10q10k10q10k.net

What changed in ClearPoint Neuro, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of ClearPoint Neuro, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+331 added−373 removedSource: 10-K (2024-03-12) vs 10-K (2023-03-01)

Top changes in ClearPoint Neuro, Inc.'s 2023 10-K

331 paragraphs added · 373 removed · 253 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

82 edited+28 added−71 removed123 unchanged
Biggest changeMarket Opportunities We believe there are more than 140,000 potential neurosurgical procedures per year in the U.S. in which our ClearPoint system could be used as a navigational platform for functional stereotactic neurosurgery in indications currently approved by the FDA including Parkinson’s disease, drug resistant epilepsy, refractory essential tremor and brain tumors.
Biggest changeMarket Discussion Medical Devices for Neurosurgical Application We believe there are more than 140,000 potential neurosurgical procedures per year in the U.S. in which our ClearPoint products could be used as a navigational platform for functional stereotactic neurosurgery in indications currently approved by the FDA or as a therapy device for performance of laser interstitial thermal therapy ("LITT"): • Electrode Placement – The current standard of care for the placement of the DBS or responsive neurostimulation ("RNS") electrodes in the operating room requires the patient to be awake during surgery in order to verify proper placement.
FDA Premarket Clearance and Approval Requirements Unless an exemption applies, each medical device we wish to commercially distribute in the U.S. will require either premarket notification, or 510(k) clearance, authorization through the de novo classification process, or approval of a PMA from the FDA. The FDA classifies medical devices into one of three classes.
FDA Premarket Clearance and Approval Requirements Unless an exemption applies, each medical device we wish to commercially distribute in the U.S. will require either premarket notification, or 510(k) clearance, authorization through the de novo classification process, or approval of a premarket approval application ("PMA") from the FDA. The FDA classifies medical devices into one of three classes.
Additional regulatory requirements include: • product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action; • QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design, manufacturing, and distribution process; • labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label use or indication; • clearance, authorization, or approval of product modifications; • post-approval restrictions or conditions, including post-approval study commitments; • post-market surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for the device; • the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation of governing laws and regulations; • regulations pertaining to voluntary recalls; and • notices of corrections or removals.
Additional regulatory requirements include: • product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action; • QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design, manufacturing, and distribution process; • labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label use or indication; • clearance, authorization, or approval of product modifications; • post-approval restrictions or conditions, including post-approval study commitments; 12 Table of Contents • post-market surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for the device; • the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation of governing laws and regulations; • regulations pertaining to voluntary recalls; and • notices of corrections or removals.
HIPAA Fraud and Other Regulations The Health Insurance Portability and Accountability Act of 1996, or HIPAA, created a class of federal crimes known as the “federal healthcare offenses,” including healthcare fraud and false statements relating to healthcare matters.
HIPAA Fraud and Other Regulations The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") created a class of federal crimes known as the “federal healthcare offenses,” including healthcare fraud and false statements relating to healthcare matters.
Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting or implantable devices, or devices that are not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA unless they can be reclassified into Class I or II via the de novo classification process. 510(k) Clearance Pathway When a 510(k) clearance is required, we will be required to submit a 510(k) premarket notification demonstrating that our proposed device is substantially equivalent to a legally marketed device, referred to as the “predicate device.” A 12 Table of Contents predicate device may be a previously 510(k) cleared device or a Class III device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for PMA applications, or a product previously placed in Class II or Class I through the de novo classification process.
Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting or implantable devices, or devices that are not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA unless they can be reclassified into Class I or II via the de novo classification process. 510(k) Clearance Pathway When a 510(k) clearance is required, we will be required to submit a 510(k) premarket notification demonstrating that our proposed device is substantially equivalent to a legally marketed device, referred to as the “predicate device.” A predicate device may be a previously 510(k) cleared device or a Class III device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for PMA applications, or a product previously placed in Class II or Class I through the de novo classification process.
This is the same general indication for use that applies to other devices that have traditionally been used in the performance of stereotactic neurosurgical procedures. In the EU and Israel, our approval carries a similar indication for use. Our SmartFlow cannula has received 510(k) clearance for injection of Cytarabine or for removal of cerebrospinal fluid from the ventricles.
This is the same general indication for use that applies to other devices that have traditionally been used in the performance of stereotactic neurosurgical procedures. In the EU, UK, Israel, and Brazil our approval carries a similar indication for use. Our SmartFlow cannula has received 510(k) clearance for injection of Cytarabine or for removal of cerebrospinal fluid from the ventricles.
Certain License and Collaborative Arrangements Philips During 2020, we entered into a worldwide license and research agreement with Philips, under which Philips has licensed us to use the technology underlying its Philips Brain Model in our ClearPoint Maestro Brain Model (“Maestro”), the first generation of which received 510(k) clearance in 2022.
Certain License and Royalty Arrangements Philips During 2020, we entered into a worldwide license and research agreement with Philips, under which Philips has licensed to us the use of the technology underlying its Philips Brain Model in our ClearPoint Maestro Brain Model (“Maestro”), the first generation of which received 510(k) clearance in 2022.
Any modification to a 510(k)-cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety or effectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a de novo authorization or PMA, if the change raises complex or novel scientific issues or the product has a new intended use.
Any modification to a 510(k)-cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety or effectiveness of the device, requires a new 510(k) clearance and may 10 Table of Contents even, in some circumstances, require a de novo authorization or PMA, if the change raises complex or novel scientific issues or the product has a new intended use.
We could seek to add new indications for use of our existing products that require the approval of a PMA, although we do not have any current plans to do so. Clinical Trials Clinical trials are generally required to support a PMA application and also may be required for 510(k) clearance and de novo authorization.
We could seek to add new indications for use of our existing products that require the approval of a PMA, although we do not have any current plans to do so. 11 Table of Contents Clinical Trials Clinical trials are generally required to support a PMA application and also may be required for 510(k) clearance and de novo authorization.
We provide consulting services to our pharmaceutical and other medical technology partners for improving outcome predictability and optimizing pre-clinical and clinical workflows. Our expertise is concentrated in benchtop testing, pre-clinical studies, clinical trial support, regulatory consultation, and over-arching translation from the pre-clinical to the clinical setting to enhance accuracy and precision of drug delivery.
ClearPoint Services We provide consulting services to our pharmaceutical and other medical technology partners 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.
An assessment by a Notified Body in one country with the EU is required in order for a manufacturer to commercially distribute the device throughout the EU. In addition, compliance with ISO 13485 issued by the International Organization for Standardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking.
An assessment by a Notified Body in one country with the EU is required in order for a manufacturer to commercially distribute the device 13 Table of Contents throughout the EU. In addition, compliance with ISO 13485 issued by the International Organization for Standardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking.
The laser system can be used in conjunction with the ClearPoint navigation platform to refine the desired trajectory for the laser therapy catheter and to confirm accurate laser catheter placement. The laser system consists of a mobile laser unit, Thermoguide software to monitor changes in tissue temperature during therapy, and disposable laser applicator and MR introducer components. ClearPoint Services .
The laser system can be used in conjunction with the ClearPoint navigation platform to refine the desired trajectory for the laser therapy catheter and to confirm accurate laser catheter placement. The laser system consists of a mobile laser unit, Thermoguide software to monitor changes in tissue temperature during therapy, and disposable laser applicator and magnetic resonance ("MR") introducer components.
Such payment reform efforts and increased coordination among hospitals and physicians may lead to voluntary reductions in the array of choices currently available to physicians with respect to diagnostic services, medical supplies and equipment, which could result in hospitals reducing the overall number of vendors from which they purchase supplies, equipment and products.
Such payment reform efforts and increased coordination among hospitals and physicians may lead to voluntary reductions in the array of choices currently available to physicians with respect to diagnostic services, medical supplies and equipment, which could result in hospitals reducing the overall number 15 Table of Contents of vendors from which they purchase supplies, equipment and products.
This method of payment is known as the prospective payment system, or PPS. Under PPS, the prospective payment for a patient’s stay in an acute care hospital is determined by the patient’s condition and other patient data and procedures performed during the inpatient stay using a classification system known as Medicare Severity Diagnosis Related Groups, or MS-DRGs.
Under PPS, the prospective payment for a patient’s stay in an acute care hospital is determined by the patient’s condition and other patient data and procedures performed during the inpatient stay using a classification system known as Medicare Severity Diagnosis Related Groups, or MS-DRGs.
The Affordable Care Act increased the investigatory authority of the OIG, clarified that Anti-Kickback Statute claims can be brought under the federal civil False Claims Act, and provided for enhanced civil monetary penalties and expanded permissible exclusion authority. Many states have laws that implicate anti-kickback restrictions similar to the federal Anti-Kickback Statute.
The Affordable Care Act increased the investigatory authority of the OIG, clarified that Anti-Kickback Statute claims can be brought under the federal civil False Claims Act, and provided for enhanced civil monetary penalties and expanded permissible exclusion authority. 16 Table of Contents Many states have laws that implicate anti-kickback restrictions similar to the federal Anti-Kickback Statute.
The assembly process is performed in a controlled environment as required by applicable regulation for medical device assembly. Our operations are subject to extensive regulation by the FDA’s Quality System Regulation ("QSR"), which requires that manufacturers have a quality management system for the 9 Table of Contents design and production of medical devices.
The assembly process is performed in a controlled environment as required by applicable regulation for medical device assembly. Our operations are subject to extensive regulation by the FDA’s Quality System Regulation ("QSR"), which requires that manufacturers have a quality management system for the design and production of medical devices.
HIPAA, as well as other federal and state laws, will apply to our receipt of patient identifiable health information in connection with any clinical trials we conduct. In addition, we collaborate with other individuals and entities in 20 Table of Contents conducting research and all involved parties must comply with applicable laws.
HIPAA, as well as other federal and state laws, will apply to our receipt of patient identifiable health information in connection with any clinical trials we conduct. In addition, we collaborate with other individuals and entities in conducting research and all involved parties must comply with applicable laws.
Our business model for the ClearPoint products is focused on producing high margin revenue from sales of the disposable components. Given that focus on disposable product sales, we sell our reusable components at lower margins in order to secure installations within hospitals.
Our business model for the ClearPoint products includes producing high margin revenue from sales of the disposable components. Given that focus on disposable product sales, we sell our reusable components at lower margins in order to secure installations within hospitals.
From our inception in 1998, we have deployed significant resources to fund our efforts to develop the foundational capabilities for enabling MRI-guided interventions, building an intellectual property portfolio, and identifying and building out commercial applications for the technologies we develop.
From our inception in 1998, we have deployed significant resources to fund our efforts to develop the foundational capabilities for enabling magnetic resonance imaging ("MRI") guided interventions, building an intellectual property portfolio, and identifying and building out commercial applications for the technologies we develop.
In addition, companies such as Brainlab, Medtronic, Elekta, FHC Inc., Integra Life Sciences and Neurologica Corporation, a subsidiary of Samsung Electronics Co., offer devices and systems for use in conventional stereotactic neurosurgical procedures, such as surgical navigation workstations, frame-based and frameless stereotactic systems, portable computer tomography scanners and computer-controlled guidance systems.
In addition, companies such as Brainlab, Medtronic, Elekta, FHC Inc., Integra LifeSciences Holdings Corporation and Neurologica Corporation, a subsidiary of Samsung Electronics Co., offer devices and systems for use in conventional stereotactic neurosurgical procedures, such as surgical navigation workstations, frame-based and frameless stereotactic systems, portable computer tomography scanners and computer-controlled guidance systems.
Although an arrangement that fits into one or more of these exceptions or safe harbors is immune from prosecution, arrangements that 18 Table of Contents do not fit squarely within an exception or safe harbor do not necessarily violate the statute.
Although an arrangement that fits into one or more of these exceptions or safe harbors is immune from prosecution, arrangements that do not fit squarely within an exception or safe harbor do not necessarily violate the statute.
In addition to the requirements below, the Medical Device Reporting regulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the 14 Table of Contents malfunction were to recur, would likely cause or contribute to death or serious injury.
In addition to the requirements below, the Medical Device Reporting regulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury.
Pursuant to these agreements, we began limited market commercialization of the ClearPoint Prism Neuro Laser Therapy System in the U.S. in 2022.
Pursuant to these agreements, we began commercialization of the ClearPoint Prism Neuro Laser Therapy System in the U.S. in 2022.
The PMA can include post- 13 Table of Contents approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device including, among other things, restrictions on labeling, promotion, sale and distribution.
The PMA can include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device including, among other things, restrictions on labeling, promotion, sale and distribution.
These partnerships involve drug development programs that are at various stages of development ranging from preclinical research to late-stage regulatory trials for over 15 distinct disease states.
These 3 Table of Contents partnerships involve drug development programs that are at various stages of development ranging from preclinical research to late-stage regulatory trials for over 15 distinct disease states.
In September 2022, our development partner CLS received 510(k) clearance for its MR guided laser interstitial thermal therapy system for neuro applications, and we commenced a limited market release of this laser system, marketed as the ClearPoint Prism Neuro Laser Therapy System, in the U.S. 6 Table of Contents • Brain tumor biopsy – For smaller, harder to reach brain tumors or those near critical structures (the brain stem or large blood vessels), navigating the surgical field so that the biopsy needle reaches the brain tumor and accurately acquires a representative sample of the tumor is paramount.
In September 2022, our development partner CLS received 510(k) clearance for its MRI guided laser interstitial thermal therapy system for neuro applications, and we 5 Table of Contents commenced commercialization of this laser system, marketed as the ClearPoint Prism Neuro Laser Therapy System, in the U.S. • Brain tumor biopsy – For smaller, harder to reach brain tumors or those near critical structures (the brain stem or large blood vessels), navigating the surgical field so that the biopsy needle reaches the brain tumor and accurately acquires a representative sample of the tumor is paramount.
The new regulations: • Strengthen the rules on placing devices on the market and reinforce surveillance once they are available; • Establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market; • Improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; • Set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and • Strengthen rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are placed on the market.
The Medical Devices Regulation went into effect as of May 26, 2021, which: • Strengthen the rules on placing devices on the market and reinforce surveillance once they are available; • Establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market; • Improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; • Set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and • Strengthen rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are placed on the market.
One of these companies, PTC Therapeutics, Inc. and its affiliates ("PTC"), a related party who is a significant stockholder with a Board representative, accounted for approximately 34% of our biologics and drug delivery revenues in 2022.
One of these companies, PTC Therapeutics, Inc. and its affiliates ("PTC"), a related party who is a significant stockholder with a Board representative, accounted for approximately 21% of our biologics and drug delivery revenues in 2023.
