ClearPoint Neuro (CLPT) is a medical device company that develops and commercializes platforms for performing minimally invasive surgical procedures. Its products are used in deep-brain stimulation (“DBS”), laser ablation, biopsy, neuro-aspiration, and delivery of drugs, biologics and gene therapy to the brain.
The ClearPoint Neuro Navigation System (CNNS) consists of hardware (“razors”), disposable components (“blades”) and software that helps guide surgeons during procedures. It has FDA clearance, is CE-marked, and is installed in 60 active clinical sites in the United States.
(Source: CLPT Investor Presentation)
The Current State of Neurosurgery
Currently, only a fraction of all neurological disorders are treated surgically. The major barrier is a lack of real-time MRI images that allow surgeons to perform with more precision and easily make adjustments when needed during surgery should the patient’s brain shift.
(Source: CLPT Investor Presentation)
In traditional neuro surgeries, the patient is sent to a MRI suite to take images of the brain, then a large head frame is placed around the patient’s head to identify the target location for the surgery and to immobilize the patient. The patient is then wheeled to the surgery room where the operation is performed.
Because the patient is moved during this process they are typically taken off medication and have to be awake during the entire process.
To make matters worse, oftentimes the patient’s brain may have moved slightly during transport. Even a millimeter shift can have devastating outcomes during surgery. Without real-time imaging, the surgeon will not notice the shift until after a brain penetration, resulting in the surgeon having to make two (or more) brain penetrations during surgery.
How the ClearPoint Platform Works
First and foremost, the entire procedure occurs within a standard hospital-based MRI suite. Once placed in the MRI scanner, the patient’s head is immobilized in the head fixation frame with the patient’s head accessible to the surgeon. Everything occurs inside the MRI suite; the patient remains immobilized during the entire process.
The ClearPoint SmartGrid patch is then placed onto the patient’s head where the surgeon expects to enter the skull. The patient is then moved to the center of the MRI scanner and images are taken of the patient’s brain that include the target area.
Once the imaging is complete, the images are transferred to the ClearPoint system workstation so that the surgeon can determine the specific target site within the brain as well as the optimal trajectory path during surgery.
Disposables – SmartFrame Device
After this, the ClearPoint SmartFrame® device, a single-use, disposable trajectory frame that is MRI-compatible (unlike the larger head frames used in traditional surgical procedures) and enables the MRI-guided alignment and insertion of devices used during ClearPoint procedures, is placed and adjusted from outside the bore of the MRI scanner with a disposable physician controller.
The ClearPoint software is an intuitive software system that provides the surgeon with guidance throughout the entire procedure, from planning, device alignment, targeting, as well as continuous monitoring throughout the surgery.
Here is a more detailed video of how the ClearPoint hardware, disposables, and software platform works.
Comparison with Medtronic
Another, much larger player in the space is Medtronic (MDT). Medtronic has a system called Nexframe, a FDA-approved MR-conditional stereotactic aiming system for DBS electrode implantation. To perform the MR-guided electrode placement, general anesthesia and prepping are performed in a room close to an interventional MR scanner. The patient is then transported and placed in the bore of an MR scanner and kept immobilized throughout the surgery.
Below is how the two systems compare:
1.) Real Time Images vs Static Images
With real-time intraoperative MR image guidance and remotely control capability, the ClearPoint platform has better targeting accuracy versus NexFrame. In standard neuro procedures including NexFrame, imaging for planning and the procedure itself are typically performed in separate suites and the surgeon relies on static images vs real-time images of the patient with ClearPoint.
2.) Can Be Used in a Multitude of Procedures
Unlike NexFrame, ClearPoint can be used in a variety of procedures: placing laser ablation probes, drug delivery catheters and brain biopsy needles, which could potentially reduce the training cost for the surgeon to master the skill to operate the ClearPoint system.
