tremor patients per year are candidates for DBS electrode implantation using ClearPoint - Brain Tumor Biopsy: Represents potential for approximately 15,000 procedures per year, especially for small, deep-seated tumors - Gene Therapy and Drug Delivery in the Brain: Potential addressable market by 2025 is estimated at $7 billion for over 600,000 patients in the U.S., for which the SmartFlow cannula and pre-clinical development services are offered[48][49][50][52] - The company generates revenue from biologics and drug delivery customers through product sales (SmartFlow cannula) and pre-clinical development services (protocol consultation, study design, toxicology support)[52] Challenges with Conventional Stereotactic Neurosurgical Procedures Conventional stereotactic neurosurgery faces challenges from brain shift, hydration variations, and registration inaccuracies, often requiring tedious intra-operative physiological mapping with awake patients, leading to complex and lengthy procedures - Conventional stereotactic procedures rely on pre-operative images, leading to potential errors from brain shift, patient hydration variation, registration errors, or frame misalignment[54] - These procedures often require physiological 'mapping' of the brain and microelectrode recording, which is tedious, time-consuming, and requires the patient to be awake and off medications[54] - The complexity of conventional procedures can result in surgery durations of six hours or more[54] Our ClearPoint Solutions ClearPoint's system simplifies stereotactic neurosurgical interventions with direct, real-time MRI guidance, offering flexibility for use in standard MRI suites or operating rooms through integrated hardware, disposables, software, and consultancy services - The ClearPoint system simplifies procedures by using real-time, high-resolution MRI guidance, in contrast to indirect pre-operative imaging[55] - The SmartFrame Array device allows procedures to be performed in the operating room, offering physicians and hospitals flexibility[55] - ClearPoint Hardware: Includes a head fixation frame, computer workstation, and in-room monitor, designed for use with MRI scanners - ClearPoint Disposables: Consist of the SmartFrame trajectory device, hand controller, SmartGrid patch, and SmartFlow cannula for drug delivery - ClearPoint Software: Guides surgical planning, device alignment, navigation, and procedure monitoring using image segmentation algorithms and generates automated reports - ClearPoint Services: Provides consultancy to pharmaceutical and medical technology partners for clinical support, training, protocol consultation, and customized device development[57][59][60][61] Regulatory Status The ClearPoint system holds FDA 510(k) clearance for general neurosurgical procedures in the U.S. and similar CE marking approval in the EU and Israel, while the SmartFlow cannula's use for other therapeutic agents remains investigational - ClearPoint system has 510(k) clearance from the FDA for general neurosurgical procedures (biopsies, catheter insertions, DBS lead/electrode insertions) in the U.S[62] - The system also has similar indication for use approval in the EU and Israel[62] - SmartFlow cannula has 510(k) clearance for Cytarabine injection or CSF removal and CE mark for approved fluid injection into the brain[63] - Delivery of other therapeutic agents using the SmartFlow cannula is investigational[63] Sales and Marketing ClearPoint Neuro's sales and marketing target neurosurgeons and hospitals, focusing on high-margin disposable product sales, with a team of 28 employees as of March 3, 2022, and anticipated expansion - Marketing primarily targets physicians (stereotactic/functional neurosurgeons, neurologists) and hospitals treating neurological disorders[64] - The business model focuses on generating high-margin revenue from disposable components, selling reusable components at lower margins or renting them to secure system installations[66] - As of March 3, 2022, the sales, clinical support, and marketing team comprised 28 employees, with expected expansion for new geographies and segments[69] Research and Development ClearPoint Neuro's future success relies on continuous R&D, with a team of 21 employees as of March 3, 2022, focused on enhancing the ClearPoint system and developing devices for direct brain drug delivery - As of March 3, 2022, the research and development team consisted of 21 employees[70] - R&D goals include enhancing ClearPoint hardware and software for faster workflows and flexible procedure locations, and developing devices for direct brain drug delivery[70] - The team has expertise in medical device development, multi-modal software, advanced MRI technologies, robotics, and cannula design for gene and cell therapies[70] Manufacturing and Assembly ClearPoint Neuro's manufacturing and assembly are conducted at a single Irvine, California facility, where custom components from single-source suppliers are assembled, with the facility being FDA-registered