Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-K
___________________________
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
or
For the transition period from ______ to ______.
Commission File Number: 001-34822
CLEARPOINT NEURO, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of Incorporation or
Organization)
120 S. Sierra Ave., Suite 100
Solana Beach, California
(Address of principal executive offices)
58-2394628
(I.R.S. Employer Identification No.)
92075
(Zip Code)
(888) 287-9109
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value per share
Title of each class
Common Stock, $0.01 par value per share
Trading Symbol(s)
CLPT
Name of each exchange on which registered
Nasdaq Capital Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. ¨Yes þ No
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth
company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
¨
þ
Accelerated filer
Smaller reporting company
Emerging growth company
¨
þ
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b)¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes þ No
As of June 30, 2023, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $155 million based on the
closing sale price as reported on the Nasdaq Capital Market.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class
Common Stock, $.01 par value per share
Outstanding at March 5, 2024
26,976,289 shares
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference from portions of the definitive proxy statement to be filed within 120 days after December 31, 2023,
pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with the 2024 annual meeting of stockholders.
Table of Contents
Item
1.
1A.
1B.
1C.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
9C.
10.
11.
12.
13.
14.
CLEARPOINT NEURO, INC.
TABLE OF CONTENTS
PART I
Business.
Risk Factors.
Unresolved Staff Comments.
Cybersecurity.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Reserved.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
PART III
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accounting Fees and Services.
PART IV
15.
Exhibits, Financial Statement Schedules.
Trademarks, Trade Names and Service Marks
Page
3
19
43
43
44
44
44
45
45
45
53
53
53
53
54
54
55
55
55
56
56
57
®
ClearPoint Neuro , ClearPoint
®
, SmartTip , ClearPoint Maestro , SmartFrame Array ,
SmartFrame OR , ClearPoint Neuro Orchestra , ClearPoint Prism , SmartFlow Flex , ClearPointer , When Your Path is Unclear, We Point The Way , and MRI
Interventions are all trademarks of ClearPoint Neuro, Inc. Any other trademarks, trade names or service marks referred to in this Annual Report are the property of their
respective owners.
, SmartFlow , SmartFrame , SmartGrid , Inflexion , SmartTwist
™
™
™
™
™
™
™
®
®
®
®
®
®
®
®
Table of Contents
Company Names Used in this Annual Report
As used in this Annual Report, we, us, our, the Company or ClearPoint Neuro refer to ClearPoint Neuro, Inc. and its affiliates; Siemens refers to Siemens Healthineers
AG and its affiliates; Boston Scientific refers to Boston Scientific Corporation and its affiliates; Brainlab refers to Brainlab AG and its affiliates; UCB refers to UCB Biopharma
SRL and its affiliates; CLS refers to Clinical Laserthermia Systems AB and its affiliates; IMRIS refers to IMRIS, Deerfield Imaging, Inc. and its affiliates; PTC refers to PTC
Therapeutics, Inc. and its affiliates; Philips refers to Koninklijke Philips N.V. and its affiliates; Abbott refers to Abbott Laboratories and its affiliates; Elekta refers to Elekta AB
and its affiliates; NE Scientific refers to NE Scientific, LLC and its affiliates; NeuroPace refers to NeuroPace, Inc. and its affiliates; Medtronic refers to Medtronic plc and its
affiliates; UCSF refers to the University of California, San Francisco; and Johns Hopkins refers to Johns Hopkins University.
Table of Contents
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, or Annual Report, contains “forward-looking statements” as defined under the U.S. federal securities laws. The forward-looking
statements relate to our expectations for performance, revenues and costs, and the adequacy of cash and cash equivalent balances and short-term investments to support
operations and meet future obligations. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or
achievements to be materially different from any future results, performance or achievements, expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,”
“potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking
statements contain these words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Annual Report, we caution you that
these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain.
In evaluating forward-looking statements, you should refer to (i) the section of this Annual Report entitled “Risk Factors” and (ii) Item 2 of this Annual report, under
the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Factors Which May Influence Future Results of Operations.” As a
result of these risk factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-looking
statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these
statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake to
update any of the forward-looking statements after the date of this Annual Report, except to the extent required by applicable securities laws.
RISK FACTOR SUMMARY
Our business faces many risks and uncertainties. These risks and uncertainties could lead to events or circumstances that have a material adverse effect on our
business, financial condition, results of operations and prospects. You should carefully review and consider the full discussion of our risk factors described under Item 1A, Risk
Factors of this Annual Report together with other information in this Annual Report and our other filings with the Securities and Exchange Commission ("SEC"), before making
an investment decision regarding our common stock.
•
•
•
•
•
•
Our business, financial condition, and results of operations may be adversely affected by general economic and financial market conditions, and current and future social
and geopolitical instability.
Revenue can be impacted if we cannot maintain current relationships or enter into new relationships with drug delivery customers.
The size of the markets for our current and future products and services may be smaller than we estimate.
Our ClearPoint system may not achieve broad market adoption and our future business growth is dependent upon marketing and selling our ClearPoint system, and other
new products, in the operating room.
Our long-term growth depends on our ability to compete effectively in the neurosurgery market by developing and commercializing new products and services through
our research and development efforts.
If coverage and reimbursement from third-party payors for procedures utilizing our products are inadequate, adoption of our products will be adversely affected and our
revenues and prospects for profitability will suffer.
• We currently have significant customer concentration, so economic difficulties or changes in the purchasing policies or patterns of our key customers could have a
•
•
•
significant impact on our business.
Our internal manufacturing operations are generally conducted at a single location, which may limit our ability to provide an adequate supply of our products, and any
disruption at our manufacturing facility could render us unable to produce our products, increase our expenses and decrease our revenue.
Our reliance on single-source suppliers could harm our ability to meet demand for our products.
To the extent we seek a new indication for use of, or new claims for, our products, the FDA may not grant 510(k) clearance or premarket approval application approval
of such new use or claims.
1
Table of Contents
•
•
•
If we fail to obtain the necessary clearances, certifications or approvals for our new products, our ability to grow our business globally could be harmed.
The results of our clinical trials may not support our product candidate claims or additional claims we may seek for our products and may result in the discovery of
adverse side effects.
The markets for medical devices are highly competitive, and we may not be able to compete effectively against larger, well-established as well as emerging small
innovative competitors.
• We sell our products outside of the U.S., and are subject to various economic, political, regulatory and other risks relating to international operations.
•
• We may acquire other businesses, form joint ventures, or make investments in other companies or technologies that may not result in commercial success and could lead
Disruptions of critical information systems or material breaches in the security of our systems could harm us.
to significant losses.
• We need to hire and retain additional qualified personnel to grow and manage our business.
• We have incurred losses since our inception, and we may continue to do so. We may never achieve or sustain profitability.
• We may 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, and raising additional funds
may cause dilution, restrict our operations or require us to relinquish proprietary rights.
Our cash, cash equivalents, and short-term marketable securities are subject to economic risk.
•
• We hold assets at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation ("FDIC"), which could negatively
•
•
•
•
affect our operations or liquidity.
If we, or the third parties from whom we license intellectual property, are unable to secure and maintain patent or other intellectual property protection for the
intellectual property covering our marketed products or our product candidates, our ability to compete will be harmed.
If we are subject to third-party claims of intellectual property infringement, we may become engaged in costly disputes.
If our intellectual property is inadequately protected, our ability to successfully commercialize our marketed products and product candidates will be harmed.
Patent terms may be inadequate to protect our competitive position for an adequate amount of time and we may not be able to protect our intellectual property rights
throughout the world.
If we lose access to third-party software that is integrated into our products, our costs could increase and new installations of our products could be delayed.
Our rights to develop and commercialize our products are subject, in part, to the terms and conditions of licenses granted to us by others.
•
•
• We operate in a highly regulated industry and any failure to comply with the extensive government regulations may subject us to fines, injunctions and other penalties.
•
•
•
Federal legislation and other payment and policy changes may have a material adverse effect on our business.
Our products may be subject to product recalls that could harm our reputation, business operating results and financial condition.
If our products cause or contribute to a death or a serious injury, or malfunction, we will be subject to Medical Device Reporting regulations, which can result in
voluntary corrective actions or agency enforcement actions.
• We may incur significant liability if it is determined that we are promoting off-label uses of our products in violation of federal and state regulations in the U.S. or
•
elsewhere.
If we or our third-party suppliers fail to comply with the FDA’s Quality System Regulation ("QSR") or any applicable state equivalent, our manufacturing operations
could be interrupted, and our potential product sales and operating results could suffer.
• We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and could face substantial penalties if we are unable to
fully comply with such laws.
• We are subject to various laws protecting the confidentiality and security of certain personal information, and our failure to comply could result in penalties and
•
reputational damage.
Our Fourth Amended and Restated Bylaws include exclusive forum provisions for substantially all disputes between us and our stockholders, which could limit our
stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
2
Table of Contents
The market price of our common stock may be volatile, and stockholders may not be able to resell shares at or above the purchase price.
Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.
•
•
• We have not paid dividends in the past and do not expect to pay dividends in the future.
•
• 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
Anti-takeover provisions in our certificate of incorporation, bylaws and Delaware law could prevent or delay a change in control.
price.
Securities analysts may not continue coverage for our common stock or may issue negative reports.
•
• We are subject to certain general risks, including, but not limited to, risks related to damage to our reputation, natural disasters, product and professional liability claims
or other lawsuits, and the requirements of being a public company.
ITEM 1. BUSINESS
Overview
We are a commercial-stage medical device company, incorporated in 1998 as a Delaware corporation, that develops and commercializes innovative platforms for
performing minimally invasive surgical procedures in the brain. 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 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.
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.
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. 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. 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. We have exclusive global rights to commercialize the system for neuro applications.
Biologics and Drug Delivery
The second part of our business is focused on partnerships in the biologics and drug delivery space, supporting our customers from the earliest stages of their research
through their clinical study and commercialization process. Since 2021, a growing part of the revenue from our business is derived from preclinical development services, which
include protocol consultation and solutions for preclinical study design and execution. Our consulting services include a core competency of in vivo biology services in large
and small research models to assist our customers with establishing drug safety prior to and in support of their human clinical trials.
Currently, we have more than 50 pharma/biotech, academic, and contract research organization partners who are evaluating or using our products and services in trials
to inject gene and cell therapies directly into the brain. 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. This part of our business potentially represents the largest opportunity for growth, which we estimate could have an approximately $7 billion market potential;
however, our ability to grow in this market is dependent on our ability to maintain and establish new relationships with pharmaceutical company customers, such customers'
continuation of research and product development plans, and such customers achieving success in completion of clinical trials and subsequent regulatory approvals of their
drugs and biologics.
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. 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. 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. 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. The accessories include all other components necessary to facilitate the MRI-guided neurosurgical procedure, such as our SmartGrid patch, which is an MRI-
visible marking grid that enables rapid localization of the entry position into the brain, and our customized surgical draping, which creates a sterile field within the MRI scanner.
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. 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.
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. At the completion of the procedure, the software generates an automated report that includes the key metrics from the procedure. In 2022, we
received FDA approval for the ClearPoint Maestro Brain Model, a software tool which we designed to automate the process of identifying, labelling, and quantifying the volume
and shape of brain structures visible in MRI images.
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. 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.
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. 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. 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. It has also received CE
mark for the injection of approved fluids into the brain. Delivery of other therapeutic agents using our SmartFlow cannula is investigational. The SmartFlow cannula is a
disposable device intended for single patient use only and is not intended for implant.
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. SmartFrame OR is intended to provide stereotactic guidance for the placement and
operation of instruments or devices during planning and operation of neurological procedures performed in conjunction with the use of a compatible optical stereotaxic
navigation system using preoperative MRI and/or Computed Tomography ("CT") imaging. These procedures include biopsies, catheter placement and electrode introduction,
including the placement of deep brain stimulation ("DBS") leads. SmartFrame OR is a disposable device intended for single patient use only.
Market 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. 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. All three have products that are indicated
for Parkinson’s disease, essential tremor, and drug resistant epilepsy. DBS is used to treat the symptoms of Parkinson’s Disease, a degenerative condition that
affects more than one million people in the U.S. and 10 million people worldwide. DBS works by stimulating a targeted region of the brain through implanted
leads that are powered by a device called an implantable pulse generator. We estimate 120,000 Parkinson’s disease and essential tremor patients per year are
potential candidates for the implantation of deep brain stimulation electrodes utilizing our ClearPoint system. In addition, patients suffering from drug resistant
epilepsy, refractory essential tremor, dystonia, severe obsessive compulsion disorder, severe major depressive disorder, paralysis, Huntington’s disease, auditory
nerve implantation, Alzheimer’s disease and stroke rehabilitation may create additional potential procedure opportunities in the future. The only commercially
available RNS system on the market is manufactured by NeuroPace. 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. 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. 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. 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. Several pharmaceutical and biotech
companies 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. This may enable the development of treatments for rare single-gene pediatric disorders, such as AADC Deficiency, Friedreich’s Ataxia and Angelman Syndrome, as
well as adult disorders including Parkinson’s disease, drug resistant epilepsy, Huntington’s disease, Alzheimer’s disease and certain types of cancers, such as Glioblastoma. 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 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. 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.
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.
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. In addition, we may install the ClearPoint reusable components
at a hospital, but retain title, either for an agreed-upon period of time while the hospital evaluates and processes the purchase opportunity, or for a rental fee. 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.
Biologics and Drug Delivery
Commercializing our ClearPoint products and services for biologics and drug delivery primarily involves marketing and selling directly to pharmaceutical companies
focused on research and development of therapies for neurological indications.
Our business model for our ClearPoint services includes providing preclinical studies, clinical trial support, regulatory consultation, surgical workflow guidance, and
over-arching translation services to aid in the progression of our pharmaceutical customers’ drug delivery process. The ClearPoint services allow us to generate early technology
integration of our products into our customers’ delivery workflow.
6
Table of Contents
Manufacturing and Assembly
Our ClearPoint system and SmartFlow cannula include off-the-shelf components and custom-made components produced to our proprietary specifications by various
third parties, and components that, prior to September 2023, we assembled in our Irvine, California facility. 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. We purchase most custom-made components of our ClearPoint system from single-source suppliers due to quality considerations,
lower costs and constraints resulting from regulatory requirements; however, we have identified alternative sources for certain components, and believe additional alternative
sources are available, if needed, for other components. 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. 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. 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"). We have instituted a quality management system, under which we have established policies and procedures that control and direct our operations with
respect to design, procurement, manufacture, inspection, testing, installation, data analysis, training and marketing. We review and internally audit our compliance with these
policies and procedures, which provides a means for continued evaluation and improvement. 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. Our facilities, and the facilities of the third-party manufacturers and suppliers we use, are subject to periodic inspections by regulatory authorities, including the FDA
and other governmental agencies.
Customers
Medical Devices for Neurosurgical Application
A small number of our hospital customers account for a substantial portion of our revenues from sales of ClearPoint products. 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.
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. 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. 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.
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. In January 2023, the Addendum to Supply Agreement was further amended and restated to allow for the Company to provide regulatory support to PTC in additional
agreed geographies.
7
Table of Contents
We also entered into a Second Source Manufacturing Agreement in connection with the PTC Supply Agreement (the “Second Source Manufacturing Agreement”).
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. 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. We rely on
a combination of patent, trademark, trade secret, copyright and other intellectual property rights and measures to protect our intellectual property.
Our patent portfolio includes patents and patent applications that we own or that we license from others. We seek patent protection in the U.S. and internationally for
our products and technologies where and when we believe it is appropriate. U.S. patents are granted generally for a term of 20 years from the earliest effective priority date of
the patent application. 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.
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. 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.
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. 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.
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. We believe that Maestro will have use
across all our product lines through automatic pathway and trajectory planning and confirmation of device placement, while identifying eloquent structures of the brain so as to
avoid crucial anatomy. 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 early 2023, we further expanded our collaboration with Philips further to include additional technology regarding subnuclei segmentation to
the Maestro MRI and CT functionality.
UCB
In March 2023, we entered into a multi-year license agreement with UCB to partner on drug delivery platforms for UCB's gene therapy portfolio. Under the terms of
the license agreement, UCB will utilize our technology and services in connection with the development and commercialization of UCB's gene therapy products. 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. Pursuant to these agreements, we began commercialization of the ClearPoint Prism Neuro Laser Therapy System in the U.S. in 2022.
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.
In 2023, we entered into a license agreement with UCSF to use technology developed by UCSF to develop and commercialize a radially branching cellular delivery
device, for which we are committed to pay royalties based on the sales of any future commercialized device.
NE Scientific
In 2022, we entered into a development and license agreement with NE Scientific to incorporate NE Scientific’s GPU-accelerated software solution for modeling of
therapies administered to the brain into our products. In consideration of the foregoing, we paid fees for development of the software solution, and are committed to pay
royalties based on (a) per hospital activations of the software solution, and (b) offline applications in which the licensed technology is used.
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.
Competition
Medical Devices for Neurosurgical Application
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. 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. 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. These devices and systems are competitive with our ClearPoint system. Also,
Zimmer Biomet Holdings, Inc.’s ROSA robot is an operating room alternative to the ClearPoint system. Additionally, we could also face competition from other medical
device, biotechnology and pharmaceutical companies that have the technology, experience and capital resources to develop alternative therapy methods, including MRI-guided
technologies. Many of our competitors have substantially greater financial, manufacturing, marketing, and technical resources than we have.
®
Biologics and Drug Delivery
Drug delivery can be divided into two categories, those that use image-guidance and those that do not. Our main area of focus and expertise is on image-guided drug
delivery, in particular as it relates to the use of MRI technology. Other companies, such as Brainlab and Renishaw plc, also offer systems such as navigational platforms and
cannulas useful for drug delivery under MRI. These offerings are competitive with ClearPoint’s products. These companies have substantially
9
Table of Contents
greater marketing, manufacturing, technical, and financial resources than we have. Our preclinical development services business encounters a broad range of competitors of
different sizes and capabilities, such as clinical research organizations or government funded not-for profit entities and industry experts.
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. Most notably, all of our products sold in the U.S. are subject to regulation as medical devices under the federal Food, Drug, and Cosmetic Act ("FDCA"), as
implemented and enforced by the FDA. The FDA regulates the following activities that we perform or that are performed on our behalf, to ensure that the medical devices we
manufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:
•
•
•
•
•
•
product design, preclinical and clinical development and manufacture;
product premarket clearance and approval;
product safety, testing, labeling and storage;
record-keeping procedures;
product marketing, sales and distribution; and
post-marketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall of
products.
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. Class I devices, considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory
controls for medical devices, which include compliance with the applicable portions of the FDA’s QSR, facility registration and product listing, medical device reporting (which
require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or
contribute to a death or serious injury if it were to recur), reports of corrections and removals (which require manufacturers to report recalls or removals and field corrections to
the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA) and appropriate, truthful and non-misleading labeling ("General
Controls"). Class II devices are subject to the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of
the device ("Special Controls"). Manufacturers of most Class II and some Class I devices are required to submit to the FDA and obtain clearance for a premarket notification
under Section 510(k) of the FDCA prior to commercially distributing the device. This process is generally known as 510(k) clearance. 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. The manufacturer must show that the proposed device has the same intended use as the predicate device, and it either has the same technological
characteristics, or it is shown to be equally safe and effective and does not raise different questions of safety and effectiveness as compared to the predicate device.
The FDA has a user fee goal to apply no more than 90 calendar review days to 510(k) submissions. During the process, the FDA may issue an Additional Information
request, which stops the clock. The applicant has 180 days to respond. Therefore, the total review time could be up to 270 days or more.
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. The FDA
requires every manufacturer to make the determination regarding the need for a new 510(k) submission in the first instance, but the FDA may review any manufacturer’s
decision. If the FDA were to disagree with any of our determinations that changes to a device did not require a new 510(k) submission, it could require us to cease marketing
and distribution and/or recall the modified device until 510(k) clearance, de novo authorization, or PMA approval is obtained. If the FDA requires us to seek 510(k) clearance,
de novo authorization, or PMA approval for any modifications to a device, we may be required to cease marketing and/or recall the modified device, if already in distribution,
until 510(k) clearance, de novo authorization, or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.
De Novo Classification
Devices of a new type that the FDA has not previously classified based on risk are automatically classified into Class III regardless of the level of risk they pose. To
avoid requiring PMA review of novel low- to moderate-risk devices classified in Class III by operation of law, Congress enacted a provision that allows the FDA to classify a
novel low- to moderate-risk device into Class I or II in the absence of a predicate device that would support 510(k) clearance. The FDA evaluates the safety and effectiveness of
devices submitted for review under the de novo pathway and devices determined to be Class II through this pathway can serve as predicate devices for future 510(k) applicants.
The de novo pathway can require clinical data.
The FDA has a user fee goal to review a de novo request in 150 calendar review days. During the process, the FDA may issue an Additional Information request,
which stops the clock. The applicant has 180 days to respond. Therefore, the total review time could be as long as 330 days or more.
PMA Approval Pathway
A PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process or classified through the de novo process or is not otherwise exempt
from the FDA’s premarket clearance and approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical,
clinical trial, manufacturing and labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the
FDA will typically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may be
convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s
recommendation. In addition, the FDA will generally conduct a pre-approval inspection of our or our third-party manufacturers’ or suppliers’ manufacturing facility or facilities
to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met, such as conducting a post market clinical trial.
The FDA has a user fee goal to review a PMA in 180 calendar review days, if the submission does not require advisory committee input, or 320 review days if the
submission does require advisory committee input. During the process, the FDA may issue a major deficiency letter, which stops the review clock. The applicant has up to 180
days to respond. Therefore, the total review time could be up to 360 days or more, if the submission does not require advisory committee input, or 500 days or more if the
submission does require advisory committee input.
If the FDA’s evaluation of the PMA application is favorable, the FDA will issue a PMA for the approved indications, which can be more limited than those originally
sought by the manufacturer. 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. Failure to comply with the conditions of approval can result in material adverse enforcement
action, including the loss or withdrawal of the approval and/or placement of restrictions on the sale of the device until the conditions are satisfied.
New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types of
modifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type of information as a
PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and may not require as extensive clinical
data or the convening of an advisory panel. 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. Such trials generally
require an application for an investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the
product is exempt from the IDE requirements or deemed a non-significant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that
presents a potential for serious risk to the health, safety, or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in
diagnosing, curing, mitigating, or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject.
An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans and that the
testing protocol is scientifically sound. The IDE application must also include a description of product manufacturing and controls, and a proposed clinical trial protocol. During
the study, the sponsor must comply with the FDA’s IDE requirements for investigator selection, trial monitoring, reporting, and record keeping. The investigators must obtain
patient informed consent, follow the investigational plan and study protocol, control the disposition of investigational devices, and comply with reporting and record keeping
requirements. Prior to granting PMA approval, the FDA typically inspects the records relating to the conduct of the study and the clinical data supporting the PMA application
for compliance with IDE requirements.
Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice, or GCP, an international standard intended
to protect the rights and health of patients and to define the roles of clinical trial sponsors, investigators, and monitors; and (iii) under protocols detailing the objectives of the
trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Clinical trials are typically conducted at geographically diverse clinical trial
sites and are designed to permit the FDA to evaluate the overall benefit-risk relationship of the device and to provide adequate information for the labeling of the device when
considering whether a device satisfies the statutory standard for commercialization.
Clinical trials must be conducted under the oversight of an institutional review board, or IRB, for the relevant clinical trial sites. We, the FDA, or the IRB could
suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. Even if a trial is completed, the results
of clinical testing may not adequately demonstrate the safety and effectiveness of the device or may otherwise not be sufficient to obtain FDA clearance, authorization or
approval to market the product in the U.S. Similarly, in Europe, the clinical study must be approved by a local ethics committee and in some cases, including studies with high-
risk devices, by the ministry of health in the applicable country.
Although the QSR does not fully apply to investigational devices, the requirement for controls on design and development does apply. The sponsor also must
manufacture the investigational device in conformity with the quality controls described in the IDE application and any conditions of IDE approval that the FDA may impose
with respect to manufacturing.
Pervasive and Continuing Regulation
After a device is placed on the market, numerous regulatory requirements continue to apply. 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. 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.
As a medical device manufacturer, we are subject to announced and unannounced inspections by the FDA to determine our compliance with FDA’s QSR and other
regulations. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintain compliance with the QSR
and other regulations. We believe that we are in compliance with QSR and other regulations.
Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the United States Federal Trade Commission ("FTC"),
and by state regulatory and enforcement authorities. Promotional activities for FDA-regulated products of other companies have been the subject of enforcement actions
brought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal Lanham Act and similar state laws, competitors and others can
initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the U.S., which can change rapidly with
relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved or uncleared use, it could request that we
modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that other federal, state or foreign enforcement authorities
might take action if they consider our promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under
other statutory authorities, such as laws prohibiting false claims for reimbursement.
Failure by us or by our third-party manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDA or other
regulatory authorities, which may result in sanctions including, but not limited to:
•
•
•
•
•
•
•
untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
customer notifications or repair, replacement, refunds, recall, detention or seizure of our marketed products;
operating restrictions, partial suspension or total shutdown of production;
refusing or delaying requests for 510(k) clearance, de novo authorization or PMA approvals of new products or modified products;
rescinding 510(k) clearances or PMA approvals that have already been granted;
refusal to grant export approval for our marketed products; or
criminal prosecution.
International Marketing Approvals
International sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required to obtain
approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.
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. Devices that comply with the requirements of the laws of the relevant member state applying
the applicable EU directive are entitled to bear a CE mark and, accordingly, can be distributed throughout the member states of the EU as well as in other countries, such as
Switzerland and Israel, that have mutual recognition agreements with the EU or have adopted the EU’s regulatory standards.
The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I, Class
IIa, Class IIb or Class III. Normally, the method involves a combination of self-assessment by the manufacturer of the safety and performance of the device, and a third-party
assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a private commercial entity that is designated
by the national government of a member state as being competent to make independent judgments about whether a device complies with applicable regulatory requirements. 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. Certification to the ISO 13485 standard demonstrates the presence of a quality management system that can be used
by a manufacturer for design and development, production, installation and servicing of medical devices and the design, development and provision of related services.
On April 5, 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the previous EU medical
devices directive. Unlike directives, which must be implemented into the national laws of the EU member states, the regulations would be directly applicable, without the need
for adoption of EU member state laws implementing them, in all EU member states and are intended to eliminate current differences in the regulation of medical devices among
EU member states. 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, 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.
Healthcare Laws and Regulations
Third-Party Reimbursement
In the U.S. and elsewhere, healthcare providers that perform surgical procedures using medical devices such as ours generally rely on third-party payors, including
governmental payors such as Medicare and Medicaid and private payors, to cover and reimburse all or part of the cost of the products. Consequently, sales of medical devices are
dependent in part on the availability of reimbursement to the customer from third-party payors. The manner in which reimbursement is sought and obtained varies based upon
the type of payor involved and the setting in which the product is furnished and utilized. In general, third-party payors will provide coverage and reimbursement for medically
reasonable and necessary procedures and tests that utilize medical devices. Third-party payors may provide separate payments for implanted or disposable devices themselves,
although no such separate payments are currently provided for our ClearPoint disposable products. Most third-party payors will not pay separately for capital equipment.
Instead, payment for the cost of using the capital equipment is considered to be covered as part of payments received for performing the procedure. In determining payment
rates, third-party payors are increasingly scrutinizing the prices charged for medical products and services in comparison to other therapies.
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.
Medicare and Medicaid
The Medicare program is a federal health benefit program administered by the Centers for Medicare and Medicaid Services, or CMS, that covers and pays for certain
medical care items and services for eligible elderly and certain disabled individuals, and individuals with end stage renal disease. 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.
14
Table of Contents
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. 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. Payments also are adjusted to reflect other factors, such as regional variations in labor costs and indirect medical
education expenses. Medicare pays a fixed amount to the hospital based on the MS-DRG into which the patient’s stay is classified, regardless of the actual cost to the hospital of
furnishing the procedures, items and services that the patient’s condition requires. Accordingly, acute care hospitals generally do not receive direct Medicare reimbursement
under PPS for the specific costs incurred in purchasing medical devices. Rather, reimbursement for these costs is deemed to be included within the MS-DRG-based payments
made to hospitals for the services furnished to Medicare-eligible inpatients in which the devices are utilized. For cases involving unusually high costs, a hospital may receive
additional “outlier” payments above the pre-determined amount. In addition, there is a mechanism by which new technology services can apply to Medicare for additional
payments above the pre-determined amount, although such requests have not been granted frequently.
Because PPS payments are based on predetermined rates and may be less than a hospital’s actual costs in furnishing care, and due to payment reforms enacted
relatively recently, acute care hospitals have incentives to lower their inpatient operating costs by utilizing products, devices and supplies that will reduce the length of inpatient
stays, decrease labor or otherwise lower their costs. For each MS-DRG, a relative weight is calculated representing the average resources required to care for cases grouped in
that particular MS-DRG relative to the average resources used to treat cases in all MS-DRGs. MS-DRG relative weights are recalculated every year to reflect changes in
technology and medical practice in a budget neutral manner. Under the MS-DRG payment system, there can be significant delays in obtaining adequate reimbursement amounts
for hospitals for new technologies such that reimbursement may be insufficient to permit broad acceptance by hospitals.
In addition to payments to hospitals for procedures using our technology, Medicare makes separate payments to physicians for their professional services. The
American Medical Association, or AMA, has developed a coding system known as the Current Procedural Terminology, or CPT, codes, which has been adopted by the
Medicare program to describe and develop payment amounts for certain physician services.
The Medicare physician fee schedule uses CPT codes (and other codes) as part of the determination of allowable payment amounts to physicians. In determining
appropriate payment amounts for surgeons, CMS receives guidance from the AMA regarding the relative technical skill level, level of resources used, and complexity of a new
surgical procedure. Generally, the designation of a new procedure code for a new procedure using a new product does not occur until after FDA clearance or approval of the
product used in the procedure. Codes are assigned by either the AMA (for CPT codes) or CMS (for Medicare-specific codes), and new codes usually become effective on
January 1 of each year.
st
One result of the current Medicare payment system, which is also utilized by most non-governmental third-party payors, is that a patient’s treating physician orders a
particular service and the hospital (or other facility in which the procedure is performed) bears the cost of delivery of the service. Hospitals have limited ability to align their
financial interests with that of the treating physician because Medicare law generally prohibits hospitals from paying physicians to assist in controlling the costs of hospital
services, including paying physicians to limit or reduce services to Medicare beneficiaries even if such services are medically unnecessary. 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.
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. The full effects of the Affordable Care Act may be unknown until all
outstanding legal issues are resolved, the statutory provisions are fully implemented, and CMS, the FDA, and other federal and state agencies issue final applicable regulations
or guidance. These developments could result in increased coordination between hospitals and physicians and alignment of financial incentives between hospitals and physicians
to control hospital costs. 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. The Affordable Care Act remains subject to potential legal and constitutional challenges in the United
States Supreme Court.
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. As noted above, failure by hospitals and physicians to receive an amount that they consider to be adequate reimbursement for procedures in
which our products are used may deter them from purchasing or using our products and will limit our sales growth.
Commercial Insurers
In addition to the Medicare program, many private payors look to CMS policies as a guideline in setting their coverage policies and payment amounts. The current
coverage policies of these private payors may differ from the Medicare program, and the payment rates they make may be higher, lower, or the same as the Medicare program.
If CMS or other agencies decrease or limit reimbursement payments for hospitals and physicians, this may affect coverage and reimbursement determinations by many private
payors. Additionally, some private payors do not follow the Medicare guidelines, and those payors may reimburse only a portion of the costs associated with the use of our
products, or none at all.
Fraud and Abuse Laws
Because of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and actively enforce a number of laws whose
purpose is to eliminate fraud and abuse in federal healthcare programs. Our business is subject to compliance with these laws.
Anti-Kickback Laws
In the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks, bribes or other remuneration in exchange for the
referral of patients or other health-related business. The U.S. federal healthcare programs’ Anti-Kickback Statute makes it unlawful for individuals or entities to knowingly and
willfully solicit, offer, receive or pay any kickback, bribe or other remuneration, directly or indirectly, in exchange for or to induce the purchase, lease or order, or arranging for
or recommending purchasing, leasing, or ordering, any good, facility, service, or item for which payment may be made in whole or in part under a federal healthcare program
such as Medicare or Medicaid. The Anti-Kickback Statute covers “any remuneration,” which has been broadly interpreted to include anything of value, including for example
gifts, certain discounts, the furnishing of free supplies, equipment or services, credit arrangements, payments of cash and waivers of payments. Several courts have interpreted
the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the
arrangement can be found to violate the statute. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from
Medicare, Medicaid and other federal healthcare programs. In addition, several courts have permitted kickback cases brought under the federal False Claims Act to proceed, as
discussed in more detail below.
Because the Anti-Kickback Statute is broadly written and encompasses many harmless or efficient arrangements, Congress authorized the Office of Inspector General
of the United States Department of Health and Human Services ("OIG"), to issue a series of regulations, known as “safe harbors.” For example, there are regulatory safe harbors
for payments to bona fide employees, properly reported discounts, and payments for certain investment interests. 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. The
failure of a transaction or arrangement to fit precisely within one or more of the exceptions or safe harbors does not necessarily mean that it is illegal or that prosecution will be
pursued. However, conduct and business arrangements that arguably implicate the Anti-Kickback Statute but do not fully satisfy all the elements of an exception or safe harbor
may be subject to increased scrutiny by government enforcement authorities such as the OIG. 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. Some of these state prohibitions apply regardless of
whether federal healthcare program business is involved, such as for self-pay or private pay patients.
Government officials have focused their enforcement efforts on marketing of healthcare services and products, among other activities, and recently have brought cases
against companies, and certain sales, marketing and executive personnel, for allegedly offering unlawful inducements to potential or existing customers in an attempt to procure
their business.
Federal Civil False Claims Act and State False Claims Laws
The federal civil False Claims Act imposes liability on any person or entity that, among other things, knowingly and willfully presents, or causes to be presented, a
false or fraudulent claim for payment by a federal healthcare program, including Medicare and Medicaid. The “qui tam” or “whistleblower” provisions of the False Claims Act
allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government and to share in
any monetary recovery. In recent years, the number of suits brought against healthcare providers by private individuals has increased dramatically. Medical device companies,
like us, can be held liable under false claims laws, even if they do not submit claims to the government where they are deemed to have caused submission of false claims by,
among other things, providing incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback arrangements with customers that
file claims.
The False Claims Act also has been used to assert liability on the basis of misrepresentations with respect to the services rendered and in connection with alleged off-
label promotion of products. Our activities relating to the manner in which we sell our products and document our prices such as the reporting of discount and rebate information
and other information affecting federal, state and third-party reimbursement of our products, and the sale and marketing of our products, may be subject to scrutiny under these
laws.
The Affordable Care Act may increase the number of cases asserting civil False Claims Act violations since it removes a significant defense to such claims and
clarifies that a violation of the Anti-Kickback Statute and the retention of a federal healthcare program overpayment are both actionable under the civil False Claims Act.
When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus
civil penalties for each separate false claim. There are many potential bases for liability under the False Claims Act. A number of states have enacted false claim laws analogous
to the federal civil False Claims Act and many of these state laws apply where a claim is submitted to any state or private third-party payor.
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. The HIPAA healthcare fraud statute prohibits, among other things, knowingly and willfully executing, or
attempting to execute, a scheme or artifice to defraud any healthcare benefit program, or to obtain by means of false of fraudulent pretenses, any money under the control of any
healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment and/or exclusion from government-sponsored
programs. The Affordable Care Act also provides for civil monetary penalties for knowingly participating in certain federal healthcare offenses and enhances sentences under
the Federal Sentencing Guidelines for such offenses. 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. 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.
We are also subject to the United States Foreign Corrupt Practices Act and similar anti-bribery laws applicable in non-U.S. jurisdictions that generally prohibit
companies and their intermediaries from making improper payments to non-U.S. government officials for the purpose of obtaining or retaining business. 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. Although we do not believe we are
a covered entity and therefore are not currently subject to these standards directly, we expect that our customers generally will be covered entities and may ask us to
contractually comply with certain aspects of these standards by entering into confidentiality agreement or, when appropriate, business associate agreements. While the
government intended this legislation to reduce administrative expenses and burdens for the healthcare industry, our compliance with certain provisions of these standards could
entail significant costs for us.
The Health Information Technology for Economic and Clinical Health Act ("HITECH"), was enacted to strengthen and expand the HIPAA Privacy and Security Rules
and the restrictions on use and disclosure of patient identifiable health information. HITECH also fundamentally changed a business associate’s obligations by imposing a
number of Privacy Rule requirements and a majority of Security Rule provisions directly on business associates that were previously only directly applicable to covered entities.
HITECH includes, but is not limited to, prohibitions on exchanging patient identifiable health information for remuneration (directly or indirectly), restrictions on marketing to
individuals and obligations to agree to provide individuals an accounting of virtually all disclosures of their health information. Moreover, HITECH requires covered entities to
report any unauthorized use or disclosure of patient identifiable health information that compromises the security or privacy of the information, known as a breach, to the
affected individuals, the United States Department of Health and Human Services ("HHS"), and depending on the size of any such breach, the media for the affected market.
Business associates are similarly required to notify covered entities of a breach.
HITECH has increased civil penalty amounts for violations of HIPAA by either covered entities or business associates up to an annual maximum of $1.5 million for
each uncorrected violation based on willful neglect. HITECH requires HHS to conduct periodic audits to confirm compliance and to investigate any violation that involves
willful neglect. Additionally, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations of HIPAA Privacy and
Security Rules that threaten the privacy of state residents.
In addition to federal regulations issued under HIPAA, some states have enacted privacy and security statutes or regulations that, in some cases, are more stringent
than those issued under HIPAA. Further, the majority of states have enacted state data breach laws, which also require notification of certain alleged breaches of the privacy or
security of personal information.
Federal and state consumer protection laws are being applied increasingly by the FTC and state attorneys general to regulate the collection, use, storage and disclosure
of personal or patient information, through websites or otherwise, and to regulate the presentation of web site content. Courts may also adopt the standards for fair information
practices promulgated by the FTC, which concern consumer notice, choice, security and access. Numerous other countries have or are developing laws governing the collection,
use, disclosure and transmission of personal or patient information.
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. Therefore, the compliance of the
physicians, hospitals or other providers or entities with which we collaborate affects our company.
Regulations Related to Our Preclinical Development Services
The Animal Welfare Act ("AWA") governs the care and use of certain species of animals used for research in the U.S. For these regulated species, the AWA and the
associated regulations promulgated thereunder require those working with regulated species to provide veterinary care and to follow specific husbandry practices such as cage
size, shipping conditions, sanitation and environmental enrichment to ensure the welfare of these animals. Licensing and registration
18
Table of Contents
requirement standards set by the U.S. Department of Agriculture, the U.S. Fish and Wildlife Service ("USFWS"), and similar applicable international agencies also apply to the
care, handling and oversight of regulated species.
The import and export of animals and operations in foreign countries are subject to applicable international agreements and conventions, as well as a variety of
national, regional and local laws and regulations, which establish the standards for the humane treatment, care, handling and transport of animals by dealers and research
facilities.
Non-clinical safety assessment studies used to support the submission for approval of pharmaceutical products must comply with national statutory or regulatory
requirements for Good Laboratory Practice ("GLP"). GLP regulations describe a quality system for the scientific, operational and quality process and the conditions under which
non-clinical studies are planned, performed, monitored, recorded, reported and archived. GLP compliance is required by such regulatory agencies as the FDA, European
Medicines Agency and similar monitoring authorities in other countries where we operate.
Human Capital Resources
As of March 5, 2024, we had 107 full time employees. None of our employees are covered by a collective bargaining agreement. 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. New employees are provided industry-relevant compliance training and are introduced to our Code of Business Conduct and Ethics.
ITEM 1A. RISK FACTORS
Any investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below and all information
contained in this Annual Report before you decide whether to purchase our common stock. If any of the following risks or uncertainties actually occurs, our business, financial
condition, results of operations and prospects would likely suffer, possibly materially. In addition, the trading price of our common stock could decline due to any of these risks
or uncertainties, and you may lose part or all of your investment.
Risks Related to Our Business and Industry
Our business, financial condition, and results of operations may be adversely affected by general economic and financial market conditions and current and
future social and geopolitical instability.
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. The world’s financial markets remain susceptible to significant stresses,
resulting in reductions in available credit and government spending, economic downturn or stagnation, foreign currency fluctuations and volatility in the valuations of securities
generally. As a result, our ability to access capital markets and other funding sources in the future may not be available on commercially reasonable terms, if at all. 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.
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. 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.
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. 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. 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.
Although, to date, our business has not been materially impacted by the ongoing geopolitical tensions, inflation, supply chain disruptions or labor shortages, it is
impossible to predict the extent to which our operations could be impacted in the short or long term, or the ways in which such matters may impact our business.
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. The revenue attributable to our drug delivery customers may fluctuate in the future, which could have a material adverse
effect on our financial condition and results of operations. In addition, the termination of these relationships could result in a temporary or permanent loss of revenue.
Our future success depends in part on our ability to maintain these relationships and to establish new relationships. Many factors have the potential to impact such
collaborations, including the ability to deliver therapies to our drug delivery customers’ satisfaction, regulatory approval, perceptions in connection with the safety of therapies
or delivery mechanisms, our customers’ ability to access adequate and sustainable financing, and other factors that may be beyond our control. Furthermore, our drug delivery
customers may decide to decrease or discontinue their use of our products and services due to changes in research and product development plans, failures in their clinical trials,
financial constraints, utilization of internal resources or services performed by other parties. In addition to reducing our revenue, the loss of one or more of these relationships
may reduce our exposure to research and clinical trials that further our business objectives.
We engage in conversations with drug delivery customers regarding potential opportunities on an ongoing basis. 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.
The sizes of the markets for our products and services and any future products and services may be smaller than we estimate and may decline.
Our estimates of the total addressable market for our products and services are based on a number of internal and third-party estimates and assumptions, including,
without limitation, the assumed prices at which we can sell our products and services in the market. While we believe our assumptions and the data underlying our estimates are
reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the
predictive accuracy of these underlying factors.
As a result, our estimates of the annual total addressable market for our products and services in different market segments may prove to be incorrect. If the actual
number of patients with indications who would benefit from our products, the price at which we can sell our products or the annual total addressable market for our products is
smaller than we have estimated, it may impair our prospective market and revenue opportunity.
Our ClearPoint system may not achieve broad market adoption.
To date, a substantial majority of the sales of our ClearPoint System have been derived from a limited number of hospitals. Our future growth depends on our ability to
increase physician and patient awareness of our products, and on the willingness of hospitals to adopt our products for their neurosurgical procedures. Our ClearPoint system
may not gain broad market adoption unless we continue to convince physicians, hospitals and patients of its benefits. 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.
Our ability to execute our growth strategy and become profitable depends upon the adoption by physicians and hospitals of the ClearPoint system for use in
neurosurgical procedures. Historically, a substantial portion of our revenue is generated from sales of the disposable products utilized with our ClearPoint system, and we are
therefore highly dependent on growing the installed base of the ClearPoint system for our success. We cannot provide assurance that our ClearPoint system will achieve broad
market acceptance among hospitals, physicians, or patients. Any failure of the ClearPoint system to achieve meaningful market acceptance and penetration will harm our future
prospects and have a material adverse effect on our business, financial condition and results of operations.
A portion of our future business growth is dependent upon marketing and selling our ClearPoint system, and other new products, in the operating room, and if we
are unable to expand, manage and maintain our marketing and sales capabilities in this environment, we may be unable to generate significant growth in our product
revenues.
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. Both SmartFrame Array and SmartFrame OR allow for operating room placement of our technology. We have relatively limited
experience marketing and selling our ClearPoint system and products for use with neurosurgical procedures in the operating room. If our team fails to adequately promote,
market and sell the ClearPoint system, and other new products that we may develop in the future, in this new environment, our sales could suffer.
Additionally, our future revenue and operating results will depend on our ability to manage the anticipated growth of our business. To achieve our business objectives,
we must continue to grow. However, continued growth presents numerous challenges, including:
•
•
•
•
•
•
expanding our sales, clinical support, product development and marketing infrastructure and capabilities;
expanding our assembly capacity and increasing production;
implementing appropriate operational and financial systems and controls;
improving our information systems;
identifying, attracting and retaining qualified personnel in our areas of activity; and
hiring, training, managing and supervising our personnel.
We cannot be certain that our systems, controls, infrastructure and personnel will be adequate to support our future operations. Any failure to effectively manage our
growth could impede our ability to successfully develop, market and sell our products and our business will be harmed.
Our long-term growth depends on our ability to compete effectively in the neurosurgery market by developing and commercializing new products and services
through our research and development efforts, independently and through third-party collaborations.
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. New technologies, techniques
or products could emerge from competitors that might offer better combinations of price and performance than our products and services. 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. The success of any new product
offering will depend on numerous factors, including our ability to:
•
•
•
•
•
•
•
•
•
properly identify and anticipate customer needs;
identify, retain, and manage third-party design and development firms, where appropriate, to accelerate development;
develop and introduce new products or services in a timely manner;
adequately protect our intellectual property and avoid infringing upon the intellectual property rights of third parties;
obtain and retain third-party licenses required for the development, commercialization, and/or utilization of new products;
demonstrate the safety and efficacy of new products;
obtain the necessary regulatory authorizations to market new products or product enhancements;
deliver products and services at a price point that is both profitable and acceptable to the market; and
secure our supply chain to ensure we can continue to deliver products in a timely fashion to all geographies.
If we do not develop and obtain regulatory authorization to market new products in time to meet market demand, or if there is insufficient demand for these products,
our results of operations will suffer. Our internal research and development efforts and our outsourced third-party design and development initiatives may require a substantial
investment of time and resources before we are adequately able to determine the commercial viability of a new product, technology, material or other innovation. In addition,
even if we are able to develop enhancements or new generations of our products successfully, these enhancements or new generations of products may not produce sales in
excess of the costs of development and they may be quickly rendered obsolete by changing customer preferences or the introduction by our competitors of products embodying
new technologies or features.
In the ordinary course of our development and commercialization of new products and services, we may enter into collaborations, in-licensing arrangements, joint
development, distribution, or other commercial arrangements. Proposing, negotiating and implementing such arrangements may be a lengthy, expensive, and complex process.
We may not identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. We have limited
institutional knowledge and experience with respect to these business development activities, and we may also not realize the anticipated benefits of any such transaction or
arrangement. In particular, these arrangements may not result in the development of products or services that achieve commercial success or result in significant revenues and
could be terminated prior to achieving their desired objectives.
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. 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. 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.
Some of our customers and partners may elect to terminate or renegotiate their agreements with us for various reasons, including force majeure clauses, unexpected or
undesired study results, dissatisfaction with our performance under the agreement, the loss or limitation of funding for research and development, or general convenience.
Cancellation or renegotiation of a large agreement could adversely affect our business and, therefore, may adversely affect our operating results. In addition, we may enter into
agreements with customers to provide services on a fixed fee basis. We may also enter into agreements with customers for which we are paid a lump sum conditioned upon the
achievement of our customer’s development milestones. Accordingly, in these cases, we bear the risk if we underprice our contracts, overrun our cost estimates, or if there is a
failure by our customer to achieve the development milestones. Such events could have an adverse effect on our business, results of operations, financial condition and cash
flows.
22
Table of Contents
If coverage and reimbursement from third-party payors for procedures utilizing our products are inadequate, adoption of our products will be adversely affected
and our revenues and prospects for profitability will suffer.
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. Therefore, our ability to successfully commercialize our products depends significantly on the adequacy of coverage and reimbursement from these third-party payors.
Third-party payors, whether foreign or domestic, governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. 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. In addition, payors continually review new technologies for possible
coverage and can, without notice, deny coverage for these new products and procedures. As a result, the coverage determination process is often a time-consuming and costly
process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate
reimbursement will be obtained or maintained if obtained.
Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on
a country-by-country basis. In many international markets, a product must be approved for reimbursement before it can be approved for sale in that country. Further, many
international markets have government-managed healthcare systems that control reimbursement for new devices and procedures. In most markets, there are private insurance
systems as well as government-managed systems.
Because in most cases, hospitals are reimbursed for the procedures in which our products are used and our products are not separately reimbursed, the additional cost
associated with the use of our products could impact hospital profit margins. Some hospitals could believe third-party reimbursement levels are not adequate to cover the cost of
our products. Furthermore, some physicians could believe third-party reimbursement levels are not adequate to compensate them for performing the procedures in which our
products are used. Failure by hospitals and physicians, whether in the U.S. or abroad, to receive an amount that they consider to be adequate reimbursement for procedures in
which our products are used will deter them from purchasing or using our products and will limit our revenues and prospects for profitability.
We currently have significant customer concentration, so economic difficulties or changes in the purchasing policies or patterns of our key customers could have
a significant impact on our business and operating results.