3.) Patient Quality of Life During Surgery
The most glaring advantage that ClearPoint has over Nexframe is the patient does not need to be moved from room to room for imaging planning and operating. Again, moving the patient may result in shifts in the brain due to movement from suite to suite. As a result patients are typically taken off medication and have to be awake during the entire process. With ClearPoint, real-time imaging lets the patient be under general anesthesia for the entire procedure, improving the patient’s quality of life.
4.) Medtronic NexFrame Recall
In June 2020, MDT received a FDA recall notice for its NexFrame. The notice was as follows:
Entry point and lead placement inaccuracies during deep brain stimulation lead implantation procedures may occur when using a specific combination of the firm’s Steriotactic System and auto-registration feature with a specific imaging system (also known as a fiducial-less procedure). Minor patient movement may not be initially detected by the user or the software during the auto-registration scan process potentially resulting in inaccuracies and risks for the patient including: inaccurate lead placement, delay of surgery, aborted surgery, or additional intervention (including revision of the lead placement and subsequent imaging).
5.) Single Penetration During Surgery
UCSF completed a 26 study of Parkinson’s patients assessing the advantages of the ClearPoint. In their study they showed that on average just a single brain penetration was used for placement of all leads (vs a minimum of 2 in traditional neurosurgery), and the mean targeting error was 0.6 ± 0.3 mm, roughly 4X more precise than the NexFrame from MDT.
ClearPoint Revenue Model
ClearPoint’s initial hardware and software are sold to healthcare facilities for roughly $100,000 to $150,000. The real sauce is in the disposables / services, which range from $6,000 to $12,000 per procedure and now make up 85% of total revenues and come with 80%+ gross margins.
Breaking down the disposables/services segment further, in a prior investor presentation the company disclosed the number of cases their disposables were used in for 2013 to 2019:
Roughly half of the cases in 2019 came from DBS and the bulk of the rest came from MRI-guided laser interstitial thermal therapy (MRgLITT)—also known as MRI-guided laser ablation. CLPT estimates that there were 1,200 MRgLITT procedures in 2019 (with CLPT being used in 30% of such procedures) and they expect such procedures to roughly double by 2022-23.
(source: CLPT Investor Presentation)
The company guided for 15% growth in case volume in 2020; however, COVID-19 hit and dropped elective surgeries to 0 in March. In the company’s Q2 2020 earning’s call in August, the company disclosed that case volume had picked up dramatically and is nearing pre-Covid levels:
We were encouraged by the speed in which elective case procedures bounced back in June to about 85% of the pre-COVID run rate…we did 11 cases in April, we did 44 in May, and then we did 71 in June. So you can see the trend is certainly in the right direction.
We estimate that had COVID-19 not hit, revenues for the company would have likely been $3.4M in Q2 2020 or up roughly 30% year on year.
Also included in this disposables segment is Biologics & Drug Delivery Products and Partnerships revenue, easily the most exciting piece of this story and where we believe the potential for exponential growth lies.
Gene Therapy and Drug Delivery: Exponential Growth Potential
CEO Joseph Burnett was brought on to lead CLPT in late 2017 from Philips. Burnett has spearheaded the initiative to get clinical trials to use the ClearPoint platform. Management had stated in the past that that they want to be the equivalent of a “biotech portfolio play”, one where their machine is used in a multitude of trials to deliver drugs to patients during neurosurgery.
In February 2020, Burnett said the following:
“We have evolved to become two companies in one”, continued Burnett. “On one side, we are a platform medical device company, consistently delivering double digit growth, and continuing to expand our installed base of neurosurgery centers in the U.S. Every year more surgeons and more patients gain access to the ClearPoint system and compatible disposable devices. On the other side of the business, we are a gene therapy and biologics enabling company, providing navigation, drug delivery, and case support to more than 20 companies in this exciting and growing space. Here we currently support pre-clinical and clinical efforts, but we believe that we are on the precipice of potentially explosive growth as these therapies progress through the regulatory process toward commercial launch. We feel that our company represents both scale and purpose through a unique combination of predictable device growth and a potential biologics opportunity, all supported under a common team dedicated to treating the most debilitating neurological disorders.