and ISO 13485 compliant - Components are manufactured by third parties to proprietary specifications, with final assembly, packaging, and distribution at the Irvine, California facility[71][72] - Most custom-made components are sourced from single-source suppliers due to quality, cost, and regulatory considerations[71] - The Irvine facility is FDA-registered and compliant with the FDA's QSR and ISO standard 13485[73] Customers As of March 3, 2022, ClearPoint Neuro's system is used by approximately 60 hospitals globally, with the top five accounting for 30% of neurosurgery disposable revenues in 2021, and commercial relationships with about 40 biologics and drug delivery companies - Approximately 60 hospitals in the U.S., Canada, the EU, and the UK use the ClearPoint system as of March 3, 2022[74] - The five largest hospital customers accounted for approximately 30% of functional neurosurgery navigation disposable product revenues in 2021[74] - Commercial relationships exist with approximately 40 biologics and drug delivery companies[76] - One pharmaceutical customer, a related party, accounted for approximately 43% of biologics and drug delivery revenues in 2021[76] Intellectual Property ClearPoint Neuro protects its competitive advantage through over 75 issued U.S. patents in MRI-guided interventions and various license and collaborative arrangements with partners like Philips, Blackrock, CLS, and UCSF - The company relies on patent, trademark, trade secret, copyright, and other intellectual property rights to protect its technologies[77] - As of March 3, 2022, ClearPoint Neuro owns or licenses over 75 issued United States patents in MRI-guided interventions[80] - Philips: Worldwide license and research agreement for Philips Brain Model technology in ClearPoint Maestro Brain Model, expanded to include CT imaging - Blackrock: Multi-product development and option agreements to incorporate sensing technologies into product lines, including an automated surgical solution for BCIs - CLS: Exclusive right to distribute and sell CLS's Tranberg product line for high precision ablation with MRI guidance in the U.S. and collaborate on new neurosurgical products - UCSF: License agreement for design features incorporated into the SmartFlow cannula, with royalties based on sales[81][82][83][84][85] - The company also holds non-exclusive licenses for software code integrated into its ClearPoint system software, with royalties based on system installations[86] Competition The medical device industry is highly competitive, with ClearPoint Neuro facing competition from companies offering laser ablation devices and conventional stereotactic neurosurgical systems, many of which possess significantly greater resources - The medical device industry is highly competitive and characterized by rapid technological change[87] - Competitors in laser ablation under direct MRI guidance include Monteris Medical, Inc. and Medtronic plc[88] - Competitors in conventional stereotactic neurosurgical procedures include Brainlab, Medtronic plc, Elekta AB, FHC Inc., Integra Life Sciences, Neurologica Corporation, and Zimmer Biomet Holdings, Inc.'s ROSA robot[88] - Many competitors have substantially greater financial, manufacturing, marketing, and technical resources[88] Regulatory Requirements of the United States Food and Drug Administration ClearPoint Neuro's medical devices are extensively regulated by the FDA, requiring premarket clearance (510(k)), de novo classification, or PMA based on risk, with stringent compliance across design, manufacturing, clinical development, and post-market surveillance - All products sold in the United States are regulated as medical devices under the federal Food, Drug, and Cosmetic Act (FDCA) by the FDA[89] - Commercial distribution of medical devices requires either 510(k) clearance, de novo classification, or PMA approval, depending on the device's risk class (Class I, II, or III)[91] - 510(k) Clearance Pathway: Requires demonstrating substantial equivalence to a legally marketed predicate device; FDA user fee goal is 90 calendar review days, but can extend to 270+ days with information requests - De Novo Classification: For novel low- to moderate-risk devices without a predicate; FDA user fee goal is 150 calendar review days, but can extend to 330+ days - PMA Approval Pathway: For highest-risk devices, requiring extensive data (technical, preclinical, clinical, manufacturing, labeling) to demonstrate safety and effectiveness; FDA user fee goal is 180-320 calendar review days, but can extend to 360-500+ days[92][93][94][95][97][98][99][100][101] - Clinical trials are generally required for PMA and may be for 510(k) or de novo, necessitating an Investigational Device Exemption (IDE) application and compliance with GCP and IRB oversight[102][103][106][107][108] - Post-market regulations include Medical Device Reporting, QSR compliance, labeling regulations, and reporting of corrections/removals[109] International Marketing Approvals International sales