ClearPoint Neuro, Inc.: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed Consolidated Financial Statements and the related notes thereto appearing in Part I, Item 1 of this Quarterly Report. This discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks, assumptions and uncertainties. You should review the section titled “Risk Factors” appearing in our 2024 Form 10-K and in Part II, Item 1.A of this Quarterly Report for a discussion of important risk factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis. In addition, historical results and trends that might appear in this Quarterly Report should not be interpreted as being indicative of future operations.

Overview

We are a commercial-stage medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain. We have deployed significant resources to fund our efforts to develop the capabilities for enabling neurosurgery interventions, building an intellectual property portfolio, and identifying and building out commercial applications for the technologies developed by our company.

The foundational part of our business is providing medical devices for neurosurgery applications. Our primary medical device product, the ClearPoint system, is an integrated system comprised of hardware components, disposable components, and intuitive, menu-driven software, which is in commercial use globally. The primary applications for the ClearPoint system are to target and guide the insertion of deep brain stimulation electrodes, biopsy needles, and laser catheters, as well as the infusion of pharmaceuticals into the brain. The ClearPoint system was originally designed for use in an MRI setting. In 2021, we launched the SmartFrame Array Neuro Navigation System and Software, which allow for operating room placement of the ClearPoint system, and in 2024, we commenced limited market release of the SmartFrame OR Stereotactic System, which allows for complete procedures to be performed in the operating room. In 2022, we commercialized the ClearPoint Prism Neuro Laser Therapy System as our first therapy product offering. We have exclusive global commercialization rights to the ClearPoint Prism Neuro Laser Therapy System through our Swedish partner, CLS.

The second part of our business is focused on partnerships in the biologics drug and delivery space. Our services include protocol consultation and solutions for preclinical study design and execution for the delivery of pharmaceutical agents to the brain. Currently, we have more than 60 biologics and drug delivery customers who are evaluating using our products and services in trials to inject gene and cell therapies directly into the brain. These partnerships involve drug development programs that are at various stages of development ranging from preclinical research to late-stage regulatory trials for multiple distinct disease states. This part of our business potentially represents the largest opportunity for growth; however, our ability to grow in this market is dependent on our ability to maintain and establish new relationships with customers, such customers' continuation of research and development plans, and such customers' achievement of success in completion of clinical trials and subsequent regulatory approvals of their biologics and drugs.

Substantially all our revenue for the three months ended March 31, 2025 and 2024 relates to (i) sales of our ClearPoint system products and related services and (ii) consulting services from our customers in the biologics and drug delivery space. We have financed our operations and internal growth primarily through the sale of equity securities and the issuance of notes payable. We have incurred significant losses since our inception in 1998 as we have devoted substantial efforts to research and development. As of March 31, 2025, we had accumulated losses of $197.4 million. We may continue to incur operating losses as we expand our ClearPoint system platform, consulting services to our pharmaceutical and other medical technology customers, and our business generally.

Factors Which May Influence Future Results of Operations

The following is a description of factors that may influence our future results of operations, and that we believe are important to an understanding of our business and results of operations.

Macroeconomic Trends

We continue to monitor the impacts of various macroeconomic trends, such as inflationary pressure, changes in monetary policy, decreasing consumer confidence and spending, the introduction of or changes in tariffs or trade barriers, and global or local recession. Such changes in domestic and global macroeconomic conditions may lead to increased costs for our business. Additionally, these macroeconomic trends could adversely affect our customers, which could impact their willingness to spend on our products and services, or their ability to make payments, which could harm our collection of accounts receivable and financial results. The world’s financial markets remain susceptible to significant stresses, resulting in reductions in available credit and government spending, economic downturn or stagnation, foreign currency fluctuations and volatility in the valuations of securities generally. As a result, our ability to access capital markets and other funding sources in the future may not be available on commercially reasonable terms, if at all. The rapid development and fluidity of these situations precludes any prediction as to the ultimate impact they will have on our business, financial condition, results of operation and cash flows, which will depend largely on future developments.