University of California, San Francisco In 2013, we entered into a license agreement with UCSF that provides for our use of design features developed by UCSF, which we incorporated into our SmartFlow cannula, for which we are committed to pay royalties based on our sales of the SmartFlow cannula.
UCSF In 2013, we entered into a license agreement with UCSF that provides for our use of design features developed by UCSF, which we incorporated into our SmartFlow cannula, and for which we are committed to pay royalties based on our sales of the SmartFlow cannula.
On May 7, 2019, the Company entered into a supply agreement with PTC (the “PTC Supply Agreement”) pursuant to which the Company supplies certain products and engages in performance of certain services under the terms of mutually agreed upon Statements of Work.
On May 7, 2019, we entered into a supply agreement with PTC (the “PTC Supply Agreement”) pursuant to which we supply certain products and engage in performance of certain services under the terms of mutually agreed upon Statements of Work.
Generally, we purchase our components through purchase orders and do not have long-term contracts with most of our suppliers. Our ClearPoint Prism Neuro Laser Therapy System is manufactured by CLS. Our Irvine, California facility is structured to complete component processing, final assembly, packaging and distribution activities for our ClearPoint system.
Generally, we purchase our components through purchase orders and do not have long-term contracts with most of our suppliers. Our ClearPoint Prism Neuro Laser Therapy System is manufactured exclusively by CLS. Our facilities are structured to complete component processing, final assembly, packaging and distribution activities for our products.
Since 2020, we have evolved to become a company comprised of two parts. The first foundational part consists of a business providing medical devices for neurosurgery applications. The second part of our business is focused on partnerships in the biologics and drug delivery space.
Since 2020, we have evolved to become a company comprised of two parts: (i) a business providing medical devices for neurosurgical applications, and (ii) a business focused on partnerships in the biologics and drug delivery space. Medical Devices for Neurosurgical Application The first foundational part of our business is focused on providing medical devices for neurosurgical applications.
The HIPAA false statements statute prohibits, among other things, knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation in connection with the delivery of or payment for healthcare benefits, items or services.
The HIPAA false statements statute prohibits, among other things, knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines and/or imprisonment.
On November 20, 2020, the Company and PTC entered into an Addendum to Supply Agreement pursuant to which PTC agreed to purchase products totaling a minimum quarterly payment in consideration for the Company’s commitment to supply such products and provide services consisting of training, pre-clinical and clinical case support and regulatory support.
On November 20, 2020, we entered into an Addendum to the PTC Supply Agreement pursuant to which PTC agreed to purchase products in exchange for a minimum quarterly payment in consideration for our commitment to supply such products and provide services consisting of training, preclinical and clinical case support and regulatory support.
The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation. The Medical Devices Regulation went into effect as of May 26, 2021.
The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation.
The hand controller attaches to our SmartFrame device, and it is used by the physician to adjust the roll, pitch, and X and Y orientation of the targeting cannula while the patient is in the MRI scanner.
Our SmartFrame device is an adjustable trajectory guide that attaches to the patient’s skull and holds the targeting cannula. The hand controller attaches to our SmartFrame device, and it is used by the physician to adjust the roll, pitch, and X and Y orientation of the targeting cannula while the patient is in the MRI scanner.
Their brain-responsive neuromodulation system is currently approved for use in patients with drug resistant epilepsy and refractory idiopathic generalized epilepsy. • LITT – LITT is a minimally-invasive MRI-guided technique to treat primary and metastatic brain tumors, as well as patients with drug-resistant epilepsy.
Their brain-responsive neuromodulation system is currently approved for use in patients with drug resistant epilepsy and refractory idiopathic generalized epilepsy. • LITT – LITT is a minimally-invasive MRI-guided technique to treat primary and metastatic brain tumors, as well as patients with drug-resistant epilepsy. The treatment uses heat to treat and ablate the tumor or regions where seizures begin.
Many of our competitors have substantially greater financial, manufacturing, marketing, and technical resources than we have. Regulatory Requirements of the United States Food and Drug Administration Our research, development and clinical programs, as well as our manufacturing and marketing operations, are subject to extensive regulation in the U.S. and other countries.
Regulatory Requirements of the United States Food and Drug Administration Our research, development and clinical programs, as well as our manufacturing and marketing operations, are subject to extensive regulation in the U.S. and other countries.
As a result, hospitals have traditionally stocked supplies and products requested by physicians and have had limited ability to restrict physicians’ choice of products and services. 17 Table of Contents Since the enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or, together, the Affordable Care Act, there have been a number of legal challenges as well as other legislative and regulatory changes to the healthcare system that could limit the acceptance and availability of our products, which would have an adverse effect on our financial results and business.
Since the enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, the "Affordable Care Act"), there have been a number of legal challenges as well as other legislative and regulatory changes to the healthcare system that could limit the acceptance and availability of our products, which would have an adverse effect on our financial results and business.
A violation of this statute is a felony and may result in fines and/or 19 Table of Contents imprisonment. Entities that are found to have aided or abetted in a violation of the HIPAA federal healthcare offenses are deemed by statute to have committed the offense and are punishable as a principal.
Entities that are found to have aided or abetted in a violation of the HIPAA federal healthcare offenses are deemed by statute to have committed the offense and are punishable as a principal.
HIPAA and Other Privacy & Security Laws As a part of HIPAA, Congress enacted the Administrative Simplification provisions, which are designed to require the establishment of uniform standards governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of individually identifiable health information maintained or transmitted by healthcare providers, health plans and healthcare clearinghouses, which are referred to as “covered entities.” Several regulations have been promulgated under HIPAA, including: the Standards for Privacy of Individually Identifiable Health Information, or the Privacy Rule, which restricts the use and disclosure of certain individually identifiable health information; the Standards for Electronic Transactions, which establishes standards for common healthcare transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures; and the Security Standards for the Protection of Electronic Protected Health Information, or the Security Rule, which requires covered entities to implement and maintain certain security measures to safeguard certain electronic health information.
Because of the predominance of government sponsored healthcare systems around the world, we expect that many of our customer relationships outside of the U.S. will be with governmental entities and therefore subject to such anti-bribery laws. 17 Table of Contents HIPAA and Other Privacy & Security Laws As a part of HIPAA, Congress enacted the Administrative Simplification provisions, which are designed to require the establishment of uniform standards governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of individually identifiable health information maintained or transmitted by healthcare providers, health plans and healthcare clearinghouses, which are referred to as “covered entities.” Several regulations have been promulgated under HIPAA, including: the Standards for Privacy of Individually Identifiable Health Information, or the Privacy Rule, which restricts the use and disclosure of certain individually identifiable health information; the Standards for Electronic Transactions, which establishes standards for common healthcare transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures; and the Security Standards for the Protection of Electronic Protected Health Information, or the Security Rule, which requires covered entities to implement and maintain certain security measures to safeguard certain electronic health information.
As required by our quality management system, we undertake an assessment and qualification process for each third-party manufacturer or supplier that we use. Typically, our third-party manufacturers and suppliers are certified to ISO standard 9001 and/or 13485.
As required by our quality management system, we undertake an assessment and qualification process for each third-party manufacturer or supplier that we use. Typically, our third-party manufacturers and suppliers are certified to ISO 9001 and/or 13485. We also periodically perform audit procedures on our key third-party manufacturers and suppliers to monitor their activities for compliance with our quality management system.
Clinical Laserthermia Systems AB In October 2018, and as amended in August 2020, we entered into a license and collaboration agreement and a distribution agreement with CLS that provides us the exclusive global rights to commercialize and sell CLS’s portfolio of products and to collaborate with CLS on the development and commercialization of new products in the neurosurgical field.
Certain fees under the agreement will be paid to us as success-based milestones. 8 Table of Contents CLS In October 2018, and as amended in August 2020, we entered into a license and collaboration agreement and a distribution agreement with CLS that provides us the exclusive global rights to commercialize and sell CLS’s portfolio of products and to collaborate with CLS on the development and commercialization of new products in the neurosurgical field.
Our development partner CLS received 510(k) clearance for its laser system to necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy in neuro applications under 3.0T MRI guidance.
Our development partner CLS received 510(k) clearance for its laser system to necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy in neuro applications under 3.0T MRI guidance. In the U.S., the laser system is commercialized by us as the ClearPoint Prism Neuro Laser Therapy System. Our SmartFrame OR Stereotactic System received 510(k) clearance in 2024.
In the U.S., there have been, and we expect that there will continue to be, a number of federal and state 16 Table of Contents proposals to limit payments by governmental payors for medical devices, and the procedures in which medical devices are used.
In many foreign markets, including the countries in the EU, pricing of medical devices is subject to government reimbursement. In the U.S., there have been, and we expect that there will continue to be, a number of federal and state proposals to limit payments by governmental payors for medical devices, and the procedures in which medical devices are used.
In 2021, our efforts expanded beyond the MRI suite to encompass development and commercialization of neurosurgical device products for the operating room setting, as well as consulting services for pharmaceutical companies. Our products have been used in over 5,000 clinical and clinical trial procedures at over 65 neurosurgery centers in North America, Europe, South America, and Asia.
In 2021, our efforts expanded beyond the MRI suite to encompass development and commercialization of neurosurgical device products for the operating room setting, as well as consulting services for pharmaceutical companies. Our products have been installed or used at over 75 centers globally.
Software License Arrangements In connection with the development of our software products, which includes ClearPoint Software, ClearPoint Array Software, and ClearPoint Maestro Brain Model Software, we entered into several agreements under which we receive worldwide, non-exclusive licenses to software code related to certain functional elements of these software products, and for which we are committed to pay royalties for each copy of software product sold, or in certain cases, loaned by us to end-users. 11 Table of Contents Competition The medical device industry is highly competitive, subject to rapid technological change and significantly affected by new product introductions and market activities of other participants.
Software License Arrangements In connection with the development of our software products, which includes ClearPoint Software, ClearPoint Array Software, and ClearPoint Maestro Brain Model Software, we entered into several agreements with third party software providers under which we receive worldwide, non-exclusive licenses to software code related to certain functional elements of these software products, and for which we are committed to pay royalties for each copy of software product sold, or in certain cases, loaned by us to end-users.
Therefore, our currently marketed products are, and future products we commercialize will be, subject to competition. Currently, we are aware of two companies, Monteris Medical, Inc. and Medtronic, which offer devices for laser ablation under direct MRI guidance.
Currently, we are aware of two companies, Monteris Medical, Inc. and Medtronic, which offer devices for laser ablation under direct MRI guidance.
The EU has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting for medical devices. Each EU member state has implemented legislation applying these directives and standards at a national level.
The EU has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting for medical devices. Each EU member state has implemented legislation applying these directives and standards at a national level. Other countries, such as Switzerland, have voluntarily adopted laws and regulations that mirror those of the EU with respect to medical devices.
At the completion of the procedure, the software generates an automated report that includes the key metrics from the procedure. ClearPoint Therapeutic Solutions . Our ClearPoint Prism Neuro Laser Therapy System is indicated for use to necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy for neuro applications under 3.0T MRI guidance.
ClearPoint Therapeutic Solutions Our ClearPoint Prism Neuro Laser Therapy System is indicated for use to necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy for neuro applications under 3.0T MRI guidance.
Certain products supplied under the PTC Supply Agreement are subject to limited favored pricing terms for such products intended for human use in clinical or commercial settings. The Company and PTC also entered into a Second Source Manufacturing Agreement in connection with the PTC Supply Agreement (the “Second Source Manufacturing Agreement”).
Certain products supplied under the PTC Supply Agreement are subject to limited favored pricing terms for such products intended for human use in clinical or commercial settings.
To the extent we conduct such operations outside the U.S., we will be subject to international regulatory requirements. Our Irvine, California facility is FDA-registered, and we believe it is compliant with the FDA’s QSR. We are also certified to ISO standard 13485.
To the extent we conduct such operations outside the U.S., we would be subject to international regulatory requirements. Our facilities are FDA-registered, and we believe they are compliant with the FDA’s QSR. We are also certified to ISO 13485 and the Medical Device Single Audit Program ("MDSAP").
Nonetheless, several of our biologics and drug delivery customers are pursuing pre-clinical and clinical trials for which we generate revenue through sale of products including our SmartFlow cannula, as well as a growing list of pre-clinical development services that we began offering in 2021, which include protocol consultation, solutions for pre-clinical study design and toxicology support.
Nonetheless, several of our biologics and drug delivery customers are pursuing preclinical and clinical trials for which we generate revenue through sale of products including our SmartFlow cannula, as well as a growing list of preclinical development services that we began offering in 2021. The first gene therapy submission was approved by regulatory authorities in Europe in 2022.
Under the Second Source Manufacturing Agreement, PTC may, at its expense, request for the Company to appoint a backup contract manufacturer to supply products in the event of a supply interruption or a bankruptcy event.
Under the Second Source Manufacturing Agreement, PTC may, at its expense, request that we appoint a backup contract manufacturer to supply products in the event of a supply interruption or a bankruptcy event. The exercise by PTC of its second source manufacturing rights may be subject, in certain cases, to payment by PTC to us of a per-product royalty payment.
In consideration of the foregoing, we paid a fee upon execution of the agreement and are committed to pay royalties based on (a) sales of systems, and (b) procedures in which the licensed technology is used.
In consideration for the license, we paid a fee upon execution of the agreement and are committed to pay royalties based on (a) sales of systems, and (b) procedures in which the licensed technology is used. In early 2022, we expanded our collaboration with Philips to include additional technology to allow use of the Philips Brain Model with CT imaging.
In the U.S., the laser system is commercialized by us as the ClearPoint Prism Neuro Laser Therapy System. 8 Table of Contents Sales and Marketing Commercializing our ClearPoint products and services involves marketing primarily to: • physicians who care for patients suffering from neurological disorders, including stereotactic or functional neurosurgeons, who perform the neurosurgical procedures, and neurologists, who interact with patients prior to and following surgery and who refer patients for surgery; • hospitals involved in the treatment of neurological disorders, including the opinion leaders at these hospitals; and • pharmaceutical companies focused on research and development of therapies for neurological indications.
Sales and Marketing Medical Devices for Neurosurgical Application Commercializing our ClearPoint products and services for neurosurgery applications, primarily involves marketing and selling directly to: • physicians who care for patients suffering from neurological disorders, including stereotactic or functional neurosurgeons, who perform the neurosurgical procedures, and neurologists, who interact with patients prior to and following surgery and who refer patients for surgery; and • hospitals involved in the treatment of neurological disorders, including the opinion leaders at these hospitals.