are subject to diverse foreign government regulations, with EU products requiring compliance with the Medical Devices Regulation 2017/745 to bear a CE mark, strengthening market rules and surveillance - International sales are subject to foreign government regulations that vary substantially by country[115] - EU member states require compliance with the Medical Devices Directive (now Medical Devices Regulation 2017/745) to affix a CE mark, allowing distribution across the EU and other adopting countries[116][118] - Conformity assessment procedures vary by device classification (Class I, IIa, IIb, III) and often require third-party assessment by a Notified Body[117] - The Medical Devices Regulation, effective May 26, 2021, strengthens rules on market placement, surveillance, traceability, and assessment for high-risk devices[119][120] Healthcare Laws and Regulations Healthcare providers using ClearPoint's devices rely on third-party payors for reimbursement, and the company is subject to extensive federal and state healthcare fraud and abuse laws, including anti-kickback statutes, false claims acts, and HIPAA, governing financial relationships and data protection - Sales of medical devices depend on adequate coverage and reimbursement from third-party payors (governmental and private)[121] - Medicare reimburses hospitals for inpatient services via prospective payment system (PPS) based on MS-DRGs, where device costs are bundled, not separately paid[124] - The Affordable Care Act and Medicare Access Act have introduced payment reforms and value-based systems that could limit acceptance and availability of products[129][130] - The company is subject to federal and state anti-kickback laws, prohibiting remuneration for referrals, and federal civil False Claims Act, imposing liability for false claims to federal healthcare programs[135][139] - HIPAA created federal healthcare offenses (fraud, false statements) and established privacy and security standards for individually identifiable health information, with HITECH strengthening these rules and increasing penalties[145][147][149][150] Human Capital Resources As of March 3, 2022, ClearPoint Neuro had 80 full-time employees, with significant portions in R&D, manufacturing/quality assurance, and sales/clinical support/marketing, focusing on recruitment, retention, and compliance training - As of March 3, 2022, the company had 80 full-time employees[154] Employee Distribution (March 3, 2022) | Department | Number of Employees | | :----------------------------- | :------------------ | | Research and Development | 21 | | Manufacturing and QA | 22 | | Sales, Clinical Support, Marketing | 28 | | Administrative and Finance | 9 | | Total | 80 | - The company aims to provide market-based compensation and retain employees, with new hires receiving industry-relevant compliance training[155] - During 2021, all employees were retained at full salary, with remote work options provided where possible due to the COVID-19 pandemic[155] Item 1A. Risk Factors This section details significant risks that could materially and adversely affect ClearPoint Neuro's business, financial condition, results of operations, and stock price, spanning operational, financial, intellectual property, regulatory, and market factors - An investment in the company's common stock involves a high degree of risk[156] - Risks are categorized into those related to business and industry, financial position, intellectual property, legal and regulatory compliance, common stock, and general factors[157] Risks Related to Our Business and Industry ClearPoint Neuro faces business and industry risks including COVID-19 impacts, market adoption challenges, dependence on new product development, inadequate reimbursement, customer concentration, single-location manufacturing, single-source suppliers, and regulatory clearance hurdles - The COVID-19 pandemic could adversely impact the business due to postponement or cancellation of elective surgical procedures (historically 80% of ClearPoint system use) and global supply chain disruptions[158][159] - Broad market adoption of the ClearPoint system is not assured due to factors like shift to MRI suite, MRI scanner availability, physician familiarity with other approaches, and budgetary constraints[160][162] - Future growth depends on marketing and selling the ClearPoint system and new products in the operating room, an area with limited prior experience[163][164] - Long-term growth relies on developing and commercializing new products (e.g., Maestro Brain Model, Laser Ablation System, Robotic-Assisted Navigation) and services, which face challenges in timely development, regulatory authorization, and market acceptance[167][168][171][172] - Inadequate coverage and reimbursement from third-party payors for procedures utilizing products could adversely affect adoption and profitability[175][176][180] - Significant customer concentration (one pharma customer accounted for 18% of total revenue and 43% of biologics/drug