A small number of our customers account for a substantial portion of our revenues. 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 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. 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.
Our internal manufacturing operations are generally conducted at a single location, which may limit our ability to provide an adequate supply of our products,
and any disruption at our manufacturing facility could render us unable to produce our products, increase our expenses and decrease our revenue.
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. If our facility experiences a disruption, we would have no other means of assembling those components until
we are able to restore the manufacturing capability at our current facility or develop the same capability at an alternative facility. We do not maintain a backup manufacturing
facility, making us dependent on our current facility for the continued operation of our business. A natural or other disaster could damage or destroy our manufacturing
equipment and cause substantial delays in our manufacturing operations, which could lead to additional expense and decreased revenue due to lack of supply. The insurance we
maintain may not cover, in whole or in part, our losses in any particular case. 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.
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. 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. 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. 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. A disruption or termination in the supply of components or finished
products could also result in our inability to meet demand for our products, which could harm our ability to generate revenues, lead to customer dissatisfaction and damage our
reputation. Disruptions in the global supply chain could negatively affect our single-source suppliers and could further exacerbate the risk that we are unable to meet the
demand for our products. Furthermore, if we are required to change the supplier of a key component or component assembly of our products, we may be required to verify that
the new supplier maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. Disruptions to our service providers
could impact our ability to provide critical services to our customers, damage our customer relationships, and cause material adverse impacts to our financial results. The delays
associated with the verification of a new supplier or service provider could also adversely affect our ability to meet demand for our products and services.
To the extent we seek a new indication for use of, or new claims for, our products, the FDA may not grant 510(k) clearance or PMA approval of such new use or
claims, which may affect our ability to grow our business.
We received 510(k) clearance to market our ClearPoint system for use in general neurosurgery interventional procedures, including DBS. We could seek to obtain
additional, more specific indications for use of our ClearPoint system beyond the general neurosurgical intervention claim. To the extent we seek expanded claims for our
ClearPoint system, such claims could, depending on their nature, require 510(k) clearance or FDA approval of a PMA. 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. Likewise, to the extent clinical trials are
necessary, we may not successfully complete or have the funds to initiate such clinical trials.
Our SmartFlow Cannula has received 510(k) clearance from the FDA for use in the U.S. for the aspiration of cerebrospinal fluid (“CSF”), or injection of Cytarabine
into the ventricles. 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. 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. To the extent that our pharmaceutical partners are not successful in obtaining
regulatory approval, or if we are unable to expand the cleared indications for use of our SmartFlow Cannula, we may not be able to grow our business.
Clinical trials necessary to support 510(k) clearance or PMA approval for any new indications for use of our products would be expensive and could require the
enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in any necessary clinical trials would prevent us from
commercializing any modified product or new product candidate and could adversely affect our business, operating results and prospects.
Initiating and completing clinical trials necessary to support 510(k) clearance or PMA approval for our existing products or any other product candidates that we may
develop, or additional safety and efficacy data that the FDA may require for 510(k) clearance or PMA approval for any new specific indications of our products that we may
seek, would be time consuming and expensive with an uncertain outcome. 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. Patient
enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including the size of the patient population, the nature of the trial
protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability of appropriate clinical trial investigators
and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria for participation in the clinical trial, and patient
compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or
follow-up to assess the safety and effectiveness of our product candidates or if they determine that the treatments received under the trial protocols are not attractive or involve
unacceptable risks or discomforts. In addition, patients participating in clinical trials may die before completion of the trial or suffer adverse medical events unrelated to our
product candidates.
Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop such protocols to
support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/or for a longer follow-up
period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure of patients to continue to participate in a
clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our product candidates or result in the failure of the clinical trial.
Such increased costs and delays or failures could adversely affect our business, operating results and prospects.
If we fail to obtain the necessary clearances, certifications or approvals for our new products, our ability to grow our business globally could be harmed.
Our business growth is dependent upon our ability to market and sell new products, including new therapy devices and devices to allow us to expand our business into
the operating room. Unless and until we obtain FDA clearance, authorization or approval for the new products in our pipeline, we will not be able to sell or promote them in the
U.S. Under FDA regulations, unless exempt, a new medical device may only be commercially distributed after it has received 510(k) clearance, is authorized through the de
novo classification process, or is the subject of an approved PMA. The FDA will clear marketing of a medical device through the 510(k) process if it is demonstrated that the
new product is substantially equivalent to another legally marketed product not subject to a PMA. Sometimes, premarket submissions must be supported by clinical data.
Clinical trials are expensive, time consuming, and their outcomes are uncertain. The PMA process typically is more costly, lengthy and stringent than the 510(k) process and
usually requires more substantial clinical studies.
The FDA may not authorize marketing via de novo classification or clear our 510(k) applications on a timely basis or at all. For example, during the peak of the COVID-
19 outbreak, the FDA experienced delays in the review of applications and concentrated their focus on products which addressed the COVID-19 outbreak. Such delays or
refusals, regardless of the cause, could have a material adverse effect on our business, financial condition, and results of operations. The FDA may also change its clearance and
authorization policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay authorization or clearance of our products.
Similar restrictions exist outside of the U.S.
To sell our products in member countries of the EU, our products must comply with the essential requirements of the EU Medical Devices Directive (Council
Directive 93/42/EEC). Compliance with these requirements is a prerequisite to be able to affix the CE mark to our products, without which they cannot be sold or marketed in
the EU. To demonstrate compliance with the essential requirements we must undergo a conformity assessment procedure, which varies according to the type of medical device
and its (risk) classification. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can self-declare the conformity of its
products with the essential requirements of the EU Medical Devices Directive, a conformity assessment procedure requires the intervention of an organization accredited or
licensed by a member state of the EU to conduct conformity assessments, or a Notified Body. Depending on the relevant conformity assessment procedure, the Notified Body
would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices. The Notified Body issues a certificate
of conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with
the essential requirements. This certificate entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of
Conformity.
25
Table of Contents
As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things, on the
evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device
achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed
against the benefits of its intended performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. If we fail to
remain in compliance with applicable European laws and directives and national member states laws, we would be unable to continue to affix the CE mark to our products,
which would prevent us from selling them within the EU.
There is no assurance that future clearance or approval of our new products will be granted, or that we will be able to continue selling our products in any geography.
Such failures could hurt our ability to maintain and grow our business.
The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and may result in the
discovery of adverse side effects.
Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or any new
indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. The clinical trial process
may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us to stop seeking additional clearances
or approvals for our products or abandon or delay development of other product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory
submissions and, ultimately, our ability to commercialize a product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that
are not currently part of the product candidate’s profile.
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. The markets for medical devices used in neurosurgical
procedures is intensely competitive, and many of our competitors are much larger and have substantially more financial and human resources than we do. Many have long
histories and strong reputations within the industry, and a relatively small number of companies dominate these markets. Examples of such large, well-known companies
include Medtronic, Abbott, Elekta and Brainlab.
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.
•
We may not succeed in overcoming the competitive advantages of these large and established companies. Smaller or early-stage companies may also prove to be
significant competitors, particularly through collaborative arrangements with large and established companies. These companies may introduce products that compete
effectively against our products in terms of performance, price or both.
We sell our products outside of the U.S., and we are subject to various economic, political, regulatory, and other risks relating to international operations, which
could harm our revenue and profitability.
We sell our products in several countries outside of the U.S. 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. For example, our operations outside of the U.S. are subject to different
regulatory requirements in each jurisdiction where we operate or have sales. Our failure, or the failure of our distributors, to comply with current or future foreign regulatory
requirements, or the assertion by foreign authorities that we or our distributors have failed to comply, could result in adverse consequences, including enforcement actions, fines
and penalties, recalls, cessation of sales, civil and criminal prosecution, and the consequences could be disproportionate to the relative contribution of our international
operations to our results of operations.
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 addition, our business practices in foreign countries must comply with U.S. laws, including the Foreign Corrupt Practices Act (“FCPA”). We have a compliance
program in place designed to reduce the likelihood of potential violations of the FCPA and other U.S. and foreign anti-bribery and anti-corruption laws. If violations were to
occur, they could subject us to fines and other penalties as well as increased compliance costs.
Our exposure to each of these risks may increase our costs and require significant management attention.
Disruptions of critical information systems or material breaches in the security of our systems could harm our business, customer relations and financial
condition.
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.
The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. The information technology and infrastructure which
we rely upon may be vulnerable to attacks by hackers or breached due to human error, malfeasance or other disruptions. Any such breach could compromise our networks and
the information stored there could be accessed, publicly disclosed, lost or stolen. 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. In addition, the regulatory environment regarding data security and privacy evolves frequently and has become increasingly restrictive.
We also rely in part on third-party information technology systems to store information, interface with customers, maintain financial accuracy, secure our data and
accurately produce our financial statements. If our information technology systems do not effectively and securely collect, store, process and report relevant data for the
operation of our business, whether due to equipment malfunction or constraints, software deficiencies, human error or cyber incident, our ability to effectively plan, forecast and
execute our business plan and comply with applicable laws and regulations would be materially impaired. 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. We may not be able to
maintain our current insurance coverage on acceptable terms, if at all, and, if available, coverage may not be adequate to protect us against future claims. 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.
We may acquire other businesses, form joint ventures, or make investments in other companies or technologies that could harm our operating results, dilute our
stockholders’ ownership, increase our debt, or cause us to incur significant expense.
As part of our business strategy, we may pursue acquisitions or investments in other companies or technologies. 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. We may not be able to find suitable partners or acquisition or investment candidates, and we
may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our
existing business, and we could assume unknown or contingent liabilities. Any future acquisitions also could result in significant write-offs or the incurrence of debt and
contingent liabilities, any of which could have a material adverse effect on our financial condition, results of operations and cash flows. Integration of an acquired company also
may disrupt ongoing operations and require management resources that would otherwise focus on developing our existing business. We may experience losses related to
investments in other companies, which could have a material negative effect on our results of operations. We may not identify or complete these transactions in a timely
manner, on a cost-effective basis, or at all, and we may not realize the anticipated benefits of any acquisition, technology license, strategic alliance, or joint venture.
To finance any investments, acquisitions or joint ventures, it may be necessary for us to raise additional funds through public or private financings. Additional funds
may not be available on terms that are favorable to us, or at all.
We need to hire and retain additional qualified personnel to grow and manage our business. If we are unable to attract and retain qualified personnel, including
our senior management team, our sales, clinical support and marketing team and our engineering team, our business and growth could be seriously harmed.
Our performance depends on the talents and efforts of our employees. Our future success will depend on our ability to attract, retain and motivate highly skilled
personnel in all areas of our organization, but particularly as part of our sales, clinical support, product development and marketing teams. We plan to continue to grow our
business and will need to hire additional personnel to support this growth. It is often difficult to hire and retain these persons, and we may be unable to replace key persons if
they leave or fill new positions requiring key persons with appropriate experience, particularly in light of current labor market conditions. If we experience difficulties locating
and hiring suitable personnel in the future, our growth may be hindered. Qualified individuals are in high demand, particularly in the medical device industry, and we may incur
significant costs to attract and retain them. If we are unable to attract and retain the personnel we need to succeed, our business and growth could be harmed.
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. The loss of members of our senior
management team, our sales, clinical support and marketing team or our engineering team, or our inability to attract or retain other qualified personnel, could have a material
adverse effect on our business, financial condition, and results of operations. 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. If we fail to generate significant revenue from sales of our products and
services, we may never achieve or sustain profitability.
We have incurred losses in each year since our inception in 1998 that have resulted principally from costs incurred in connection with our sales and marketing
activities, research and development efforts, manufacturing activities and other general and administrative expenses associated with our operations, and we may continue to
incur losses as we continue to invest capital in the sales and marketing of our ClearPoint platform products and services, and growth of our business generally.
28
Table of Contents
As a result of the numerous risks and uncertainties associated with developing medical devices and with our biologic and drug delivery customers’ development of safe
and effective drugs, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Our profitability will depend on revenues from the sale
of our products and services. Additionally, increases in our various costs that may be the result of inflationary pressures could further reduce our sales and profitability. We
cannot provide any assurance that we will ever achieve profitability and, even if we achieve profitability, that we will be able to sustain or increase profitability on a quarterly or
annual basis. Further, because of our relatively limited commercialization history in our biologics and drug delivery business, we have limited insight into the trends that may
emerge and affect our business. 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.
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. 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. 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. We also completed a public common
stock offering in March 2024 providing net proceeds of approximately $14.0 million.
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. We also anticipate increases over the next twelve months in operating expenses to
support the expected increase in revenues, with resulting decreases in loss from operations and in cash flow used in operations. However, there is no assurance that we will be
able to achieve anticipated results, and even in the event such results are achieved, we expect to continue to consume cash in operations over at least the next twelve months.
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. There is no assurance, however, that we will be able to obtain such additional financing on commercially reasonable terms, if at all, and there
is no assurance that any additional financing we do obtain will be sufficient to meet our needs. If we are not able to obtain the additional financing on a timely basis, we may be
unable to achieve anticipated results, and may not be able to meet other obligations as they become due. An inability to obtain a sufficient amount of additional funding would
create substantial doubt as to our ability to continue as a going concern.
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.
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. Debt financing, if available, may involve agreements that include covenants
limiting or restricting our ability to take specific actions such as incurring additional debt, making capital expenditures or declaring dividends. If we secure additional funds
through arrangements with a strategic or other collaboration partner, we may have to relinquish valuable rights to our technologies, products or product candidates or grant
licenses on terms that are not favorable to us. Any of these events could adversely affect our ability to achieve our commercialization and/or product development goals and
have a material adverse effect on our business, financial condition, results of operations and prospects.
Our cash, cash equivalents and short-term marketable securities are subject to economic risk.
The Company may invest its cash, cash equivalents and short-term marketable securities in domestic bank deposits, money market funds, U.S. Government debt
securities, corporate debt, and certificates of deposit. Certain types of these investments are subject to general credit, liquidity, market and interest rate risks. In the event these
risks caused a decline in value of any of the Company’s investments, it could adversely affect the Company’s financial condition.
We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance
Corporation ("FDIC"), and the loss of such assets could have a negative effect on our operations and liquidity.
In early 2023, multiple banks were closed by regulatory agencies and swept into receivership. We currently have our cash and cash equivalents held in deposit in
accounts at certain FDIC-insured financial institutions, some of which include amounts in excess of the insurance coverage offered by the FDIC. In the future, we may maintain
our cash assets at financial institutions in the United States in amounts that may be in excess of the FDIC insurance limit of $250,000. Though to date, we have experienced no
loss or lack of access to cash in our operating accounts, in the event of a failure of any of these financial institutions where we maintain our deposits or other assets, we may
incur a loss to the extent such deposits or assets exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition and
our results of operations.
Risks Related to Our Intellectual Property
If we, or the third parties from whom we license intellectual property, are unable to secure and maintain patent or other intellectual property protection for the
intellectual property covering our marketed products or our product candidates, our ability to compete will be harmed.
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. Our patent
position is uncertain and complex, in part, because of our dependence on intellectual property that we license from others. If we, or the third parties from whom we license
intellectual property, fail to obtain adequate patent or other intellectual property protection for intellectual property covering our products or product candidates, or if any
protection is reduced or eliminated, others could use the intellectual property covering our products or product candidates, resulting in harm to our competitive business
position. In addition, patent and other intellectual property protection may not provide us with a competitive advantage against competitors that devise ways of making
competitive products without infringing any patents that we own or to which we have rights.
U.S. patents and patent applications may be subject to interference proceedings and U.S. patents may be subject to inter partes proceedings (“IPRs”), reissue and
reexamination proceedings in the United States Patent and Trademark Office. Foreign patents may be subject to opposition or comparable proceedings in the corresponding
foreign patent offices. Any of these proceedings could result in either loss of the patent or denial of the patent application, or loss or reduction in the scope of one or more of the
claims of the patent or patent application. Changes in either patent laws or in interpretations of patent laws may also diminish the value of our intellectual property or narrow the
scope of our protection. Interference, IPRs, reexamination and opposition proceedings may be costly and time consuming, and we, or the third parties from whom we license
intellectual property, may be unsuccessful in such proceedings. 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. Even if any of our pending or future patent applications are issued, they may not
provide us with adequate protection or any competitive advantages. Our ability to develop additional patentable technology is also uncertain.
Non-payment or delay in payment of patent fees or annuities, whether intentional or unintentional, may also result in the loss of patents or patent rights important to
our business. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third
parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, the
patent owner may have limited remedies, which could materially diminish the value of the patent. In addition, the laws of some foreign countries do not protect intellectual
property rights to the same extent as do the laws of the U.S., particularly in the field of medical devices and procedures.
Others may assert that our products infringe their intellectual property rights, which may cause us to engage in costly disputes and, if we are not successful in
defending ourselves, could also cause us to pay substantial damages and prohibit us from selling our marketed products.
There may be U.S. and foreign patents issued to third parties that relate to our business. Some of these patents may be broad enough to cover one or more aspects of
our present technologies and/or may cover aspects of our future technologies. We do not know whether any of these patents, if they exist and if asserted, would be held valid,
enforceable and infringed. We cannot provide any assurance that a court or administrative body would agree with any arguments or defenses we may have concerning
invalidity, unenforceability or non-infringement of any third-party patent. The medical device industry has been characterized by extensive litigation and administrative
proceedings regarding patents and other intellectual property rights, and companies have employed such actions to gain a competitive advantage. If third parties assert
infringement or other intellectual property claims against us, our management personnel will experience a significant diversion of time and effort and we will incur large
expenses defending our company. If third parties in any patent action are successful, our patent portfolio may be damaged, we may have to pay substantial damages and we
may be required to stop selling our products or obtain a license which, if available at all, may require us to pay substantial royalties. We cannot be certain that we will have the
financial resources or the substantive arguments to defend our products from infringement or our patents from claims of invalidity or unenforceability, or to defend our products
against allegations of infringement of third-party patents. In addition, any public announcements related to litigation or administrative proceedings initiated by us, or initiated or
threatened against us, could negatively impact our business.
If the combination of patents, trade secrets and contractual provisions that we rely on to protect our intellectual property is inadequate, our ability to successfully
commercialize our marketed products and product candidates will be harmed, and we may not be able to operate our business profitably.
Our success and ability to compete is dependent, in part, upon our ability to maintain the proprietary nature of our technologies. We rely on a combination of patent,
copyright, trademark and trade secret law and nondisclosure agreements to protect our intellectual property. 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. Our issued patents, and those
that may issue in the future, may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products.
To protect our proprietary rights, we may in the future need to assert claims of infringement against third parties to protect our intellectual property. There can be no
assurance that we will be successful on the merits in any enforcement effort. In addition, we may not have sufficient resources to litigate, enforce or defend our intellectual
property rights. Litigation to enforce our intellectual property rights in patents, copyrights or trademarks is highly unpredictable, expensive and time consuming and would
divert human and monetary resources away from managing our business, all of which could have a material adverse effect on our financial condition and results of operations
even if we were to prevail in such litigation. In the event of an adverse judgment, a court could hold that some or all of our asserted intellectual property rights are not infringed,
or that they are invalid or unenforceable, and could award attorney fees.
Despite our efforts to safeguard our unpatented and unregistered intellectual property rights, we may not be successful in doing so or the steps taken by us in this
regard may not be adequate to detect or deter misappropriation of our technologies or to prevent an unauthorized third party from copying or otherwise obtaining and using our
products, technologies or other information that we regard as proprietary. 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. Our inability to adequately protect our
intellectual property could allow our competitors and others to produce products based on our technologies, which could substantially impair our ability to compete.
We have entered into confidentiality and intellectual property assignment agreements with our employees and consultants as one of the ways we seek to protect our
intellectual property and other proprietary technologies. However, these agreements may not be enforceable, or may not provide meaningful protection for our trade secrets or
other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements.
Our employees and consultants may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide
an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party illegally obtained and is using our proprietary know-
how is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the U.S. are sometimes less willing to protect know-how than courts in the
U.S. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Failure to obtain or maintain intellectual property protection could
adversely affect our competitive business position.
We rely on patent rights and licenses from third parties which are subject to termination or expiration.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest
United States non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited.
Even if patents covering our products are obtained, once the patent life has expired, we may be open to competition from competitive products, as our ability to
prevent competitors from copying our technology may be limited. Given the amount of time required for the development, testing and regulatory review of potential new
medical technologies, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Additionally, should any patent licenses be
prematurely terminated for any reason, or if the patents and intellectual property assigned to us or owned by third parties that we have licensed are challenged or defeated, our
research efforts could be materially and adversely affected. There is also the related risk that we may not be able to make the required payments under any patent license, in
which case we may lose to ability to use one or more of the licensed patents. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to
exclude others from commercializing products similar or identical to ours.
We may not be able to protect our intellectual property rights throughout the world.
Third parties may attempt to commercialize competitive products in foreign countries where we do not have any patents or patent applications and/or where legal
recourse may be limited. This may have a significant commercial impact on our foreign business operations.
Filing, prosecuting and defending patents on our products in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may
not protect our rights to the same extent as the laws of the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all
countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain
countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection. In particular, many countries limit the enforceability of patents against
certain third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately
be sought on a country-by-country basis, which is an expensive and time consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection
in certain countries, and we will not have the benefit of patent protection in such countries. Even in foreign jurisdictions that enforce intellectual property rights to the same or a
similar extent as do the laws of the United States, uneven enforcement and procedural barriers may exist in such countries, and proceedings to enforce our intellectual property
rights could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted
narrowly, could put our patent applications at risk of not being issued and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we
initiate, and the damages or other
32
Table of Contents
remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to
obtain a significant commercial advantage from the intellectual property that we develop or license.
If we lose access to third-party software that is integrated into our products, our costs could increase and new installations of our products could be delayed,
potentially hurting our competitive position.
We have received licenses from third parties to certain software that is integrated into the software components of our products. In return, we have agreed to pay
license fees and royalties subject to commercial arrangements with such third-party licensors. A loss of any of the licenses could impede our ability to offer and sell our
products to customers until equivalent software could be identified, licensed or developed, and integrated into our products. These delays, if they occur, would harm our
business, operating results and financial condition.
Our rights to develop and commercialize our products are subject, in part, to the terms and conditions of licenses granted to us by others.
We rely, in part, upon licenses to certain patent rights and proprietary technology from third parties that are important or necessary to the development of our products
and technology. These and other licenses may not provide exclusive rights to use such intellectual property and technology, and we may not have intellectual property rights
through such licenses in all territories in which we may wish to develop or commercialize our technology and products in the future. As a result, we may not be able to prevent
competitors from developing and commercializing competitive products in territories included in all of our licenses.
In addition, we may not have the right to control the preparation, filing, prosecution, maintenance, enforcement and defense of patents and patent applications covering
the technology that we license from third parties. Therefore, we cannot be certain that these patents and patent applications will be prepared, filed, prosecuted, maintained,
enforced and defended in a manner consistent with the best interests of our business. 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.
Our licensors may have relied on third-party consultants or collaborators or on funds from third parties such that our licensors are not in sole and exclusive control or
may not be the sole owners of the patents we in-license. This could materially and adversely affect our business, financial condition and results of operations.
The agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be
susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to
the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement. In spite of our best efforts, our
licensors might also conclude that we have materially breached our license agreements and terminate the license agreements, thereby removing our ability to develop and
commercialize products and technology covered by these license agreements. If these in-licenses are terminated, competitors would have the freedom to seek regulatory
approval of, and to market, products identical to ours. In addition, we may seek to obtain additional licenses from our licensors and, in connection with obtaining such licenses,
we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to larger financial commitments. Any of these
events could materially and adversely affect our business, financial condition and results of operations.
Risks Related to Legal and Regulatory Compliance
We operate in a highly-regulated industry and any failure to comply with the extensive government regulations may subject us to fines, injunctions and other
penalties that could harm our business.
We are subject to extensive regulation by the FDA and various other federal, state and foreign governmental authorities. 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 are subject to ongoing regulatory requirements, including: required submissions of safety and other post-market information; manufacturing facility registration
and device listing requirements; compliance with medical device current Good Manufacturing Practice regulations, as codified in the QSR; requirements regarding field
corrections and removals of our marketed products; reporting of adverse events and certain product malfunctions to regulatory bodies; and numerous recordkeeping
requirements. If we or any of our collaborators or suppliers fail to comply with applicable regulatory requirements, a regulatory agency may take action against us, including
any of the following sanctions:
•
•
•
•
•
•
•
untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
customer notifications or orders for the repair or replacement of our products or refunds;
recall, detention or seizure of our products;
operating restrictions or partial suspension or total shutdown of production;
refusing or delaying requests for regulatory approvals of new products or modified products;
withdrawing regulatory submissions that have already been granted; or
refusing to grant export approval for our products.