Regulatory Status Our ClearPoint system 510(k) clearance from the FDA permits us to market and promote our ClearPoint system in the U.S. for use in general neurosurgical procedures, which includes procedures such as biopsies, laser catheter insertions, and deep brain stimulation lead and electrode insertions.
In 2021, we expanded our expertise to include in vivo biology services in large and small research models to assist our customers with establishing drug safety prior to and in support of human clinical trials. 4 Table of Contents Regulatory Status Our ClearPoint system 510(k) clearance from the FDA permits us to market and promote our ClearPoint system in the U.S. for use in general neurosurgical procedures, which includes procedures such as biopsies, laser catheter insertions, and deep brain stimulation lead and electrode insertions.
When DBS or RNS is performed in the MRI suite, our ClearPoint system can provide real-time visualization of the placement, which we believe will drive growth in the number of potential procedures. Three manufacturers have received FDA clearances for DBS systems: Medtronic, Boston Scientific and Abbott Laboratories.
When DBS or RNS is performed in the MRI suite, our ClearPoint system can provide intra-procedural navigation and visualization of the electrode placement and the patient may be placed under general anesthesia for the procedure. Three manufacturers have received FDA clearances for DBS systems: Medtronic, Boston Scientific and Abbott Laboratories.
We estimate brain tumor applications represent the potential for approximately 15,000 procedures per year. • Gene therapy and drug delivery in the brain – The blood-brain barrier prevents large-molecule, and nearly all small-molecule, neurotherapeutics from reaching the brain.
For small, deep-seated tumors, navigating a device to the exact target is challenging and necessary to avoid the inadvertent destruction of healthy brain tissue. We estimate brain tumor applications represent the potential for approximately 15,000 procedures per year. Biologics and Drug Delivery The blood-brain barrier prevents large-molecule, and nearly all small-molecule, neurotherapeutics from reaching the brain.
The primary applications for the ClearPoint system are to target and guide: (a) the insertion of deep brain stimulation electrodes, biopsy needles, and laser catheters; and (b) the infusion of pharmaceuticals into the brain. The ClearPoint system was originally designed for use in an MRI setting.
Our primary medical device product, the ClearPoint system, is an integrated system comprised of hardware components, disposable components, and intuitive, menu-driven software. The primary applications for the ClearPoint system are to target and guide: (a) the insertion of deep brain stimulation electrodes, biopsy needles, and laser catheters; and (b) the infusion of pharmaceuticals into the brain.
Our disposable and reusable ClearPoint products are tightly integrated, which allows us to leverage each new installation of a system to generate recurring sales of our disposable products. Our business model for our ClearPoint services is to provide surgical workflow and guidance to aid in the progression of our pharmaceutical customers’ drug delivery process.
Our disposable and reusable ClearPoint products are tightly integrated, which allows us to leverage each new installation of a system to generate recurring sales of our disposable products.
The potential addressable market by 2025 for these indications is estimated to be a $7 billion dollar market opportunity of more than 600,000 patients in the U.S. 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.
The potential addressable market by 2025 for these indications is estimated to be a $7 billion dollar market opportunity of more than 600,000 patients in the U.S.
When performed in the MRI suite, the ClearPoint system software is installed on a computer workstation networked with an MRI scanner, for which we use a commercially available laptop computer. The in-room monitor allows the physician to view the display of our ClearPoint system workstation from the scanner room while performing the procedure. ClearPoint Disposables .
The head fixation frame immobilizes the patient’s head during the procedure, and it is designed to optimize the placement of an imaging head coil in proximity to the patient’s head. When performed in the MRI suite, the ClearPoint system software is installed on a computer workstation networked with an MRI scanner, for which we use a commercially available laptop computer.
We assess the likelihood that a particular candidate will contribute to our overall goals, and beyond their specifically assigned tasks. Depending on the position, our recruitment reach can be national as well as local. We aim to provide market-based compensation and to retain our employees.
As a small, innovative company focused on the development and commercialization of technology, we believe that cultural fit and energy are important considerations in recruiting employees. We assess the likelihood that a particular candidate will contribute to our overall goals, and beyond their specifically assigned tasks. We aim to provide market-based compensation to retain our employees.
In 2021, we launched the SmartFrame Array Neuro Navigation System and Software, which allows for operating room placement of the ClearPoint system. In 2022, we commenced the limited market commercialization of the ClearPoint Prism Neuro Laser Therapy System, a laser ablation system.
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 commenced commercialization of the ClearPoint Prism Neuro Laser Therapy System, a laser ablation system. The ClearPoint Prism Neuro Laser Therapy System was developed and is manufactured for us by CLS.
The actual protection afforded by a foreign patent, which can vary from country to country, depends on the type of patent, the scope of its claims and the availability of legal remedies in the country. 10 Table of Contents We also rely on other forms of intellectual property rights and measures, including trade secrets and nondisclosure agreements, to maintain and protect proprietary aspects of our products and technologies.
The actual protection afforded by a foreign patent, which can vary from country to country, depends on the type of patent, the scope of its claims and the availability of legal remedies in the country.
At February 15, 2023, we had commercial relationships with over 50 pharma/biotech, academic, and contract research organization partners who have either evaluated or used our SmartFlow cannula or our services.
Our five largest hospital customers accounted for approximately 27% of our functional neurosurgery navigation disposable product revenues in 2023. Biologics and Drug Delivery At March 5, 2024, we had commercial relationships with over 50 pharma/biotech, academic, and contract research organization partners who have either evaluated or used our SmartFlow cannula or our consulting services.
The Medicaid program is a federal-state partnership under which states receive matching federal payments to fund healthcare services for the poor. Because some private commercial health insurers and some state Medicaid programs may follow the coverage and payment policies for Medicare, Medicare’s coverage and payment policies are significant to our business.
The Medicaid program is a federal-state partnership under which states receive matching federal payments to fund healthcare services for the poor.
Medicare coverage for the procedures in which our ClearPoint products are used currently exists in the hospital inpatient setting, which falls under Part A of the Medicare program. Under Medicare Part A, Medicare reimburses acute care hospitals a prospectively determined payment amount for beneficiaries receiving covered inpatient services in an acute care hospital.
Under Medicare Part A, Medicare reimburses acute care hospitals a prospectively determined payment amount for beneficiaries receiving covered inpatient services in an acute care hospital. This method of payment is known as the prospective payment system, or PPS.
The software uses image segmentation algorithms to help locate and identify our SmartFrame device and its targeting cannula, as well as the anatomical structures of the brain. The software also performs geometric computations to provide the physician with information regarding the positioning of instruments inserted into the patient’s brain relative to the target anatomical structures.
Our ClearPoint system software guides the physician in surgical planning, device alignment, navigation to the target and procedure monitoring. The software uses image segmentation algorithms to help locate and identify our SmartFrame device and its targeting cannula, as well as the anatomical structures of the brain.
In January 2023, the Addendum to Supply Agreement was amended and restated to allow for the Company to provide regulatory support to PTC in additional agreed geographies. Intellectual Property We believe that in order to maintain a competitive advantage in the marketplace, we must develop and maintain the proprietary aspects of our technologies.
The Second Source Manufacturing Agreement shall continue for the term of the PTC Supply Agreement, subject to certain early termination rights. Intellectual Property We believe that in order to maintain a competitive advantage in the marketplace, we must develop and maintain the proprietary aspects of our technologies.
For drug delivery procedures, our SmartFlow cannula, which is an MRI-compatible injection and aspiration cannula, serves as the vehicle for the delivery of the compound. ClearPoint Software . Our ClearPoint system software guides the physician in surgical planning, device alignment, navigation to the target and procedure monitoring.
The SmartFrame OR Stereotactic System is a single use disposable that does not require MRI guidance. For drug delivery procedures, our SmartFlow cannula, which is an MRI-compatible injection and aspiration cannula, serves as the vehicle for the delivery of the compound. ClearPoint Software .
We require our employees and consultants to execute confidentiality agreements in connection with their employment or consulting relationships with us. We also require our employees and consultants to disclose and assign to us all inventions conceived during the term of their employment or engagement which relate to our business.
We also require our employees and consultants to disclose and assign to us all inventions conceived during the term of their employment or engagement which relate to our business. Patents We have a significant patent portfolio in the field of neurosurgical and MRI-guided interventions. As of March 5, 2024, we own or license over 100 issued patents.
Manufacturing and Assembly Our ClearPoint system and SmartFlow cannula include off-the-shelf components, custom-made components produced to our proprietary specifications by various third parties, and components that we assemble in our Irvine, California facility. We use third parties to manufacture certain components to utilize their individual expertise, minimize our capital investment and help control costs.
In September 2023, we completed the transition from our Irvine, California facility to fully operating in our Carlsbad, California facility. We use third parties to manufacture certain components to utilize their individual expertise, minimize our capital investment and help control costs.
The treatment uses heat to treat and ablate the tumor or for epilepsy, the region where seizures begin. In the U.S. approximately 35,000 patients have brain tumors that could benefit from LITT and up to one million suffer from drug-resistant epilepsy.
In the U.S. approximately 35,000 patients have brain tumors that could benefit from LITT and up to one million suffer from drug-resistant epilepsy. Historically two manufacturers have FDA cleared laser therapy systems in North America – Medtronic’s Visualase system and Monteris Medical’s NeuroBlate system.
The disposable components of our ClearPoint system consist primarily of our SmartFrame trajectory device, a hand controller and related accessories, and our SmartFlow Cannula. Our SmartFrame device is an adjustable trajectory guide that attaches to the patient’s skull and holds the targeting cannula.
The in-room monitor allows the physician to view the display of our ClearPoint system workstation from the scanner room while performing the procedure. ClearPoint Disposables . The disposable components of our ClearPoint system consist primarily of our SmartFrame trajectory device, a hand controller and related accessories, and our SmartFlow Cannula.
Some of our patents and patent applications are subject to licensing and cross-licensing arrangements in place with third parties.
Our owned and issued patents expire at various dates beginning in 2023. Some of our patents and patent applications are subject to licensing and cross-licensing arrangements in place with third parties. Trademarks We have over 25 registered trademarks in the United States, the European Union, the United Kingdom, and China.
However, these treatments are subject to FDA-mandated clinical trial requirements, which are expensive and time consuming for our partners to conduct.
If our ClearPoint system and SmartFlow cannula are approved for these drug delivery treatments 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 for our partners to conduct.
Our hardware components consist primarily of a head fixation frame, computer workstation and in-room monitor. The head fixation frame immobilizes the patient’s head during the procedure, and it is designed to optimize the placement of an imaging head coil in proximity to the patient’s head.
Our Products and Services The ClearPoint System Our ClearPoint system is an integrated system comprised of hardware components, disposable components and intuitive, menu-driven software. ClearPoint Hardware . Our hardware components consist primarily of a head fixation frame, computer workstation and in-room monitor.
During an MRI-based ClearPoint procedure, surgeons use our complete navigation system inside an MRI scanner, and define targets in real-time to decide, guide, treat and confirm the procedure with pinpoint accuracy. In 2021, we launched the SmartFrame Array Neuro Navigation System and Software which allows us to expand our ClearPoint system placement to the operating room.
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 allows for operating room placement of the ClearPoint system and completion of the procedure in the MRI suite.

… 101 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

105 edited+32 added−25 removed241 unchanged
Biggest changeThe trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about us or our business. If sufficient securities analysts do not cover our common stock, the lack of research coverage may adversely affect the market price of our common stock.
Biggest changeIf one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about us or our business.
We also may pursue strategic alliances and joint ventures that leverage our core technology and industry experience to expand our offerings or distribution. We have no experience with acquiring or investing in other companies and limited experience with forming strategic alliances and joint ventures.
We also may pursue strategic alliances and joint ventures that leverage our core technology and industry experience to expand our offerings or distribution. We have no experience with acquiring or investing in other companies and limited experience in forming strategic alliances and joint ventures.
Moreover, even if physicians and hospitals understand the benefits of our ClearPoint system, they still may elect not to use our ClearPoint system for a variety of reasons, such as: • the shift in location of the procedure from the operating room to the MRI suite; 22 Table of Contents • demand for the MRI suite within the hospital, which may result in limited or no MRI scanner availability for procedures in which our ClearPoint system would be used; • the familiarity of the established physician with other devices and surgical approaches; • lack of exposure to the ClearPoint system in the fellowship training period where preferences for surgical methods are formed; • the physician’s perception that there are insufficient benefits of our ClearPoint system relative to those other devices and surgical approaches; • budgetary constraints with respect to the purchase of our ClearPoint system hardware and software; • hospital infection control procedures; • the price of our ClearPoint system disposable products, which may be higher than devices used with other surgical approaches; and • the physician’s perception that there is a lack of clinical data on the use of our ClearPoint system.
Moreover, even if physicians and hospitals understand the benefits of our ClearPoint system, they still may elect not to use our ClearPoint system for a variety of reasons, such as: • the shift in location of the procedure from the operating room to the MRI suite; • demand for the MRI suite within the hospital, which may result in limited or no MRI scanner availability for procedures in which our ClearPoint system would be used; 20 Table of Contents • the familiarity of the established physician with other devices and surgical approaches; • lack of exposure to the ClearPoint system in the fellowship training period where preferences for surgical methods are formed; • the physician’s perception that there are insufficient benefits of our ClearPoint system relative to those other devices and surgical approaches; • budgetary constraints with respect to the purchase of our ClearPoint system hardware and software; • hospital infection control procedures; • the price of our ClearPoint system disposable products, which may be higher than devices used with other surgical approaches; and • the physician’s perception that there is a lack of clinical data on the use of our ClearPoint system.
The markets for medical devices are highly competitive, and we may not be able to compete effectively against the larger, well-established companies in our markets or emerging and small innovative companies that may seek to obtain or increase their share of the market. We will face competition from products and techniques already in existence in the marketplace.
The markets for medical devices are highly competitive, and we may not be able to compete effectively against the larger, well-established companies in our markets or emerging and small innovative companies that may seek to obtain or increase their share of the market. We will continue to face competition from products and techniques already in existence in the marketplace.
Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following: • Failure to successfully develop our products; • Changes in laws or regulations applicable to future products; • Inability to obtain adequate product supply for our product candidates or the inability to do so at acceptable prices; • Adverse regulatory decisions; • Introduction of new products, services or technologies by our competitors; • Failure to meet or exceed financial projections we may provide to the public; • Inability to obtain additional funding; • Failure to meet or exceed the financial projections of the investment community; • Disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; • Additions or departures of key personnel; • Significant lawsuits, including patent or stockholder litigation; • Changes in the market valuations of similar companies; • Purchases and sales of our common stock resulting from, related to or arising out of (i) recent stock run-ups or recent divergences in valuations relative to those seen during traditional markets, (ii) high short interest or reported short squeezes, or (iii) reports of strong and atypical retail investor interest (whether on social media or otherwise); • Sales of our common stock by us or our stockholders in the future; and • Trading volume of our common stock.
Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following: • Failure to successfully develop our products; • Changes in laws or regulations applicable to future products; • Inability to obtain adequate product supply for our product candidates or the inability to do so at acceptable prices; • Adverse regulatory decisions; • Introduction of new products, services or technologies by our competitors; • Failure to meet or exceed financial projections we may provide to the public; • Inability to obtain additional funding; • Failure to meet or exceed the financial projections of the investment community; • Disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; • Additions or departures of key personnel; • Significant lawsuits, including patent or stockholder litigation; • Changes in the market valuations of similar companies; • Purchases and sales of our common stock resulting from, related to or arising out of (i) recent stock run-ups or recent divergences in valuations relative to those seen during traditional markets, (ii) high short interest or reported short squeezes, or (iii) reports of strong and atypical retail investor interest (whether on social media or otherwise); • Sales of our common stock by us or our stockholders in the future; and 39 Table of Contents • Trading volume of our common stock.
Although the majority of our operations do not take place in Russia, Ukraine, China, or Taiwan, further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which may adversely affect our business, financial condition and results of operations.
Although the majority of our operations do not take place in Russia, Ukraine, Israel, China, or Taiwan, further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which may adversely affect our business, financial condition and results of operations.
Our products are purchased primarily by hospitals, which bill various third-party payors, including governmental healthcare programs, such as Medicare, and private insurance plans, for procedures in which our products are used. Reimbursement is a significant factor considered by hospitals in determining whether to acquire and utilize medical devices.
Our products are purchased by hospitals, which bill various third-party payors, including governmental healthcare programs, such as Medicare, and private insurance plans, for procedures in which our products are used. Reimbursement is a significant factor considered by hospitals in determining whether to acquire and utilize medical devices.
The GDPR applies extraterritorially, and we may be subject to the GDPR because of our potential data processing activities that involve the personal data of individuals located in the EU, such as in connection with any EU customers, EU clinical trials or related to any employees in the EU.
The GDPR applies extraterritorially, and we may be subject to the GDPR because of our EU subsidiaries and potential data processing activities that involve the personal data of individuals located in the EU, such as in connection with any EU customers, EU clinical trials or related to any employees in the EU.
Changes to the federal false claims law enacted as part of the Affordable Care Act will likely increase the number of whistleblower cases brought against providers and suppliers of health care items and services. • The federal Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA, which established new federal crimes for knowingly and willfully executing a scheme to defraud any healthcare benefit program or making false statements in connection with the delivery of or payment for healthcare benefits, items or services. • State and foreign law equivalents of each of the above federal laws, such as: (i) anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers; and (ii) the Foreign Corrupt Practices Act, which may apply to interactions with 38 Table of Contents foreign government officials, including physician employees of a foreign government entity, by our employees and third-party business partners. • The Affordable Care Act, which imposes certain reporting obligations on manufacturers of drugs, devices and biologics.
Changes to the federal false claims law enacted as part of the Affordable Care Act will likely increase the number of whistleblower cases brought against providers and suppliers of health care items and services. • The federal Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA, which established new federal crimes for knowingly and willfully executing a scheme to defraud any healthcare benefit program or making false statements in connection with the delivery of or payment for healthcare benefits, items or services. • State and foreign law equivalents of each of the above federal laws, such as: (i) anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers; and (ii) the Foreign Corrupt Practices Act, which may apply to interactions with foreign government officials, including physician employees of a foreign government entity, by our employees and third-party business partners. • The Affordable Care Act, which imposes certain reporting obligations on manufacturers of drugs, devices and biologics.
Engaging in business outside of the U.S. inherently involves a number of other difficulties and risks, including, but not limited to: • export restrictions and controls relating to technology; • pricing pressure that we may experience internationally; • difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; • political and economic instability; • consequences arising from natural disasters and other similar catastrophes, such as hurricanes, tornados, earthquakes, floods and tsunamis; • potentially adverse tax consequences, tariffs and other trade barriers; • the need to hire additional personnel to promote our products outside of the U.S.; • international terrorism and anti-American sentiment; • fluctuations in exchange rates for future sales denominated in foreign currency, which represent a majority of our sales outside of the U.S.; • difficulty in obtaining and enforcing intellectual property rights; and • changing regulatory environments such as the European Medical Device Regulation.
Engaging in business outside of the U.S. inherently involves a number of other difficulties and risks, including, but not limited to: • export restrictions and controls relating to technology; • pricing pressure that we may experience internationally; • difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; • political and economic instability; • consequences arising from natural disasters and other similar catastrophes, such as hurricanes, tornados, earthquakes, floods and tsunamis; • potentially adverse tax consequences, tariffs and other trade barriers; • the need to hire additional personnel to promote our products outside of the U.S.; • international terrorism and anti-American sentiment; • fluctuations in exchange rates for future sales denominated in foreign currency; • difficulty in obtaining and enforcing intellectual property rights; and • changing regulatory environments such as the European Medical Device Regulation.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees in our data centers, on our networks, and on third party-controlled applications.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees on our networks, and on third party-controlled applications.
These companies enjoy significant competitive advantages over us, including: • broad product offerings, which address the needs of physicians and hospitals in a wide range of procedures and allow for price bundling; • greater experience in, and resources for, launching, marketing, distributing and selling products, including strong sales forces and established distribution networks; • existing relationships with physicians and hospitals; 28 Table of Contents • more extensive intellectual property portfolios and resources for patent protection; • greater financial and other resources for product research and development; • greater experience in obtaining and maintaining FDA and other regulatory clearances or approvals for products and product enhancements; • established manufacturing operations and contract manufacturing relationships; and • significantly greater name recognition and more recognizable trademarks.
These companies enjoy significant competitive advantages over us, including: • broad product offerings, which address the needs of physicians and hospitals in a wide range of procedures and allow for price bundling; • greater experience in, and resources for, launching, marketing, distributing and selling products, including strong sales forces and established distribution networks; • existing relationships with physicians and hospitals; • more extensive intellectual property portfolios and resources for patent protection; • greater financial and other resources for product research and development; • greater experience in obtaining and maintaining FDA and other regulatory clearances or approvals for products and product enhancements; • established manufacturing operations and contract manufacturing relationships; and • significantly greater name recognition and more recognizable trademarks.
It is important that we anticipate changes in technology and market demand, as well as customer preferences 23 Table of Contents and practices, to successfully commercialize new technologies to meet our prospective customers’ needs on a timely and cost-effective basis. We might be unable to successfully commercialize our marketed products or services or obtain authorization to market new products.
It is important that we anticipate changes in technology and market demand, as well as customer preferences and practices, to successfully commercialize new technologies to meet our prospective customers’ needs on a timely and cost-effective basis. 21 Table of Contents We might be unable to successfully commercialize our marketed products or services or obtain authorization to market new products.
We may from time to time have agreements with physicians that could be scrutinized or could be subject to reporting requirements in the future, including consulting contracts in which we compensate physicians for various services, which could include: • providing training and other similar services on the proper use of our products; • advising us with respect to the commercialization of products in their respective fields; • keeping us informed of new developments in their respective fields of practice; • advising us on our research and development projects related to their respective fields; • advising us on improvements to methods, processes and devices related to their respective fields (such as advice on the development of prototype devices); and • assisting us with the technical evaluation of our methods, processes and devices related to their respective fields.
We may from time to time have agreements with physicians that could be scrutinized or could be subject to reporting requirements in the future, including consulting contracts in which we compensate physicians for various services, which could include: • providing training and other similar services on the proper use of our products; • advising us with respect to the commercialization of products in their respective fields; • keeping us informed of new developments in their respective fields of practice; • advising us on our research and development projects related to their respective fields; • advising us on improvements to methods, processes and devices related to their respective fields (such as advice on the development of prototype devices); and 37 Table of Contents • assisting us with the technical evaluation of our methods, processes and devices related to their respective fields.
It has also been CE marked for use in Europe for the delivery of approved fluids into the brain or aspiration of CSF. The SmartFlow Cannula is being utilized in approved combination product clinical and preclinical studies by pharmaceutical companies and academic research customers for various research and clinical trials in connection with delivery of therapeutic agents.
It has also been CE marked for use in the EU for the delivery of approved fluids into the brain or aspiration of CSF. The SmartFlow Cannula is being utilized in approved combination product clinical and preclinical studies by pharmaceutical companies and academic research customers for various research and clinical trials in connection with delivery of therapeutic agents.
If we cannot maintain our current relationships, or enter into new relationships, with drug delivery customers, our revenue prospects could be reduced. We collaborate with pharma/biotech, academic, and contract research organization customers (collectively “drug delivery customers”) to provide products and services in connection with pre-clinical and clinical studies.
If we cannot maintain our current relationships, or enter into new relationships, with drug delivery customers, our revenue prospects could be reduced. We collaborate with pharma/biotech, academic, and contract research organization customers (collectively “drug delivery customers”) to provide products and services in connection with preclinical and clinical studies.
A growing part of our revenue from the biologics and drug delivery business is derived from providing consultancy to our pharmaceutical and other medical technology partners for pre-clinical development services, on-site clinical support and training, regulatory consultation, protocol consultation, customized device development, and other solutions to optimize pre-clinical and clinical workflows.
A growing part of our revenue from the biologics and drug delivery business is derived from providing consultancy to our pharmaceutical and other medical technology partners for preclinical development services, on-site clinical support and training, regulatory consultation, protocol consultation, customized device development, and other solutions to optimize preclinical and clinical workflows.
Our five largest hospital customers account for approximately 26% of our functional neurosurgery navigation revenues. Revenues from almost all our customers are not based on long-term, committed volume purchase contracts, and we may not continue to generate a similar level of revenues from our largest customers, or any other customer.
Our five largest hospital customers account for approximately 27% of our functional neurosurgery navigation revenues. Revenues from almost all our customers are not based on long-term, committed volume purchase contracts, and we may not continue to generate a similar level of revenues from our largest customers, or any other customer.
However, any future natural disaster, such as an earthquake or a wildfire, pandemics, such as the COVID-19 pandemic, or other unanticipated catastrophes, such as telecommunications failures, cyberattacks, or terrorist attacks, at any of the locations in which we or our key partners, suppliers and customers do business, could significantly disrupt our operations, and delay or prevent product assembly and shipment during the time required to repair, rebuild or replace our facility, which could be lengthy and result in significant expenses.
However, any future natural disaster, such as an earthquake or a wildfire, pandemics, or other unanticipated catastrophes, such as telecommunications failures, cyberattacks, or terrorist attacks, at any of the locations in which we or our key partners, suppliers and customers do business, could significantly disrupt our operations, and delay or prevent product assembly and shipment during the time required to repair, rebuild or replace our facility, which could be lengthy and result in significant expenses.
In certain cases, these services support 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, the outcome of those trials.
In certain cases, these services support a novel area in which commercialization must be preceded by preclinical studies and FDA-mandated clinical trials, which are expensive and time consuming to conduct, and for which the commercial success is uncertain, pending, in part, the outcome of those studies and trials.
Any such impairment could have a material adverse effect on our results of operations, financial condition and the timeliness with which we report our operating results. Our insurance coverage related to information risks, breaches, and business interruption is subject to deductibles and coverage limitations.
Any such impairment could have a material adverse effect on our results of operations, financial condition and the timeliness in which we report our operating results. Our insurance coverage related to information risks, breaches, and business interruption is subject to deductibles and coverage limitations.
Because of our current customer concentration, our revenues could fluctuate, possibly significantly, due to a reduction or delay in our biotechnology and pharmaceutical customers’ clinical trials, or in orders from any of our significant hospital customers, which could harm our business and results of operations.
Because of our current customer concentration, our revenues could fluctuate, possibly significantly, due to a reduction or delay in our biotechnology and pharmaceutical customers’ preclinical studies or clinical trials, or in orders from any of our significant hospital customers, which could harm our business and results of operations.
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any broad range of business combinations with any stockholder who owns, or at any time in the last three years owned, 15% or more of our outstanding voting stock, for a period of three years following the date on which the stockholder became an interested stockholder.
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any broad range of business combinations with any stockholder who owns, or at any time in the last three years owned, 15% or more of our outstanding voting stock, for a period of three years following 40 Table of Contents the date on which the stockholder became an interested stockholder.
It is possible that a court could find these types of provisions to be inapplicable or unenforceable, and if a court were to find either exclusive-forum provision in our Fourth Amended 40 Table of Contents and Restated Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business.
It is possible that a court could find these types of provisions to be inapplicable or unenforceable, and if a court were to find either exclusive-forum provision in our Fourth Amended and Restated Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business.
There is no assurance that any of these conversations will result in an agreement, or if an agreement is reached, that the resulting relationship will be successful or that clinical or research studies conducted as part of the engagement will produce successful outcomes.
There is no assurance that any of these conversations will result in an agreement, or if an agreement is reached, that the resulting relationship will be successful or that preclinical, clinical, or research studies conducted as part of the engagement will be continued or will produce successful outcomes.
We cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation, administrative, or executive action, either in the U.S. or abroad. For example, the Biden administration has taken and will 35 Table of Contents continue to take executive actions, some of which could impact us and our business.
We cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation, administrative, or executive action, either in the U.S. or abroad. For example, the Biden administration has taken and will continue to take executive actions, some of which could impact us and our business.
If the need to replace any of our key employees arises, the replacement process likely would involve significant time and costs, and may significantly delay or prevent the achievement of our business objectives. Risks Related to Our Financial Position We have incurred losses since our inception, and we may continue to incur losses.
If the need to replace any of our key employees arises, the search and recruiting process likely would involve significant time and costs, and may significantly delay or prevent the achievement of our business objectives. Risks Related to Our Financial Position We have incurred losses since our inception, and we may continue to incur losses.
Moreover, the results of early clinical trials are not necessarily predictive of future results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials. Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.
Moreover, the results of early clinical trials are not necessarily 24 Table of Contents predictive of future results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials. Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.
Our commercial success depends, in part, on obtaining patent and other intellectual property protection for the technologies contained in our products and product candidates. The patent positions of medical device companies, 32 Table of Contents including ours, can be highly uncertain and involve complex and evolving legal and factual questions.
Our commercial success depends, in part, on obtaining patent and other intellectual property protection for the technologies contained in our products and product candidates. The patent positions of medical device companies, including ours, can be highly uncertain and involve complex and evolving legal and factual questions.