Revenue

In 2010, we received 510(k) clearance from the FDA to market our ClearPoint system in the U.S. for general neurosurgical procedures; in February 2011 and May 2018, we also obtained CE marking for our ClearPoint system and SmartFlow cannula, respectively; and in June 2020, we obtained CE marking for version 2.0 of our ClearPoint software and our Inflexion head fixation frame. In January 2021, we received 510(k) clearance for the SmartFrame Array Neuro Navigation System. In September 2022, the ClearPoint Prism Neuro Laser Therapy System, for which we have exclusive global rights to commercialize, received 510(k) clearance through our Swedish partner, CLS. The Prism laser represents the first therapy product we have commercialized. In January 2024, we received 510(k) clearance from the FDA for the SmartFrame OR Stereotactic System.

In 2021, we started providing consulting services to our pharmaceutical and other medical technology customers for improving outcome predictability and optimizing preclinical and clinical workflows. Our expertise is concentrated in benchtop testing, preclinical studies, clinical trial support, regulatory consultation, and over-arching translation from the preclinical to the clinical setting to enhance accuracy and precision of drug delivery.

Future revenue from sales of our ClearPoint platform products and services is difficult to predict and may not be sufficient to offset our continuing research and development expenses and our increasing selling, general and administrative expenses.

Generating recurring revenue from the sale of products is an important part of our business model for our ClearPoint system. Our product revenue was $5.3 million for the three months ended March 31, 2025, and was almost entirely related to our ClearPoint system. Our service revenue was $3.2 million for the three months ended March 31, 2025, of which 91% is related to the biologics and drug delivery service line.

Our revenue recognition policies are more fully described in Note 2 to the Condensed Consolidated Financial Statements included above in Part I, Item 1 in this Quarterly Report.

Underlying the revenue from sales of products and services to our biologics and drug delivery customers is the number of direct customers and end users of our products and/or services (“Partners”). Our Partners consist of pharmaceutical and biotech companies, academic institutions, or customer-sponsored contract research organizations that are developing methods to deliver a wide variety of molecules, genes or proteins to targeted brain tissue or structures that would need to bypass the blood-brain barrier for the treatment of a variety of disorders. This is a novel area in which commercialization must be preceded by FDA-mandated clinical trials, which are expensive and time consuming to conduct, and for which the commercial success is uncertain, pending, in part, on the outcome of those trials. While our revenue from sales of products and services to our biologics and drug delivery customers is indicative of growth, the number of Partner relationships is also of importance as we recognize the possibility that some Partners’ research will reach commercial success, and others may not. To the extent our Partners achieve commercial success, our expectation is that we will share in such success through our Partners’ use of our products and services in their delivery of therapies. At March 31, 2025, we had more than 60 Partners, as compared to more than 50 Partners as of the same date in 2024.

Cost of Revenue

Cost of revenue includes the direct costs associated with the assembly and purchase of components for functional neurosurgery navigation products, biologics and drug delivery products, non-neurosurgery therapy products, and ClearPoint capital equipment and software that we have sold, and for which we have recognized the revenue in accordance with our revenue recognition policy, as well as labor hours and materials for the cost of providing pre-clinical, consulting, and service revenue. Cost of revenue also includes the allocation of manufacturing overhead costs and depreciation of loaned systems installed under our ClearPoint placement program, as well as provisions for obsolete, impaired, or excess inventory.

Research and Development Costs

Our research and development costs consist primarily of costs associated with the conceptualization, design, testing, and prototyping of our ClearPoint system products and enhancements. Such costs include salaries, travel, and benefits for research and development personnel; materials and laboratory supplies in research and development activities; outside consultant costs; and licensing costs related to technology not yet commercialized. We anticipate that, over time, our research and development costs may increase as we: (i) develop devices and services intended for delivery of therapeutics into the central nervous system, (ii) expand products into the operating room and therapeutics space, and (iii) expand the application of our technological platforms internationally.

Product development timelines, likelihood of success, and total costs can vary widely by product candidate. There are also risks inherent in the regulatory clearance and approval process. At this time, we are unable to estimate with any certainty the costs that we will incur in our efforts to expand the application of our technological platforms.

Sales and Marketing, and General and Administrative Expenses

Our sales and marketing, and general and administrative expenses consist primarily of salaries, incentive-based compensation, travel and benefits, including share-based compensation; marketing costs; professional fees, including fees for outside attorneys and accountants; occupancy costs; insurance; and other general and administrative expenses, which include, but are not limited to, corporate licenses, director fees, hiring costs, taxes, postage, office supplies, information technology and meeting costs. Our sales and marketing expenses are expected to continue to increase due to costs associated with the continued commercialization of our products and services and the increased headcount necessary to support growth in operations.

Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2025, as compared to the critical accounting policies and estimates described in our 2024 Form 10-K.