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. 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.
In addition, our biologics and drug delivery business may be subject to regulations and guidance concerning the procurement and use of research animals for research
purposes. Such regulations and guidance are evolving and continues to be developed for other areas that impact the biomedical research community on both a national and
international basis. Our failure to comply with these regulations and guidance could have a material adverse effect on our business.
Federal legislation and other payment and policy changes may have a material adverse effect on our business.
Since enactment of the Affordable Care Act in 2010, 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. The full effects of the
Affordable Care Act may be unknown until all outstanding legal issues are resolved, the statutory provisions are fully implemented, and CMS, the FDA, and other federal and
state agencies issue final applicable regulations or guidance. These developments could result in increased coordination between hospitals and physicians and alignment of
financial incentives between hospitals and physicians to control hospital costs. 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. The Affordable Care Act may continue to be periodically subject
to legal challenges or a continuing political effort to limit its scope. While we do not expect the Biden Administration to modify or repeal the Affordable Care Act, we cannot
offer assurances that the political situation regarding the Affordable Care Act will not change in the future in ways that could have a material adverse effect on our business or
results of operations.
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. As noted above, failure by hospitals and physicians to receive an amount that they consider to be adequate reimbursement for procedures in which our
products are used may deter them from purchasing or using our products and will limit our sales growth.
The Affordable Care Act also imposes, among other things, an annual excise tax on any entity that manufactures or imports medical devices offered for sale in the U.S.
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. 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.
The Inflation Reduction Act ("IRA"), aimed at curbing inflationary pressures, may have direct and indirect consequences for pharmaceutical and biotech companies in
the context of their research and development expenditures. In particular, the IRA measures to control inflation have implications for future drug pricing. Our pharmaceutical
and biotech customers rely on predictable pricing to fund research and development efforts. If pricing flexibility is constrained, these companies may limit spending on their
pipeline, which may adversely affect the future revenue of our biologics and drug delivery business.
Various healthcare reform proposals have also emerged at the state level. We cannot predict what healthcare initiatives will be implemented at the federal or state
level, or the effect any recently promulgated or future legislation or regulation will have on us. However, an expansion in government’s role in the U.S. healthcare industry may
lower reimbursements for our products, reduce medical procedure volumes and adversely affect our business, possibly materially.
Our products may be subject to product recalls that could harm our reputation, business operating results and financial condition. Likewise, products that are
manufactured and sold by third parties and that are needed for procedures in which physicians use our products also may be subject to recalls, which could adversely
impact our business, operating results and financial condition.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or
defects in design, manufacture or labeling. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that
the device would cause serious injury or death. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material
deficiencies or defects in design or manufacture. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. A government-
mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any
of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. We may initiate certain
voluntary recalls involving our products in the future. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA. If we determine
that certain of those recalls do not require notification to the FDA, the FDA may disagree with our determinations and require us to report those actions as recalls. A future recall
announcement could harm our reputation with customers and negatively affect our sales. 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. Regulatory investigations or product recalls could also result in our
incurring substantial costs, losing revenues and implementing a change in the design, manufacturing process or the indications for which our products may be used, each of
which would harm our business.
In addition, products that are manufactured and sold by other companies and that are needed for procedures in which physicians use ClearPoint devices also could
become subject to a recall. ClearPoint devices are designed to enable a range of minimally invasive procedures in the brain. Those procedures involve insertion of a catheter,
probe, electrode or other similar device into a target region of the brain, and most of those devices are manufactured and sold by other companies. Any of those devices may
become the subject of a recall, whether required by the FDA or a foreign governmental body or initiated by the third-party manufacturer. The shortage or absence of any of
those devices in the marketplace could adversely impact the number of procedures performed by physicians using our ClearPoint devices, which would adversely impact our
financial condition and results of operations.
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. In the future, we
may experience events that may require reporting to the FDA pursuant to the medical device reporting regulations. In addition, all manufacturers placing medical devices in EU
markets are legally bound to report any serious or potentially serious incidents involving devices they produce or sell to the relevant authority in whose jurisdiction the incident
occurred. Any adverse event involving our products could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as
inspection, mandatory recall or other enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the
dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results. In addition, failure to report such
adverse events to appropriate government authorities on a timely basis, or at all, could result in an enforcement action against us.
We may incur significant liability if it is determined that we are promoting off-label uses of our products in violation of federal and state regulations in the U.S. or
elsewhere.
We have obtained 510(k) clearance of the products that we commercialize for defined indications. Promotion or marketing of our products for any indications for use
other than that cleared by the FDA would be considered off-label use.
Under the federal Food, Drug, and Cosmetic Act and other similar laws, we are prohibited from labeling or promoting our products, or training physicians, for such off-
label uses. The FDA defines labeling to include not only the physical label attached to the product, but also items accompanying the product. This definition also includes items
as diverse as materials that appear on a company’s website. As a result, we are not permitted to promote off-label uses of our products, whether on our website, in product
brochures or in customer communications. However, although manufacturers are not permitted to promote for off-label uses, in their practice of medicine, physicians may
lawfully choose to use medical devices for off-label uses. Therefore, a physician could use our products for uses not covered by the cleared labeling.
The FDA and other regulatory agencies actively enforce regulations prohibiting promotion of off-label uses and the promotion of products for which marketing
clearance or approval has not been obtained. If the FDA determines that our promotional materials or training constitutes promotion of an off-label use, it could request that we
modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, warning letter, injunction, seizure,
civil fine and criminal penalties. We could be enjoined from selling some or all of our products for any unapproved uses. It is also possible that other federal, state or foreign
enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproved use, which could result in significant
fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and market adoption
of our products would be impaired. In addition, the off-label use of our products may increase the risk of injury to patients, and, in turn, the risk of product liability claims.
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.
We and some of our third-party suppliers are required to comply with the FDA’s QSR, which covers the methods and documentation of the design, testing, production,
control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products and product candidates. 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
anticipate that we and certain of our third-party suppliers will be subject to future inspections. The failure by us or one of our third-party suppliers to comply with applicable
statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations, could
result in 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. If we fail
to comply with the FDA’s QSR or any applicable state equivalent, we would be required to incur the costs and take the actions necessary to bring our operations into
compliance, which may have a negative impact on our future sales and our ability to generate a profit.
36
Table of Contents
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and could face substantial penalties if we are
unable to fully comply with such laws.
Although we do not provide healthcare services or receive payments directly from Medicare, Medicaid or other third-party payors for our products or the procedures in
which our products may be used, many state and federal healthcare laws and regulations governing financial relationships between medical device companies and healthcare
providers apply to our business and we could be subject to enforcement by both the federal government, private whistleblowers and the states in which we conduct our business.
The healthcare laws and regulations that may affect our ability to operate include:
•
•
•
•
•
•
The federal healthcare programs’ Anti-Kickback Statute, which prohibits, among other things, individuals or entities from knowingly and willfully soliciting,
receiving, offering or providing any kickback, bribe or other remuneration, directly or indirectly, in exchange for or to induce the purchase, lease or order, or
arranging for or recommending of, any item or service for which payment may be made under a federal healthcare program such as the Medicare and Medicaid
programs.
Federal false claims laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment
to Medicare, Medicaid or other federally-funded healthcare programs that are false or fraudulent, or are for items or services not provided as claimed, and which
may apply to entities like us to the extent that our interactions with customers may affect their billing or coding practices. 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. Specifically, such manufacturers are
required to report payments or other transfers of value to or on behalf of physicians, physician assistants, certain types of advance care nurses or teaching hospitals
by such manufacturers, as well as any ownership or investment interest held by physicians in such manufacturers. Violations of the reporting requirements are
subject to civil monetary penalties.
The Affordable Care Act also grants the Office of Inspector General additional authority to obtain information from any individual or entity to validate claims for
payment or to evaluate the economy, efficiency or effectiveness of the Medicare and Medicaid programs, expands the permissible exclusion authority to include
any false statements or misrepresentations of material facts, enhances the civil monetary penalties for false statements or misrepresentation of material facts, and
enhances the Federal Sentencing Guidelines for those convicted of federal healthcare offenses.
The medical device industry has been under heightened scrutiny as the subject of government investigations and government enforcement or private whistleblower
actions under the Anti-Kickback Statute and the False Claims Act involving manufacturers who allegedly offered unlawful inducements to potential or existing customers in an
attempt to procure their business, including specifically arrangements with physician consultants.
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.
The Affordable Care Act mandates increased transparency of arrangements between physicians and medical device companies. We believe that this increased
transparency may also result in a heightened level of government scrutiny of the relationships between physicians and medical device companies. While we believe that all of
our arrangements with physicians comply with applicable law, the increased level of scrutiny, coupled with the expanded enforcement tools available to the government under
the Affordable Care Act, may increase the likelihood of a governmental investigation. If we become subject to such an investigation, our business and operations would be
adversely affected even if we ultimately prevail because the cost of defending such investigation would be substantial. Moreover, companies subject to governmental
investigations could lose both overall market value and market share during the course of the investigation.
In addition, we may provide customers with information on products that could be deemed to influence their coding or billing practices, and may have sales,
marketing or other arrangements with hospitals and other providers that could also be the subject of scrutiny under these laws. If our operations are found to be in violation of
any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines,
exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations. Any penalties, damages, fines, exclusions, curtailment or
restructuring of our operations could adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is
increased by the fact that many of these laws are broad and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we
successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If the physicians or
other providers or entities with which we do business are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative
impact on our business.
We are subject to various laws protecting the confidentiality and security of certain personal information, and our failure to comply could result in penalties and
reputational damage.
We are subject to various laws and regulations protecting the confidentiality and security of certain patient health information, and our failure to comply with such
laws and regulations could result in penalties and reputational damage.
Within the U.S., numerous federal and state laws governing the collection, use, disclosure and storage of personal information may apply to us, including, without
limitation, HIPAA, state data privacy laws (for example, the California Consumer Privacy Act and the California Privacy Rights Act), state data breach notification laws, state
health information privacy laws, and federal and state consumer protection laws. In addition, in certain cases, we may be a business associate of our HIPAA covered entity
customers by virtue of receiving individually identifiable health information (referred to as “Protected Health Information” or “PHI”) from these customers. In these business
associate relationships, we must comply with applicable HIPAA requirements, state data privacy and security requirements, and the contractual terms of our business associate
agreements that govern its permitted uses and disclosures of PHI received from the covered entity counterparty. Our failure to comply with any of these laws may result in
criminal and civil liability. Enforcement actions can be costly and interrupt regular operations which may adversely affect our business.
Outside the U.S., numerous countries in which we operate, manufacture, and sell our products have, or are developing, laws protecting data privacy and the
confidentiality of certain personal data. 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. 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. The GDPR imposes strict obligations and restrictions on controllers and processors of personal data, which could cause our costs of
compliance to increase, potentially leading to harm to our business and financial condition.
Globally, the legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data
protection issues that may affect our business. There is a degree of uncertainty associated with the legal and regulatory environment around privacy and data protection laws,
which continue to develop in ways we cannot predict. Privacy and data protection laws may be interpreted and applied inconsistently from country to country and impose
inconsistent or conflicting requirements. Varying jurisdictional requirements could increase the costs and complexity of compliance or require us to change our business
practices in a manner adverse to our business.
38
Table of Contents
A determination that we have violated privacy or data protection laws could result in significant damage awards, fines and other penalties that could, individually or in the
aggregate, materially harm our business and reputation.
Our Fourth Amended and Restated Bylaws provide that the Court of Chancery of the State of Delaware and the federal district courts of the U.S. will be the
exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes
with us or our directors, officers or employees.
Our Fourth Amended and Restated Bylaws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction,
another State court in Delaware or the federal district court for the District of Delaware) is the exclusive forum (to the fullest extent permitted by law, and subject to applicable
jurisdictional requirements) for claims in the right of the corporation that are based upon a violation of a duty by a current or former director, officer, employee or stockholder in
such capacity, or as to which the Delaware General Corporation Law confers jurisdiction upon the Court of Chancery of the State of Delaware.
Our Fourth Amended and Restated Bylaws further provide that the federal district courts of the U.S. will be the exclusive forum for resolving any complaint asserting a
cause of action arising under the Securities Act of 1933.
These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors,
officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Any person or entity purchasing or otherwise acquiring
any interest in any of our securities shall be deemed to have notice of and consented to these provisions. There is uncertainty as to whether a court would enforce such
provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. 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.
Risks Related to Our Common Stock
The market price of our common stock may be volatile, and a stockholder may not be able to resell their shares at or above the price at which the shares were
purchased.
Companies trading in the stock market in general have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating
performance. The market price of our common stock may be volatile. 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.
Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to
limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. Our existing NOLs may be subject to substantial limitations
arising from previous ownership changes. In addition, future changes in our stock ownership, many of which are outside of our control, could result in an ownership change
under Section 382 of the Code. Our NOLs may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs. Furthermore, our
ability to utilize our NOLs is conditioned upon our attaining profitability and generating U.S. federal taxable income. We have incurred net losses since our inception and
anticipate that we will continue to incur significant losses for the foreseeable future; thus, we do not know whether or when we will generate the U.S. federal taxable income
necessary to utilize our NOLs.
We have not paid dividends in the past and do not expect to pay dividends in the future.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all future earnings for the operation and expansion of our business
and, therefore, do not anticipate declaring or paying cash dividends in the foreseeable future. The payment of dividends will be at the discretion of our Board of Directors and
will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payments of dividends present in any
of our future debt agreements and other factors our Board of Directors may deem relevant. 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. As a result, our Board will be able to issue a
substantial number of additional shares of common stock, without seeking stockholder approval. In addition, provisions in our certificate of incorporation and bylaws, as well as
provisions of Delaware law, may discourage, delay or prevent a merger, acquisition or change of control. These provisions could also discourage proxy contests and make it
more difficult for stockholders to elect directors and take other corporate actions. These provisions:
•
•
•
•
•
•
•
•
permit our Board of Directors to issue shares of preferred stock, with any rights, preferences and privileges as they may designate, including the right to approve
an acquisition or other change in our control;
provide that the authorized number of directors may be changed only by resolution of the Board of Directors;
provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of
directors then in office, even if less than a quorum;
require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written
consent;
provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of
stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice;
do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors
to elect all of the directors standing for election, if they should so choose);
provide that special meetings of our stockholders may be called only by the chairman of the Board of Directors, our Chief Executive Officer or by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and
provide that stockholders will be permitted to amend our bylaws only upon receiving at least 66 2/3% of the votes entitled to be cast by holders of all outstanding
shares then entitled to vote generally in the election of directors, voting together as a single class.
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. This provision could have the effect of delaying or preventing a change of control, whether or not it is
desired by or beneficial to our stockholders.
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.
We publicly provide financial guidance about our business and future operating results. In developing this guidance, our management makes certain assumptions and
judgments about our future operating performance, including projected hiring of personnel, continued increase of our revenue, and continued stability of the macro-economic
environment in our key markets. Furthermore, analysts and investors may develop and publish their own projections of our business, which may form a consensus about our
future performance. Our business results may vary significantly from such guidance or that consensus due to a number of factors, many of which are outside of our control, and
which could adversely affect our operations and operating results. Furthermore, if we make downward revisions of our previously announced guidance, or if our publicly
announced guidance of future operating results fails to meet expectations of securities analysts, investors, or other interested parties, the market price of our common stock could
decline.
Securities analysts may not continue, or additional securities analysts may not initiate, coverage for our common stock or may issue negative reports. This may
have a negative impact on the market price of our common stock.
Securities analysts provide research coverage of our common stock. Some analysts may publish statements that do not portray our technology, products or procedures
using our product in a positive light. If we are unable to educate those who publicize such reports about the benefits we believe our business provides, or if one or more of the
analysts who elects to cover us downgrades our stock, our stock price would likely decline rapidly. If 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. 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. It may be difficult for companies such as ours, with smaller market capitalizations, to attract and maintain sufficient independent
financial analysts that will cover our common stock. 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.
Our ability to attract and retain customers, suppliers, investors and employees is impacted by our reputation. Harm to our reputation can arise from various sources,
including employee misconduct, security and privacy breaches, unethical behavior, litigation or regulatory outcomes, and scrutiny in connection with federal and state
healthcare fraud and abuse laws and regulations. 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.
The preclinical services that our biologics and drug delivery business provides to our customers are essential to drug discovery and development processes, and a
significant number of these services are mandated by law. Notwithstanding, certain special interest groups categorically object to the use of animals for valid research purposes.
Historically, research activities with animals have been the subject of adverse attention, including shareholder proposals and attempts to disrupt such services, impacting the
industry. This may, in the future, include periodic demonstrations near facilities operated or utilized by us. Any negative attention, threats, acts of vandalism or legal action
directed against our preclinical service activities, or our third-party service providers could harm our reputation and impair our ability to operate our business efficiently.
41
Table of Contents
We could become subject to product liability or professional liability claims that could be expensive, divert management’s attention and harm our business.
Our business exposes us to potential product liability risks that are inherent in the manufacturing, marketing and sale of medical devices. We may be held liable if our
products cause injury or death or are found otherwise unsuitable or defective during usage. Our ClearPoint system, ClearPoint Prism Neuro Laser Therapy System, and other
products may incorporate mechanical and electrical parts, complex computer software and other sophisticated components, any of which can have defective or inferior parts or
contain defects, errors or failures. Complex computer software is particularly vulnerable to errors and failures, especially when first introduced.
Because our products are designed to be used to perform complex surgical procedures, defects could result in a number of complications, some of which could be
serious and could harm or kill patients. The adverse publicity resulting from any of these events could cause physicians or hospitals to review and potentially terminate their
relationships with us.
We may also be subject to professional liability for errors in the clinical support that we provide to clinicians in connection with our products or for a misunderstanding
of, or inappropriate reliance upon, the information we provide.
The medical device industry has historically been subject to extensive litigation over product liability and professional liability claims. A product liability or
professional liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs. Although we maintain liability insurance that we believe
is appropriate, this insurance coverage is subject to deductibles and coverage limitations, and may not be adequate to protect us against any future liability claims. Additionally,
we may be unable to maintain our existing liability insurance in the future at satisfactory rates or in adequate amounts. 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.
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.
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 have taken precautions to safeguard our facility, including obtaining business interruption
insurance. 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.
Furthermore, the insurance coverage we maintain may not be adequate to cover our losses in any particular case or continue to be available at commercially reasonable rates
and terms. In addition, our facility may be subject to shortages of electrical power, natural gas, water and other energy supplies. Any future shortage or conservation measure
could disrupt our operations and cause expense, thus adversely affecting our business and financial results.
The requirements of being a public company may strain our resources and distract management.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Sarbanes-Oxley Act
of 2002 (“Sarbanes-Oxley Act”). We are also subject to certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”).
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. Compliance with all of these laws, rules and regulations may from time to
time divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash
flows.
The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting and management is
required to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year. To maintain the effectiveness of our disclosure controls
and procedures and internal control over financial reporting, significant resources and management oversight is required. If we are not successful in maintaining effective
internal control over financial reporting, there could be inaccuracies or omissions in the consolidated financial information we are required to file with the SEC. Additionally,
even if there are no inaccuracies or omissions, we will be required to publicly disclose the conclusion of our management that our internal control over financial reporting or
disclosure controls and procedures are not effective.
These events could cause investors to lose confidence in our reported financial information, adversely impact our stock price, result in increased costs to remediate any
deficiencies, or attract regulatory scrutiny or lawsuits that could be costly to resolve and distract management’s attention.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 1C. CYBERSECURITY.
Our Company places a high priority on cybersecurity, information security, and securing confidential business information and personal information that we receive
and store related to our customers and employees. Our Company’s Audit Committee oversees the cybersecurity risks faced by the Company. In connection therewith, a
Cybersecurity Steering Committee, which consists of our Chief Financial Officer, Chief Operating Officer, General Counsel, Vice President of Software Development, and
Vice President of Regulatory Affairs, was formed to identify material risks and cybersecurity threats arising in our business.
Our Audit Committee receives updates from the Cybersecurity Steering Committee at least annually, which cover topics related to information security, privacy, and
cyber risks and risk management processes, including the status of significant cybersecurity incidences and projects designed to strengthen our information security posture. Our
Audit Committee is also responsible for ensuring that the Board of Directors also receives periodic reports with respect to the status and management of our cybersecurity risks.
The Cybersecurity Steering Committee, in collaboration with delegates from our business and functions, is responsible for implementing the Company’s enterprise-
wide cyber security and information security strategy, employee training and compliance, and managing policies and processes for the Company’s information technology
standards, product security, and privacy. As a member of the Cybersecurity Steering Committee, our Vice President of Software Development provides experience devising
effective cybersecurity management practices in the areas of both software and product development, including risk evaluation, impact assessment, security threat modelling,
cybersecurity mitigation strategies, residual risk acceptability and methodologies for security risk verification. He has led the integration of our medical device software into
some of the largest hospital and research institutions in the world in compliance with the extensive cybersecurity requirements of these institutions. In addition to utilizing
internal Company resources, the Cybersecurity Steering Committee also regularly consults with external advisors and specialists regarding opportunities and enhancements to
strengthen its practices and policies. We also engage with third-party consultants to manage the infrastructure and security of our information technology landscape.
Our cybersecurity program includes:
•
•
•
•
Penetration testing of internal information technology systems and review of program maturity based on
the National Institute of Standards and Technology ("NIST") cybersecurity framework;
Phishing, social engineering, and cyber hygiene training;
Continuous security event monitoring, management, and incident response plans;
Continuous enhancements to security capabilities based on evolving threats;
43
Table of Contents
•
•
•
•
Information security policies and procedures;
Privacy controls and compliance with applicable legislative and regulatory requirements;
Assessment of applicable third-party vendors’ cybersecurity and information security practices; and
A cross-functional approach to addressing cybersecurity risk with participation from representatives
across the business and functions.
As part of our cybersecurity program, we have adopted an incident response plan, under which the Chairs of our Board of Directors and Audit Committee are informed
by the Cybersecurity Steering Committee of any cybersecurity incidents that have the potential to materially adversely impact the Company or its information systems. To date,
no attempted cyber-attack or other attempted intrusion on our information technology networks has resulted in a material adverse impact on our operations or financial results,
or in any penalties or settlements.
ITEM 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. We believe that these facilities are sufficient to meet our current and near-term needs.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of our business, we may be subject to various claims, pending and potential legal actions for damages, investigations relating to governmental
laws and regulations and other matters arising out of the normal conduct of our business. We are not aware of any material pending legal proceedings to which we are a party or
of which any of our properties is the subject.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
44
Table of Contents
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
PART II
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. As 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. We currently intend to retain all future earnings for the operation and expansion of our business
and, therefore, do not anticipate declaring or paying cash dividends in the foreseeable future. The payment of dividends will be at the discretion of our Board of Directors and
will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payments of dividends present in any
of our future debt agreements and other factors our Board of Directors may deem relevant.
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.
ITEM 6. RESERVED.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and
related notes thereto included elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that are based upon current expectations and
involve risks, assumptions and uncertainties. You should review the “Risk Factors” section of this Annual Report for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.
Overview
We are a commercial-stage medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in
the brain. We have deployed significant resources to fund our efforts to develop the foundational capabilities for enabling MRI-guided interventions, building an intellectual
property portfolio, and identifying and building out commercial applications for the technologies developed by our company.
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. The primary applications for the ClearPoint system are to target and guide the insertion of deep brain stimulation electrodes, biopsy needles, and laser catheters, as
well as the infusion of pharmaceuticals into the brain. The ClearPoint system was originally designed for use in an MRI setting. In 2021, we launched the SmartFrame Array
Neuro Navigation System and Software, which 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. In 2022, we commercialized the ClearPoint Prism Neuro Laser Therapy System as our first therapy product offering. We have exclusive global
commercialization rights to the ClearPoint Prism Neuro Laser Therapy System through our Swedish partner, CLS.
The second part of our business is focused on partnerships in the biologics drug and delivery space. Our services include protocol consultation and solutions for
preclinical study design and execution. 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. These partnerships involve drug development programs that are at various stages of development ranging from preclinical
research to late-stage regulatory trials for multiple distinct disease states. This part of our business potentially represents the largest opportunity for growth; however, our ability
to grow in this market is dependent on our ability to maintain and establish new relationships with customers, such customers' continuation of research and development plans,
and such customers 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.
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 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. 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. 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. 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. 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. 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. In January 2024, we received 510(k) clearance from the FDA for the SmartFrame OR
Stereotactic System.