If our licensors fail to prosecute, maintain, enforce and defend such patents, or lose rights to those patents or patent applications, the rights we have licensed may be reduced 34 Table of Contents or eliminated, and our right to develop and commercialize any of our products that are subject of such licensed rights could be adversely affected.
If our licensors fail to prosecute, maintain, enforce and defend such patents, or lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated, and our right to develop and commercialize any of our products that are subject of such licensed rights could be adversely affected.
Government regulations and foreign requirements specific to medical devices are wide ranging and govern, among other things: • design, development and manufacturing; • pre-clinical and clinical testing; • testing, labeling and storage; • product safety; • marketing, sales and distribution; • premarket clearance, authorization, or approval; • recordkeeping procedures; • advertising and promotions; • recalls and field corrective actions; • post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; and • product export.
Government regulations and foreign requirements specific to medical devices are wide ranging and govern, among other things: • design, development and manufacturing; • preclinical and clinical testing; 33 Table of Contents • testing, labeling and storage; • product safety; • marketing, sales and distribution; • premarket clearance, authorization, or approval; • recordkeeping procedures; • advertising and promotions; • recalls and field corrective actions; • post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; and • product export.
We expect to need additional funding for our business, and we may not be able to raise capital when needed or on terms that are acceptable to us, which could force us to delay, reduce or eliminate our commercialization efforts or our product development programs. The cumulative net loss from our inception through December 31, 2022 was approximately $150 million.
We expect to need additional funding for our business, and we may not be able to raise capital when needed or on terms that are acceptable to us, which could force us to delay, reduce or eliminate our commercialization efforts or our product development programs. The cumulative net loss from our inception through December 31, 2023 was approximately $172 million.
All our employees, including the members of our senior management team, are at-will employees, and therefore they may terminate employment with us at any time. Accordingly, there are no assurances that the services of any of our 30 Table of Contents employees will be available to us for any specified period of time.
All our employees, including the members of our senior management team, are at-will employees, and therefore they may terminate employment with us at any time. Accordingly, there are no assurances that the services of any of our employees will be available to us for any specified period of time.
Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disrupt our operations and the services we provide to customers, and damage our reputation and cause a loss of confidence in our products and services, which could adversely affect our business, operating margins, revenues and competitive position.
Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption of our operations and the services we provide to customers, and damage to our reputation and loss of confidence in our products and services, which could adversely affect our business, operating margins, revenues and competitive position.
Product liability claims are expensive to defend and could divert our management’s attention and result in substantial damage awards against us. 37 Table of Contents If we or our third-party suppliers fail to comply with the FDA’s QSR or any applicable state equivalent, our manufacturing operations could be interrupted, and our potential product sales and operating results could suffer.
Product liability claims are expensive to defend and could divert our management’s attention and result in substantial damage awards against us. If we or our third-party suppliers fail to comply with the FDA’s QSR or any applicable state equivalent, our manufacturing operations could be interrupted, and our potential product sales and operating results could suffer.
The growth of our drug delivery and 26 Table of Contents biologics business is dependent upon our pharmaceutical company customers’ ability to obtain regulatory approval for the use of the SmartFlow Cannula for delivery of their therapeutic agent, and/or our ability to expand the cleared indications for our SmartFlow Cannula to include delivery of our pharmaceutical company customers’ therapeutic agents.
The growth of our drug delivery and biologics business is dependent upon our pharmaceutical company customers’ ability to obtain regulatory approval for the use of the SmartFlow Cannula for delivery of their therapeutic agent, and/or our ability to expand the cleared indications for our SmartFlow Cannula to include delivery of our pharmaceutical company customers’ therapeutic agents.
The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Dodd-Frank Act requires the SEC to adopt certain rules and regulations relating to our public disclosures, corporate governance and executive compensation, among other things, and such rules and regulations require significant attention from management.
The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial 42 Table of Contents condition. The Dodd-Frank Act requires the SEC to adopt certain rules and regulations relating to our public disclosures, corporate governance and executive compensation, among other things, and such rules and regulations require significant attention from management.
Our dependence on a limited number of third-party suppliers and the challenges we may face in obtaining adequate supplies involve several risks, including limited control over pricing, availability, quality and delivery schedules.
Our dependence on a limited number of third-party suppliers and service providers and the challenges we may face in obtaining adequate supplies and services involve several risks, including limited control over pricing, availability, quality and delivery schedules.
The Medicare Access and CHIP Reauthorization Act, or the Medicare Access Act, removed the sustainable growth rate or SGR, methodology applicable to fees for physician services. The Medicare Access Act also replaced the previous fee-for-service payment system with a more value-based system. As a result, reimbursements from the Medicare program may be reduced.
The Medicare Access and CHIP Reauthorization Act, or the Medicare Access Act, removed the sustainable growth rate or SGR, methodology applicable to fees for physician services. The Medicare Access Act also replaced the previous fee-for-service payment system with a more value-based system. As a result, reimbursements from the Medicare 34 Table of Contents program may be reduced.
In addition, in the U.S., no uniform policy of coverage and 24 Table of Contents reimbursement for medical device products and services exists among third-party payors. Therefore, coverage and reimbursement for medical device products and services can differ significantly from payor to payor.
In addition, in the U.S., no uniform policy of coverage and reimbursement for medical device products and services exists among third-party payors. Therefore, coverage and reimbursement for medical device products and services can differ significantly from payor to payor.
With or without insurance, damage to our facility or our other property due to a natural disaster or casualty event could have a material adverse effect on our business, financial condition and results of operations.
With or without 23 Table of Contents insurance, damage to our facility or our other property due to a natural disaster or casualty event could have a material adverse effect on our business, financial condition and results of operations.
Thus, any patents that we own or license may provide limited or no protection against competitors. In addition, our pending patent applications and those we may file in the future may not result in patents being issued or may have claims that do not cover our products or product candidates.
Thus, any patents that we 30 Table of Contents own or license may provide limited or no protection against competitors. In addition, our pending patent applications and those we may file in the future may not result in patents being issued or may have claims that do not cover our products or product candidates.
The implementation of new policies and priorities by the Biden administration are unknown and could materially impact the regulation of our products. If executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
The implementation of new policies and priorities by future administrations are unknown and could materially impact the regulation of our products. If executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
Additionally, third parties may be able to design around our patents. Furthermore, the laws of foreign countries may not protect our proprietary rights to the same extent as the laws of the U.S.
Additionally, third parties may be able to design around 31 Table of Contents our patents. Furthermore, the laws of foreign countries may not protect our proprietary rights to the same extent as the laws of the U.S.
The negative impacts arising from the conflict and sanctions and export restrictions imposed by various countries, including those imposed by Russia, may include reduced consumer demand, supply chain disruptions, increased cybersecurity risks, and increased costs for transportation, energy, and raw materials.
The negative impacts arising from the conflict and sanctions and export restrictions imposed by various countries, including those imposed by Russia, may include reduced consumer demand, supply chain disruptions, increased 19 Table of Contents cybersecurity risks, and increased costs for transportation, energy, and raw materials.
In December 2019, President Trump signed into law a permanent repeal of the medical device tax under the Affordable Care Act, but there is no guarantee that Congress or President Biden will not reverse course in the future.
In December 2019, President Trump signed into law a permanent repeal of the medical device tax under the Affordable Care Act, but there is no guarantee that such repeal will not reverse course in the future.
However, such methods may not be adequate to protect us or permit us to gain or 33 Table of Contents maintain a competitive advantage. Our patent applications may not issue as patents in a form that will be advantageous to us, or at all.
However, such methods may not be adequate to protect us or permit us to gain or maintain a competitive advantage. Our patent applications may not issue as patents in a form that will be advantageous to us, or at all.
The global economy has been, and may continue to be, negatively impacted by the ongoing conflict resulting from Russia’s invasion of Ukraine in 2022, or the increasing tensions between China and Taiwan.
The global economy has been, and may continue to be, negatively impacted by the ongoing conflict resulting from Russia’s invasion of Ukraine in 2022, uncertainty in the Middle East region, or the increasing tensions between China and Taiwan.
In 2022, one pharmaceutical customer, a related party as described in Note 2 to the consolidated financial statements included elsewhere in this Annual Report, for whom we provide clinical services in support of the customer’s clinical trials and earn a quarterly fee, accounted for 15% of our total revenues, and 34% of our biologics and drug delivery revenue.
In 2023, one pharmaceutical customer, a related party as described in Note 2 to the consolidated financial statements included elsewhere in this Annual Report, for whom we provide clinical services in support of the customer’s clinical trials and earn a quarterly fee, accounted for 12% of our total revenues, and 21% of our biologics and drug delivery revenue.
Our plans for the next twelve months reflect our anticipation of increases in revenues from sales of the ClearPoint system and related disposable products as a result of greater utilization at existing installed sites and the installation of the ClearPoint system at new sites, as well as from consulting services and sales of systems and disposables to our pharmaceutical partners for gene and stem cell therapy trials.
Our plans for the next twelve months reflect our anticipation of increases in revenues from sales of our hardware products and related disposable products as a result of greater utilization at existing installed sites and the installation of our products at new sites, as well as payments from strategic partnerships, consulting services and sales of systems and disposables to our pharmaceutical partners for gene and stem cell therapy trials.
To date, final assembly of many of our products’ components occurs at our Irvine, California facility, in an area that is at risk of experiencing serious fires and power outages and is considered to lie in an earthquake risk zone.
Currently, final assembly of many of our products’ components occurs at our Carlsbad, California facility, in an area that is at risk of experiencing serious fires and power outages and is considered to lie in an earthquake risk zone.
Our business strategy includes plans for expansion in countries where we currently operate as well as introducing our products to other international markets. Doing business outside of the U.S. exposes us to risks distinct from those we face in our domestic operations.
Our business strategy includes plans for expansion in countries where we currently operate as well as the introduction of our products to other international markets. Doing 26 Table of Contents business outside of the U.S. exposes us to risks distinct from those we face in our domestic operations.
If we are unable to obtain insurance at an acceptable cost or on acceptable terms or otherwise protect against such information risks and breach claims, we could be exposed to significant liabilities.
If we are unable to obtain insurance at an 27 Table of Contents acceptable cost or on acceptable terms or otherwise protect against such information risks and breach claims, we could be exposed to significant liabilities.
In addition, the FDA could take enforcement actions against us, which could impair our ability 36 Table of Contents to produce our products in a cost-effective and timely manner to meet our customers’ demands.
In addition, the FDA could take enforcement actions against us, which could impair our ability to produce our products in a cost-effective and timely manner to meet our customers’ demands.
To date, we do not have redundant facilities. We conduct many of our activities, including research and development, component processing, final assembly, packaging and distribution activities for most of our products, at our facility located in Southern California, which is a seismically active area that has experienced major earthquakes in the past, as well as other natural disasters, including wildfires.
We conduct many of our activities, including research and development, component processing, final assembly, packaging and distribution activities for most of our products, at our facility located in Southern California, which is a seismically active area that has experienced major earthquakes in the past, as well as other natural disasters, including wildfires.
To the extent that our customers continue to face such financial pressures, it could impact their willingness to spend on our products and services, which could adversely affect our business, financial condition and results of operations.
To the extent that our customers continue to face such financial pressures, it could impact their willingness to spend on our products and services or their ability to make payment, either of which could adversely affect our business, financial condition and results of operations.
As a result of the foregoing, we believe it may be necessary to seek additional sources of funds from the sale of equity or other debt securities, which likely would result in dilution to existing ownership interests, from the establishment of a credit facility, or from entry into an agreement with a strategic partner or some other form of collaborative relationship.
As a result of the foregoing, it is uncertain whether or not it will be necessary to seek additional sources of funds from the sale of equity or other debt securities, which likely would result in dilution to existing ownership interests, from the establishment of a credit facility, or from entry into an agreement with a strategic partner or some other form of collaborative relationship.
The continuation and growth of our revenue from our biologics and drug delivery services is dependent on our pharmaceutical and other medical technology partners achieving commercial success with their therapeutic products.
The maintenance and growth of our revenue from our biologics and drug delivery services is dependent on our pharmaceutical and other medical technology partners continuing their development process and achieving commercial success with their therapeutic products.
Net cash used in operations was $16.2 million for the year ended December 31, 2022. Since our inception, we have financed our operations principally from the sale of equity securities and the issuance of notes payable.
Net cash used in operations was $13.7 million for the year ended December 31, 2023. Since our inception, we have financed our operations principally from the sale of equity securities and the issuance of notes payable.
Any such breach could compromise our 29 Table of Contents networks and the information stored there could be accessed, publicly disclosed, lost or stolen.
Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.
We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which could cause a decline in our stock price. General Risk Factors Damage to our reputation could harm our businesses, including our competitive position and business prospects.
This could have a negative effect on the market price of our stock. We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which could cause a decline in our stock price. General Risk Factors Damage to our reputation could harm our businesses, including our competitive position and business prospects.
Further, changes in domestic and global economic conditions, supply chain disruptions, labor shortages, the lingering effects of the COVID-19 pandemic, as well as other stimulus and spending programs, have led to higher inflation, which is likely to lead to increased costs and may cause changes in fiscal and monetary policy.
Changes in domestic and global economic conditions, supply chain disruptions, labor shortages, as well as other stimulus and spending programs, have led to higher inflation, which is likely to lead to increased costs and may cause changes in fiscal and monetary policy.
Our future business prospects depend in part on our ability to develop and commercialize new products and services, such as the Maestro Brain Model, the ClearPoint Prism Neuro Laser Therapy System, Pre-Clinical Development Services for Pharmaceutical Partners, and the Robotic-Assisted Navigation system.
Our future business prospects depend in part on our ability to develop and commercialize new products and services, such as the Maestro Brain Model, the ClearPoint Prism Neuro Laser Therapy System, SmartFrame OR, and preclinical development and device development services for pharmaceutical partners.
If such an excise tax on sales of our products in the U.S. is enacted, it could have a material adverse effect on our business, results of operations and financial condition. Various healthcare reform proposals have also emerged at the state level.
If such an excise tax on sales of our products in the U.S. is enacted, it could have a material adverse effect on our business, results of operations and financial condition.
In the event we seek a new indication for use of, or new claims for, the ClearPoint system that we believe are necessary or desirable for successful commercialization, the FDA may refuse our requests for 510(k) clearance or PMA approval.
Moreover, some specific ClearPoint system claims could require clinical trials to support regulatory clearance or approval. In the event we seek a new indication for use of, or new claims for, the ClearPoint system that we believe are necessary or desirable for successful commercialization, the FDA may refuse our requests for 510(k) clearance or PMA approval.
