Greetings, and welcome to the ClearPoint Neuro, Inc. Third Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded. Comments made on this call may include statements that are forward-looking within the meaning of securities laws. These forward-looking statements may include, without limitation, statements related to anticipated industry trends, the company's plans, prospects and strategies, both preliminary and projected and management's expectations, beliefs, estimates or projections regarding future results of operations. Actual results or trends could differ materially. The company undertakes no obligation to revise forward-looking statements for new information or future events. For more information, please refer to the company's annual report on Form 10-K for the year ended December 31, 2021 and the company's quarterly report on Form 10-Q for the three months ended June 30, 2022, both of which have been filed with the Securities and Exchange Commission and the company's quarterly report on Form 10-Q for the three months ended September 30, 2022, which the company intends to file with the Securities and Exchange Commission on or before November 14, 2022. All the company's filings may be obtained from the SEC or the company's website at www.clearpointneuro.com. It is now my pleasure to introduce Joe Burnett, Chief Executive Officer. Thank you, sir. You may begin.

Thank you, and thank you to all of our investors and analysts on today's call for being a part of the ClearPoint vision and journey. Our mission and our priorities are to help restore quality of life to patients and their families, who are suffering from some of the most debilitating neurological disorders imaginable. We cannot do this without your support. In the third quarter of 2022, we continued to make progress across our four pillar growth strategy, including biologics and drug delivery, functional neurosurgery navigation, therapy and access products and in achieving global scale. Despite a continued high cancellation rate due to COVID, historically high surgeon transitions and daily supply chain and hospital staffing challenges, our team was able to achieve near record revenue of $5.1 million for the third quarter, representing 13% year-over-year growth. As a company, we believe we remain well capitalized with over $40 million in cash and short-term investments, and we'll continue to execute against our strategy and carefully manage our expenses. We continue to expect total revenue for 2022 to be in the range of $21 million to $22 million, representing 30% to 35% growth for the year depending on the timing of revenue recognition for some capital sales and biologic services. I will now turn the call over to Danilo, our CFO to review our financial performance in the third quarter, after which I will add some detail to our four pillar growth strategy. Danilo?

Thank you, Joe, and thank you all for being here with us today. Looking at the third quarter 2022 results, total revenue was $5.1 million for the three months ended September 30, 2022, and $4.6 million for the three months ended September 30, 2021, which represents 13% growth versus the third quarter of 2021. Our revenue is made up of three components: functional neurosurgery navigation and therapy, biologics and drug delivery, and capital equipment and software. Functional neurosurgery navigation revenue consists of commercial sales and disposable products and services related to cases utilizing the ClearPoint system to deliver medical device therapy to the proper target. This revenue segment increased 12% to $2.4 million for the third quarter, up from $2.2 million in the third quarter of 2021. Biologics and drug delivery revenue includes sales and disposable products and services related to customer-sponsored preclinical and clinical trials utilizing our products. Biologics and drug delivery revenue increased 9% to $2.2 million in the second quarter, up from $2.1 million in 2021. Capital equipment and software revenue consists of sales of ClearPoint reusable hardware and software and of related services increased 32% to $0.5 million for the third quarter from $0.4 million for the same period in 2021 following an increase in the placements of ClearPoint capital and software. We achieved a gross margin of 72% in the third quarter of 2022, 6% higher than the 66% gross margin recorded in the third quarter of 2021. The increase in gross margin was mostly due to increased contribution of service revenue and lower overhead expenses. Research and development costs were $2.5 million in Q3 compared to $2.6 million for the same period in 2021, a decrease of $0.1 million or 6%. The decrease was due primarily to lower product development costs as a result of reprioritization of certain research and development initiatives. Sales and marketing expenses were $2.1 million for the third quarter compared to $1.8 million for the same period in 2021, an increase of $0.3 million or 18%. This increase was due primarily to additional personnel costs resulting from increase in headcount of $0.2 million as we expanded our clinical team, as well as increases in travel costs of $0.1 million. General and administrative expenses were $2.9 million in Q3 compared to $2.4 million for the same period in 2021, an increase of $0.5 million or 20%. This increase was due primarily to increased share-based compensation of $0.5 million. Net interest income in the third quarter was $30,000 compared to $2.2 million of net interest expense for the same period in 2021. The increase in interest income was due to the company's investments in United States treasury bills and the resulting higher interest rates as well as lower debt principal due to the conversion of a portion of the 2020 secured convertible notes in May and November 2021. In the third quarter, our operational cash burn was $3.8 million, which was lower than our Q1 and Q2 operational cash burn. As we continue to face a challenging supply chain environment, we deployed more capital near term to solidify vendor supply and our supply chain reliability. We continue to expect a further step down in our operational cash burn in the upcoming fourth quarter and remain confident we are well capitalized to achieve our mid-term growth ambitions. With respect to our cash position, we finished the quarter with cash and short-term investments of $40.5 million compared to $54.1 million as of December 31, 2021. At this point, I'd like to turn the call back to Joe.