Just 3 years ago the company was only in 5 clinical trials, delivering their partner’s biologics to patients via the ClearPoint platform.
Now the company has 20 clinical trials using its platform where it gets a substantial ($8000+) piece of every single surgery. Below is a great overview we obtained on Twitter that was published by F.B. Riley discussing the opportunity set here.
The upside could be incredibly large: target populations in their partners 20 (and more on the way – the company disclosed another 5 partners they are in discussion with in their August 2020 earnings call) trials numbers between 300,000 and 500,000 per year. This figure excludes prostate and spine surgeries, which are areas of future focus for CLPT. The opportunity here is roughly $1.8 to $5 Billion per year.
The company has only scratched the surface here with biologics and drug delivery revenues. In Q2, this segment was up 183% despite significant disruptions due to Covid. In February, the company guided to $5M revenues in this segment for 2020, which seems achievable given the growth in Q1 and Q2. Below is a breakdown of this segment’s revenue over the past few years:
While these trials are obviously subject to FDA approval, the more trials they’re used in the higher the likelihood that one of them will be approved. And the outcome of any single trial doesn’t change CLPT’s future.
Recent Financial Performance
Below are the most recent 5 years’ financials. As you can see, gross margins have expanded dramatically as the case volume and biologics revenues, both of which carry 80%+ margins, have grown.
The leverage here is telling. We estimate that the company is likely down to about $500,000 cash burn per quarter when elective surgeries return to pre-Covid levels. The company had $16 Million cash on hand at the end of Q2 so we do not believe that cash is a concern.
And when you consider the possibility of any one of the above trials getting approved, the operating leverage is substantial. Should any one of the smaller trials (TAM of $10M to $12M per year each) from PTC Therapeutics (PTCT) get approved, we estimate that $8M to $10M of gross profit would fall to the bottom line and the company would generate $4M to $7M in profit. Because the company is already integrated with its trial partners as a key supplier, the company is poised to capture all of the upside with zero downside risk.
Additionally, we believe these revenue streams are extremely sticky. We believe that as some of their partner’s therapies obtain approval, the partners will use their platform over the life of the drug as changing it would result in revalidation of the drugs safety and years of additional trials to obtain authorized use by regulatory agencies.
We’re very encouraged by strategic investments that their trial partners made in CLPT, which further validates the importance of their platform.
In 2016, Voyager Therapeutics (VYGR), a clinical trial partner, invested in CLPT and it currently owns about a 4% stake in the company.
In 2019, PTCT, another clinical trial partner, purchased $4 Million of CLPT common stock and the two companies entered into a supply agreement.
As a follow up, in early 2020 PTCT partnered with Petrichor, a well respected healthcare money management firm, and the two companies announced a strategic investment of $17.5 Million in CLPT. Another firm we have followed, Cryoport (CYRX), received a strategic investment from Petrichor in late 2018 and the stock has gone up 400% since that investment. Past isn’t prologue, but it is a good sign nonetheless.
Here is what Petrichor and PTCT had to say about their partnership:
“We view the unique differentiation of the ClearPoint neurosurgery platform and its ability to enable the next generation of CNS gene and cell therapies as key growth drivers for the Company,” said Tadd Wessel, Founder and Managing Partner of Petrichor. “CNS gene and cell therapies are poised for tremendous growth and we are excited to partner and provide strategic insights to the Company as they become a leader in this field.”
“As part of our Company’s duality in devices and biologics, we are thrilled to deepen our partnership with PTC,” commented Jacqueline Keller, Vice President and Program Manager at ClearPoint Neuro for the PTC Partnership. “This new agreement with PTC highlights a ‘turn-key’ solution for our gene therapy partners, whereby our commercial organization, with deep relationships in the neurosurgery community, can take on the burden of sales and clinical activities in the surgical suite, and allow our partners who are commonly small-molecule focused companies to continue to prioritize their efforts with neurologists, patients and reimbursement administrators. With the capacity to support thousands of cases each year, our team plans to provide this service across multiple companies and indications in neuro.”