Results of Operations

Three Months Ended March 31, 2025, Compared to the Three Months Ended March 31, 2024

(Dollars in thousands)

NM – The percentage change is not meaningful.

Revenue. Total revenue was $8.5 million for the three months ended March 31, 2025, and $7.6 million for the three months ended March 31, 2024, which represents an increase of $0.8 million, or 11%.

(Dollars in thousands)

Biologics and drug delivery revenue, which includes sales of disposable products and services related to customer-sponsored preclinical and clinical trials, increased 9% to $4.7 million for the three months ended March 31, 2025, from $4.3 million for the same period in 2024. This increase is attributable to $1.2 million of higher product revenue resulting from greater demand for disposables as multiple partners progress in their trials, partially offset by a $0.8 million decrease in service revenue and other revenue due to less work performed in preclinical trials and consulting during the three months ended March 31, 2025, compared to the same period in 2024.

Neurosurgery navigation and therapy revenue, which primarily consists of disposable product commercial sales related to cases utilizing the ClearPoint system, increased 70% to $3.3 million for the three months ended March 31, 2025, from $1.9 million for the same period in 2024. The increase is driven by higher sales for new product offerings of SmartFrame OR and Prism Laser Therapy as well as an increased customer base, during the three months ended March 31, 2025, compared to the same period in 2024.

Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software and related services, decreased 63% to $0.5 million for the three months ended March 31, 2025, from $1.4 million for the same period in 2024 due to a decrease in the placements of ClearPoint navigation capital and software and Prism laser units.

Cost of Revenue and Gross Profit. Cost of revenue was $3.4 million, resulting in gross profit of $5.1 million for the three months ended March 31, 2025, and was $3.1 million, resulting in gross profit of $4.5 million for the three months ended March 31, 2024. Gross margin was 60% for the three months ended March 31, 2025, as compared to 59% in the same period in 2024. The increase in gross margin is due to lower excess and obsolete inventory for the three months ended March 31, 2025, as compared to the same period in 2024.

Research and Development Costs. Research and development costs were $3.4 million for the three months ended March 31, 2025, compared to $2.6 million for the same period in 2024, an increase of $0.8 million, or 29%. The increase was due primarily to higher product development costs of $0.4 million, higher personnel costs, including share-based compensation of $0.2 million, and higher regulatory fees of $0.1 million.

Sales and Marketing Expenses. Sales and marketing expenses were $3.8 million for the three months ended March 31, 2025, compared to $3.3 million for the same period in 2024, an increase of $0.5 million, or 17%. This increase was due primarily to additional personnel costs, including share-based compensation, resulting from increases in headcount.

General and Administrative Expenses. General and administrative expenses were $4.1 million for the three months ended March 31, 2025, compared to $2.8 million for the same period in 2024, an increase of $1.3 million, or 44%. This increase was due primarily to higher bad debt expense, higher personnel costs, including share-based compensation, and higher professional service fees, each in the amount of $0.4 million.

Interest Income, net. Net interest income was $0.2 million and $0.1 million for the three months ended March 31, 2025 and 2024, respectively. The increase in net interest income is a result of having no interest expense in the three months ended March 31, 2025 due to the full repayment of the First Closing note in August 2024, partially offset by lower interest income as a result of decreased investment in U.S. Government securities. See Note 6 to the Condensed Consolidated Financial Statements included in Part 1, Item 1 in this Quarterly Report for additional information with respect to the First Closing Note.

Liquidity and Capital Resources

We have incurred net losses since our inception, which has resulted in a cumulative deficit at March 31, 2025 of $197.4 million. In addition, our use of cash from operations amounted to $6.2 million for the three months ended March 31, 2025, and $9.0 million for the year ended December 31, 2024. Since inception, we have financed our operations principally from the sale of equity securities and the issuance of notes payable.

In March 2024, we completed a public offering of 2,653,848 shares of our common stock from which the net proceeds totaled approximately $16.2 million after deducting our payment of underwriting discounts and commissions and other offering expenses. In November 2024, we entered into an ATM Agreement pursuant to which we may offer and sell, from time to time, shares of our common stock, having aggregate sales proceeds of up to $50 million, subject to the terms and conditions of the ATM Agreement. Through March 31, 2025, we did not issue any shares of common stock under the ATM Agreement.