delivery revenue in 2021; top five hospital customers for 30% of neurosurgery revenue) poses risks from changes in purchasing policies or economic difficulties[181][182] - Internal manufacturing at a single Irvine, California facility creates supply chain risks from disruptions (e.g., natural disasters, power outages)[183][184] - Reliance on single-source suppliers for many components could harm the ability to meet demand or increase costs[186] - Seeking new indications or claims for products (e.g., ClearPoint system, SmartFlow Cannula) may not result in FDA 510(k) clearance or PMA approval, potentially requiring expensive and time-consuming clinical trials[189][190][191][192][193][194][195] - Failure to obtain necessary clearances, certifications, or approvals for new products (including for operating room expansion) could harm global business growth[197][198][199][200][201][202] - Clinical trial results may not support product claims or could reveal adverse side effects, delaying or terminating product development[203][204] - The medical device market is highly competitive, with larger, well-established companies (e.g., Medtronic, Abbott, Elekta, Brainlab) having significant advantages in resources, product offerings, and market presence[205][206][207][208] - International operations expose the company to economic, political, regulatory, and other risks, including export restrictions, pricing pressure, difficulties in enforcing agreements, and currency fluctuations[209][210][211][213][214] - Disruptions of critical information systems or security breaches could harm business, customer relations, and financial condition due to data loss or operational impairment[215][216][217] - Acquisitions, joint ventures, or investments may not be successful, could dilute ownership, increase debt, or incur significant expenses[218][219][220] - Inability to attract and retain qualified personnel, especially in sales, clinical support, product development, and marketing, could seriously harm business and growth[222][223] Risks Related to Our Financial Position ClearPoint Neuro has incurred significant losses since inception, with a cumulative net loss of approximately $134 million by December 31, 2021, and may require additional funding that could dilute ownership or restrict operations - The company has incurred losses since its inception in 1998, with a cumulative net loss of approximately $134 million through December 31, 2021[224][225][228] - Net cash used in operations was $12.7 million for the year ended December 31, 2021[228] - Profitability is uncertain and depends on revenue from product and service sales, which may be impacted by inflationary pressures[226] - Additional funding may be necessary through equity or debt securities, credit facilities, or strategic partnerships, which may not be available on favorable terms and could lead to dilution or operational restrictions[227][230][231][233][234] - Funding requirements depend on factors like market acceptance, product development costs, expansion of sales/marketing, inventory levels, and regulatory processes[232] Risks Related to Our Intellectual Property ClearPoint Neuro's competitive advantage relies on securing and maintaining intellectual property protection, facing risks of patent challenges, third-party infringement claims, and potential loss of access to integrated third-party software or license agreements - Commercial success depends on obtaining and maintaining patent and other intellectual property protection for technologies, which is highly uncertain and complex[235][236] - Patents and patent applications are subject to interference, IPRs, reissue, reexamination, and opposition proceedings, which could result in loss or reduction of protection[237][239] - Third parties may assert infringement claims, leading to costly disputes, substantial damages, or prohibition from selling products[241][242] - The combination of patents, trade secrets, and contractual provisions may be inadequate to protect intellectual property, allowing competitors to design around patents or misappropriate technologies[243][244][247][248][249] - Loss of access to third-party software integrated into the ClearPoint system software could increase costs and delay new installations[250][251] - Rights to develop and commercialize products are subject to third-party licenses, which may not provide exclusive rights or be adequately managed by licensors, and could be terminated if agreements are breached[252][253][254][255][256][257] Risks Related to Legal and Regulatory Compliance ClearPoint Neuro operates in a highly regulated industry, facing risks from extensive government regulations, potential product recalls, Medical Device Reporting obligations, liability for off-label promotion, and compliance with healthcare fraud, abuse, and privacy laws, with non-compliance leading to severe penalties - The company is subject to extensive regulation by the FDA and other federal, state, and foreign governmental authorities across all