Thank you, Danilo. The third quarter of 2022 was another quarter of progress and execution against our four pillar strategy. This included FDA clearance of three new navigation and therapy products, the addition of multiple new biotech partners, the installation of systems at new hospitals, and the hiring of talented professionals across multiple functions, bringing our total direct employee count to just under 100. This does not include the support and teamwork we receive from our pharma, biotech and device partners that make us look and feel much larger. Let's break that progress down into those four growth pillars. First, our biologics and drug delivery team continued to add additional partners and services into the third quarter, adding multiple new partners to our accounts, which is now approximately 50 active relationships in the space. We continue to keep pace with our past two years' history of adding approximately one new partner every month. We've also hired multiple new team members and experts to the biologics and drug delivery team, increasing the scope of services we can provide, and in turn, the total potential revenue opportunity with these pharma partners prior to commercialization. This is an important distinction that I want to make sure to highlight. If one of our partners or even one of the programs within a partner were to purchase the entire suite of products and services that our team can now provide, the total value of those products and services from initiation of the program through the completion of a Phase 3 clinical trial could potentially add up to $10 million per program before the drug or biologic is even approved. Therefore, our newly added capabilities will allow us to access a total addressable market of several hundred million dollars in the pre-commercial space. This is one of the reasons that we believe that we can ramp revenue and achieve profitability without requiring the contribution of large commercially available drug therapies during that time horizon. Arguably, our biggest milestone in the past three months was the first commercial patient treated with PTC's Upstaza gene therapy product for the treatment of AADC deficiency in Europe under CE Mark authorization. Our multiyear strategy has played out as expected where the labeling for Upstaza includes our SmartFlow Cannula directly in the surgical guide as the only infusion cannula to be used in combination with this gene therapy. To say it another way, the very first gene therapy ever approved for direct injection into the brain is co-labeled with our device in the marketing authorization for administration of the therapy. We believe this first approval along with the exhaustive bench preclinical and clinical testing required for submission is a sign of things to come for many of our approximately 50 active partners that could see a similar path to approval. Our goal for our SmartFlow family of cannula products is to achieve co-labeling globally across multiple partners and indications, and that ClearPoint is the go-to delivery mechanism for pharma delivery to the brain and spine. Second, our functional neurosurgery navigation business achieved a number of key milestones in the quarter, including the FDA clearance of the 2.1 version software and the Maestro Brain Model. These two software tools represent our second and third software approvals this year and show the cadence of new product introductions that we plan to continue to demonstrate ClearPoint as an innovator in the neurosurgery space. There's still a tremendous amount we can do to make our procedures faster, more informative and more predictable, which will help to drive utilization increase to a day procedures in the same MRI magnet and enable some procedures to be done without a ClearPoint representative present at the case. Currently, we have installed 10 systems year-to-date, which is a new record with a couple of months still to go in 2022. We have more than 40 additional hospitals in our active funnel, which again is the strongest installation and capital funnel that we have had in our history. Our cancellation or postponement rate does remain at a very high level with the most common reason being patient or surgeon sickness, whether it be COVID or the flu or other. As we move into the winter months, we expect this high rate to continue for the time being. For our third pillar, therapy products and access devices, in collaboration with our Swedish partner, CLS, we achieved FDA clearance of the Prism Laser Therapy System, which was granted here in the third quarter. This product will enable our team of clinical specialists not only navigation, but also therapy to two distinct markets in epilepsy and in neuro-oncology. We are in the process of working with a handful of existing ClearPoint users to get the laser system installed and continue to expect first clinical cases under a limited market release before the end of this year. It is also important to note that the majority of our investment into the navigation system mentioned in pillar two applies to biologics and drug delivery, as well as our therapy products. That is the beauty of our platform strategy as much of the investment is applied across many indications, including biologics, deep brain stimulation, laser ablation, biopsy, brain-computer interfaces and perhaps others in the future. This is crucial from a training standpoint as well. Every biopsy case, laser ablation case, or deep brain stimulation case, our hospital performs with ClearPoint today is in fact training and preparing them to do biologics and brain-computer interface cases in the future. Finally, our fourth pillar of achieving global scale has made progress as well. In addition to receiving MDSAP and EU MDR certification earlier in the year, we have placed additional systems in Europe to expand our global footprint and prepare for future drug delivery trial enrollment. As Danilo mentioned earlier, a significant portion of our cash burn went toward working capital, including prepaid inventory and expenses and raw material and component purchases. We believe some of these inventory purchases will start to slow down here in the fourth quarter, which will be offset by inventory of new products, for example, laser systems to support the limited market release. We also just signed a 10-year lease under favorable terms for a new 20,000 square foot manufacturing facility in San Diego, close by our training and innovation center. We've outgrown our current facility in Irvine and the new facility will add space and capacity to support a more than $100 million revenue business. We will take possession of the building in Q2 of 2023 and be able to design from the ground up following lean principles to support greater efficiency. This year, we have also hired eight additional clinical specialists, which add significantly more capacity to our surgical team in preparation for growth in 2023 and 2024. We are reiterating our full-year 2022 revenue guidance of between $21 million and $22 million, which corresponds to annual growth between 30% and 35% for the year. We also continue to believe that our current cash and short-term investment position of more than $40 million does not require us to raise additional capital to support our current portfolio and strategy this year. With that, I would like to open up the call to any questions.