For example, the EU General Data Protection Regulation (“GDPR”), which became effective on May 25, 2018, introduced new data protection requirements in the European Economic Area and substantial fines for violations of the data protection rules.
For example, the EU General Data Protection Regulation (“GDPR”) introduced new data protection requirements in the European Economic Area and substantial fines for violations of the data protection rules.
An inability to obtain a sufficient amount of additional funding would create substantial doubt as to our ability to continue as a going concern. 31 Table of Contents The funding requirements for our business will depend on many factors, including: • the timing of broader market acceptance and adoption of our ClearPoint platform products and services; • the scope, rate of progress and cost of our ongoing product development activities relating to our ClearPoint system; • 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 scope, rate of progress and cost of our research and development activities relating to new products; • the effect of competing technological and market developments; • the costs, terms and timing of any future investments or acquisitions, or 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.
The funding requirements for our business will depend on many factors, including: • the timing of broader market acceptance and adoption of our ClearPoint platform products and services; • the scope, rate of progress and cost of our ongoing product development activities relating to our ClearPoint system; • 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 scope, rate of progress and cost of our research and development activities relating to new products; • the effect of competing technological and market developments; • the costs, terms and timing of any future investments or acquisitions, or 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. 29 Table of Contents Raising additional funds may cause dilution to existing stockholders, restrict our operations, or require us to relinquish proprietary rights.
A liability claim, regardless of its merit or eventual outcome, could result in: • decreased demand for our products; • injury to our reputation; • diversion of management’s attention; • significant costs of related litigation; • payment of substantial monetary awards by us; • product recalls or market withdrawals; • a change in the design, manufacturing process or the indications for which our marketed products may be used; • loss of revenue; and • an inability to commercialize product candidates. 43 Table of Contents Our operations are vulnerable to interruption or loss due to natural disasters, power loss and other events beyond our control, which would adversely affect our business.
A liability claim, regardless of its merit or eventual outcome, could result in: • decreased demand for our products; • injury to our reputation; • diversion of management’s attention; • significant costs of related litigation; • payment of substantial monetary awards by us; • product recalls or market withdrawals; • a change in the design, manufacturing process or the indications for which our marketed products may be used; • loss of revenue; and • an inability to commercialize product candidates.
At December 31, 2022, we had cash and cash equivalent balances and short-term investments aggregating $37.5 million, resulting primarily from the 2021 public offering and note issuances pursuant to the 2020 Financing Transaction as discussed in Notes 9 and 7, respectively, to the consolidated financial statements included elsewhere in this Annual Report.
At December 31, 2023, we had cash and cash equivalent balances aggregating $23.1 million, resulting primarily from a 2021 public offering and note issuances pursuant to the 2020 Financing Transaction as discussed in Note 7 to the consolidated financial statements included elsewhere in this Annual Report.
Raising additional funds may cause dilution to existing stockholders, restrict our operations, or require us to relinquish proprietary rights. To the extent we raise additional capital through the sale of equity or convertible debt securities, existing ownership interests will be diluted, and the terms may include liquidation or other preferences that adversely affect such existing stockholders’ rights.
To the extent we raise additional capital through the sale of equity or convertible debt securities, existing ownership interests will be diluted, and the terms may include liquidation or other preferences that adversely affect such existing stockholders’ rights.
Our reliance on single-source suppliers for components and finished products could harm our ability to meet demand for our products in a timely manner or within budget. Many of our components, component assemblies, and finished products are provided to us by single-source suppliers. We generally purchase components and component assemblies through purchase orders rather than long-term supply agreements.
Our reliance on single-source suppliers for components, finished products and services could harm our ability to meet demand for our products or services in a timely manner or within budget. Many of our components, component assemblies, and finished products are provided to us by single-source suppliers.
While alternative suppliers exist and have been identified for substantially all components, the disruption or termination of the supply of components and component assemblies could cause a significant increase in the cost of these components, which could affect our operating results.
While alternative suppliers exist and have been identified for substantially all components, the disruption or termination of the supply of components and component assemblies could cause a significant increase in the cost of these components, which could affect our operating results. We also depend on single-source service providers for many of the services that we perform for our customers.
Impacts from inflationary pressures, such an increasing costs for research and development of our products, administrative and other costs of doing business, could adversely affect our business, financial condition and results of operations. 21 Table of Contents Additionally, our customers could experience financial and operational pressures as a result of labor shortages, the supply chain disruptions, and increased inflation, which could impact their ability to access capital markets and other funding sources, increase cost of funding, cause cash flow problems, or impede their ability to comply with debt covenants, which in turn could impede their ability to provide patient care, conduct further research and development, marketing and commercialization efforts, or impact their profitability.
Additionally, our customers could experience financial and operational pressures as a result of macroeconomic conditions, such as labor shortages, supply chain disruptions, and increased inflation, any of which could impact their ability to access capital markets and other funding sources, increase cost of funding, cause cash flow problems, or impede their ability to comply with debt covenants, which in turn could impede their ability to provide patient care, conduct further research and development, marketing and commercialization efforts, or impact their profitability.
If we do not pay dividends, a return on our stockholders’ investment will only occur if our stock price appreciates. 41 Table of Contents Anti-takeover provisions in our certificate of incorporation, bylaws and Delaware law could prevent or delay a change in control. We have 200,000,000 shares of common stock authorized, and 24,609,284 shares outstanding as of February 15, 2023.
If we do not pay dividends, a return on our stockholders’ investment will only occur if our stock price appreciates. Anti-takeover provisions in our certificate of incorporation, bylaws and Delaware law could prevent or delay a change in control. We have 90,000,000 shares of common stock authorized, and 26,976,289 shares outstanding as of March 5, 2024.
We and our suppliers will also be subject to the regulations of foreign jurisdictions regarding the manufacturing process to the extent we market our products in these jurisdictions. The FDA enforces the QSR through periodic and unannounced inspections of manufacturing facilities. Our facilities were last inspected for QSR compliance in February 2021.
We and our suppliers will also be subject to the regulations of foreign jurisdictions regarding the manufacturing process to the extent we market our products in these jurisdictions. The FDA enforces the QSR through periodic and unannounced inspections of manufacturing facilities. Our facilities were last subject to an ISO 13485 surveillance audit and MDSAP surveillance audit in April 2023.
We generally do not maintain large volumes of inventory for components, component assemblies, or finished products. We have not identified alternative suppliers for some of the finished products that we commercialize.
We generally purchase components and component assemblies through purchase orders rather than long-term supply agreements. We generally do not maintain large volumes of inventory for components, component assemblies, or finished products. We have not identified alternative suppliers for some of the finished products that we commercialize.
We may make errors in predicting and reacting to relevant business trends, which could harm our business and financial condition. Any failure to achieve and maintain profitability would continue to have an adverse effect on our stockholders’ equity and working capital and could result in a decline in our stock price or cause us to cease operations.
Any failure to achieve and maintain profitability would continue to have an adverse effect on our stockholders’ equity and working capital and could result in a decline in our stock price or cause us to cease operations.
Under the FDA’s Medical Device Reporting regulations, we are required to report to the FDA any incident in which our products may have caused or contributed to a death or serious injury or in which our products malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury.
If our products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to Medical Device Reporting regulations, which can result in voluntary corrective actions or agency enforcement actions. 35 Table of Contents Under the FDA’s Medical Device Reporting regulations, we are required to report to the FDA any incident in which our products may have caused or contributed to a death or serious injury or in which our products malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury.
We started selling our ClearPoint system in August 2010, and to date, sales of the ClearPoint system have been focused on its use for neurosurgical procedures in the MRI suite. In 2021, we launched the SmartFrame Array Neuro Navigation System and Software, which allows for operating room placement of our technology.
We started selling our ClearPoint system in August 2010, and to date, sales of the ClearPoint system have been primarily focused on its use for neurosurgical procedures in the MRI suite. In 2021, we launched the SmartFrame Array Neuro Navigation System and Software, and in 2024, we commenced limited market release of the SmartFrame OR Stereotactic System.
Such harm could also, among other consequences, increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs and expenses. We could become subject to product liability or professional liability claims that could be expensive, divert management’s attention and harm our business.
Such harm could also, among other consequences, increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs and expenses.

… 82 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

1 edited+1 added−1 removed0 unchanged
Biggest changeITEM 2. PROPERTIES. We lease approximately 7,500 square feet of space in Solana Beach, California, which serves as our corporate headquarters and houses certain management and research and development personnel. We also lease approximately 7,400 square feet of space in Irvine, California, which houses office space and a manufacturing facility.
Biggest changeITEM 2. PROPERTIES. We lease approximately 7,500 square feet of space in Solana Beach, California, which serves as our corporate headquarters and houses certain management and research and development personnel. We also lease an approximately 20,000 square foot industrial building in Carlsbad, California to use as an office and manufacturing facility.
Removed
In 2022, the Company entered into a lease agreement to lease an approximately 19,462 square foot industrial building in Carlsbad, California to use as an office and manufacturing facility. We believe that these facilities are sufficient to meet our current and near-term needs. 44 Table of Contents
Added
We believe that these facilities are sufficient to meet our current and near-term needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+1 added−9 removed2 unchanged
Biggest changeAs of February 15, 2023, we had approximately 230 stockholders of record. In addition, as of February 15, 2023, options and warrants to purchase 1,434,840 shares of common stock were outstanding. Dividend Policy We have never declared or paid cash dividends on our capital stock.
Biggest changeAs of March 5, 2024, we had approximately 220 stockholders of record. In addition, as of March 5, 2024, options to purchase 1,467,907 shares of common stock and 752,436 shares of unvested restricted stock units were outstanding. Dividend Policy We have never declared or paid cash dividends on our capital stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is traded on the Nasdaq Capital Market under the symbol “CLPT.” Holders As of February 15, 2023, we had 24,609,284 shares of common stock outstanding and no shares of preferred stock outstanding.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is traded on the Nasdaq Capital Market under the symbol “CLPT.” Holders As of March 5, 2024, we had 26,976,289 shares of common stock outstanding and no shares of preferred stock outstanding.
Removed
Equity Compensation Plan Information Plan Category (1) Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights (2) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by stockholders (3) 1,583,446 (4) $ 7.92 1,607,488 (5) Equity compensation plans not approved by stockholders (6)(7)(8)(9)(10)(11) 512,375 $ 10.03 — Total 2,095,821 $ 8.69 1,607,488 (1) The information presented in this table is as of December 31, 2022.
Added
Securities Authorized for Issuance Under Equity Compensation Plans Information relating to our equity compensation plans as of December 31, 2023, under which our equity securities were authorized for issuance, is included in Item 12 of Part III of this Annual Report and such information is incorporated herein by reference.
Removed
(2) The weighted-average exercise price calculation includes only stock options as restricted stock does not have an exercise price. (3) Includes the Fourth Amended and Restated 2013 Incentive Compensation Plan, the 2021 Employee Stock Purchase Plan, and the 2012 Incentive Compensation Plan, under which awards are no longer being granted.
Removed
(4) Includes 885,911 outstanding stock options and 697,535 unvested restricted shares outstanding. (5) Includes 1,286,967 shares of common stock available for issuance under the Fourth Amended and Restated 2013 Incentive Compensation Plan and 320,521 shares of common stock available for issuance under the 2021 Employee Stock Purchase Plan.
Removed
(6) In December 2013, we adopted our 2013 Non-Employee Director Equity Incentive Plan. The plan provides for the issuance of awards with respect to an aggregate of 14,250 shares of our common stock.
Removed
As of December 31, 2022, awards with respect to 7,375 shares of our common stock were outstanding under the 2013 Non-Employee Director Equity Incentive Plan. 46 Table of Contents (7) In October 2014, we entered into a written compensatory contract with Francis P. Grillo, our then-Chief Executive Officer, pursuant to which we awarded Mr.
Removed
Grillo non-qualified stock options to purchase 60,000 shares of our common stock. (8) In December 2014, we entered into a written compensatory contract with Wendelin C. Maners, our then-Vice President, Marketing, pursuant to which we awarded Ms. Maners non-qualified stock options to purchase 8,750 shares of our common stock.
Removed
(9) In March 2015, we entered into a written compensatory contract with Harold A. Hurwitz, our then-Chief Financial Officer, pursuant to which we awarded Mr. Hurwitz non-qualified stock options to purchase 11,250 shares of our common stock. (10) In November 2017, we entered into a written compensatory contract with Joseph M.
Removed
Burnett, our Chief Executive Officer, pursuant to which we awarded Mr. Burnett a non-qualified stock option to purchase 350,000 shares of our common stock. (11) In September 2020, we entered into a written compensatory contract with Danilo D’Alessandro, our Chief Financial Officer, pursuant to which we awarded Mr.
Removed
D’Alessandro a non-qualified stock option to purchase 75,000 shares of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

63 edited+16 added−14 removed18 unchanged
Biggest changeYears Ended December 31, Percentage (Dollars in thousands) 2022 2021 Change Functional neurosurgery navigation and therapy Disposable products $ 7,587 $ 7,696 (1) % Services 1,537 375 310 % Subtotal – Functional neurosurgery navigation and therapy 9,124 8,071 13 % Biologics and drug delivery Disposable products 3,690 3,353 10 % Services and license fees 5,430 3,442 58 % Subtotal – Biologics and drug delivery revenue 9,120 6,795 34 % Capital equipment and software Systems and software products 1,512 864 75 % Services 795 569 40 % Subtotal – Capital equipment and software revenue 2,307 1,433 61 % Total revenue $ 20,551 $ 16,299 26 % Functional neurosurgery navigation and therapy revenue, which primarily consists of disposable product commercial sales related to cases utilizing the ClearPoint system, increased 13% to $9.1 million during the year ended December 31, 2022, from $8.1 million for the same period in 2021.
Biggest changeTotal revenue was approximately $24.0 million and $20.6 million for the years ended December 31, 2023 and 2022, respectively. 49 Table of Contents Years Ended December 31, Percentage (Dollars in thousands) 2023 2022 Change Biologics and drug delivery Disposable products $ 2,154 $ 3,690 (42) % Services and license fees 11,448 5,430 111 % Subtotal – Biologics and drug delivery revenue 13,602 9,120 49 % Functional neurosurgery navigation and therapy Disposable products 7,589 7,587 — % Services 931 1,537 (39) % Subtotal – Functional neurosurgery navigation and therapy revenue 8,520 9,124 (7) % Capital equipment and software Systems and software products 860 1,512 (43) % Services 973 795 22 % Subtotal – Capital equipment and software revenue 1,833 2,307 (21) % Total revenue $ 23,955 $ 20,551 17 % Biologics and drug delivery revenue, which include sales of disposable products and services related to customer-sponsored preclinical and clinical trials utilizing our products, increased 49% to $13.6 million for the year ended December 31, 2023, from $9.1 million for the same period in 2022.