aspects of its operations[258] - Failure to comply with regulatory requirements can result in sanctions such as warning letters, fines, injunctions, product recalls, operating restrictions, and refusal of new product approvals[259] - Federal legislation and policy changes, like the Affordable Care Act and Medicare Access Act, could adversely affect business by lowering reimbursements or reducing medical procedure volumes[261][263][264][265][266] - Products may be subject to recalls due to deficiencies or defects, harming reputation and financial condition, and the company is subject to Medical Device Reporting regulations for incidents involving death, serious injury, or malfunction[267][268][269][271][272] - Promoting off-label uses of products, not covered by regulatory clearance, could lead to significant liability, regulatory actions, fines, and product liability claims[273][274][275][276] - Failure by the company or its third-party suppliers to comply with the FDA's Quality System Regulation (QSR) could interrupt manufacturing operations and impact sales[277][278][280] - The company is subject to environmental laws and regulations regarding hazardous materials, potentially incurring significant costs and financial liabilities[281][282] - Compliance with federal and state healthcare fraud and abuse laws (Anti-Kickback Statute, False Claims Act, HIPAA) is critical, with potential for substantial penalties, exclusion from programs, and reputational damage for violations[283][284][286][287][288][289][290] - The company is subject to various laws protecting personal information confidentiality and security, including HIPAA and GDPR, with non-compliance potentially resulting in penalties and reputational damage[291][292][294][295][296] - Exclusive forum provisions in the company's bylaws for disputes with stockholders could limit stockholders' ability to obtain a favorable judicial forum[297][298][299][300] Risks Related to Our Common Stock Risks related to ClearPoint Neuro's common stock include potential subjection to penny stock rules, high market price volatility, depression of stock price from substantial share sales, limitations on net operating losses, no expected dividends, and anti-takeover provisions - If the common stock price falls below $5.00 and it does not retain a Nasdaq Capital Market listing, it could become subject to penny stock rules, reducing trading activity[301][302][303] - The market price of the common stock may be highly volatile due to factors such as product development failures, regulatory changes, competition, financial projections, intellectual property disputes, personnel changes, lawsuits, and market valuations of similar companies[304][305] - Sales of a substantial number of shares in the public market, or the perception of such sales, could depress the market price of the common stock[306][307][309] - The ability to use net operating losses (NOLs) to offset future taxable income may be subject to limitations under Section 382 of the Internal Revenue Code due to potential ownership changes[310] - The company has never paid and does not expect to pay cash dividends in the future, meaning a return on investment depends solely on stock price appreciation[311] - Anti-takeover provisions in the certificate of incorporation, bylaws, and Delaware law could discourage, delay, or prevent a merger, acquisition, or change in control[312][315] - Failure to meet publicly announced guidance or market expectations could cause a decline in the stock price[316][317] - Lack of continued or new coverage by securities analysts or negative reports could negatively impact the market price of common stock[318][319] General Risk Factors General risks include dependence on key personnel, potential damage to reputation, significant product and professional liability risks, and vulnerability to operational interruptions from natural disasters, cyberattacks, and other events beyond control - The company is dependent on its senior management, sales, clinical support, and engineering teams; the loss of any key personnel could seriously harm the business[320][321] - Damage to the company's reputation from employee misconduct, security breaches, unethical behavior, or litigation could harm its competitive position and business prospects[322][323] - The business is exposed to potential product liability and professional liability risks due to the manufacturing, marketing, and sale of medical devices, which could result in injury or death, costly litigation, and reputational damage[324][325][326][327] - Operations are vulnerable to interruption or loss due to natural disasters (e.g., earthquakes, wildfires), pandemics (e.g., COVID-19), power loss, cyberattacks, or terrorist attacks, especially given the single Irvine, California facility[328][329] - Being a public company strains resources and distracts management due to reporting requirements of the Exchange Act, Sarbanes-Oxley Act, and Dodd-Frank Act, requiring significant oversight for disclosure controls