ClearPoint Neuro (NYSE:CLPT)| A Clear Winner in the Making

Updated: Aug 1


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Key Points

  • ClearPoint Neuro is a medical device company that is a pioneer in real-time MRI-guided neuronavigation

  • Massive market size for different conditions provides headroom for exponential revenue growth

  • Razor/Razor Blade Model provides customer stickiness and could improve the company's business fundamentals

  • System use volume is expected to recover following a recovery from COVID-19

  • DCF-based fair value estimate of USD26.20 (WACC of 7.69% and terminal growth rate of 3%)

Company Overview

ClearPoint Neuro is a medical device company, incorporated in 1998. It develops and commercializes products for performing minimally invasive surgical procedures (MISP) in the brain and heart under magnetic resonance imaging (MRI) guidance. The company is headquartered in Irvine, California, and has 65 US patents issued. In its early years, it largely focused on building an intellectual property portfolio. Since 2003, its focus has shifted to building out commercial applications for technologies developed in prior years.


Neuronavigation with Intraoperative MRI

Neuronavigation systems display real-time (intraoperative) or preoperative images of the patient’s brain for the purpose of guiding the surgeon’s surgical instrument to a specific target within the brain. In neurosurgery, target regions can be located deep within the brain and can be as small as a few millimeters in diameter. This calls for the need for precision to avoid damaging adjacent areas responsible for important neurological functions, such as memory or speech, or penetrating blood vessels which can lead to a life-threatening hemorrhage.


Conventionally, the patient’s skull is imaged preoperatively and the preoperative image is used to guide the surgeon when performing surgery. This leads to errors in the alignment due to brain shift caused by gravity, head position, fluid drainage, use of drugs, swelling of brain tissue, or more during surgery. As a result, there are often discrepancies between preoperative data and actual patient anatomy. A lot of adjustments have to be made during the operation and it is not uncommon for the procedure to last six or more hours.


Magnetic resonance imaging (MRI) guidance uses magnetic fields to produce images of the patient’s brain in real-time during the operation. Surgeons will also be able to see the placement of surgical instruments in the patient’s brain and monitor any changes in real-time. This allows for more accurate guidance and hence safer and shorter procedures.


Business Overview

ClearPoint’s business can be split into 2 arms: (1) Neuronavigation for neurosurgery at hospitals, and (2) Biologics and Drug Delivery for pharmaceutical and biotech companies.


Hospitals make use of the ClearPoint system to perform functional neurosurgery. Pharmaceutical and biotech companies, also known as “partners”, are developing methods to deliver a wide variety of molecules to targeted brain tissue and would need to bypass the blood-brain barrier for the treatment of a variety of disorders. These partners have to undergo FDA-mandated clinical trials before their products or methodology is ready for commercialization. While significant uncertainty exists, ClearPoint can expect to share in their commercial success through the use of their products and services in delivering Partners’ therapies.


Product Portfolio

1. ClearPoint System

The ClearPoint System is a neuronavigation system that provides real-time MRI guidance. It allows surgeons to see in real-time the target site within the brain through MRI, guide the surgical instrument to the site, deliver the therapy, and monitor for adverse events and complications in real-time.


The video below provides a clear overview of how the ClearPoint System works:




The ClearPoint System consists of the (1) hardware, (2) software, and (3) disposables.


The ClearPoint reusable hardware includes a head fixation frame that immobilizes the patient’s head during the procedure, a computer workstation, and an MRI-compatible in-room computer monitor to view images of the patient’s brain.


The ClearPoint software runs on the workstation and is used to guide the physician in all aspects of a ClearPoint procedure, including surgical planning, device alignment, navigation to target, procedure monitoring, and report generation at the conclusion of the procedure.


Disposable components are built around the SmartFrame disposable trajectory frame. The SmartFrame trajectory frame is what is fixed to the patient’s skull after a small hole has been created. A hand controller is then attached to the SmartFrame (right image) which allows for precise adjustment of the trajectory such that the insertion of the intervention device matches the path mapped by the Clearpoint Software.


Applications

The Clearpoint System can be used to treat neurological diseases including movement disorders such as Parkinson’s disease, essential tremor and dystonia; psychiatric disorders such as major depression, obsessive compulsive disorder, Alzheimer’s disease; and brain tumors, such as glioblastoma multiforme. As such diseases progress, drugs become less effective in treating the patient, calling for the need for local therapies. Such local therapies involve the insertion of a catheter, probe, or electrode into a target region of the brain. These target regions are typically located deep within the brain and can be as small as a few millimeters in diameter. This calls for the need for precision to avoid damaging adjacent areas responsible for important neurological functions, such as memory or speech, or penetrating blood vessels which can lead to a life-threatening hemorrhage.


2. SmartFlow cannula

The SmartFlow cannula is compatible with the ClearPoint system. It is an MRI-compatible thin tube used for the injection of drugs directly into the brain or for the removal of fluids from the brain. It is a single-use disposable device used largely in clinical trials.


This video shows how the SmartFlow cannula can be used with the ClearPoint System.


In 2010, the ClearPoint system received 510(k) clearance in the US for general neurosurgical interventional procedures. The SmartFlow cannula for drug delivery is predominantly investigational in the US. In the EU, the ClearPoint system and Smartflow cannula received CE marking approval in 2011 and 2018 respectively. This means that the ClearPoint system is legally approved for use in the US and EU.


Key Revenue Streams

(1) Disposables and service revenue from functional neurosurgery

(2) Disposables and service revenue from biologics and drug delivery

(3) Capital equipment and software sales to hospitals and partners


Key Financials


The company has had a strong case volume and revenue growth in the last seven years. The number of cases grew by ~5x from 163 cases in 2013 to 801 cases pre-pandemic in 2019. Revenue in all three segments has also grown substantially with Functional Neurology growing by ~3x from 2014 to 2019 and Biologics and Drug Delivery growing by ~8x from 2014 to 2020 despite the COVID-19 pandemic.

The company’s gross margin increased from 54% in FY2016 to 71% in FY2020. The company is currently operating profit negative (making operating losses) due to its high R&D expense, and SG&A expense.