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 related share-based compensation; marketing costs; professional fees, including fees for outside attorneys and outside 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.
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 related 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.
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 that we have sold, and for which we have recognized revenue in accordance with our revenue recognition policy, as well as labor hours for the cost of providing consulting, and service revenue.
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 that we have sold, and for which we have recognized revenue in accordance with our revenue recognition policy, as well as labor hours for the cost of providing preclinical, consulting, and service revenue.
We may, in the future, offer and sell additional equity or issue additional notes payable to raise funds for working capital, capital expenditures, or other general corporate purposes. Our primary uses of cash and operating expenses relate to paying employees and consultants, marketing our products, and research and development of future product offerings.
We may, in the future, offer and sell additional equity or issue additional notes payable to raise funds for working capital, capital expenditures, or other general corporate purposes. Our primary uses of cash and operating expenses relate to paying employees and consultants, marketing our products, and supporting our research and development of future product offerings.
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.
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 remains an important part of our business model for our ClearPoint system.
Changes in domestic and global economic conditions, supply chain disruptions, labor shortages, as well as other stimulus and spending programs, have led to higher inflation, which is likely to lead to increased costs and may cause changes in fiscal and monetary policy.
Changes in domestic and global economic conditions, supply chain disruptions, labor shortages, as well as other stimulus and spending programs, have led to higher inflation, which is likely to lead to increased costs and may cause further changes in fiscal and monetary policy.
When a contract calls for the satisfaction of multiple performance obligations for a single contract price, we typically allocate the contract price among the performance obligations based on the relative stand-alone prices for each such performance obligation customarily charged by us.
When a contract calls for the satisfaction of multiple performance obligations for a single contract price, we typically allocate the contract price among the performance obligations based on the relative stand-alone selling prices for each such performance obligation customarily charged by us.
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 right to commercialize, received 510(k) clearance through our Swedish partner, CLS. The Prism laser represents the first therapy product we will commercialize.
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 right to commercialize, received 510(k) clearance through our Swedish partner, CLS. The Prism laser represents the first therapy product we have commercialized.
Net cash provided by financing activities in 2022 consisted of proceeds of $0.7 million from the exercise of common stock options and warrants and purchases made under the employee stock 53 Table of Contents purchase plan, partially offset by payments of $0.3 million for taxes related to shares withheld in connection with vesting of restricted stock awards.
Net cash provided by financing activities in 2022 consisted of proceeds of $0.7 million from the exercise of common stock options and warrants and purchases made under the employee stock purchase plan, partially offset by payments of $0.3 million for taxes related to shares withheld in connection with vesting of restricted stock awards.
Our Partners consist of pharmaceutical and biotech companies, academic institutions, or customer-sponsored contract research organizations that 48 Table of Contents 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.
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 increase was primarily due to increases in personnel costs, including share-based compensation expense, of $1.5 million resulting from increases in headcount in our clinical and marketing teams, increases in travel expense of $0.3 million, and increases in marketing activities of $0.2 million. General and Administrative Expenses .
This increase was primarily due to increases in personnel costs, including share-based compensation expense, of $3.0 million resulting from increases in headcount in our clinical and marketing teams, and increases in travel expense of $0.2 million. General and Administrative Expenses .
We utilize risk-free interest rates based on a zero-coupon U.S. treasury instrument, the term of which is consistent with the expected term of the share-based award. We have not paid, and do not anticipate paying, cash dividends on shares of our common stock; therefore, the expected dividend yield is assumed to be zero.
We utilize risk-free interest rates based on U.S. treasury instruments, the term of which is consistent with the expected term of the share-based award. We have not paid, and do not anticipate paying, cash dividends on shares of our common stock; therefore, the expected dividend yield is assumed to be zero.
Our cash balances are typically held in a variety of demand accounts with a view to liquidity and capital preservation.
Our cash balances are primarily held in a variety of demand accounts with a view to liquidity and capital preservation.
Our service revenue was approximately $7.8 million and $4.4 million for the years ended December 31, 2022 and 2021, respectively, of which 70% and 78%, respectively, related to the biologics and drug delivery service line. Our revenue recognition policies are more fully described in Note 2 to the Consolidated Financial Statements elsewhere in this Annual Report.
Our service revenue was approximately $13.4 million and $7.8 million for the years ended December 31, 2023 and 2022, respectively, of which 86% and 70%, respectively, related to the biologics and drug delivery service line. Our revenue recognition policies are more fully described in Note 2 to the consolidated financial statements elsewhere in this Annual Report.
At current interest rates, we expect the interest expense for the next 12 months to be around $0.7 million. • We have lease arrangements related to our office and manufacturing facilities under non-cancellable operating leases.
At current interest rates, we expect the interest expense for the next 12 months to be approximately $0.8 million. • We have lease arrangements related to our office and manufacturing facilities under non-cancellable operating leases.
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 the COVID-19 pandemic, inflationary pressures and supply chain disruptions; • 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 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.
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, supply chain disruptions, geopolitical instability (including military conflicts), and instability of financial institutions; • 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; 52 Table of Contents • 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.
Product revenue is generally recognized at a point in time, generally upon shipment, however, may be upon delivery based on the contractual terms of the contract. Service revenue is generally recognized over time as the services are delivered to the customer based on the extent of progress towards completion of the performance obligation.
Product revenue is generally recognized at a point in time, generally upon shipment, however, it may be recognized upon delivery based on the contractual terms with certain customers. Service revenue is generally recognized over time as the services are delivered to the customer based on the extent of progress towards completion of the performance obligation.
We recognize revenue when control of our products and services are transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services, in a process that involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.
Revenue is recognized when control of our products and services are transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services, in a process that involves identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when or as the performance obligations have been satisfied.
Net cash flows used in investing activities in 2022 were $10.7 million and consisted primarily of the purchase and maturities of short-term investments and acquisition of equipment and licensing rights. Net cash flows used in investing activities in 2021 were $0.2 million and consisted primarily of equipment acquisitions. Net Cash Flows from Financing Activities .
Net cash flows used in investing activities in 2022 were $10.7 million and consisted primarily of the purchase and maturities of short-term investments and acquisition of equipment licensing rights. Net Cash Flows from Financing Activities .
In management’s opinion, based on our current forecasts for revenue, expense and cash flows, our existing cash and cash equivalent balances and short-term investments at December 31, 2022, are sufficient to support our operations and meet our obligations for at least the next twelve months.
In management’s opinion, based on our current forecasts for revenue, expense and cash flows, our existing cash and cash equivalent balances at December 31, 2023, are sufficient to support our operations and meet our obligations for at least the next twelve months.
Such costs include salaries, travel, and benefits for research and development personnel, including related share-based compensation; materials and laboratory supplies in research and development activities; outside consultant costs; and licensing costs related to technology not yet commercialized.
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.
All other software license inventory is classified as a non-current asset. We periodically review our inventory for excess and obsolete items and provide a reserve upon giving consideration to factors such as its physical condition, sales patterns, and expected future demand in order to estimate the amount necessary to write down any slow moving, obsolete, or damaged inventory.
We periodically review our inventory for excess and obsolete items and provide a reserve upon giving consideration to factors such as its physical condition, sales patterns, and expected future demand in order to estimate the amount necessary to write down any slow moving, obsolete, or damaged inventory.
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 December 31, 2022, we had more than 50 Partners, as compared with approximately 40 Partners as of the same date in 2021.
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 December 31, 2023, we had more than 50 Partners, which is similar to the number of Partners as of the same date in 2022.
Our product revenue was approximately $12.8 million and $11.9 million for the years ended December 31, 2022 and 2021, respectively, and was almost entirely related to our ClearPoint system.
Our product revenue was approximately $10.6 million and $12.8 million for the years ended December 31, 2023 and 2022, respectively, and was almost entirely related to our ClearPoint system.
General and administrative expenses were $9.6 million for the year ended December 31, 2022, compared to $8.0 million for the same period in 2021, an increase of $1.6 million, or 20%.
General and administrative expenses were $11.8 million for the year ended December 31, 2023, compared to $9.6 million for the same period in 2022, an increase of $2.1 million, or 22%.
Impacts from inflationary pressures, such as increasing costs for research and development of our products, administrative and other costs of doing business, and our availability to access capital markets and other sources of funding in the future could adversely affect our business, financial condition and results of operations.
Impacts from inflationary pressures, such as increasing costs for research and development of our products, administrative and other costs of doing business, the potential for instability of the financial institutions where we maintain our deposits or other assets, and our access to capital markets and other sources of funding in the future could adversely affect our business, financial condition and results of operations.
Sales and Marketing Expenses. Sales and marketing expenses were $9.4 million for the year ended December 31, 2022, compared to $7.2 million for the same period in 2021, an increase of $2.1 million, or 30%.
Sales and marketing expenses were $12.6 million for the year ended December 31, 2023, compared to $9.4 million for the same period in 2022, an increase of $3.2 million, or 35%.
Cost of Revenue and Gross Profit. Cost of revenue was $7.0 million, resulting in gross profit of $13.5 million and gross margin of 66%, for the year ended December 31, 2022, compared to $5.2 million, resulting in gross profit of $11.1 million and gross margin of 68% for the year ended December 31, 2021.
Cost of revenue was $10.3 million, resulting in gross profit of $13.6 million and gross margin of 57%, for the year ended December 31, 2023, compared to $7.0 million, resulting in gross profit of $13.5 million and gross margin of 66% for the year ended December 31, 2022.
Actual results may differ materially from these estimates under different assumptions or conditions. 49 Table of Contents While our significant accounting policies are more fully described in Note 2 to our Consolidated Financial Statements included elsewhere in this Annual Report, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results.
While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results. Revenue Recognition .
The lease term will commence on June 1, 2023 and end on May 31, 2033. Factors Which May Influence Future Results of Operations The following is a description of factors which may influence our future results of operations, and that we believe are important to an understanding of our business and results of operations.
Factors Which May Influence Future Results of Operations The following is a description of factors which 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 impact of various macroeconomic trends, such as global economic and supply chain disruptions, geopolitical instability, labor shortages and inflationary conditions, and the continuing impacts of the COVID-19 pandemic.
Macroeconomic Trends We continue to monitor the impacts of various macroeconomic trends, such as global economic and supply chain disruptions, geopolitical instability (including instability resulting from military conflicts), labor shortages, instability of financial institutions and inflationary conditions.
Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software, and of related services, increased 61% to $2.3 million for the year ended December 31, 2022, from $1.4 million for the same period in 2021. This increase is due primarily to an increase in the placements of ClearPoint capital and software.
Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software and related services, decreased 21% to $1.8 million for the year ended December 31, 2023, from $2.3 million for the same period in 2022, due primarily to a decrease in the placements of ClearPoint capital and software. Cost of Revenue and Gross Profit.
The accounting estimates that require our most significant, difficult and subjective judgments are discussed below. We evaluate our estimates and judgments on an ongoing basis.
The accounting estimates that require our most significant, difficult and subjective judgments are discussed below. We evaluate our estimates and judgments on an ongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions.
Results of Operations Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021 Year Ended December 31, Percentage (Dollars in thousands) 2022 2021 Change Product revenue $ 12,789 $ 11,913 7 % Service and other revenue 7,762 4,386 77 % Total revenue 20,551 16,299 26 % Cost of revenue 7,020 5,176 36 % Gross profit 13,531 11,123 22 % Research and development costs 10,894 9,281 17 % Sales and marketing expenses 9,358 7,217 30 % General and administrative expenses 9,611 7,999 20 % Other income (expense): Other expense, net (22) (63) NM% Interest expense, net (81) (973) (92) % Net loss $ (16,435) $ (14,410) 14 % NM - The percentage change is not meaningful.
Results of Operations Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022 Year Ended December 31, Percentage (Dollars in thousands) 2023 2022 Change Product revenue $ 10,603 $ 12,789 (17) % Service and other revenue 13,352 7,762 72 % Total revenue 23,955 20,551 17 % Cost of revenue 10,341 7,020 47 % Gross profit 13,614 13,531 1 % Research and development costs 11,709 10,894 7 % Sales and marketing expenses 12,595 9,358 35 % General and administrative expenses 11,756 9,611 22 % Other income (expense): Other expense, net (29) (22) NM% Interest income (expense), net 386 (81) 577 % Net loss $ (22,089) $ (16,435) 34 % NM - The percentage change is not meaningful.
Our short- and long-term liquidity requirements include the following obligations: • We have a $10 million secured convertible note payable due in January 2025. Future interest payments associated with the note are variable based on the three (3)-month London Interbank Offered Rate (“LIBOR”) plus 2% (the reference to LIBOR will need to be replaced by June 30, 2023).
Our short- and long-term liquidity requirements include the following obligations: • We have a $10 million secured convertible note payable due in January 2025. Future interest payments associated with the note are variable based on the greater of (i) three (3)-month Secured Overnight Financing Rate (“SOFR”) or (ii) 2%, plus a margin of 2%.
Net cash flows used in operating activities for the year ended December 31, 2022 were $16.2 million, an increase of $3.5 million from the year ended December 31, 2021.
Net cash flows used in operating activities for the year ended December 31, 2023 were $13.7 million, a decrease of $2.4 million from the year ended December 31, 2022.
We do not believe there is a reasonable likelihood that there will be a material change in estimates or assumptions used to 50 Table of Contents determine share-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in share-based compensation expense that could be material.
We do not believe there is a reasonable likelihood that there will be a material change in estimates or assumptions used to determine share-based compensation expense.
Net cash provided by financing activities in 2021 consisted of: (a) the proceeds, net offering costs, of $46.8 million received from the public offering of our common stock; (b) proceeds from the exercise of common stock options and warrants aggregating $0.5 million; and (c) issuance of common stock under the employee stock purchase plan of $0.2 million, which were partially offset by tax payments of $0.6 million related to shares withheld in connection with vesting of restricted stock awards.
Net cash provided by financing activities in 2023 consisted of proceeds of $0.5 million from the issuance of common stock under the employee stock purchase plan, partially offset by payments of $0.2 million for taxes related to shares withheld in connection with vesting of restricted stock awards.
Revenues 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.
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 . 46 Table of Contents Revenues 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.
These estimates could vary from actual amounts based upon future economic conditions, customer inventory levels, or competitive factors that were not foreseen or did not exist when the estimated write-downs were made. Share-Based Compensation.