and internal controls over financial reporting[330][332][333][334] Item 1B. Unresolved Staff Comments. This item indicates that there are no unresolved comments from the SEC staff - Not applicable[335] Item 2. Properties. ClearPoint Neuro leases approximately 7,500 square feet in Solana Beach, California for its corporate headquarters and R&D, and about 7,400 square feet in Irvine, California for office and manufacturing, with both facilities deemed sufficient for current and near-term needs - The company leases approximately 7,500 square feet in Solana Beach, California for corporate headquarters and R&D[336] - Approximately 7,400 square feet in Irvine, California is leased for office space and a manufacturing facility[336] - These facilities are believed to be sufficient for current and near-term needs[336] Item 3. Legal Proceedings. ClearPoint Neuro is not aware of any material pending legal proceedings to which it is a party or of which its properties are the subject, though it may be subject to various claims in the ordinary course of business - The company is not aware of any material pending legal proceedings[337] - In the ordinary course of business, the company may be subject to various claims, pending and potential legal actions for damages, and investigations[337] Item 4. Mine Safety Disclosures. This item is not applicable to ClearPoint Neuro - Not applicable[339] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. ClearPoint Neuro's common stock trades on the Nasdaq Capital Market under 'CLPT', with 23,690,218 shares outstanding and approximately 225 stockholders as of March 3, 2022, and no anticipated cash dividends - Common stock is traded on the Nasdaq Capital Market under the symbol 'CLPT'[343] - As of March 3, 2022, there were 23,690,218 shares of common stock outstanding and approximately 225 stockholders of record[8][343] - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future[311][344] Equity Compensation Plan Information (as of December 31, 2021) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :------------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------- | :------------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by stockholders | 838,098 | $10.14 | 718,384 | | Equity compensation plans not approved by stockholders | 512,375 | $10.03 | — | | Total | 1,350,473 | $10.10 | 718,384 | Item 6. Selected Financial Data. This item is reserved and contains no selected financial data - This item is reserved[348] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on ClearPoint Neuro's financial condition and operational results, highlighting its evolution into a two-part company, factors influencing future results, critical accounting estimates, and a detailed comparison of financial performance for 2021 versus 2020 - The company is a commercial-stage medical device company focused on minimally invasive brain surgical procedures[350] - ClearPoint Neuro has evolved into two parts: medical devices for neurosurgery and partnerships with pharmaceutical companies in biologics and drug delivery[351] - Revenue is primarily from product sales (functional neurosurgery, navigation, therapy, biologics/drug delivery disposables, capital equipment, software), service revenue (installation, training, shipping), and consultation/clinical case support[353] - The company has incurred significant losses since its 1998 inception, with accumulated losses of approximately $134 million as of December 31, 2021[354] Overview ClearPoint Neuro is a commercial-stage medical device company specializing in innovative platforms for minimally invasive brain surgery, expanding into operating room neurosurgical devices and pharmaceutical consulting services, with accumulated significant losses since inception - The company develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain[350] - Since 2020, the company has comprised two parts: medical devices for neurosurgery and partnerships with pharmaceutical companies in biologics and drug delivery[351] - The ClearPoint system is used for inserting deep brain stimulation electrodes, biopsy needles, and laser catheters, and in 2021, the SmartFrame Array Neuro Navigation System was launched for operating room placement[352] - Revenue sources include product sales (disposables, capital equipment, software), service revenue (installation, training, shipping), and consultation/clinical case support[353] - The company has accumulated losses of approximately $134 million as of December 31, 2021[354] Factors Which May Influence Future Results of Operations Future results are influenced by the ongoing COVID-19 pandemic, key performance indicators like case volume and partner numbers, and increasing expenses in R&D, sales and marketing, and general and administrative to support growth - The COVID-19 pandemic continues to influence future results, particularly due to the postponement or cancellation of elective surgical procedures (historically 80% of ClearPoint system use) and potential supply chain