In 2021, we started providing consulting services to our pharmaceutical and other medical technology customers for improving outcome predictability and optimizing
preclinical and clinical workflows. Our expertise is concentrated in benchtop testing, preclinical studies, clinical trial support, regulatory consultation, and over-arching
translation from the preclinical to the clinical setting to enhance accuracy and precision of drug delivery.
Future revenue from sales of our ClearPoint platform products and services is difficult to predict and may not be sufficient to offset our continuing research and
development expenses and our increasing selling, general and administrative expenses.
Generating recurring revenue from the sale of products remains an important part of our business model for 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. 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.
Underlying the revenue from sales of products and services to our biologics and drug delivery customers is the number of direct customers and end users of our
products and/or services (“Partners”). Our Partners consist of pharmaceutical and biotech companies, academic institutions, or customer-sponsored contract research
organizations that are developing methods to deliver a wide variety of molecules, genes or proteins to targeted brain tissue or structures that would need to bypass the blood-
brain barrier for the treatment of a variety of disorders. This is a novel area in which commercialization must be preceded by FDA-mandated clinical trials, which are expensive
and time consuming to conduct, and for which commercial success is uncertain, pending, in part, on the outcome of those trials. While our revenue from sales of products and
services to our biologics and drug delivery customers is indicative of growth, the number of Partner relationships is also of importance as we recognize the possibility that some
Partners’ research will reach commercial success, and others may not. To the extent our Partners achieve commercial success, our expectation is that we will share in such
success through our Partners’ use of our products and services in their delivery of therapies. At December 31, 2023, we had more than 50 Partners, which is similar to the
number of Partners as of the same date in 2022.
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. Cost of revenue also includes the allocation of
manufacturing overhead costs and depreciation of loaned systems installed under our ClearPoint placement program, as well as provisions for obsolete, impaired, or excess
inventory.
Research and Development Costs
Our research and development costs consist primarily of costs associated with the conceptualization, design, testing, and prototyping of our ClearPoint system products
and enhancements. Such costs include salaries, travel, and benefits for research and development personnel; materials and laboratory supplies in research and development
activities; outside consultant costs; and licensing costs related to technology not yet commercialized. We anticipate that, over time, our research and development costs may
increase as we: (i) develop devices and services 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.
Product development timelines, likelihood of success, and total costs can vary widely by product candidate. There are also risks inherent in the regulatory clearance and
approval process. At this time, we are unable to estimate with any certainty the costs that we will incur in our efforts to expand the application of our technological platforms.
Sales and Marketing, and General and Administrative Expenses
Our sales and marketing, and general and administrative expenses consist primarily of salaries, incentive-based compensation, travel and benefits, including 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.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). The preparation of these consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated
financial statements as well as the reported revenues and expenses during the reporting periods. 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.
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. 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.
Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require
significant judgment. We evaluate each product or service promised in a contract to determine whether it represents a distinct performance obligation. A performance obligation
is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available
to the customer and is separately identified in the contract. 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.
We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and
obtain the benefit of the good or service. 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. 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. 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. 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.
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. At the end of each
reporting period, we re-evaluate the probability of achievement of such milestones, and if necessary adjust our estimate of the overall transaction price. The probability
assessment is largely based on communications with our customers and historical, current, and forecasted information that is reasonably available. 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. Software license inventory related to ClearPoint systems
undergoing on-site customer evaluation is included in inventory in the accompanying consolidated balance sheets. 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. 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. 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. 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. 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 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. 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.
Results of Operations
Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
(Dollars in thousands)
Product revenue
Service and other revenue
Total revenue
Cost of revenue
Gross profit
Research and development costs
Sales and marketing expenses
General and administrative expenses
Other income (expense):
Other expense, net
Interest income (expense), net
Net loss
Year Ended December 31,
2023
2022
Percentage
Change
$
10,603 $
13,352
23,955
10,341
13,614
11,709
12,595
11,756
(29)
386
12,789
7,762
20,551
7,020
13,531
10,894
9,358
9,611
(22)
(81)
$
(22,089) $
(16,435)
(17) %
72 %
17 %
47 %
1 %
7 %
35 %
22 %
NM%
577 %
34 %
NM - The percentage change is not meaningful.
Revenue. Total revenue was approximately $24.0 million and $20.6 million for the years ended December 31, 2023 and 2022, respectively.
49
Table of Contents
(Dollars in thousands)
Biologics and drug delivery
Disposable products
Services and license fees
Subtotal – Biologics and drug delivery revenue
Functional neurosurgery navigation and therapy
Disposable products
Services
Subtotal – Functional neurosurgery navigation and therapy revenue
Capital equipment and software
Systems and software products
Services
Subtotal – Capital equipment and software revenue
Total revenue
Years Ended December 31,
2022
2023
Percentage
Change
$
$
2,154 $
11,448
13,602
7,589
931
8,520
860
973
1,833
23,955 $
3,690
5,430
9,120
7,587
1,537
9,124
1,512
795
2,307
20,551
(42) %
111 %
49 %
— %
(39) %
(7) %
(43) %
22 %
(21) %
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. 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.
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. 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.
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. 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. This decrease in gross
margin was primarily due to an increase in biologics and drug delivery preclinical services, which, to date, have had a lower margin than in prior years, as we launch new
services and increase our presence in this space. Increased costs related to the transition to the new manufacturing facility also contributed to the decrease in gross margin
compared to the prior year.
Research and Development Costs. Research and development costs were $11.7 million for the year ended December 31, 2023, compared to $10.9 million for the same
period in 2022, an increase of $0.8 million, or 7%. 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. 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%. 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. 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%. 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. The increase in interest income was due to higher interest rates and our investment in U.S. Government debt securities, offset partially by the higher amount of interest
paid on the 2020 Secured Convertible Note, for the year ended December 31, 2023, compared to the same period in 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. 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. In 2021, we completed a public offering of 2,127,660 shares of our common stock from which the net proceeds totaled
approximately $46.8 million. In 2020, we issued secured convertible notes to two investors which raised gross proceeds of $25 million, of which $15 million has been
converted to common stock and $10 million remains outstanding.
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.
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.
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.
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. 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%. 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. See Note 8 to the consolidated financial statements
included elsewhere in this Annual Report.
• We typically enter into short-term agreements with vendors and suppliers of goods and services in the normal course of business through purchase orders, which are
settled in cash upon delivery of such goods or services. 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, 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:
(in thousands)
Cash used in operating activities
Cash provided by (used in) investing activities
Cash provided by financing activities
Net change in cash and cash equivalents
Years Ended December 31,
2023
2022
$
$
(13,720) $
8,949
296
(4,475) $
(16,167)
(10,736)
409
(26,494)
Net Cash Flows from Operating Activities. 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. 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. The change in operating assets and liabilities is primarily due to lower inventory purchases in 2023,
following a ramping up of inventory stock in previous years in response to supply chain disruptions, which were partially offset by increased use of cash in 2023 to pay down
accounts payables and accrued expenses. 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. Net cash flows provided by investing activities in 2023 were $8.9 million and consisted of proceeds from the maturities of
short-term investments, partially offset by equipment acquisitions related to our new manufacturing site in Carlsbad, California, and acquisition of licensing rights.
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. 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.
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.
Operating Capital and Capital Expenditure Requirements
To date, we have not achieved profitability. We could continue to incur net losses as we continue our efforts to expand the commercialization of our products and
services and pursue additional applications for our technology platforms. Our cash balances are primarily held in a variety of demand accounts with a view to liquidity and
capital preservation.
Because of the numerous risks and uncertainties associated with the development and commercialization of medical devices, we are unable to estimate the exact
amounts of capital outlays and operating expenditures necessary to successfully commercialize our products and pursue additional applications for our technology platforms.
Our future capital requirements will depend on many factors, including, but not limited to, the following:
•
•
•
•
•
•
•
the ultimate duration and impact of macroeconomic trends, including inflationary pressures, 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Registered Public Accounting Firm and Financial Statements are set forth on pages F-1 to F-25 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Management’s Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act.
Our disclosure controls and procedures are designed to ensure that material information relating to us is made known to our principal executive officer and principal financial
officer by others within our organization. Under their supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2023, to ensure that the information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal
financial officer as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective as of December 31, 2023.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange
Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted accounting principles. Any system of internal control, no matter how well designed, has inherent
limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of
changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance that
the objectives of the internal control system are met.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this evaluation, our management concluded that
our internal control over financial reporting was effective as of December 31, 2023.
53
Table of Contents
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
Management’s assessment was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only
management’s assessment in this Annual Report.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2023, there were no changes in our internal control over financial reporting that materially affected, or that are reasonably likely
to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
Not applicable. Without limiting the generality of the foregoing, during the quarter ended December 31, 2023, no director or Section 16 officer adopted or terminated
any Rule 10b5-1 trading arrangements, as defined in Item 408(a) of Regulation.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
54
Table of Contents
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
PART III
The information required by this item is incorporated by reference from the definitive proxy statement to be filed within 120 days after December 31, 2023, pursuant
to Regulation 14A under the Exchange Act in connection with our 2024 annual meeting of stockholders.
Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16(a) of the Exchange Act. To the
extent disclosure for delinquent reports is being made, it can be found under the caption “Delinquent Section 16(a) Reports” in our definitive proxy statement and, in
accordance with General Instruction G to Form 10-K, is hereby incorporated herein by reference.
Our Board of Directors has adopted a Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics applies to all of our employees, officers
(including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions), agents and
representatives, including directors and consultants. The Code of Business Conduct and Ethics is posted on our website at www.clearpointneuro.com. We will provide a copy of
this document to any person, without charge, upon request, by writing to our Investor Relations Department, 120 S. Sierra Ave. Suite 100, Solana Beach, CA 92075. We intend
to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics, or
waivers of such provisions, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, persons performing similar
functions or our directors on our website identified above. The inclusion of our website address in this Annual Report does not include or incorporate by reference the
information on our website into this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the definitive proxy statement to be filed within 120 days after December 31, 2023, pursuant
to Regulation 14A under the Exchange Act in connection with our 2024 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Other than as set forth below, the information required by this item is incorporated by reference from the definitive proxy statement to be filed within 120 days after
December 31, 2023, pursuant to Regulation 14A under the Exchange Act in connection with our 2024 annual meeting of stockholders.
Equity Compensation Plan Information
Plan Category
(1)
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
(3)
(6)(7)(8)(9)(10)(11)
Number of securities to
be issued upon
exercise of outstanding
options
and restricted stock
units
Weighted-Average
Exercise Price of
Outstanding
(2)
Options
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(a)
(b)
(c)
(4)
2,110,835
512,375
2,623,210
$
$
$
7.54
10.03
8.40
(5)
658,031
—
658,031
55
Table of Contents
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
The information presented in this table is as of December 31, 2023.
The weighted-average exercise price calculation includes only stock options as restricted stock does not have an exercise price.
Includes the Fourth Amended and Restated 2013 Incentive Compensation Plan and the 2021 Employee Stock Purchase Plan.
Includes 1,478,157 outstanding stock options and 1,145,053 unvested restricted shares outstanding.
Includes 421,940 shares of common stock available for issuance under the Fourth Amended and Restated 2013 Incentive Compensation Plan and 236,091 shares of
common stock available for issuance under the 2021 Employee Stock Purchase Plan.
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. As of December 31, 2023, awards with respect to 7,375 shares of our common stock were outstanding under the 2013 Non-
Employee Director Equity Incentive Plan.
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. Grillo
non-qualified stock options to purchase 60,000 shares of our common stock.
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.
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.
In November 2017, we entered into a written compensatory contract with Joseph M. 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.
In September 2020, we entered into a written compensatory contract with Danilo D’Alessandro, our Chief Financial Officer, pursuant to which we awarded Mr.
D’Alessandro a non-qualified stock option to purchase 75,000 shares of our common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is incorporated by reference from the definitive proxy statement to be filed within 120 days after December 31, 2023, pursuant
to Regulation 14A under the Exchange Act in connection with our 2024 annual meeting of stockholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is incorporated by reference from the definitive proxy statement to be filed within 120 days after December 31, 2023 pursuant to
Regulation 14A under the Exchange Act in connection with our 2024 annual meeting of stockholders.
56
Table of Contents
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1) The following documents are filed as part of this Annual Report:
Report of Independent Registered Public Accounting Firm (PCAOB ID 677)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the years ended December 31, 2023 and 2022
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022
Notes to Consolidated Financial Statements
(a)(2) Financial statement schedules are omitted as they are not applicable.
(a)(3) See Item 15(b) below.
(b) Exhibits
Exhibit
Number
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4*
10.1*
Exhibit Description
Amended and Restated Certificate of Incorporation
Form
10-Q
Incorporation by Reference
SEC File No.
000-54575
Exhibit
3.1
Certificate of Amendment to the Amended and
Restated Certificate of Incorporation of MRI
Interventions, Inc.
Certificate of Amendment to the Amended and
Restated Certificate of Incorporation of MRI
Interventions, Inc.
Certificate of Amendment to the Amended and
Restated Certificate of Incorporation of ClearPoint
Neuro, Inc.
Certificate of Amendment to the Amended and
Restated Certificate of Incorporation of ClearPoint
Neuro, Inc.
Fourth Amended and Restated Bylaws of ClearPoint
Neuro, Inc.
Reference is made to Exhibits 3.1 through 3.6
Specimen of Common Stock Certificate of ClearPoint
Neuro, Inc.
Form of Senior Secured Convertible Note (First
Closing)
Description of Securities
Insider Trading Compliance Policy, adopted on July
17, 2023
8-K
S-1
8-K
8-K
8-K
8-K
8-K
57
000-54575
333-211647
001-34822
001-34822
001-34822
001-34822
001-34822
3.1
3.3
3.1
3.1
3.1
4.1
4.1
F-2
F-4
F-5
F-6
F-7
F-9
Filing Date
May 11, 2012
June 8, 2015
August 2, 2016
February 12, 2020
May 25, 2023
December 14, 2022
February 12, 2020
January 13, 2020
Table of Contents
Exhibit
Number
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
Exhibit Description
Fourth Amended and Restated 2013 Incentive
Compensation Plan
MRI Interventions, Inc. 2013 Incentive
Compensation Plan Form of Incentive Stock Option
Agreement
MRI Interventions, Inc. 2013 Incentive
Compensation Plan Form of Non-Qualified Stock
Option Agreement
MRI Interventions, Inc. 2013 Incentive
Compensation Plan Form of Non-Qualified Stock
Option Agreement for Non-Employee Directors
MRI Interventions, Inc. 2013 Non-Employee
Director Equity Incentive Plan Form of
Non-Qualified Stock Option Agreement
MRI Interventions, Inc. 2013 Incentive
Compensation Plan Form of Restricted Share Award
Agreement
ClearPoint Neuro, Inc. 2013 Incentive Compensation
Plan Form of Restricted Share Unit Award
Agreement
Non-Qualified Stock Option Agreement, effective as
of October 6, 2014, granted by MRI Interventions,
Inc. to Francis P. Grillo
Non-Qualified Stock Option Agreement, effective as
of March 30, 2015 granted by MRI Interventions,
Inc. to Harold A. Hurwitz
Non-Qualified Stock Option Agreement, effective as
of December 1, 2014, granted by MRI Interventions,
Inc. to Wendelin C. Maners
ClearPoint Neuro, Inc. Non-Employee Director
Compensation Plan, as amended and restated by the
Board of Directors on May 22, 2023
Second Amended and Restated Key Personnel
Incentive Program
Amended and Restated Key Personnel Incentive
Award Agreement, dated June 13, 2013, by and
between MRI Interventions, Inc. and Paul A.
Bottomley
Second Amended and Restated Key Personnel
Incentive Award Agreement, dated June 13, 2013, by
and between MRI Interventions, Inc. and Paul A.
Bottomley
Form
SEC File No.
Exhibit
Filing Date
Incorporation by Reference
DEF14A
Appendix A
April 14, 2022
10-Q
10-Q
10-Q
10-K
10-Q
10-K
S-1
10-Q
S-1
8-K
10-Q
000-54575
10.53
August 14, 2013
000-54575
10.54
August 14, 2013
000-54575
10.55
August 14, 2013
000-54575
10.41
March 28, 2014
001-34822
10.2
August 12, 2019
001-34822
10.38
March 1, 2023
333-201471
10.63
January 13, 2015
000-54575
10.1
August 10, 2015
333-201471
10.65
January 13, 2015
001-34822
000-54575
10.1
10.3
May 22, 2023
August 14, 2013
10-Q
000-54575
10.32
August 14, 2013
10-Q
000-54575
10.31
August 14, 2013
58
Table of Contents
Exhibit
Number
10.16+
10.17+
10.18+
10.19+
10.20+
10.21+
10.22+
10.23+
10.24+
10.25+
10.26+
10.27†
Exhibit Description
Second Amended and Restated Key Personnel
Incentive Award Agreement, dated June 13, 2013, by
and between MRI Interventions, Inc. and Parag V.
Karmarkar
2021 Employee Stock Purchase Plan
Form of Indemnification Agreement
Employment Agreement, dated as of October 6, 2017,
by and between MRI Interventions, Inc. and Joseph
Michael Burnett
Amendment No. 1 to Employment Agreement, dated
March 3, 2023 by and between the Company and
Joseph M. Burnett, amending the Employment
Agreement dated October 6, 2017
Employment Agreement, dated as of September 14,
2020, by and between the Company and Danilo
D’Alessandro
Amendment No. 1 to Employment Agreement, dated
March 3, 2023 by and between the Company and
Danilo D’Alessandro, amending the Employment
Agreement dated September 14, 2020
Employment Agreement, dated September 20, 2022,
by and between the Company and Mazin Sabra
Amendment No. 1 to Employment Agreement, dated
March 3, 2023 by and between the Company and
Mazin Sabra, amending the Employment Agreement
dated September 20, 2022
Employment Agreement, dated May 31, 2022, by and
between the Company and Jeremy Stigall
Amendment No. 1 to Employment Agreement, dated
March 3, 2023 by and between the Company and
Jeremy Stigall, amending the Employment
Agreement dated May 31, 2022
Development Agreement between MRI Interventions,
Inc. and Siemens Medical Solutions USA, Inc.
Form
SEC File No.
Exhibit
Filing Date
Incorporation by Reference
10-Q
DEF14A
8-K
8-K
8-K
8-K
8-K
8-K
8-K
10-Q
000-54575
001-34822
001-34822
001-34822
001-34822
001-34822
001-34822
001-34822
001-34822
001-34822
10-Q
001-34822
10-Q/A
000-54575
59
10.33
August 14, 2013
Appendix A
10.2
10.2
10.1
10.2
10.2
10.1
10.3
10.4
10.5
10.1
April 20, 2021
June 28, 2021
October 10, 2017
March 3, 2023
September 14, 2020
March 3, 2023
September 20, 2022
March 3, 2023
May 11, 2023
May 11, 2023
August 29, 2014
Table of Contents
Exhibit
Number
10.28†
10.29†
10.30†
10.31
10.32
10.33
10.34+
10.35
Exhibit Description
Master Services and Licensing Agreement dated as of
July 20, 2007 by and between SurgiVision, Inc. and
Cedara Software Corp., as amended by that certain
First Amendment dated January 18, 2011
Second Amendment to the Master Services and
Licensing Agreement, dated as of June 22, 2012, by
and between Merge Healthcare Canada Corp. and
MRI Interventions, Inc.
Third Amendment to the Master Services and
Licensing Agreement, dated as of July 28, 2013, by
and between Merge Healthcare Canada Corp. and
MRI Interventions, Inc.
Securities Purchase Agreement, dated January 11,
2020, by and among MRI Interventions, Inc., each
investor identified on the signature pages thereto, and
Petrichor Opportunities Fund I LP, as collateral
agent.
First Omnibus Amendment to Securities Purchase
Agreement and Senior Secured Promissory Notes,
dated January 29, 2020, by and among MRI
Interventions, Inc., PTC Therapeutics, Inc., and
Petrichor Opportunities Fund I LP
Second Omnibus Amendment to the Securities
Purchase Agreement and Senior Secured Convertible
Notes, dated December 29, 2020, by and among
ClearPoint Neuro, Inc., each investor identified on the
signature pages thereto, and Petrichor Opportunities
Fund I LP, as collateral agent.
Third Omnibus Amendment to the Securities Purchase
Agreement and Senior Secured Convertible Notes,
dated July 31, 2023, by and among ClearPoint Neuro,
Inc., PTC Therapeutics, Inc., and Petrichor
Opportunities Fund I LP
Security Agreement, dated January 29, 2020, by and
between MRI Interventions, Inc. and Petrichor
Opportunities Fund I LP, in its capacity as collateral
agent
Form
SEC File No.
Exhibit
Filing Date
Incorporation by Reference
10
8-K
000-54575
10.20
March 15, 2012
000-54575
10.1
June 26, 2012
10-Q
000-54575
10.56
August 14, 2013
8-K
001-34822
10.1
January 13, 2020
8-K
001-34822
10.2
January 29, 2020
8-K
001-34822
10.1
December 29, 2020
001-34822
10.1
August 1, 2023
001-34822
10.3
January 29, 2020
8-K
8-K
60
Form
SEC File No.
Exhibit
Filing Date
Incorporation by Reference
8-K
001-34822
10.1
November 4, 2022
Table of Contents
Exhibit
Number
10.36
21*
23.1*
24.1*
31.1*
31.2*
32++
97*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
Exhibit Description
Standard Industrial/Commercial Single-Tenant Lease -
Net, dated November 4, 2022 between ClearPoint Neuro,
Inc. and the Hedda Marosi Living Trust and the Stella
Feder Trust
Subsidiaries of ClearPoint Neuro, Inc.
Consent of Cherry Bekaert LLP
Power of Attorney (included on the signature pages
hereto)
Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) Under the Securities Exchange Act of 1934
Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) Under the Securities Exchange Act of 1934
Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to Rule 13a-14(b) Under the
Securities Exchange Act of 1934 and Section 1350 of
Chapter 60 of Title 18 of the United States Code
ClearPoint Neuro, Inc. Compensation Recoupment
Policy, adopted on October 3, 2023
XBRL Instance
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation
XBRL Taxonomy Extension Definition
XBRL Taxonomy Extension Labels
* Filed herewith.
† Confidential treatment granted under Rule 24b-2 under the Securities Exchange Act of 1934. The confidential portions of this exhibit have been omitted and are marked
accordingly. The confidential portions have been filed separately with the Securities and Exchange Commission pursuant to the request for confidential treatment.
+ Indicates management contract or compensatory plan.
++ This certification is being furnished solely to accompany this Annual Report pursuant to 18 U.S.C. Section 1350, and it is not being filed for purposes of Section 18 of the
Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of
any general incorporation language in such filing.
61
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURES
Date: March 12, 2024
CLEARPOINT NEURO, INC.
/s/ Joseph M. Burnett
Joseph M. Burnett
Chief Executive Officer and President
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Joseph M. Burnett and Danilo
D’Alessandro, and each of them, acting individually, as his attorney-in-fact, each with full power of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ Joseph M. Burnett
Joseph M. Burnett
/s/ Danilo D’Alessandro
Danilo D’Alessandro
/s/ R. John Fletcher
R. John Fletcher
/s/ Lynnette C. Fallon
Lynnette C. Fallon
/s/ Pascal E.R. Girin
Pascal E.R. Girin
/s/ B. Kristine Johnson
B. Kristine Johnson
/s/ Matthew B. Klein
Matthew B. Klein
/s/ Linda M. Liau
Linda M. Liau
/s/ Timothy T. Richards
Timothy T. Richards
Signature
Title
President, Chief Executive Officer, and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Chairman and Director
Director
Director
Director
Director
Director
Director
62
Date
March 12, 2024
March 12, 2024
March 12, 2024
March 12, 2024
March 12, 2024
March 12, 2024
March 12, 2024
March 12, 2024
March 12, 2024
Table of Contents
Table of Contents
Report of Independent Registered Public Accounting Firm
Audited Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-4
F-5
F-6
F-7
F-9
Table of Contents
To the Board of Directors and
Stockholders of ClearPoint Neuro, Inc.
Report of Independent Registered Public Accounting Firm
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ClearPoint Neuro, Inc. (the “Company”) as of December 31, 2023 and 2022, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements. In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its
operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred net losses since its inception which has resulted in a cumulative deficit as of December 31, 2023. Note 1 describes
management’s plans in regard to these matters, including the closing of an equity offering in March 2024, which raised approximately $14 million of net proceeds.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to
which it relates.