These estimates could vary from actual amounts based upon future economic conditions, customer inventory levels, or competitive factors that were not foreseen or did not exist when the estimated write-downs were made. Share-Based Compensation. We account for compensation for all arrangements under which employees and others receive shares of stock or other equity instruments (including options) based on fair value.
This increase consisted of a higher net loss of $2.0 million and the effects of net changes of operating assets and liabilities of $2.6 million, partially offset by a change in non-cash items of $1.2 million.
This decrease consisted of a net decrease in operating assets and liabilities of $3.9 million, and a net increase in non-cash items of $4.2 million, partially offset by an increase in net loss of $5.7 million.
In 2021, we launched the SmartFrame Array Neuro Navigation System and Software, which allows for operating room placement of the ClearPoint system. 2022 Developments • We commenced the limited market commercialization of the ClearPoint Prism Neuro Laser Therapy System.
In 2021, we launched the SmartFrame Array Neuro Navigation System and Software, which allows 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 45 Table of Contents in the operating room.
Since inception, we have financed our operations principally from the sale of equity securities and the issuance of notes payable.
In addition, our use of cash from operations amounted to $13.7 million for the year ended December 31, 2023. Since inception, we have financed our operations principally from the sale of equity securities and the issuance of notes payable.
The selection of the method used to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control. Inventory .
The selection of the method used to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided.
The change in operating assets and liabilities is primarily due to the use of cash for the buildup of inventory stock in response to supply chain disruptions and the change in the non-cash items results from increases in share-based compensation. Net Cash Flows from Investing Activities.
The change in the non-cash items results primarily from increases in share-based compensation and allowance for credit losses. Net Cash Flows from Investing Activities.
Inventory is carried at the lower of cost (first-in, first-out method) or net realizable value. Items in inventory relate predominantly to our functional neurosurgical products, drug delivery and biologic products, therapy products and ClearPoint capital equipment. Software license inventory related to ClearPoint systems undergoing on-site customer evaluation is included in inventory in the accompanying consolidated balance sheets.
A revenue reversal is possible if it is determined that achievement of a milestone which was previously deemed probable, will not occur. Inventory . Inventory is carried at the lower of cost (first-in, first-out method) or net realizable value. Items in inventory relate predominantly to our functional neurosurgical products, drug delivery and biologic products, therapy products and ClearPoint capital equipment.
This increase was due primarily to increases in personnel costs and share-based compensation of $1.5 million, IT costs of $0.3 million, insurance costs of $0.2 million, offset by a decrease in bad debt expense of $0.3 million. Interest Expense.
The increase was due primarily to increases in personnel costs, including share-based compensation expense, of $1.2 million due to growth in headcount, partially offset by a decrease of $0.6 million in research costs as a result of reprioritization of certain initiatives. Sales and Marketing Expenses.
To estimate the expected terms, we utilize the simplified method for “plain vanilla” options discussed in the SEC’s Staff Accounting Bulletin 107, or SAB 107. We believe that all factors listed within SAB 107 as prerequisites for utilizing the simplified method apply to us and to our share-based compensation arrangements.
We believe that all factors listed within SAB 107 as prerequisites for utilizing the simplified method apply to us and to our share-based compensation arrangements. We intend to utilize the simplified method for the foreseeable future until more detailed information about exercise behavior becomes available. Expected volatility is based on historical volatility of our common stock.
We may also at times enter into long-term commitments or license and collaboration agreements which require commitments that are noncancellable. The total amount as of December 31, 2022 for unfulfilled purchase orders and long-term purchase commitments is $5.5 million, of which approximately 60% is expected to be paid in 2023.
We may also at times enter into long-term commitments or license and collaboration agreements which require commitments that are noncancellable.
Research and development costs were $10.9 million for the year ended December 31, 2022, compared to $9.3 million for the same period in 2021, an increase of $1.6 million, or 17%. The increase was due primarily to increases in personnel costs, including share-based compensation expense, of $1.4 million due to growth in headcount and $0.1 million increase in regulatory fees.
This increase was due primarily to an increase in the allowance for credit losses of $1.4 million and increased share-based compensation of $0.8 million. 50 Table of Contents Interest Expense. Net interest income for the year ended December 31, 2023 was $0.4 million, compared with $0.1 million in net interest expense for the same period in 2022.
Liquidity and Capital Resources We have incurred net losses since our inception, which has resulted in a cumulative deficit at December 31, 2022 of approximately $150 million. In addition, our use of cash from operations amounted to $16.2 million for the year ended December 31, 2022.
Additional information with respect to the 2020 Secured Convertible Note is in Note 7 to the consolidated financial statements included elsewhere in this Annual Report. Liquidity and Capital Resources We have incurred net losses since our inception, which has resulted in a cumulative deficit at December 31, 2023 of approximately $172 million.
Additional information with respect to the Secured Notes is in Note 7 to the consolidated financial statements included elsewhere in this Annual Report. Interest expense was partially offset by higher interest income in the year ended December 31, 2022, as a result of increasing interest rates and the Company's investment in U.S. Government debt securities.
Additional information with respect to the 2020 Secured Notes is in Note 7 to the consolidated financial statements included elsewhere in this Annual Report. As a result of these transactions and our business operations, our cash and cash equivalents totaled $23.1 million at December 31, 2023.
Cash Flows Cash activity for the years ended December 31, 2022 and 2021 is summarized as follows: Years Ended December 31, (in thousands) 2022 2021 Cash from operating activities $ (16,167) $ (12,697) Cash from investing activities (10,736) (168) Cash from financing activities 409 46,875 Net change in cash and cash equivalents $ (26,494) $ 34,010 Net Cash Flows from Operating Activities.
The total amount as of December 31, 2023 for unfulfilled purchase orders and long-term purchase commitments is $3.0 million, of which approximately 40% is expected to be paid in 2024. 51 Table of Contents Cash Flows Cash activity for the years ended December 31, 2023 and 2022 is summarized as follows: Years Ended December 31, (in thousands) 2023 2022 Cash used in operating activities $ (13,720) $ (16,167) Cash provided by (used in) investing activities 8,949 (10,736) Cash provided by financing activities 296 409 Net change in cash and cash equivalents $ (4,475) $ (26,494) Net Cash Flows from Operating Activities.
Currently, we have more than 50 partners who are pharmaceutical/biotech companies, academic institutions, and contract research organizations, who are evaluating or using our products and services in trials to inject gene and cell therapies directly into the brain. Our ClearPoint system is in commercial use in the U.S., the EU, and the United Kingdom.
Our services include protocol consultation and solutions for preclinical study design and execution. Currently, we have more than 50 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.
The fair values of our share-based awards are estimated on the grant dates using the Black-Scholes valuation model. This valuation model requires the input of highly subjective assumptions, including the expected stock volatility, estimated award terms and risk-free interest rates for the expected terms.
This valuation model requires the input of highly subjective assumptions, including the expected stock volatility, estimated award terms and risk-free interest rates for the expected terms. To estimate the expected terms, we utilize the simplified method for “plain vanilla” options discussed in the SEC’s Staff Accounting Bulletin 107, or SAB 107.
This increase is attributable to a $2.0 million increase in service and license revenue and $0.3 million increase in product revenue for the year ended December 31, 2022, due to expanded commitments from our current biologics and drug delivery partners as well as an increase in new partners.
This increase is attributable to a $6.0 million increase in service revenue related to new preclinical studies and services entered into with our partners for the year ended December 31, 2023, compared to the same period in 2022, partially offset by a $1.5 million decrease in product revenue.
Additionally, these trends could adversely affect our customers, which could impact their willingness to spend on our products and services. 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.
Additionally, these 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.
We account for compensation for all arrangements under which employees and others receive shares of stock or other equity instruments (including options and warrants) based on fair value. The fair value of each award is estimated as of the grant date and amortized as compensation expense over the requisite vesting period.
The fair value of each award is estimated as of the grant date and amortized as compensation expense over the requisite vesting period. The fair values of our share-based awards are estimated on the grant dates using the Black-Scholes valuation model.
We anticipate that, over time, our research and development costs may increase as we: (i) continue to develop enhancements to our ClearPoint system and SmartFlow cannula; and (ii) seek to expand the application of our technological platforms. From our inception through December 31, 2022, we have incurred approximately $81 million in research and development expenses.
We anticipate that, over time, our research and development costs may increase as we: (i) develop devices and services for delivery of therapeutics into 47 Table of Contents the central nervous system, (ii) expand products into the OR and therapeutics space, and (iii) expand the application of our technological platforms internationally.
This is primarily driven by $1.5 million of service revenue related to development services for the year ended December 31, 2022, compared to $0.4 million for the same period in 2021. 51 Table of Contents Biologics and drug delivery revenue, which include sales of disposable products and services related to customer-sponsored pre-clinical and clinical trials utilizing our products, increased 34% to $9.1 million for the year ended December 31, 2022, from $6.8 million for the same period in 2021.
Functional neurosurgery navigation and therapy revenue, which primarily consists of disposable product commercial sales related to cases utilizing the ClearPoint system, decreased 7% to $8.5 million during the year ended December 31, 2023, from $9.1 million for the same period in 2022.
Additional information with respect to the 2020 Secured Notes is in Note 7 to the consolidated financial statements included elsewhere in this Annual Report. 52 Table of Contents As discussed in Note 9 to the consolidated financial statements included elsewhere in this Annual Report, on February 23, 2021, we completed a public offering of 2,127,660 shares of our common stock.
As discussed in Note 11 to the consolidated financial statements included elsewhere in this Annual Report, on March 4, 2024 we completed a public offering of 2,307,694 shares of our common stock. Net proceeds from the offering were approximately $14.0 million after deducting the underwriting discounts and commissions and other estimated offering expenses payable by us.
Net interest expense for the year ended December 31, 2022 was $0.1 million, compared with $1.0 million for the same period in 2021, due to lower interest expense as a result of the conversion of a portion of the 2020 Secured Convertible Notes in May and November 2021.
The decrease is driven by lower service revenue of $0.6 million as a result of pausing a co-development program with one of our Brain Computer Interface partners for the year ended December 31, 2023, compared to the same period in 2022.
The first foundational part is a medical device company providing medical devices for neurosurgery applications. The second part is focused on partnerships in the drug and delivery space.
The first foundational part of our business is a medical device company 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.
Removed
Beginning in 2021, our efforts expanded beyond the MRI suite to encompass development and commercialization of new neurosurgical device products for the operating room, as well as clinical and pre-clinical consulting services for pharmaceutical and biotech companies, academic institutions, and contract research organizations. Since 2020, we have evolved to become a company comprised of two parts.
Added
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.
Removed
The laser system was developed by CLS, and is indicated for use to necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy under 3.0T magnetic resonance imaging (MRI) guidance.
Added
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.
Removed
We have exclusive global rights to commercialize the CLS magnetic resonance (MR) guided laser interstitial thermal therapy (MRgLITT) system for neuro applications. 47 Table of Contents • Our customer PTC Therapeutics’ gene therapy treatment Upstaza™ was granted full marketing authorization by the European Commission which is the first approved disease-modifying treatment for AADC deficiency and the first marketed gene therapy approved for direct infusion into the brain, using the ClearPoint SmartFlow Cannula. • We received FDA clearance for version 2.1 of our ClearPoint Neuro Navigation software, which is intended to provide sterotactic guidance for the placement and operation of instruments or devices during planning and operation of neurological procedures within the MRI environment and in conjunction with MR imaging. • We received FDA clearance for the ClearPoint Maestro Brain Model, which is intended for automatic labeling, visualization, volumetric and share quantification of segmentable brain structures from a set of MRI images. • We entered into a lease agreement to lease an approximately 19,462 square foot industrial building in Carlsbad, California to use as an office and manufacturing facility.
Added
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 achieving success in completion of clinical trials and subsequent regulatory approvals of their drugs and biologics. 2023 Developments • We entered into multiple multi-year agreements with pharmaceutical partners to partner on drug delivery platforms for gene therapy, earning success-based milestones based on the successful progression of a drug candidate through the clinical and regulatory process. • We further expanded our worldwide license and research agreement with Philips to add subnuclei segmentation applied to MRI, and potentially CT scans, for use in the operating room. • We signed an exclusive multi-year licensing agreement with UCSF to develop and commercialize a radially branching cellular delivery device for use in both the operating room under fluroscopy/CT guidance and under MRI guidance. • We received FDA clearance for ClearPoint Array Software 1.2 and ClearPoint Neuro Navigation Software 2.2. • As a result of increased investment in the biologics and drug delivery business to add new clinical, development, regulatory, and preclinical contract research organization services, we successfully completed multiple preclinical studies. • We exited our manufacturing site in Irvine, California, and are fully operational out of our new Carlsbad, California facility.
Removed
Our sales and marketing expenses are expected to increase due to costs associated with the commercialization of our ClearPoint system and the increased headcount necessary to support growth in operations.
Added
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.
Removed
Our revenue is comprised primarily of: (1) product revenue resulting from the sale of functional neurosurgery, navigation, therapy, and biologics and drug delivery disposable products; (2) product revenue resulting from the sale of ClearPoint capital equipment and software; (3) revenue resulting from the service, installation, training, and shipping related to ClearPoint capital equipment and software; (4) consultation revenue and clinical case support revenue in connection with customer-sponsored pre-clinical and clinical trials; and (5) license revenue for the granting of a license to develop and commercialize our SmartFlow Cannula devices with Partners' proprietary biologics as a combination product.
Added
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.
Removed
We intend to utilize the simplified method for the foreseeable future until more detailed information about exercise behavior becomes available.
Added
Depending on which better depicts the transfer of control to the customer, we may use output methods, such as time elapsed, or input methods, such as labor hours expended or costs incurred, to measure our progress toward complete satisfaction of the performance obligation.
Removed
Historically, we have based our estimate of expected volatility on the average of our own historical volatility and the historical volatilities of publicly traded companies we deem similar to us because of a lack of our own relevant historical volatility data.
Added
We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control. Under certain agreements, we are entitled to receive event-based payments subject to our customer's achievement of specified development and regulatory milestones.
Removed
In 2022, we refined this methodology to include only the historical volatility of our own common stock given that trading volumes have increased and we believe that our own historical data is representative of future expected volatility and a better estimate of fair value. The impact of this change is not material to the financial statements.
Added
Variable consideration is included in the transaction price if, in our 48 Table of Contents judgment, it is probable that these milestones will be achieved and a significant future reversal of cumulative revenue under the contract will not occur.
Removed
Revenue. Total revenue was approximately $20.6 million and $16.3 million for the years ended December 31, 2022 and 2021, respectively.

… 13 more changes not shown on this page.

Other CLPT 10-K year-over-year comparisons