Our first question comes from Marc with B. Riley Securities. Please go ahead.

Hi, this is William Wood on behalf of Marc Weissenberg of B. Riley Securities. Thank you for taking our questions and congratulations on a really productive quarter. I’ll start with the first one. Can you discuss how the conversations with your BDD partners have continued to evolve? As the partners transition from preclinical to the clinical phase, are you noticing any changes in the decision-making process?

No, William. Thanks for the question. So obviously, we're having conversations on a daily basis. In fact, whether it's an introductory call or an audit of our facility or a live product demonstration, these are happening, if not on a daily basis then certainly a weekly basis. And I can't say that they've changed materially in any way. I think many companies, I'd say if there are any differences to historical amounts one has been around sort of frustrations with the same things that we're seeing in the field relative to hospital delays and supply chain disruptions that are certainly slowing things down to some extent, but not stopping them like we saw back in April of 2020. So I think if anything that's still a positive that these things are moving forward. In some cases, we've heard that some partners have had to sort of prioritize some of their internal programs just to go ahead and reduce the burn and save capital, especially some of the smaller companies that might be seeing a capital raise on the horizon. They might be forced to slow down their second and third options and focus their attention and detail on option number one in their platform. But outside of that, there's no other kind of large material differences I would see. If anything, I think people are more excited about the space, given that PTC and Upstaza has been the first gene therapy approved to the brain. It's certainly opened doors for us and we expect to see that pace of new partners continue in the year ahead.

Right. That makes a lot of sense. And then with regard to your Prism Neuro Laser Therapy System, can you lay out how you expect penetration in the market to evolve over the next say 12 to 18 months? And specifically, how do you go about converting surgeons from incumbents in the market? And then what are the primary factors driving their decisions?

Yeah. I mean, I think we're going to probably operate within a limited market release for the balance of this year and at least through the first half of 2023. I think this is our first therapy product and we want to make sure that we're doing it in the most responsible manner possible. So I see us starting primarily with our existing users that are already using ClearPoint navigation for their laser cases. I don't expect us to convert all of the business at a hospital over to ClearPoint, but I think our reputation in the market and the quality of our products has earned us the right to at least get a trial. Most of the surgeons that we've spoken to at this point at our active centers are more than happy to give us a chance. One of the biggest components of why they're willing to use our technology is again the team that we've established and the competency and credibility of our clinical specialist team. The process of us having one person responsible for the entire procedure, starting with the navigation and all the way through to the end with the delivery of the therapy is something that's very attractive with the handoff and responsibility halfway through. So I think that's going to be a major component for us, and we're very excited about this laser market and eager to get started. We do expect the first couple of cases to really happen here in the next month or so.

Awesome. We look forward to seeing how that pans out. Can you talk a little about how your domestic versus ex-U.S. expansion is progressing? I know you've mentioned Europe a little bit. And do you expect to see any material changes to either U.S. or obviously ex-U.S. in the near term? And then additionally, can you update us on your expansion efforts in China?