disruptions[357][358] - Functional neurosurgery navigation: Key indicators are case volume (929 cases in 2021, up 36% from 682 in 2020) and number of 'Active Surgery Centers' (approximately 60 in 2021, comparable to 2020) - Biologics and drug delivery: Key indicator is the number of 'Partners' (approximately 40 in 2021, up from 25 in 2020), as commercial success is uncertain and dependent on clinical trials - Therapy products: Expect limited revenue in 2022, with milestones focused on product refinement and regulatory clearance - Global scale and efficiency: Future KPIs will mirror U.S. business (case volume, active surgery centers, partners) as international presence expands[359][361][362][363] - Product revenue was $11.9 million in 2021 (up from $8.8 million in 2020), and service revenue was $4.4 million in 2021 (up from $4.0 million in 2020)[365] - Cost of revenue includes direct costs for product assembly, components, manufacturing overhead, depreciation of loaned systems, and inventory provisions[367] - Research and development costs are expected to increase due to continued enhancements to the ClearPoint system and expansion of technological platforms[369] - Sales and marketing, and general and administrative expenses are expected to increase due to commercialization efforts and headcount growth[371] Critical Accounting Estimates ClearPoint Neuro's financial statements rely on critical accounting estimates for revenue recognition, inventory valuation, and share-based compensation, involving complex judgments in identifying performance obligations, allocating contract prices, and fair valuing equity awards - Critical accounting estimates include revenue recognition, inventory, and share-based compensation[372][373] - Revenue is recognized when control of products and services is transferred to customers, involving identifying contracts, performance obligations, contract price, and allocation[374] - Functional neurosurgery navigation, biologics/drug delivery, and therapy product sales: Revenue recognized at point of delivery - Capital equipment and software sales: Recognized upon receipt of executed purchase agreement/order (if preceded by evaluation) or delivery (if not) - Services (functional neurosurgery, therapy, consultation): Recognized at point in time performance obligation is satisfied - Clinical Service Access Fees: Recognized ratably over the period covered by fees - Clinical Service Procedure-Based Fees: Recognized at point in time a case is attended - Equipment service: Recognized ratably on a monthly basis over the service agreement term[376][377][378][379][380][381][382][383][386][387] - Inventory is carried at the lower of cost (FIFO) or net realizable value, with periodic review for obsolete items and reserve provisions[388] - Share-based compensation is accounted for based on fair value at grant date, amortized over the vesting period, using the Black-Scholes valuation model with subjective assumptions (expected stock volatility, estimated award terms, risk-free interest rates)[389] Results of Operations ClearPoint Neuro's total revenue increased by 27% to $16.3 million in 2021, driven by growth in neurosurgery and biologics/drug delivery, but net loss more than doubled to $14.4 million due to substantial increases in R&D, sales and marketing, and general and administrative expenses Consolidated Statements of Operations Summary (Dollars in thousands) | Metric | 2021 | 2020 | Change (%) | | :-------------------------------------- | :---------- | :---------- | :--------- | | Product revenue | $11,913 | $8,832 | 35% | | Service and other revenue | $4,386 | $3,997 | 10% | | Total revenue | $16,299 | $12,829 | 27% | | Cost of revenue | $5,008 | $3,709 | 35% | | Gross Profit | $11,291 | $9,120 | 24% | | Research and development costs | $8,985 | $4,686 | 92% | | Sales and marketing expenses | $6,919 | $5,384 | 29% | | General and administrative expenses | $8,761 | $5,270 | 66% | | Operating loss | $(13,374) | $(6,220) | 115% | | Other (expense) income, net | $(63) | $882 | (107)% | | Interest expense, net | $(973) | $(1,444) | (33)% | | Net loss | $(14,410) | $(6,782) | 112% | | Net loss per share (Basic and diluted) | $(0.69) | $(0.43) | 60% | | Weighted average shares outstanding | 20,734,236 | 15,849,667 | 31% | - Functional neurosurgery navigation and therapy revenue increased 30% to $8.1 million in 2021, primarily due to the resumption of elective surgery procedures post-COVID-19[393] - Biologics and drug delivery revenue increased 31% to $6.8 million in 2021, driven by an increase in customers and the resumption of pre-clinical research and clinical trials[394] - Capital equipment and software revenue remained consistent at $1.4 million in 2021, reflecting low hospital capital equipment acquisition activity[395] - Gross margin decreased from 71% in 2020 to 69% in 2021, mainly due to increased overhead allocated to cost of sales, partially offset by a higher contribution from disposable products and service revenue[396] - Research