Critical Audit Matter Description
The Company had $23,955,000 in revenue for the year ended December 31, 2023. Revenue is derived from (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) consultation revenue and clinical case support revenue in connection with customer-sponsored preclinical and clinical trials; (4) license revenue for the granting of
licenses to develop and commercialize the Company's SmartFlow Cannula devices with our customers' proprietary biologics as a combination product; and (5) revenue resulting
from the service, installation, training, and shipping related to ClearPoint capital equipment and software. As disclosed in Note 2 to the consolidated financial statements, the
Company recognizes revenue when control of the Company’s products and services is transferred to its customers in an amount that reflects the consideration the Company
expects to receive from its customers in exchange for those products and services in a process that involves identifying the contract with the customer, determining the
performance obligation 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.
F-2
Table of Contents
Due to the nature of the Company’s customer agreements, management exercises judgment in the following areas in determining appropriate revenue recognition:
a. Determination of which products and services are considered distinct performance obligations that should be accounted for separately or combined;
b. Determination of stand-alone selling prices for each performance obligation;
c. Estimation of contract price and allocation of the transaction price to the performance obligations;
d. The pattern and timing of delivery for each distinct performance obligation; and
e. The identification and treatment of contract terms that may impact the timing and amount of revenue recognized.
As a result, a degree of auditor judgment was required in performing audit procedures to evaluate the reasonableness of management’s judgments. Changes in these judgments
can have a material effect on the amount of revenue recognized.
How the Critical Audit Matter Was Addressed in the Audit
Based on our knowledge of the Company, we determined the nature and extent of procedures to be performed over revenue as discussed above, including the determination of
the revenue streams over which those procedures were performed. Our audit procedures included the following for service and other revenue:
a. Obtained an understanding of the internal controls and processes in place over the Company’s revenue recognition processes;
b. Analyzed the significant assumptions and estimates made by management as discussed above; and
a. Assessed the recorded revenue by selecting a sample of transactions, analyzing the related contract, testing management’s identification of distinct performance
obligations, and comparing the amounts recognized for consistency with underlying documentation.
/s/ Cherry Bekaert LLP
We have served as the Company’s auditors since 2008.
Tampa, Florida
March 12, 2024
F-3
CLEARPOINT NEURO, INC.
Consolidated Balance Sheets
(Dollars in thousands, except for share and per share data)
ASSETS
December 31,
2023
2022
Table of Contents
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventory, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease rights of use
Software license inventory
Licensing rights
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued compensation
Other accrued liabilities
Operating lease liabilities, current portion
Deferred product and service revenue, current portion
Total current liabilities
Operating lease liabilities, net of current portion
Deferred product and service revenue, net of current portion
2020 senior secured convertible note payable, net
Total liabilities
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.01 par value; 25,000,000 shares authorized at December 31, 2023 and 2022; none issued and outstanding at
December 31, 2023 and 2022
Common stock, $0.01 par value; 90,000,000 shares authorized at December 31, 2023 and 200,000,000 shares authorized at
December 31, 2022; 24,652,729 and 24,578,983 shares issued and outstanding at December 31, 2023 and 2022, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to Consolidated Financial Statements.
F-4
$
$
$
$
23,140 $
—
3,211
7,911
1,910
36,172
1,389
3,564
386
1,041
109
42,661 $
393 $
2,947
1,053
424
2,613
7,430
3,568
541
9,949
21,488
27,615
9,874
2,665
9,303
1,723
51,180
806
1,895
450
1,028
131
55,490
272
2,824
2,065
561
1,066
6,788
1,532
390
9,893
18,603
—
247
193,382
(172,456)
21,173
42,661 $
—
246
187,008
(150,367)
36,887
55,490
Table of Contents
CLEARPOINT NEURO, INC.
Consolidated Statements of Operations
(Dollars in thousands, except for share and per share data)
Revenue:
Product revenue
Service and other revenue
Total revenue
Cost of revenue
Gross profit
Research and development costs
Sales and marketing expenses
General and administrative expenses
Operating loss
Other income (expense):
Other expense, net
Interest income (expense), net
Net loss
Net loss per share attributable to common stockholders:
Basic and diluted
Weighted average shares outstanding:
Basic and diluted
See Notes to Consolidated Financial Statements.
F-5
Years Ended December 31,
2022
2023
10,603 $
13,352
23,955
10,341
13,614
11,709
12,595
11,756
(22,446)
(29)
386
(22,089) $
12,789
7,762
20,551
7,020
13,531
10,894
9,358
9,611
(16,332)
(22)
(81)
(16,435)
(0.90) $
(0.68)
24,605,212
24,181,854
$
$
$
Table of Contents
CLEARPOINT NEURO, INC.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2023 and 2022
(Dollars in thousands)
Balances, January 1, 2022
Issuances of common stock:
Share-based compensation
Warrant and option exercises (cash and cashless)
Issuance of common stock under employee stock purchase
plan
Payments for taxes related to net share settlement of equity
awards
Net loss for the year
Balances, December 31, 2022
Issuances of common stock:
Share-based compensation
Option exercises (cashless)
Issuance of common stock under employee stock purchase
plan
Payments for taxes related to net share settlement of equity
awards
Net loss for the year
Balances, December 31, 2023
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Total
23,665,991 $
237 $
182,482 $
(133,932) $
48,787
476,720
403,980
56,561
(24,269)
—
24,578,983 $
9,538
14,312
84,430
(34,534)
—
24,652,729 $
5
4
—
4,121
264
477
—
—
—
—
—
246 $
(336)
—
187,008 $
—
(16,435)
(150,367) $
—
—
1
6,079
—
505
—
—
—
—
—
247 $
(210)
—
193,382 $
—
(22,089)
(172,456) $
4,126
268
477
(336)
(16,435)
36,887
6,079
—
506
(210)
(22,089)
21,173
See Notes to Consolidated Financial Statements.
F-6
Table of Contents
CLEARPOINT NEURO, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash flows from operating activities:
Allowance for credit losses (recoveries)
Depreciation and amortization
Share-based compensation
Amortization of debt issuance costs and original issue discounts
Amortization of lease right of use assets, net of accretion in lease liabilities
Accretion of discounts on short-term investments
Increase (decrease) in cash resulting from changes in:
Accounts receivable
Inventory, net
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued expenses
Lease liability
Deferred revenue
Net cash flows from operating activities
Cash flows from investing activities:
Purchases of property and equipment
Acquisition of licensing rights
Purchase of short-term investments
Proceeds from maturities of short-term investments
Net cash flows from investing activities
Cash flows from financing activities:
Proceeds from stock option and warrant exercises
Proceeds from issuance of common stock under employee stock purchase plan
Payments for taxes related to net share settlement of equity awards
Net cash flows from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Income taxes
Interest
F-7
Years Ended December 31,
2022
2023
$
(22,089) $
(16,435)
1,258
626
6,079
57
831
(126)
(1,804)
1,246
(113)
22
(649)
(755)
1,697
(13,720)
(717)
(334)
—
10,000
8,949
—
506
(210)
296
(4,475)
27,615
23,140 $
(117)
244
4,126
55
533
(284)
(211)
(4,421)
(1,216)
(6)
1,591
(541)
515
(16,167)
(253)
(893)
(21,590)
12,000
(10,736)
268
477
(336)
409
(26,494)
54,109
27,615
— $
743 $
—
523
$
$
$
Table of Contents
CLEARPOINT NEURO, INC.
Consolidated Statements of Cash Flows
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
As discussed in Note 8, the Company entered into a lease for a manufacturing facility in Carlsbad, California, which commenced in June 2023. In connection with the new lease,
the Company recorded a right-of-use asset in exchange for an operating lease liability in the amount of approximately $2.5 million.
See Notes to Consolidated Financial Statements.
F-8
Table of Contents
1. Description of the Business and Financial Condition
CLEARPOINT NEURO, INC.
Notes to Consolidated Financial Statements
ClearPoint Neuro, Inc. (the “Company”) is a commercial-stage medical device company focused on the development and commercialization of innovative platforms for
performing minimally invasive surgical procedures in the brain. From the Company’s inception in 1998, the Company deployed significant resources to fund its 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 it develops. In 2021, the Company’s efforts expanded beyond the MRI suite to encompass development and commercialization of new
neurosurgical device products for the operating room setting, as well as consulting services for pharmaceutical and biotech companies, academic institutions, and contract
research organizations. The Company was incorporated in the state of Delaware in March 1998, and has headquarters located in Solana Beach, California. The Company
established ClearPoint Neuro (Canada) Inc., a wholly owned subsidiary incorporated in Canada, in August 2013, primarily for the purpose of performing software
development, and established ClearPoint Neuro U.K. Ltd, a wholly owned subsidiary incorporated in the United Kingdom, in October 2020, ClearPoint Neuro Germany
GmbH., a wholly owned subsidiary incorporated in Germany, in May 2023, and ClearPoint Neuro Italy, S.r.l., a wholly owned subsidiary incorporated in Italy, in August
2023, primarily for the purpose of employing the Company’s clinical services representatives serving the Company’s customers in the United Kingdom and the EU. The
activities of all subsidiaries are reflected in these consolidated financial statements.
The Company’s initial product offering, the ClearPoint system, is an integrated system comprised of capital equipment and disposable products, designed to allow minimally
invasive procedures in the brain to be performed in an MRI suite. The ClearPoint Array Neuro Navigation System and its principal disposable component, introduced in
2021, is designed to be deployed in an operating room setting while also being usable in an MRI suite. Both systems provide guidance for the placement and operation of
instruments or devices during the planning and operation of neurosurgical procedures. The Company received 510(k) clearance from the U.S. Food and Drug Administration
(“FDA”) in 2010 to market the ClearPoint system in the United States for general neurosurgical interventional procedures; in February 2011, the Company also obtained CE
marking for its ClearPoint system. In 2011 and 2018, the Company received 510(k) clearance and CE marking, respectively, for its SmartFlow cannula which is being used,
or is under evaluation, along with the Company's services, by more than 50 pharmaceutical and biotech companies, academic institutions, or contract research organizations
having a focus on biologics and drug delivery. In September 2022, the ClearPoint Prism Neuro Laser Therapy System, for which the Company has exclusive global
commercialization rights, received 510(k) clearance through the Company’s Swedish partner CLS. The Prism laser represents the Company's first therapy product offering.
Macroeconomic Trends
The Company continues to monitor the impact 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. 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. Impacts from inflationary pressures, such an increasing costs for research and development of the Company's products,
administrative and other costs of doing business, the potential for instability for the financial institutions where the Company maintains its deposits or other assets, and the
Company's access to capital markets and other source of funding in the future could adversely affect the Company's business, financial condition and results of operations.
Additionally, these trends could adversely affect the Company's customers, which could impact their willingness to spend on the Company's products and services, or their
ability to make payment, which could harm the Company's collection of accounts receivable and financial results. The rapid development and fluidity of these situations
precludes any prediction as to the ultimate impact they will have on the Company's business, financial condition, results of operation and cash flows, which will depend
largely on future developments.
Liquidity
The Company has incurred net losses since its inception which has resulted in a cumulative deficit at December 31, 2023 of approximately $172 million. In addition, the
Company’s use of cash from operations amounted to $13.7
F-9
Table of Contents
million for the year ended December 31, 2023. Since inception, the Company has financed its operations principally from the sale of equity securities and the issuance of
notes payable.
In 2021, the Company completed a public offering of 2,127,660 shares of its common stock from which the net proceeds totaled approximately $46.8 million. In 2020,
pursuant to the terms of a Securities Purchase Agreement (the “SPA”), the Company issued secured convertible notes to two investors which raised gross proceeds of $25
million, of which $15 million has been converted to common stock and $10 million remains outstanding (the "Outstanding First Closing Note"). Additional information with
respect to these notes is found in Note 7.
As discussed in Note 11, on March 4, 2024 the Company completed a public offering of 2,307,694 shares of its 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 the Company.
As required by accounting principles generally accepted in the United States ("GAAP"), the Company has evaluated its ability to continue as a going concern and has
determined that based on current forecasts, existing cash and cash equivalent balances at December 31, 2023 are sufficient to support the Company’s operations and meet its
obligations for at least the next twelve months.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have
been eliminated.
Basis of Presentation and Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less from the date of purchase. As of December 31, 2023, cash
equivalents consisted of U.S. Government debt securities.
Short-term investments
Short-term investments are investments with original maturities greater than three months but less than twelve months from the date of purchase, and consist of U.S.
Government debt securities. The Company classifies the short-term investments as held-to-maturity in accordance with Accounting Standards Codification (ASC) Section
320, "Investments - Debt and Equity Securities." Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity and are
recorded at amortized cost on the accompanying consolidated balance sheet, adjusted for the accretion of discounts using the effective interest method.
Inventory
Inventory is carried at the lower of cost (first-in, first-out method) or net realizable value. Items in inventory relate predominantly to the Company’s ClearPoint system.
Software license inventory related to ClearPoint systems undergoing on-site customer evaluation is included in inventory in the accompanying consolidated balance sheets.
All other software license inventory is classified as a non-current asset. The Company periodically reviews its inventory for obsolete items and provides a reserve upon
identification of potential obsolete items.
Intangible Assets
The Company is a party to a license agreement which provides rights to the Company for the development and commercialization of products. Under the term of the license
agreement, the Company paid an aggregate $1.1 million
F-10
Table of Contents
to the licensor upon execution of the license agreement for access to the underlying technology and will make future payments based on the achievement of regulatory and
commercialization milestones as defined in the license agreement. In 2022, the Company made a payment of $0.6 million to the licensor for the achievement of a regulatory
milestone, which acts as a prepayment for future royalties.
In conformity with ASC 350, “Intangibles – Goodwill and Other,” the Company amortizes its investment in the upfront license rights described above over an expected
useful life of up to five years, or as commercial sales occur for the royalty prepayment. In addition, the Company periodically evaluates the recoverability of its investment in
the license rights and records an impairment charge in the event such evaluation indicates that the Company's investment is not likely to be recovered.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives, principally three to seven years. Leasehold
improvements are depreciated on a straight-line basis over the lesser of their estimated useful lives or the term of the related lease.
Impairment of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived assets (finite-lived intangible assets and property and equipment). Whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be fully recoverable, the expected undiscounted future cash flows are compared to the net book value
of the related assets. If the net book value of the related assets were to exceed the undiscounted expected future cash flows of the assets, the carrying amount would be
reduced to the present value of the expected future cash flows and an impairment loss would be recognized.
Revenue Recognition
The Company’s 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) consultation revenue and clinical case support
revenue in connection with customer-sponsored preclinical and clinical trials; (4) license revenue for the granting of licenses to develop and commercialize the Company's
SmartFlow Cannula devices with the Company's customers' proprietary biologics as a combination product, and (5) revenue resulting from the service, installation, training,
and shipping related to ClearPoint capital equipment and software. The Company recognizes revenue when (i) control of the Company’s products is transferred to its
customers or (ii) services are provided to customers, each in an amount that reflects the consideration the Company expects to receive from its 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. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together
with other resources that are readily available to the customer and is separately identified in the contract. When a contract calls for the satisfaction of multiple performance
obligations for a single contract price, the Company typically allocates the contract price among the performance obligations based on the relative stand-alone selling prices
for each such performance obligation customarily charged by the Company. The Company considers a performance obligation satisfied once it has transferred control of a
good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. The Company recognizes revenue for satisfied
performance obligations only when it determines there are no uncertainties regarding payment terms or transfer of control.
Lines of Business; Timing of Revenue Recognition
•
Functional neurosurgery navigation product, biologics and drug delivery systems product, and therapy product sales: Revenue from the sale of functional
neurosurgery navigation products (consisting of disposable products sold commercially and related to cases utilizing the Company's ClearPoint system), biologics
and drug delivery systems (consisting primarily of disposable products related to customer-sponsored clinical trials utilizing the ClearPoint system), and therapy
products (consisting primarily of disposable laser-related products used in neurosurgical and non-neurosurgical procedures) is generally based
F-11
Table of Contents
on customer purchase orders, the predominance of which require delivery within one week of the order having been placed, and are generally recognized at the
point in time of shipping to the customer, which is the point at which legal title, and risks and rewards of ownership, transfer to the customer. For certain customers,
legal title and risks and rewards of ownership transfer upon delivery to the customer as stated in their respective contracts, in which case revenue is recognized upon
delivery.
•
Capital equipment and software sales:
◦
◦
Capital equipment and software sales preceded by evaluation periods: The predominance of capital equipment and software sales (consisting of integrated
computer hardware and software that are integral components of the Company's ClearPoint system) are preceded by customer evaluation periods. During
these evaluation periods, installation of, and training of customer personnel on, the systems have been completed and the systems have been in operation.
Accordingly, revenue from capital equipment and software sales following such evaluation periods is recognized at the point in time that the Company is in
receipt of an executed purchase agreement or purchase order.
Capital equipment and software sales not preceded by evaluation periods: Revenue from sales of capital equipment and software not having been
preceded by an evaluation period is recognized upon delivery to the customer and installation. For capital equipment that does not require installation,
revenue is recognized upon shipment, however, for those customers where legal title and risks and rewards of ownership transfer upon delivery, revenue is
recognized at such time.
For both types of capital equipment and software sales described above, the determination of the point in time at which to recognize revenue represents that point at
which the customer has legal title, physical possession, and the risks and rewards of ownership, and the Company has a present right to payment.
Functional neurosurgery navigation and therapy services: The Company recognizes revenue for such services over time as the services are delivered to the
customer based on the extent of progress towards completion of the performance obligation.
Biologics and drug delivery services and other revenue:
•
•
◦
◦
◦
◦
Consultation Services: The Company recognizes consultation revenue over time as the services are delivered to the customer based on the extent of
progress towards completion of the performance obligation. The Company may use output methods, such as time elapsed, or input methods, such as labor
hours expended or costs incurred, to measure progress depending on which better depicts the transfer of control to the customer.
Clinical Service Access Fees: For contracts in which the Company receives a periodic fixed fee, irrespective of the number of cases attended by the
Company's personnel during such periods, revenue is recognized ratably over the period covered by such fees. A time-elapsed output method is used for
such fees because the Company transfers control evenly by providing a stand-ready service.
Clinical Service Procedure-Based Fees: The Company recognizes revenue at the point in time a case is attended by Company personnel.
License fees: License fees represent the use of functional intellectual property as it exists at the point in time at which the license is granted and does not
require any significant development or customization. Accordingly, the Company recognizes license revenue at the point in time in which the license
becomes effective and the intellectual property is made available to the customer.
◦ Milestone fees: Event-based payments which are subject to the customer's achievement of specified development or regulatory milestones are included in
the transaction price if, in the Company's judgment, it is probable that these milestones will be achieved and a significant future reversal of cumulative
revenue under the contract will not occur. The Company re-evaluates the probability of achievement of such milestone at the end of each reporting period
and adjusts the transaction price as necessary.
F-12
Table of Contents
•
Capital equipment-related services:
◦
◦
Equipment service: Revenue from service of ClearPoint capital equipment and software previously sold to customers is based on agreements with terms
ranging from one to three years and is recognized ratably on a monthly basis over the term of the service agreement. A time-elapsed output method is used
for service revenue because the Company transfers control evenly by providing a stand-ready service.
The Company may also enter into contracts with customers who own ClearPoint capital equipment, which bundle maintenance and support services and
access to software and hardware upgrades made commercially available over the term of the contract, for a single contract price, typically paid on an
annual basis. The Company allocates the contract price among the performance obligations based on the relative stand-alone prices for each such
performance obligation and recognizes the revenue ratably on a monthly basis. A time-elapsed output method is used as the Company is providing a stand-
ready service for each of the performance obligations.
Installation, training, and shipping: Consistent with the Company's recognition of revenue for capital equipment and software sales as described above,
fees for installation, training, and shipping in connection with sales of capital equipment and software that have been preceded by customer evaluation
periods are recognized as revenue at the point in time the Company is in receipt of an executed purchase order for the equipment and software. Installation,
training, and shipping fees related to capital equipment and software sales not having been preceded by an evaluation period are recognized as revenue
concurrent with the recognition of revenue of the related capital equipment.
The Company operates in one industry segment, and the predominance of its sales are to U.S.-based customers.
Payment terms under contracts with customers generally are in a range of 30-60 days after the customers’ receipt of the Company’s invoices.
The Company's terms and conditions do not provide for a right of return unless for: (a) product defects; or (b) other conditions subject to the Company's approval.
See Note 3 for additional information regarding revenue recognition.
Research and Development Costs
Costs related to research, design and development of products are charged to research and development expense as incurred.
Income Taxes
Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the consolidated financial statement
carrying amounts of existing assets and liabilities and their respective income tax bases. Such assets and liabilities are measured using enacted tax rates expected to apply to
taxable income or loss in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized in the period
that includes the enactment date. The Company provides a valuation allowance against net deferred income tax assets unless, based upon available evidence, it is more likely
than not the deferred income tax assets will be realized. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax
expense. As of December 31, 2023 and 2022, the Company had no accrued interest or penalties related to uncertain tax positions.
Net Loss Per Share
The Company computes net loss per share using the weighted-average number of common shares outstanding during the period. Basic and diluted net loss per share are the
same because the conversion, exercise or issuance of all potential common stock equivalents, which comprise the entire amount of the Company’s outstanding common
stock options and unvested RSUs as described in Note 9, and the potential conversion of the First Closing Note, as described in Note 7, would be anti-dilutive, due to the
reporting of a net loss for each of the periods in the accompanying
F-13
Table of Contents
consolidated statements of operations. For the years ended December 31, 2023 and 2022, approximately 4 million and 3 million shares, respectively, of common stock
equivalents were excluded from the calculation of diluted net loss per common share because their effect was anti-dilutive.
Share-Based Compensation
The Company accounts for compensation for all arrangements under which employees, directors and others receive shares of stock or other equity instruments (i.e. options)
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. Forfeitures are
recognized as they occur. The fair values of the Company’s 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. To
estimate the expected terms, the Company utilizes the simplified method for “plain vanilla” options discussed in the Staff Accounting Bulletin 107 (“SAB 107”) issued by the
SEC. The Company believes that all factors listed within SAB 107 as pre-requisites for utilizing the simplified method apply to the Company and its share-based
compensation arrangements. The Company intends 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 the Company's common stock. The Company utilizes risk-free interest rates based on U.S. treasury
instruments, the terms of which are consistent with the expected terms of the equity awards. The Company has not paid and does not anticipate paying cash dividends on its
shares of common stock; therefore, the expected dividend yield is assumed to be zero.
Fair Value Determination of Share-Based Transactions
The Company’s common stock is traded on the Nasdaq Capital Market under the symbol “CLPT.” Quoted closing stock prices are used as a key input in determining the fair
value for share-based transactions.
Concentration Risks and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
The Company holds substantially all its cash and cash equivalents on deposit with financial institutions in the U.S. that are insured by the Federal Deposit Insurance
Corporation or in U.S. government debt securities. At December 31, 2023, the Company had approximately $1.4 million in bank balances that were in excess of the insured
limits.
At December 31, 2023, there were four customers whose accounts receivable balances represented 28% , 26% , 16%, and 10% of accounts receivable at that date. At
December 31, 2022, one customer accounted for 19% of accounts receivable at that date.
One pharmaceutical customer, a related party who is a stockholder, a noteholder, and whose chief executive officer is a representative on the Company's Board of Directors
(see Note 7), for whom the Company provides hardware, software, clinical services, and market development services in support of the customer's clinical trials, and from
whom the Company earns a quarterly fee, accounted for 12% of total revenue for the year ended December 31, 2023, and of 15% total revenue for the year ended
December 31, 2022. There were no outstanding receivables from this customer at December 31, 2023 or December 31, 2022.
Prior to granting credit, the Company generally performs credit evaluations of its customers’ financial condition. In general, the Company does not require collateral from
customers with an extension of credit. The accounts receivable balance is reduced by an allowance for credit losses from the potential inability of the Company's customer to
make required payments. The allowance for credit losses at December 31, 2023 and 2022 was $1.4 million and $0.1 million, respectively. The Company evaluates the historic
loss experience on the accounts receivable balance and also considers separately customers with receivable balances that may be negatively impacted by current economic
developments and market conditions. The estimate is a result of the Company's ongoing evaluation of collectability, customer creditworthiness, historical levels of credit
losses and future expectations.
The Company is subject to risks common to emerging companies in the medical device industry, including, but not limited to: new technological innovations; acceptance and
competitiveness of its products; dependence on key personnel; dependence on key suppliers; dependence on third-party collaboration, license and joint development
F-14
Table of Contents
partners; changes in general economic conditions and interest rates; protection of proprietary technology; compliance with changing government regulations; uncertainty of
widespread market acceptance of products; access to credit for capital purchases by customers; and product liability claims. Certain components used in manufacturing have
relatively few alternative sources of supply and establishing additional or replacement suppliers for such components cannot be accomplished quickly. The inability of any of
these suppliers to fulfill the Company’s supply requirements may negatively impact future operating results.