Yeah. Sure. Thanks. So domestically, I think that's where most of the revenue dollar growth is we expect in the next couple of years as well, whether it's through our laser program, through new customers that are doing MRI-guided DBS and MRI-guided laser procedures and eventually our expansion into the operating room as well. So the U.S. is still going to be the primary focus. Arguably, we're going into Europe a bit earlier than we normally would, but again, this is in order to support our biologics and drug delivery customers that are interested in enrolling clinical trials across Europe with local researchers especially for our European partners. Therefore, we don't expect a massive revenue opportunity for DBS or laser ablation in the near term in Europe. We are expecting to initiate a number of clinical trials in the next couple of years in Europe. In most cases, the pharma companies we're working with don't want the very first patient in their trial to be their first patient where the doctors are using ClearPoint. We typically perform one or two role-in patients where they might perform a biopsy, a laser procedure, and a DBS procedure to get familiar with ClearPoint before they start enrolling those patients. So most of our revenue opportunity in the near term is going to be around clinical trial sites that are becoming familiar with our technology in Europe. We do have approval in Singapore and Israel at this point and have started our submission process in several other countries, including Brazil. However, in each of those situations, it's not that we're trying to penetrate the entire country of Brazil, for example. It would be the same center of excellence model where we would have our system installed in one or two centers, and then we'd be transporting these patients with chronic diseases to get treated at these centers of excellence, not at their local hospital across the street. Regarding China, we are evaluating a couple of other options. We have the luxury, although unconfirmed, that we are focused on centers of excellence, meaning we're not trying to deploy our technology across an entire country, but maybe at only one or two hospitals in a country. There are some alternative regulatory pathways available for focused technology like ours that could accelerate access to it. This is something we're exploring in different countries, but most of our ex-U.S. expansion is really at the request of our biologics partners and not necessarily something we're driving on our own. Hopefully, that helps, William?

Yeah, absolutely. And finally for us, can you talk about how your COVID restrictions impacted you in the quarter and quantify the drag if there was any? I know you sort of touched on this already.

Yeah. I mean, I don't have too much to add other than it's always the worst surprise when you show up at the hospital that morning all ready to go, and the patient fails their COVID test and has to postpone for a couple of weeks. In general, we then lost airfare, we lost a day of capacity from our clinical team, and we've lost the MRI day. So it's kind of painful for us. It's great that we don't lose the patient. We're still able to treat them and help them in the next two weeks. However, that day we lose the case. Historically, pre-COVID, our routine cancellation or postponement rate was always in the 8% to 12% range. Since COVID initiated and sort of calmed down from the initial stoppage, that postponement rate has been north of 30%. So the good news is, we're scheduling more cases, but there's still a very high percentage that are currently being canceled. I think we're seeing this in a number of different avenues. In our case, if the patient has COVID or our specialist has COVID, or the surgeon has COVID, or the MRI tech has COVID, if any one of those four essential parts of the equation test positive for that or the flu or RHC or anything like that, we end up losing the case that day, which is unfortunate.

Makes sense. Okay.

So, William, to continue on that, we're going into the winter months and expect this depressed or high postponement rate to continue at least until the spring. So certainly for the next two quarters, that's kind of what we've built into our plan.

Okay, understandable. That's it from us. I appreciate it, and congratulations again on your quarter.

Right. Thanks, William.

Our next question comes from Frank with Lake Street Capital Markets. Please go ahead.

Hey. Thanks for taking my questions. Wanted to start with your new commentary around biologic and drug delivery total revenue per asset potential. I think you called out $10 million on the call. I was hoping you could walk us through that figure in a little bit more detail, specifically talking about the cadence of recognition across the drug's development. My assumption is once it becomes Phase 3, it becomes a much larger revenue opportunity, but maybe just kind of walk us through how that $10 million is recognized over the life of development for specific assets?