and development costs increased 92% to $9.0 million in 2021, driven by higher personnel costs ($2.3 million) and product/software development ($2.2 million) for new products and platform expansion[397] - Sales and marketing expenses increased 29% to $6.9 million in 2021, primarily due to increased personnel costs ($1.0 million), travel ($0.4 million), and marketing activities ($0.1 million)[398] - General and administrative expenses increased 66% to $8.8 million in 2021, mainly due to increases in share-based compensation ($1.0 million), professional fees ($0.4 million), personnel costs ($0.4 million), and insurance costs ($0.4 million)[399] - Other expense was $0.1 million in 2021, a decrease from $0.9 million in other income in 2020, primarily due to the gain recognized from the forgiveness of the PPP Loan in 2020[401] - Net interest expense decreased 33% to $1.0 million in 2021, mainly due to the repayment of 2010 Secured Notes and the conversion of 2020 Secured Notes[402] Liquidity and Capital Resources As of December 31, 2021, ClearPoint Neuro had $54.1 million in cash and cash equivalents, primarily from a 2021 public equity offering, and despite cumulative net losses of $134 million, management believes current cash is sufficient for at least the next twelve months - Cash and cash equivalent balances aggregated $54.1 million at December 31, 2021[403] - The cash balance resulted primarily from a 2021 public equity offering ($46.8 million net proceeds) and 2020 private note issuances[403][408] - The company had a cumulative deficit of approximately $134 million and used $12.7 million cash in operations for the year ended December 31, 2021[404] - Management believes current cash and cash equivalents are sufficient to support operations and meet obligations for at least the next twelve months[409] - In 2020, the company issued $17.5 million in First Closing Notes and $7.5 million in Second Closing Notes, with portions converted into common stock in 2021[405][406][407] Cash Flows ClearPoint Neuro's cash flows in 2021 saw a net increase of $34.0 million, primarily driven by $46.9 million from financing activities, offsetting $12.7 million used in operating activities and $0.2 million in investing activities Cash Flow Summary (in thousands) | Cash Flow Type | 2021 | 2020 | | :------------------------------ | :---------- | :---------- | | Cash from operating activities | $(12,697) | $(7,807) |\ | Cash from investing activities | $(168) | $(482) |\ | Cash from financing activities | $46,875 | $22,692 |\ | Net change in cash and cash equivalents | $34,010 | $14,403 | - Net cash used in operating activities increased from $7.8 million in 2020 to $12.7 million in 2021, primarily due to the net loss, increases in accounts receivable and inventory, and a decrease in lease liabilities[412][413][414] - Net cash used in investing activities decreased from $0.5 million in 2020 (licensing rights acquisition) to $0.2 million in 2021 (equipment acquisitions)[415] - Net cash provided by financing activities increased from $22.7 million in 2020 to $46.9 million in 2021, mainly from the public offering of common stock ($46.8 million), stock option/warrant exercises ($0.5 million), and employee stock purchase plan ($0.2 million)[416][417] Operating Capital and Capital Expenditure Requirements ClearPoint Neuro has not yet achieved profitability and anticipates continued net losses as it expands commercialization and pursues new technology applications, with future capital requirements uncertain and dependent on various operational and market factors - The company has not achieved profitability and expects to continue incurring net losses as it expands commercialization and pursues additional technology applications[418] - Future capital requirements are uncertain and depend on factors such as market acceptance, product development costs, expansion of sales/marketing, inventory levels, technological developments, collaborative arrangements, clinical trials, regulatory filings, and intellectual property costs[419][420][421] Item 7A. Quantitative and Qualitative Disclosures About Market Risk. This item is not applicable to ClearPoint Neuro, indicating no material quantitative or qualitative disclosures about market risk are required - Not applicable[422] Item 8. Financial Statements and Supplementary Data. This section incorporates by reference the audited consolidated financial statements of ClearPoint Neuro, Inc. for the years ended December 31, 2021 and 2020, along with the Report of Independent Registered Public Accounting Firm, detailing balance sheets, statements of operations, stockholders' equity, cash flows, and comprehensive notes - The Report of Independent Registered Public Accounting Firm and Financial Statements are set forth on pages F-2 to F-25 of this Annual Report[423] - The financial statements include Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[446][468] Report of Independent Registered Public Accounting Firm Cherry Bekaert LLP provided an unquali