In August 2024, we repaid in full the remaining $10 million outstanding under the secured convertible notes issued in 2020 to two investors raising gross proceeds of $25 million, of which $15 million had been previously converted to common stock.

Additional information with respect to the public offerings and 2020 secured convertible notes is in Notes 8 and 6, respectively, to the condensed consolidated financial statements included in Part 1, Item 1 in this Quarterly Report.

As a result of these transactions and our business operations, our cash and cash equivalents totaled $12.4 million at March 31, 2025. In management’s opinion, based on our current forecasts for revenue, expense and cash flows, our existing cash and cash equivalent balances at March 31, 2025, are sufficient to support our operations and meet our obligations for at least the next twelve months.

Cash Flows

Cash activity for the three months ended March 31, 2025 and 2024 is summarized as follows:

(in thousands)

Net Cash Flows from Operating Activities. Net cash flows used in operating activities for the three months ended March 31, 2025, were $6.2 million, an increase of $2.3 million from the three months ended March 31, 2024. This increase was primarily due to a higher net loss of $1.9 million and higher payments made against accrued liabilities, mainly as a result of bonus payouts, partially offset by higher share-based compensation expense and deferred revenue.

Net Cash Flows from Investing Activities. Net cash flows used in investing activities for the three months ended March 31, 2025 were $0.2 million and related to equipment acquisitions.

The Company did not have any net cash flows from investing activities for the three months ended March 31, 2024.

Net Cash Flows from Financing Activities. Net cash flows used in financing activities for the three months ended March 31, 2025, consisted primarily of payments for taxes related to shares withheld in connection with the vesting of restricted stock awards of $1.3 million.

Net cash flows provided by financing activities for the three months ended March 31, 2024, consisted of proceeds, net offering costs, of $16.2 million received from the public offering of our common stock, partially offset by payments for taxes related to shares withheld in connection with the vesting of restricted stock awards of $0.2 million.

Operating Capital and Capital Expenditure Requirements

To date, we have not achieved profitability. We could continue to incur net losses as we continue our efforts to expand the commercialization of our products and services and pursue additional applications for our technology platforms. Our cash balances are primarily held in a variety of demand accounts with a view to liquidity and capital preservation.

Because of the numerous risks and uncertainties associated with the development and commercialization of medical devices, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to successfully commercialize our products and pursue additional applications for our technology platforms. Our future capital requirements will depend on many factors, including, but not limited to, the following:

• the ultimate duration and impact of macroeconomic trends, including inflationary pressures, changes in monetary policy, decreasing consumer confidence and spending, the introduction of or changes in tariffs or trade barriers, global or local recession, and geopolitical instability;
• the timing of broader market acceptance and adoption of our products;
• the scope, rate of progress and cost of our ongoing product development activities relating to our products;
• the ability of our Partners to achieve commercial success, including their use of our products and services in their preclinical studies, clinical trials and delivery of therapies;
• the cost and timing of expanding our sales, clinical support, marketing and distribution capabilities, and other corporate infrastructure;
• the cost and timing of establishing inventories at levels sufficient to support our sales;
• the effect of competing technological and market developments;
• the cost of pursuing additional applications of our technology platforms under current collaborative arrangements, and the terms and timing of any future collaborative, licensing or other arrangements that we may establish;
• the cost and timing of any clinical trials;
• the cost and timing of regulatory filings, clearances and approvals; and
• the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

Interest Rate Risk

Our exposure to market risk is limited primarily to interest income and expense sensitivity, which is affected by changes in the general level of U.S. interest rates.

Our investments are in short-term bank deposits, short-term U.S. Government debt securities, and institutional money market funds. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. In the event we invest in short-term investments, due to the nature of our short-term investments and the Company's intent to hold such debt securities to maturity, we believe that we are not subject to any material market risk exposure.

Foreign Currency Risk

To date, we have not recorded a significant amount of sales in currencies other than U.S. dollars, and have only limited business transactions in foreign currencies. We do not currently engage in hedging or similar transactions to reduce our foreign currency risks, which at present, are not material. We do not believe we have material exposure to risk from changes in foreign currency exchange rates at this time. We will continue to monitor and evaluate our internal processes relating to foreign currency exchange, including the potential use of hedging strategies.

Disclosure Controls and Procedures

We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that material information relating to us is made known to our principal executive officer and principal financial officer by others within our organization. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2025 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2025.

Changes in Internal Control Over Financial Reporting

During the quarter ended March 31, 2025, there were no changes in our internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.