Yeah. Sure. Thanks. So maybe building backwards since you brought up the clinical trial revenue itself. I must say typical because a lot of our pharma companies are still learning. To put it in perspective, if you remember the study that the FDA had approved for Voyager Therapeutics to treat Parkinson's disease, which again is a moderate-sized market opportunity in the grand scheme of things, an opportunity that would require a sham arm because there are alternative treatments to the disease. That's kind of the best barometer we have of what normal might look like for trial design. For their Phase 2 and Phase 3 trials that they were granted to operate in parallel, I believe the target number of patients in those trials was about 220. If you look at the Phase 2, Phase 3 aspect of it, we were selling approximately $20,000 of equipment into that trial between navigation and cannulas. So $4 million of it is really product-related revenue that you would see in the Phase 2 and Phase 3. So that accounts for about half of the $10 million I'd expect to see within the clinical trial product category of that estimate. On the other hand, you have to do your safety trials, your Phase 1 and a couple of Phase 1a trials, which could be anywhere from 30 to 48 patients is a typical size that we've seen with some of our existing partners. Again, with that same $20,000 per case estimate, that's about $1 million for the Phase 1 and Phase 1 SAP study. Thus, together with the Phase 2, that's probably $5 million of the $10 million I'd expect to be within the clinical trial product category. Everything else is coming from preclinical work, whether it’s NHP work that's commonly done at sites like Charles River for example or other CROs in the area. Some of the services that we've added are that we've hired actual surgeons, we've hired veterinarians, we've hired study directors. We can write protocols. We can actually execute a number of these studies in a way that normally you would have to go to a CRO and sort of get in line for. This is really where the other half of that $10 million comes from: consulting, toxicology studies, bench-top studies, flow studies. One of the things the FDA is asking for is whatever the component makeup of the drug or cell therapy that you're putting in one side of the cannula, you have to be able to characterize exactly what's coming out of the other end. Who's better to do that than a company like us that focuses and actually makes the cannula itself? These are the types of things where if you reverted back maybe two years ago, I would say the most we could possibly sell to a company was in that $5 million range because we just didn’t have any of these services, compared to everyone we've hired in these capabilities that the team has built has effectively doubled the opportunity we have with each one of our partners. So hopefully that provides enough color, but I'm happy to answer any other parts of that.

No, that's perfect. I was hoping that just as an extension to that question about your 50 partners, if you're thinking about an approximate number, how many of those could be approaching a Phase 2 or Phase 3 trial in the next call it 12 to 24 months to try and tease out which ones are approaching that inflection point?

Yeah. I mean, in 2023, I think we're going to see the initiation of a lot more of the Phase 1 studies, for example. So in the next 15 months, I think it will be highly focused there, with maybe a couple of Phase 2s that begin. However, if the timing holds or the timeline holds for a number of these programs, then you could see 5 to 10 in that Phase 2 range starting probably in 2024. I think that's kind of realistic based on where some of our partners are. One caveat I'd add to that is with some of these very rare pediatric disorders, you don't necessarily have to go through the same gamut. So there could actually be commercialization of some by 2024, albeit there are kind of smaller rare disease opportunities. Those kind of follow a slightly less rigorous pathway.

Got it. Okay. That's helpful. Maybe switching over to the laser to get more color there. You previously spoke to a concept of 100 to 100 systems each doing 100 procedures, I'd call it, on average $10,000 per procedure, making for a $100 million revenue business. Maybe speak to the laser's specific contribution to that equation and how impactful the launch and scaling of the laser can be?

Yeah, I think it'll be a very important launch for us. Again, we're not trying to overpromise the speed at which we're going to go. One thing to consider in our clearance that CLS got with the FDA around Prism is that the first clearance is actually only for three Tesla scanners. It does not yet include the 1.5 Tesla. That's about half of our customers that are on the 3T magnets and sort of where we're starting first. We would expect the 1.5 that approved probably early 2024, I think is realistic. But that's why we're going to be operating in a little bit longer of a limited market release. If we can get to the point where we're opening a couple of sites each quarter and trial and getting some ramp and some stickiness with the technology, if you think about the next 15 months, that's kind of the speed at which we hope to go. If you fast forward into the future and you think about your question, which was the contribution to when we're a $100 million business, how much of that is laser and laser navigation, I think this could easily be a quarter of that number, so probably 25% of that is sort of what we would expect ballpark. This could go faster, it could go slower based on what our biologics business does. But we're counting on this to be a meaningful part of our equation and an important part of our business.

Okay. That's helpful. Thanks for the color. I'll stop there.

Okay. Thanks, Frank.

We have no more questions at this time.

All right. Well, once again, thank you to everyone that’s interested in being a part of our team's journey here at ClearPoint. We recognize the challenging global environment that we are all forced to live in today. We assure you that we are going to help patients around the world as best as we can by keeping our heads down, staying focused and executing against our strategy to develop products that truly improve the quality of life for our patients and their families. As management, we will react quickly and thoughtfully to future challenges, which we realize are always around the corner. Good night, everyone.

Ladies and gentlemen, this concludes your call. You may disconnect at this time. Once again, this concludes your call and you may disconnect at this time.