Recent Accounting Standards Adopted
In June 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-13, "Financial Instruments - Credit Losses (Topic 326)," which replaces the previous incurred
loss impairment methodology for most financial assets with the current expected credit loss, or CECL, methodology. The new guidance requires entities to use a forward-
looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. The
Company adopted the new standard effective January 1, 2023, which did not have a material impact to the consolidated financial statements.
Recent Accounting Standards Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." The amendments improve
reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim
disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for
entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07 is effective for calendar year-end public business entities in the 2024
annual period and in 2025 for interim periods. Early adoption is permitted. The Company expects to adopt ASU 2023-07 for the 2024 annual period and 2025 interim periods,
retrospectively, and is currently evaluating the impact of this ASU on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Improvements to Income Tax Disclosures," which requires that an entity, on an annual basis, disclose additional income
tax information, primarily related to the rate reconciliation and income taxes paid. The provisions of the ASU is intended to enhance the transparency and decision usefulness
of income tax disclosures. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively and is effective for calendar year-end
public business entities in the 2025 annual period and in 2026 for interim periods with early adoption permitted. The Company is currently evaluating the impact of this ASU
on its consolidated financial statements.
3. Revenue Recognition
Revenue by Service Line
(in thousands)
Biologics and drug delivery
Disposable products
Services and license fees
Subtotal – Biologics and drug delivery revenue
Functional neurosurgery navigation and therapy
Disposable products
Services
Subtotal – Functional neurosurgery navigation and therapy revenue
Capital equipment and software
Systems and software products
Services
Subtotal – Capital equipment and software revenue
Total revenue
F-15
Years Ended December 31,
2022
2023
$
$
2,154 $
11,448
13,602
7,589
931
8,520
860
973
1,833
23,955 $
3,690
5,430
9,120
7,587
1,537
9,124
1,512
795
2,307
20,551
Table of Contents
Contract Balances
•
Contract assets – The timing of revenue recognition may differ from the time of billing to the Company's customers. In most cases, customers are billed upon
shipment of such products or delivery of such services and the related contract assets, which represent an unconditional right to consideration, and comprise the
accounts receivable balance. When revenue is recognized in advance of its right to bill and receive consideration, the Company records this unbilled receivable as a
contract asset, which is classified as other current assets in the accompanying consolidated balance sheets. Additionally, at December 31, 2022 the Company had
deferred contract costs related to up-front costs for direct materials incurred to fulfill a customer contract. These costs were classified as other current assets and
were recognized as expense in 2023.
(in thousands)
Accounts receivable, net
Other contract assets
Unbilled receivables
Deferred contract costs
December 31, 2023
December 31, 2022
$
$
$
3,211 $
733 $
— $
2,665
43
327
•
Contract liabilities – Contract liabilities consist of amounts that have been invoiced and for which the Company has the right to bill, but that have not been
recognized as revenue as the related goods or services have not been transferred. The Company's contract liabilities are generally comprised of the following (1)
capital equipment and software-related service fees that are typically billed and collected at the inception of the service agreements, which have terms ranging from
one to three years; (2) annual fees for agreements with customers that bundle the capital equipment and software-related service fees with software and hardware
upgrades that are made commercially available over the term of the contract; and (3) up-front payments from customers made in connection with consulting
services. The unearned portion of all such fees is classified as deferred revenue. At December 31, 2022, the Company also had a $0.5 million refund liability
resulting from an up-front customer payment which was potentially refundable if the parties did not enter into the ensuing agreement. In 2023, the uncertainties
underlying this amount were resolved and the amount was recognized as revenue.
(in thousands)
Deferred revenues
Refund Liability
December 31, 2023
December 31, 2022
$
$
3,154 $
— $
1,457
500
During the years ended December 31, 2023 and 2022, the Company recognized capital equipment and software-related service revenue of approximately $1.1 million and
$0.5 million, respectively, which was previously included in deferred revenue in the accompanying consolidated balance sheets at December 31, 2022 and 2021, respectively.
Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue that will
be recognized as revenue in future periods. The majority of the remaining performance obligations relate to capital equipment and software-related service agreements and the
upfront payments discussed under the heading “Contract Balances” above, which amounted to approximately $2.9 million at December 31, 2023. The Company expects to
recognize approximately 80% of this revenue over the next twelve months and the remainder thereafter.
4. Fair Value Measurement
Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs
such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or
F-16
Table of Contents
indirectly; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The fair value of cash and cash equivalents of $23.1 million and $27.6 million as of December 31, 2023, and December 31, 2022, respectively, is derived using Level 1
inputs. The cash equivalents are comprised of short-term bank deposits, money market funds, and U.S. Government debt securities with original maturities of three months or
less, and the carrying value is a reasonable estimate of fair value.
At December 31, 2022, the Company had $9.9 million of short-term investments, consisting of twelve-month U.S. Government debt securities, which were classified as held
to maturity and carried at amortized cost, adjusted for the accretion of discounts using the effective interest method. The carrying value of the debt securities approximates fair
value based on Level 1 inputs. The Company held the investments to maturity, which occurred in 2023.
5. Inventory
Inventory consists of the following as of December 31:
(in thousands)
Raw materials and work in process
Software licenses
Finished goods
Inventory included in current assets
Software licenses – non-current
2023
2022
$
$
6,466 $
211
1,234
7,911
386
8,297 $
Inventory balances are presented net of an excess and obsolete reserve totaling $2.0 million and $1.5 million at December 31, 2023 and 2022, respectively.
6. Property and Equipment
Property and equipment consist of the following as of December 31:
(in thousands)
Equipment
Furniture and fixtures
Leasehold improvements
Computer equipment and software
Loaned systems
Less accumulated depreciation and amortization
Total property and equipment, net
2023
2022
$
$
1,108 $
—
485
—
741
2,334
(945)
1,389 $
6,513
210
2,580
9,303
450
9,753
1,511
112
201
150
601
2,575
(1,769)
806
Depreciation and amortization expense related to property and equipment for each of the years ended December 31, 2023 and 2022 was $0.2 million and $0.1 million,
respectively. Loaned systems are ClearPoint systems that are in operation at customer sites on an evaluation basis.
During the year ended December 31, 2023, as part of the transition to the new manufacturing facility, the Company disposed of certain fully depreciated property and
equipment no longer in use.
7. Note Payable
In January 2020, the Company completed a financing transaction with two investors (the “2020 Convertible Noteholders”) whereby the Company issued an aggregate
principal amount of $17.5 million of the First Closing Notes pursuant to the SPA, which, unless earlier converted or redeemed, mature on the fifth anniversary of the issuance
and
F-17
Table of Contents
bear interest at a rate equal to the sum of (i) the greater of (a) the three (3)-month Secured Overnight Financing Rate (“SOFR”) and (b) two percent (2)%, plus (ii) a margin of
2% on the outstanding balance of the First Closing Notes, payable quarterly on the first business day of each calendar quarter. The First Closing Notes may be converted at a
price of $6.00 per share, subject to certain adjustments set forth in the SPA and note agreement, and may not be pre-paid without the consent of the noteholder.
In May 2021, one of the 2020 Convertible Noteholders (the "Converting Noteholder") converted the entire $7.5 million principal amount of such Converting Noteholder's
First Closing Note, and related accrued interest, amounting to approximately $0.04 million, into 1,256,143 shares of the Company's common stock.
In December 2020, the Company issued the Second Closing Notes to one of the 2020 Convertible Noteholders in an aggregate principal amount of $7.5 million. In
November 2021, the holder of the Second Closing Note converted the entire principal amount of such note, along with related accrued and payment in-kind interest
aggregating $0.3 million, into 773,446 shares of the Company's common stock.
At December 31, 2023, the amount outstanding under the First Closing Notes is an aggregate principal amount of $10 million. The aggregate carrying amount of the
outstanding First Closing Note in the accompanying December 31, 2023 and December 31, 2022 consolidated balance sheets are presented net of financing costs, comprised
of commissions and legal expenses, having an unamortized balance of $0.1 million and $0.2 million at those respective dates.
The outstanding First Closing Note is secured by all the assets of the Company.
The holder of the Outstanding First Closing Note is a significant customer of the Company, whose chief executive officer is a member of the Company’s Board of Directors.
See Note 2, Concentration Risks and Other Risks and Uncertainties.
The estimated fair value of the First Closing Note, developed based on inputs classified as Level 3 within the fair value hierarchy, is approximately $12.5 million and $14.8
million as of December 31, 2023 and 2022, respectively.
Scheduled Note Payable Maturity
Scheduled principal payment as of December 31, 2023 with respect to note payable are summarized as follows:
Years ending December 31,
2025
Total scheduled principal payments
Less unamortized discounts and financing costs
8. Commitments
Operating Leases
(in thousands)
10,000
10,000
(51)
9,949
$
$
The Company subleases office space in Solana Beach, California that serves as its corporate headquarters and houses certain management and personnel. The sublease term
commenced on December 15, 2020, is set to expire on December 31, 2026, and is renewable for an additional five-year period, at the Company’s option, provided that the
Company’s landlord has entered into an extension of its prime lease for the office space that encompasses the Company’s office space for at least five years.
The Company also leases space in Carlsbad, California, that houses office space and a manufacturing facility under a lease that commenced on June 1, 2023 and ends on
May 31, 2033. The Company has two options to extend the lease term for thirty-six or sixty months, at the fair market rental value. Upon establishment of the new
manufacturing facility in Carlsbad, the Company terminated its prior manufacturing facility lease in Irvine, California, effective October 2023. The lease termination did not
have a material impact to the consolidated financial statements.
F-18
Table of Contents
The optional renewal periods for both leases are not considered in the determination of the right-of-use asset or the lease liability as the Company does not consider it
reasonably certain that it would exercise either of such options. The lease arrangements contain lease components and non-lease components which are accounted for as a
single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases.
Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease
payments, the Company used the published U.S. High Yield CCC corporate bond rates at the lease commencement date of the Solana Beach lease and the current estimate of
the Company's incremental borrowing rate at the lease commencement date of the Carlsbad lease. As of December 31, 2023, the weighted average remaining lease term of
the Company's operating leases was 7.38 years and the weighted average discount rate used to determine the operating lease liability was 11.8%.
The lease cost, included in general and administrative expense, was $0.6 million and $0.5 million for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2023, future minimum lease payments are as follows:
Years ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total minimum payments
Less: Discount to present value of lease payments
Discounted present value of lease payments
Purchase Commitments
(in thousands)
869
954
985
502
520
2,519
6,349
(2,357)
3,992
$
$
The Company is a party to various purchase arrangements related to our manufacturing and research and development activities. At December 31, 2023 there was
approximately $0.9 million of open purchase orders and contractual obligations in the ordinary course of business, the majority of which are due within one year.
Additionally, the Company is also a party to license and collaboration agreements which require minimum purchase commitments for a five-year period starting in 2022. The
total remaining minimum purchase commitment related to these agreements is $2.1 million over the next four years.
9. Stockholders’ Equity
Equity Compensation Plans
The Company currently grants stock options, restricted stock awards, and restricted stock units under the Fourth Amended and Restated 2013 Incentive Compensation Plan
(the "2013 Plan"). The total shares of the Company’s common stock being reserved for issuance under the 2013 Plan is 4,156,250, of which 2,110,835 shares were
outstanding as of December 31, 2023 and 421,940 shares remained available for grants under the 2013 Plan as of that date.
F-19
Table of Contents
Share-Based Compensation Expense
The Company records share-based compensation expense on a straight-line basis over the related vesting period and recognizes forfeitures as they occur. The following table
sets forth share-based compensation expense included in the consolidated statements of operations:
Cost of revenue
Research and development
Sales and marketing
General and administrative
Share-based compensation expense
$
$
Share-based compensation expense by type of share-based award:
Years Ended December 31,
(in thousands)
2023
2022
101 $
1,352
1,717
2,909
6,079 $
Years Ended December 31,
(in thousands)
2023
2022
Stock options
RSAs and RSUs
ESPP
$
$
956 $
4,903
220
6,079 $
63
1,060
809
2,194
4,126
1,076
2,828
222
4,126
Total unrecognized compensation expense by type of award and the weighted-average remaining requisite service period over which such expense is expected to be
recognized (in thousands, unless otherwise noted):
Stock options
RSAs and RSUs
Unrecognized Expense
Remaining Weighted-Average Recognition Period (in
years)
December 31, 2023
1,000
6,889
1.63
1.75
F-20
Table of Contents
Stock Option Activity
Options granted under the 2013 Plan must have an exercise price equal to at least 100% of fair market value of the Company's common stock on the date of grant. The
options generally have a maximum contractual term of ten years and vest in accordance with the individual award agreements.
Stock option activity under all of the Company’s Plans as of and for the year ended December 31, 2023 is summarized below:
Outstanding at December 31, 2022
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2023
Exercisable at December 31, 2023
Vested and expected to vest at December 31, 2023
Weighted-
average
Exercise price
per share
Weighted-average
Remaining Contractual
Life (in years)
Intrinsic Value
(1)
(in thousands)
Stock Options
1,398,286 $
111,107 $
(20,000) $
(11,236) $
1,478,157 $
1,251,942 $
1,478,157 $
8.69
8.10
1.82
53.05
8.40
8.00
8.40
5.46 $
4.88 $
5.46 $
3,548
3,548
3,548
(1) Intrinsic value is calculated as the estimated fair value of the Company’s stock at December 31, 2023 less the option exercise price of in-the-money options.
A summary of the status of the Company’s non-vested stock options for the year ended December 31, 2023 is presented below:
Nonvested, December 31, 2022
Granted
Vested
Nonvested, December 31, 2023
Non-vested Stock
Options
Weighted - Average
Grant
Date Fair Value
264,665 $
111,107 $
(149,557) $
226,215 $
7.19
5.85
5.93
7.37
The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2023 and 2022 was $5.85 per share and $8.21 per share,
respectively.
The total intrinsic value of stock options exercised during the years ended December 31, 2023 and 2022 was $0.1 million and $0.3 million, respectively, and represents the
difference between the exercise price of the option and the fair value of the common stock on the dates exercised. The total grant-date fair value of stock options vested
during each of the years ended December 31, 2023 and 2022 was $0.9 million.
F-21
Table of Contents
The exercise price of stock options granted is equal to the closing price of the common stock on the date of grant. The fair value of each stock option is estimated on the date
of grant using the Black-Scholes valuation model utilizing the following weighted average assumptions for options granted during the years ended December 31, 2023 and
2022:
Risk-free interest rate
Expected life (in years)
Estimated volatility
Expected dividends
Restricted Stock Activity
Years Ended December 31,
2022
3.07%
5.93
90.02%
None
2023
4.17%
6.10
81.21%
None
The Company issues Restricted Stock Awards ("RSAs") and Restricted Stock Units ("RSUs"). RSAs are grants that entitle the holder to acquire shares of the Company's
common stock at zero cost. The shares covered by a RSA cannot be sold, transferred, pledged, assigned or otherwise disposed of until the award vests. A RSU is a promise
by the Company to issue a share of its common stock upon vesting of the unit. Both RSAs and RSUs vest in annual installments over a two to three-year period, contingent
on the holder's continued employment with the Company. Annual grants of restricted stock to the Board of Directors typically vest in one year.
RSA activity as of and for the year ended December 31, 2023 is summarized below:
Outstanding at December 31, 2022
Vested
Forfeited or expired
Outstanding at December 31, 2023
RSU activity as of and for the year ended December 31, 2023 is summarized below:
Outstanding at December 31, 2022
Granted
Vested
Outstanding at December 31, 2023
Restricted Stock
Awards
Weighted - Average
Grant
Date Fair Value
684,389 $
(298,480) $
(8,995) $
376,914 $
11.10
9.92
12.17
12.02
Restricted Stock Units
Weighted - Average
Grant
Date Fair Value
13,146 $
773,526 $
(18,533) $
768,139 $
11.41
8.08
7.76
8.15
The estimated fair value of the restricted stock is based on the closing market value of the Company's common stock on the date of grant. The total fair value of RSAs and
RSUs vested during the years ended December 31, 2023 and 2022 was $3.1 million and $1.6 million, respectively.
Employee Stock Purchase Plan
On June 3, 2021, the Company's stockholders adopted and approved the ClearPoint Neuro, Inc. Employee Stock Purchase Plan (the "ESPP"). A total of 400,000 shares of the
Company’s common stock are available for issuance pursuant to the terms of the ESPP. The ESPP provides eligible employees the opportunity to purchase shares of common
stock at the lower of 85% of the fair market value on either the first day or the last day of the applicable offering period, by having withheld from their salary an amount up to
15% of their compensation. No employee may purchase more than $25,000 worth of common stock (calculated at the time the purchase right is granted) in any
F-22
Table of Contents
calendar year, nor may any employee purchase more than 3,500 shares in any six-month purchase period. The initial six-month purchase period commenced in July 2021.
The ESPP is deemed to be compensatory, and therefore, ESPP expense has been included in share-based compensation expenses in the consolidated statement of operations
for the years ended December 31, 2023 and 2022.
During the year ended December 31, 2023, 84,430 shares were purchased at an average per share price of $6.00. On December 31, 2023, 236,091 shares of common stock
were available for issuance under the ESPP.
The fair value of the purchase options under the ESPP are estimated at the beginning of the purchase period using the Black-Scholes valuation model utilizing the following
assumptions:
Risk-free interest rate
Expected life (in years)
Estimated volatility
Expected dividends
2023
4.77% - 5.53%
0.5
61.41% - 62.37%
None
2022
0.22% - 2.25%
0.5
61.29% - 78.23%
None
The weighted-average fair value per ESPP purchase right during the years ended December 31, 2023 and 2022 was $2.57 per share and $4.14 per share, respectively.
Warrants
Warrants to purchase shares of the Company's common stock were issued in connection with financing transactions in 2015 and 2017. These warrants contained net exercise
provisions giving the holder the option of acquiring a number of shares having a value equal to the difference between the exercise price and the current stock price, in lieu of
paying the exercise price to acquire the full number of stated shares. All of the remaining outstanding warrants expired in 2023.
Common stock warrant activity for the year ended December 31, 2023 is as follows:
Outstanding at December 31, 2022
Expired
Outstanding at December 31, 2023
10. Income Taxes
Shares
Weighted - Average
Exercise
Price
36,554 $
(36,554) $
— $
16.23
16.23
—
The Company had no income tax expense for the years ended December 31, 2023 and 2022. Due to uncertainties surrounding the realization of its deferred income tax assets
in future periods, the Company has recorded a 100% valuation allowance against its net deferred income tax assets. If it is determined in the future that it is more likely than
not that any deferred income tax assets are realizable, the valuation allowance will be reduced by the estimated net realizable amounts.
F-23
Table of Contents
(in thousands)
Income tax benefit at federal statutory rate
Adjustments for tax effects of:
State income tax, net of federal benefit
Permanent adjustments
Benefit state rate change
Other
Share-based compensation
Net operating loss write-off
Change in valuation allowance
Income tax expense
$
$
Years Ended December 31,
2022
2023
(1)
(4,584)
$
(3,472)
(1,191)
49
(23)
152
520
(574)
5,659
8
$
(1) The 2022 amounts presented in the table above have been reclassified to conform to the current year's presentation.
The tax effect of temporary differences and carryforwards that give rise to significant portions of the deferred income tax assets are as follows:
(in thousands)
Deferred income tax assets:
Net operating loss carryforwards
Share-based compensation
Accrued expenses
174 Capitalization
Other
Less valuation allowance
Total deferred income tax assets
Deferred tax liability - depreciation
Net deferred tax assets
Years Ended December 31,
2022
2023
$
$
30,145 $
2,193
319
3,026
170
35,853
(35,815)
38
(38)
— $
(913)
17
646
877
111
1,903
831
—
26,574
1,591
349
1,584
97
30,195
(30,156)
39
(39)
—
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be
realized. Generally, the ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary
differences become deductible. Based on all relevant factors, a valuation allowance of $35.8 million has been established against deferred tax assets as of December 31, 2023
as management determined that it is more likely than not that sufficient taxable income will not be generated to realize those temporary differences.
At December 31, 2023, the Company had net operating loss carryforwards of approximately $120 million and $72 million available to reduce future taxable income, if any,
for federal and state income tax purposes, respectively. The federal net operating loss carryforward began expiring in 2023, and the state net operating loss carryforward
begins expiring in 2028. It is possible that the Company will not generate taxable income in time to use these net operating loss carryforwards before their expiration. In
addition, under Section 382 of the Internal Revenue Code of 1986 (the “Code”), as amended, if a corporation undergoes an “ownership change” (as defined in the Code), the
corporation’s ability to use its pre-change tax attributes to offset its post-change income may be limited. In general, an “ownership change” occurs if there is a cumulative
change in a “loss corporation’s” (as defined in the Code) ownership by 5% shareholders that exceeds 50 percentage points over a rolling three-year period.
Management has evaluated the effect of guidance provided by GAAP regarding accounting for uncertainty in income taxes and determined the Company has no uncertain tax
positions that could have a significant impact on its consolidated financial statements. The Company’s federal income tax return for 2020 and subsequent years remain open
for examination.
F-24
Table of Contents
11. Subsequent Event
On March 4, 2024, the Company completed a public offering of 2,307,694 shares of our common stock offered at a public price of $6.50 per share. Pursuant to the
Underwriting Agreement, the Company granted the underwriters a 30-day option to purchase up to an additional 346,154 shares of common stock at the public offering price,
less any underwriting discounts and commissions, for use solely in covering any over-allotments.
Net proceeds from the offering totaled approximately $14.0 million after deducting the underwriting discounts and commissions and other estimated offering expenses
payable by the Company.
The underwriting agreement contains representations, warranties, agreements and indemnification obligations by the Company that are customary for this type of transaction.
F-25
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 4.4
ClearPoint Neuro, Inc. (“ClearPoint,” “we,” “us,” and “our”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”): our common stock, par value $0.01 per share (“Common Stock”).
Authorized Shares of Capital Stock
ClearPoint’s authorized capital stock consists of 115,000,000 shares, consisting of 90,000,000 shares of Common Stock, and 25,000,000 shares of preferred stock, par
value $.01 per share (“Preferred Stock”).
The following description of Common Stock is a summary and is qualified in its entirety by reference to the actual terms and provisions contained in our Amended and
Restated Certificate of Incorporation, as amended from time to time (the “Certificate of Incorporation”), and our Fourth Amended and Restated Bylaws, as amended from time
to time (the “Bylaws”), each of which is filed as an exhibit to our Annual Report on Form 10-K of which this Exhibit 4.[7] is a part and incorporated by reference herein. We
encourage you to read our Certificate of Incorporation, our Bylaws, and the applicable provisions of the Delaware General Corporation Law (“DGCL”), for additional
information.
DESCRIPTION OF COMMON STOCK
Dividends
Subject to preferential rights that may be applicable to any then outstanding preferred stock, holders of Common Stock are entitled to receive ratably those dividends,
if any, as may be declared from time to time by our board of directors out of legally available funds.
Voting Rights
Each holder of our Common Stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Under
our Certificate of Incorporation and Bylaws, our stockholders do not have cumulative voting rights. Because of this, the holders of a majority of the shares of Common Stock
entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose.
Liquidation Rights
In the event of our liquidation, dissolution or winding up, after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference
granted to the holders of any outstanding shares of preferred stock, holders of Common Stock will be entitled to share ratably in the net assets legally available for distribution
to stockholders.
Fully Paid and Nonassessable
The outstanding shares of our Common Stock are fully paid and nonassessable.
Absence of Other Rights
Holders of Common Stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the Common
Stock. The rights, preferences and privileges of the holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series
of preferred stock that we may designate in the future.
Listing
Our Common Stock is listed on The Nasdaq Capital Market under the symbol “CLPT.”
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock is Continental Stock Transfer & Trust Company.
DESCRIPTION OF PREFERRED STOCK
Under our Certificate of Incorporation, we have 25,000,000 authorized shares of Preferred Stock, $0.01 par value per share. Our board of directors has the authority,
without further action by the stockholders, to issue up to that number of shares of Preferred Stock in one or more series, to establish from time to time the number of shares to be
included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon,
and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding. The board of directors may
authorize the issuance of Preferred Stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The
issuance of Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of
delaying, deferring or preventing a change in control of the ClearPoint and may adversely affect the market price of our Common Stock and the voting and other rights of the
holders of our Common Stock. As of the date hereof, we have no shares of Preferred Stock outstanding.