About Those Trials
The list of trials above shows that CLPT has some near term catalysts to look forward to: a couple of the clinical trials are set to hear from the FDA over the next 1 to 6 months regarding regulatory approval. CLPT disclosed this in further detail in their SEC filings:
The potential addressable market by 2025 for these indications is estimated to be more than 300,000 patients worldwide and $1.5 billion. If our ClearPoint system and SmartFlow cannula become approved and become the standard approach to local drug delivery in the brain, we believe the impact on our financial performance, could be significant. However, these treatments are subject to FDA-mandated clinical trial requirements, which are expensive and time consuming to conduct. Nonetheless, several of our biologics and drug delivery customers are pursuing these clinical trials and believe that the first gene therapy submissions may be reviewed by regulatory authorities in 2020, which could present an opportunity for clinical launches in the fourth quarter of 2020 or the first quarter of 2021.
(Source: CLPT 10-K)
Additionally, trials from Medicenna (MDNA), Y-MABS (YMAB), Lysogene, Mayo Clinic, VYGR, and PTCT should all be presenting data over the next 6-12 months that, if the data is promising, may progress their trials along their regulatory approval path. As each trial advances to later stages, more patients will be treated with CLPT’s biologics and disposables.
Recent results are very promising, see below (all of these trials use CLPT’s platform):
1.) New treatment option brings hope to patients with neurological disease
2.) Review: Our Experience with Convection Enhanced Delivery for Diffuse Intrinsic Pontine Glioma
3.) Seven-year-old Hallie Campbell from Wigan doing well after brain surgery in Poland
4.) Neurocrine/Voyager gene therapy shows sustained benefit in Parkinson’s
ClearPoint Neuro is a rare investment: the chance for 10X or even higher returns over the next several years is very real. The company has de-risked itself in several ways:
- First, it has a steady stream of business from DBS and laser ablation procedures that lays a strong foundation for consistent growth.
- Second, it has an installed base of 60 top hospitals with plans to expand into the EU in 2021.
- And third, it is partnered with 20+ gene therapy trials that give it the chance to do a moon shot if any single trial is approved, yet it has none of the risk associated with biotech investments.
The ClearPoint Platform is considered the “The Holy Grail” of brain modulation with clear competitive advantages (i.e., real-time integration MRI imaging, 4X more precise of competition) over the field. It currently has a leading 30-35% market share in laser ablation procedures and is becoming the world’s pre-eminent neurosurgery platform.
The company sits on about 5-6 years of cash and it is nearing breakeven. It has strategic partners in PTCT, Petrichor, and Voyager, all much larger companies with vested interests in utilizing its platform and seeing it succeed.
The operating leverage is significant: From 2015 to 2020, gross margins increased almost 20% from the mid 50% level to 74% in Q1 2020 as disposables made up a larger share of total revenues.
Their success is tied in part to their trial partners but the outcome of any single trial will not alter their trajectory. And from an investors perspective, the real holy grail is that no additional marketing is needed to grow revenues exponentially – all of the heavy lifting is done by trial partners. Should any of the larger trials obtain FDA approval, revenues have the potential to go up 50 to 100X from current levels.
The largest trial it is being used in has a patient population of 300,000+ per year and they would stand to generate $6,000 to $12,000 per patient, a $1.8B to $3.6B TAM on that trial alone. For a company worth $85 Million, this is one of the more lopsided risk-rewards we have ever seen.
We believe this is one of the most promising investments we have ever come across and there are enough near term catalysts to potentially generate both significant near and long term returns for traders and long term investors. In some ways, it reminds us of an early-stage Intuitive Surgical.
Disclosure: I am/we are long CLPT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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