Delaware Anti-Takeover Statute
CERTAIN MATTERS OF CORPORATE GOVERNANCE
We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, Section 203, subject to certain exceptions, prohibits a publicly
held Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such person or entity
became an interested stockholder, unless:
•
•
•
prior to such date, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming
an interested stockholder;
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction commenced, excluding specified shares; or
at or subsequent to such date of the transaction that resulted in a person or entity becoming an interested stockholder, the business combination is approved by the
board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
The application of Section 203 may limit the ability of stockholders to approve a transaction that they may deem to be in their best interests. In addition, Section 203
makes it more difficult for an interested stockholder to effect various business combinations with a corporation for a three-year period, although the stockholders may, by
adopting an amendment to our Certificate of Incorporation or Bylaws, elect not to be governed by this section, effective 12 months after adoption.
In general, Section 203 defines “business combination” as:
•
•
•
•
•
any merger or consolidation involving the corporation and the interested stockholder;
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 10% or more of the assets of the corporation to or with the interested stockholder;
subject to certain exceptions, any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially
owned by the interested stockholder; or
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an “interested stockholder” as any person that is:
•
•
•
the owner of 15% or more of the outstanding voting stock of the corporation;
an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date; or
an affiliate or associate of the above.
Our Certificate of Incorporation and Bylaws do not exclude us from the restrictions imposed under Section 203. We anticipate that the provisions of Section 203 may
encourage companies interested in acquiring us to negotiate in advance with our board of directors because the stockholder approval requirement would be avoided if a majority
of the directors then in office approve either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder.
Certificate of Incorporation and Bylaws Provisions
Our Certificate of Incorporation and Bylaws:
•
permits our board of directors to issue shares of Preferred Stock, with any rights, preferences and privileges as they may designate, including the right to approve an
acquisition or other change in our control;
•
•
•
•
•
•
•
provides that the authorized number of directors may be changed only by resolution of the board of directors;
provides that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of
directors then in office, even if less than a quorum;
requires that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written
consent;
provides that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of
stockholders must provide notice in writing to our Secretary in a timely manner, not less than 90 nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders, provided, however, that if the date of the annual meeting is more than 30 days before or delayed more than
30 days after such anniversary date, no proxy statement was delivered in connection with the previous year’s annual meeting, or there was no annual meeting in the
preceding year, notice by the stockholder to be timely must be given, not earlier than the 90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such annual
meeting was first made. To be timely, a stockholder’s notice for nominations to be made at a special meeting must be made not earlier than the 120th day prior to
such special meeting and not later than the 90th day prior to such special meeting or, if later, the 10th day following the day on which public announcement of the
date of such special meeting was first made. Our Bylaws also specify requirements as to the form and content of a stockholder’s notice;
does not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors
to elect all of the directors standing for election, if they should so choose);
provides that special meetings of our stockholders may be called only by the chairman of the board of directors, our chief executive officer or by the board of
directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and
provides that stockholders will be permitted to amend our Bylaws only upon receiving at least 66 2/3% of the votes entitled to be cast by holders of all outstanding
shares then entitled to vote generally in the election of directors, voting together as a single class.
These and other provisions contained in our Certificate of Incorporation and Bylaws could delay or discourage some types of transactions involving an actual or
potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares over then current
prices, and may limit the ability of stockholders to remove current management or approve transactions that stockholders may deem to be in their best interests and, therefore,
could adversely affect the price of our Common Stock.
ClearPoint Neuro, Inc. Insider Trading Compliance Policy Federal and state laws prohibit trading in the securities of a company while in possession of material nonpublic information and providing material nonpublic information to others so that they can trade. Violating such laws can undermine investor trust, harm ClearPoint Neuro, Inc.’s reputation, and result in your dismissal from ClearPoint Neuro, Inc. (together with its subsidiaries, the “Company”) or even serious criminal and civil charges against you and the Company. This Insider Trading Compliance Policy (this “Policy”) outlines your responsibilities to avoid insider trading and implements certain procedures to help you avoid even the appearance of insider trading. I. Summary Preventing insider trading is necessary to comply with securities laws and to preserve the reputation and integrity of the Company. “Insider trading” occurs when any person purchases or sells a security while in possession of material nonpublic information relating to the security. Insider trading is a crime. The criminal penalties for violating insider trading laws include imprisonment and fines of up to $5 million for individuals and $25 million for corporations. Insider trading may also result in civil penalties, including disgorgement of profits and civil fines. Insider trading is also prohibited by this Policy, and violation of this Policy may result in Company- imposed sanctions, including removal or dismissal for cause. This Policy applies to all officers, directors, and employees of the Company. As someone subject to this Policy, you are responsible for ensuring that members of your household also comply with this Policy. This Policy also applies to any entities you control, including any corporations, partnerships, or trusts, and transactions by such entities should be treated for the purposes of this Policy and applicable securities laws as if they were for your own account. The Company may determine that this Policy applies to additional persons with access to material nonpublic information, such as contractors or consultants. This Policy extends to all activities within and outside your Company duties. Every officer, director, and employee must review this Policy. Questions regarding the Policy should be directed
to the Company’s General Counsel. The Company’s General Counsel, shall be responsible for the administration of this Policy. In the absence of the General Counsel, responsibility for administering this Policy will rest with the Chief Financial Officer or such other employee as may be designated by the General Counsel. In all cases, as someone subject to this Policy, you bear full responsibility for ensuring your compliance with this Policy, and also for ensuring that members of your household (and individuals not residing in your household but whose transactions are subject to your influence or control) and entities under your influence or control are in compliance with this Policy.
2 Actions taken by the Company, the General Counsel, or any other Company personnel do not constitute legal advice, nor do they insulate you from the consequences of noncompliance with this Policy. II. Statement of Policies Prohibiting Insider Trading No officer, director, or employee (or any other person designated as subject to this Policy) shall purchase or sell any type of security while in possession of material nonpublic information relating to the security or the issuer of such security, whether the issuer of such security is the Company or any other company. Additionally, no officer, director or employee shall purchase or sell any security of the Company during the period beginning at market close on the 15th day of the third month of the fiscal quarter of the Company and ending upon completion of the second full trading day after the public release of earnings data for such fiscal quarter or during any other trading suspension period declared by the Company. These prohibitions do not apply to: • purchases of the Company’s securities from the Company or sales of the Company’s securities to the Company; • exercises of stock options or other equity awards or the surrender of shares to the Company in payment of the exercise price or in satisfaction of any tax withholding obligations in a manner permitted by the applicable equity award agreement, or vesting of equity-based awards that, in each case, do not involve a market sale of the Company’s securities (the “cashless exercise” of a Company stock option through a broker does involve a market sale of the Company’s securities, and therefore would not qualify under this exception); or • purchases or sales of the Company’s securities made pursuant to any binding contract, specific instruction or written plan entered into while the purchaser or seller, as applicable, was unaware of any material nonpublic information and which contract, instruction, or plan (i) meets all requirements of the affirmative defense provided by Rule 10b5-1 (“Rule 10b5-1”) promulgated under the Securities Exchange Act of 1934, as amended (the “1934 Act”), (ii) was precleared in advance pursuant to this Policy and (iii) has not been amended or modified in any respect after such initial preclearance without such amendment or modification
being precleared in advance pursuant to this Policy. For more information about Rule 10b5-1 trading plans, see Section VI below. From time to time, events will occur that are material to the Company and cause certain officers, directors, or employees to be in possession of material nonpublic information. When that happens, the Company will recommend that those in possession of the material nonpublic
3 information suspend all trading in the Company’s securities until the information is no longer material or has been publicly disclosed. When such event-specific blackout periods occur, those subject to it will be notified by the Company. The event-specific blackout period will not be announced to those not subject to it, and those subject to it or otherwise aware of it should not disclose it to others. Even if the Company has not notified you that you are subject to an event-specific blackout period, if you are aware of material nonpublic information about the Company, you should not trade in Company securities. Any failure by the Company to designate you as subject to an event- specific blackout period, or to notify you of such designation, does not relieve you of your obligation not to trade in the Company’s securities while possessing material nonpublic information. No officer, director, or employee shall directly or indirectly communicate (or “tip”) material nonpublic information to anyone outside the Company (except in accordance with the Company’s policies regarding the protection or authorized external disclosure of Company information) or to anyone within the Company other than on a “need-to-know” basis. III. Explanation of Insider Trading “Insider trading” refers to the purchase or sale of a security while in possession of material nonpublic information relating to the security. “Securities” includes stocks, bonds, notes, debentures, options, warrants, and other convertible securities, as well as derivative instruments. “Purchase” and “sale” are defined broadly under the federal securities law. “Purchase” includes not only the actual purchase of a security, but any contract to purchase or otherwise acquire a security. “Sale” includes not only the actual sale of a security, but any contract to sell or otherwise dispose of a security. These definitions extend to a broad range of transactions, including conventional cash-for-stock transactions, conversions, the exercise of stock options, and acquisitions and exercises of warrants or puts, calls, or other derivative securities. A. What Facts Are Material? The materiality of a fact depends upon the circumstances. A fact is considered “material” if there is a substantial likelihood that a reasonable investor would
consider it important in making a decision to buy, sell, or hold a security, or if the fact is likely to have a significant effect on the market price of the security. Material information can be positive or negative and can relate to virtually any aspect of a company’s business or to any type of security, debt, or equity. Also, information that something is likely to happen in the future—or even just that it may happen— could be deemed material. Examples of material information include (but are not limited to) information about clinical trial results; significant collaboration and/or license or partnership arrangements; proposed securities offerings or other capital raising events; new discoveries or products; regulatory actions or developments; earnings information and quarterly results; guidance on earnings estimates; mergers, acquisitions, tender offers, joint ventures, or changes in assets; changes in control of the Company or changes in senior management; new products, contracts with
4 suppliers, or developments regarding customers or suppliers (e.g., the acquisition or loss of a contract); changes in auditors or auditor notification that the issuer may no longer rely on an audit report; events regarding the Company’s securities (e.g., defaults on senior securities, calls of securities for redemption, repurchase plans, stock splits or changes in dividends, changes to the rights of securityholders, public or private sales of additional securities or information related to any additional funding); bankruptcies or receiverships; regulatory investigations or litigation- related developments involving the Company; and regulatory approvals or changes in regulations and any analysis of how they affect the Company. Moreover, material information does not have to be related to a company’s business. For example, the contents of a forthcoming newspaper column that is expected to affect the market price of a security can be material. Questions regarding material information should be directed to the Company’s General Counsel. A good rule of thumb: When in doubt, do not trade. B. What Is Nonpublic? Information is “nonpublic” if it is not available to the general public. In order for information to be considered public, it must be widely disseminated in a manner making it generally available to investors through newswire services such as Dow Jones, Reuters, Bloomberg, Business Wire, The Wall Street Journal, Associated Press, or United Press International; a broadcast on widely available radio or television programs; publication in a widely available newspaper, magazine, or news website; a Regulation FD-compliant conference call; or public disclosure documents filed with the U.S. Securities and Exchange Commission (the “SEC”) that are available on the SEC’s website. Note that, depending on the Company’s previous disclosure history, simply posting information to the Company’s website may not be sufficient disclosure to make the information public. The circulation of rumors, even if accurate and reported in the media, does not constitute effective public dissemination. In addition, even after a public announcement, a reasonable period of time must lapse in order for the market to react to the information. Generally, one should allow at least two
full trading days following publication as a reasonable waiting period before such information is deemed to be public. C. Who Is an Insider? “Insiders” include officers, directors, and any employees of a company, or anyone else who has material nonpublic information about a company. Insiders have independent fiduciary duties to their company and its stockholders not to trade on material nonpublic information relating to the company’s securities. Insiders may not trade in the Company’s securities while in possession of material nonpublic information relating to the Company, nor may they tip such information to anyone outside the Company (except in accordance with the Company’s policies regarding the protection or authorized external disclosure of Company information) or to anyone within the Company other than on a “need-to-know” basis. As someone subject to this Policy, you are responsible for ensuring that members of your household also comply with this Policy. This includes family members residing with you, anyone else living in your household, and any family members not living with you whose transactions in
5 the Company’s securities are directed by you, or subject to your influence and control. This Policy also applies to any entities you control, including any corporations, partnerships, or trusts, and transactions by these entities should be treated for the purposes of this Policy and applicable securities laws as if they were for your own account. D. Trading by Persons Other Than Insiders Insiders may be liable for communicating or tipping material nonpublic information to a third party (“tippee”), and insider trading violations are not limited to trading or tipping by insiders. Persons other than insiders can also be liable for insider trading, including tippees who trade on material nonpublic information tipped to them or individuals who trade on material nonpublic information that has been misappropriated. Insiders may be held liable for tipping even if they receive no personal benefit from tipping and even if no close personal relationship exists between them and the tippee. Tippees inherit an insider’s duties and are liable for trading on material nonpublic information illegally tipped to them by an insider. Similarly, just as insiders are liable for the insider trading of their tippees, so are tippees who pass the information along to others who trade. In other words, a tippee’s liability for insider trading is no different from that of an insider. Tippees can obtain material nonpublic information by receiving overt tips from others or through, among other things, conversations at social, business, or other gatherings. E. Penalties for Engaging in Insider Trading Penalties for trading on or tipping material nonpublic information can extend significantly beyond any profits made or losses avoided, both for individuals engaging in such unlawful conduct and their employers. The SEC and Department of Justice have made the civil and criminal prosecution of insider trading violations a top priority. Enforcement remedies available to the government or private plaintiffs under the federal securities laws include: • SEC administrative sanctions; • securities industry self-regulatory organization sanctions; • civil injunctions; • damage awards to private plaintiffs; • disgorgement of all profits; • civil fines for the violator of up to three times the amount of profit gained or loss avoided; • civil fines for the employer or other
controlling person of a violator (i.e., where the violator is an employee or other controlled person) of up to the greater of $1.425 million or three times the amount of profit gained or loss avoided by the violator;
6 • criminal fines for individual violators of up to $5 million ($25 million for an entity); and • jail sentences of up to 20 years. In addition, insider trading could result in serious sanctions by the Company, including dismissal. Insider trading violations are not limited to violations of the federal securities laws. Other federal and state civil or criminal laws, such as the laws prohibiting mail and wire fraud and the Racketeer Influenced and Corrupt Organizations Act (RICO), may also be violated in connection with insider trading. F. Size of Transaction and Reason for Transaction Do Not Matter The size of the transaction or the amount of profit received does not have to be significant to result in prosecution. The SEC has the ability to monitor even the smallest trades, and the SEC performs routine market surveillance. Brokers or dealers are required by law to inform the SEC of any possible violations by people who may have material nonpublic information. The SEC aggressively investigates even small insider trading violations. G. Examples of Insider Trading Examples of insider trading cases include actions brought against officers, directors, and employees who traded in a company’s securities after learning of significant confidential corporate developments; friends, business associates, family members, and other tippees of such officers, directors, and employees who traded in the securities after receiving such information; government employees who learned of such information in the course of their employment; and other persons who misappropriated, and took advantage of, confidential information from their employers. The following are illustrations of insider trading violations. These illustrations are hypothetical and, consequently, not intended to reflect on the actual activities or business of the Company or any other entity. Trading by Insider An officer of X Corporation learns that earnings to be reported by X Corporation will increase dramatically. Prior to the public announcement of such earnings, the officer purchases X Corporation’s stock. The officer, an insider, is liable for all profits as well as penalties of up to three times the amount of all profits. The officer is also subject to, among other things, criminal prosecution, including up to $5 million in additional fines
and 20 years in jail. Depending upon the circumstances, X Corporation and the individual to whom the officer reports could also be liable as controlling persons. Trading by Tippee An officer of X Corporation tells a friend that X Corporation is about to publicly announce that it has concluded an agreement for a major acquisition. This tip causes the friend to purchase X Corporation’s stock in advance of the
7 announcement. The officer is jointly liable with his friend for all of the friend’s profits, and each is liable for all civil penalties of up to three times the amount of the friend’s profits. The officer and his friend are also subject to criminal prosecution and other remedies and sanctions, as described above. H. Prohibition of Records Falsification and False Statements Section 13(b)(2) of the 1934 Act requires companies subject to the 1934 Act to maintain proper internal books and records and to devise and maintain an adequate system of internal accounting controls. The SEC has supplemented the statutory requirements by adopting rules that prohibit (i) any person from falsifying records or accounts subject to the above requirements, and (ii) officers or directors from making any materially false, misleading, or incomplete statement to any accountant in connection with any audit or filing with the SEC. These provisions reflect the SEC’s intent to discourage officers, directors, and other persons with access to the Company’s books and records from taking action that might result in the communication of materially misleading financial information to the investing public. Falsifying records or accounts or making materially false, misleading, or incomplete statements in connection with an audit or filing with the SEC could also result in criminal penalties for obstruction of justice. IV. Statement of Procedures to Prevent Insider Trading The following procedures have been established, and will be maintained and enforced, by the Company to prevent insider trading. A. Blackout Periods The period during which the Company prepares quarterly financials is a sensitive time for insider trading purposes, as Company personnel may be more likely to possess, or be presumed to possess, material nonpublic information. To avoid the appearance of impropriety and assist Company personnel in planning transactions in the Company’s securities for appropriate times, no officer, director, or employee shall purchase or sell any security of the Company during the period beginning the 15th day of the third month of the fiscal quarter of the Company and ending upon completion of the second full trading day after the public release of earnings data for such fiscal quarter or during any
other trading suspension period declared by the Company, except for: • purchases of the Company’s securities from the Company or sales of the Company’s securities to the Company; • exercises of stock options or other equity awards, the surrender of shares to the Company in payment of the exercise price or in satisfaction of any tax withholding obligations in a manner permitted by the applicable equity award agreement, or the vesting of equity-based awards that do not involve a market sale of the Company’s securities (the cashless exercise of a Company stock option through a broker does involve a market sale of the Company’s securities, and therefore would not qualify under this exception); and • purchases or sales of the Company’s securities made pursuant to any binding contract, specific instruction, or written plan entered into while the purchaser or
8 seller, as applicable, was unaware of any material nonpublic information and which contract, instruction, or plan (i) meets all requirements of the affirmative defense provided by Rule 10b5-1, (ii) was precleared in advance pursuant to this Policy, and (iii) has not been amended or modified in any respect after such initial preclearance without such amendment or modification being precleared in advance pursuant to this Policy. Exceptions to the blackout period policy may be approved only by the Company’s General Counsel or Chief Financial Officer or, in the case of exceptions for directors, the Board of Directors or Audit Committee of the Board of Directors. From time to time, the Company, through the Board of Directors, the Company’s General Counsel or Chief Financial Officer, may recommend that officers, directors, employees, or others suspend trading in the Company’s securities because of developments that have not yet been disclosed to the public. Subject to the exceptions noted above, all those affected should not trade in the Company’s securities while the suspension is in effect, and should not disclose to others that the Company has suspended trading. B. Preclearance of All Trades by All Officers, Directors and Certain Employees To provide assistance in preventing inadvertent violations of applicable securities laws and to avoid the appearance of impropriety in connection with the purchase and sale of the Company’s securities, all transactions in the Company’s securities (including, without limitation, acquisitions and dispositions of Company stock, the exercise of stock options, elective transactions under 401(k)/ESPP/deferred compensation plans, and the sale of Company stock issued upon exercise of stock options) by officers, directors, and certain key employees listed on Schedule I (as amended from time to time) (each, a “Preclearance Person”) must be precleared by the Company’s General Counsel or Chief Financial Officer (or their designees), except for certain exempt transactions as explained in Section VI of this Policy. Preclearance does not relieve you of your responsibility under SEC rules. A request for preclearance may be oral or in writing (including by e-mail), should be made at least two business days in advance of the
proposed transaction, and should include the identity of the Preclearance Person, the type of proposed transaction (for example, an open market purchase, a privately negotiated sale, an option exercise, etc.), the proposed date of the transaction, and the number of shares or other securities to be involved. In addition, the Preclearance Person must execute a certification (in the form approved by the General Counsel or Chief Financial Officer) that he or she is not aware of material nonpublic information about the Company. The General Counsel or Chief Financial Officer (or their designees) shall have sole discretion to decide whether to clear any contemplated transaction. (The General Counsel shall have sole discretion to decide whether to clear transactions by the Chief Financial Officer or persons or entities subject to this policy as a result of their relationship with the Chief Financial Officer) All trades that are precleared must be effected within five business days of receipt of the preclearance, unless a specific exception has been granted by the General Counsel or Chief Financial Officer. A precleared trade (or any portion of a precleared trade) that has not been effected during the five business day period must be precleared again prior to execution. Notwithstanding receipt of preclearance, if the Preclearance Person becomes aware of material nonpublic information or becomes subject to a blackout period before the transaction is effected, the transaction may not be completed.
9 None of the Company, the General Counsel or Chief Financial Officer, or the Company’s other employees will have any liability for any delay in reviewing, or refusal of, a request for preclearance submitted pursuant to this Section IV.B. Notwithstanding any preclearance of a transaction pursuant to this Section IV.B, none of the Company, the General Counsel or Chief Financial Officer, or the Company’s other employees assumes any liability for the legality or consequences of such transaction to the person engaging in such transaction. C. Information Relating to the Company 1. Access to Information Access to material nonpublic information about the Company, including the Company’s business, earnings, or prospects, should be limited to officers, directors, and employees of the Company on a “need-to-know” basis. In addition, such information should not be communicated to anyone outside the Company under any circumstances (except in accordance with the Company’s policies regarding the protection or authorized external disclosure of Company information) or to anyone within the Company on any other than a “need-to-know” basis. In communicating material nonpublic information to employees of the Company, all officers, directors, and employees must take care to emphasize the need for confidential treatment of such information and adherence to the Company’s policies with regard to confidential information. 2. Inquiries From Third Parties Inquiries from third parties, such as industry analysts or members of the media, about the Company should be directed to the General Counsel or the Chief Financial Officer. D. Limitations on Access to Company Information The following procedures are designed to maintain confidentiality with respect to the Company’s business operations and activities. All officers, directors, and employees should take all steps and precautions necessary to restrict access to, and secure, material nonpublic information by, among other things: • maintaining the confidentiality of Company-related transactions; • conducting their business and social activities so as not to risk inadvertent disclosure of confidential information. Review of confidential documents in public places should be conducted so as to prevent access by unauthorized persons;
10 • restricting access to documents and files (including computer files) containing material nonpublic information to individuals on a “need-to-know” basis (including maintaining control over the distribution of documents and drafts of documents); • promptly removing and cleaning up all confidential documents and other materials from conference rooms following the conclusion of any meetings; • disposing of all confidential documents and other papers once there is no longer any business or other legally required need — through shredders when appropriate; • restricting access to areas likely to contain confidential documents or material nonpublic information; • safeguarding laptop computers, tablets, memory sticks, CDs, and other items that contain confidential information; and • avoiding the discussion of material nonpublic information in places where the information could be overheard by others, such as in elevators, restrooms, hallways, restaurants, airplanes, or ride hailing services. Personnel involved with material nonpublic information, to the extent feasible, should conduct their business and activities in areas separate from other Company activities. V. Additional Prohibited Transactions The Company has determined that there is a heightened legal risk and/or the appearance of improper or inappropriate conduct if the persons subject to this Policy engage in certain types of transactions. Therefore, officers, directors, and employees shall comply with the following policies with respect to certain transactions in the Company securities: A. Short Sales Short sales of the Company’s securities evidence an expectation on the part of the seller that the securities will decline in value, and therefore signal to the market that the seller has no confidence in the Company or its short-term prospects. In addition, short sales may reduce the seller’s incentive to improve the Company’s performance. For these reasons, short sales of the Company’s securities are prohibited by this Policy. In addition, as noted below, Section 16(c) of the 1934 Act absolutely prohibits Section 16 reporting persons from making short sales of the Company’s equity securities, i.e., sales of shares that the insider does not own at the time of sale, or sales of shares against which the insider does not
deliver the shares within 20 days after the sale. B. Publicly Traded Options A transaction in options is, in effect, a bet on the short-term movement of the Company’s stock and therefore creates the appearance that an officer, director, or employee is trading based on material nonpublic information. Transactions in options may also focus an officer’s, director’s, or employee’s attention on short-term performance at the expense of the Company’s long-term objectives. Accordingly, transactions in puts, calls, or other derivative securities involving the
11 Company’s equity securities, on an exchange or in any other organized market, are prohibited by this Policy. C. Hedging Transactions Certain forms of hedging or monetization transactions, such as zero-cost collars and forward sale contracts, allow an officer, director, or employee to lock in much of the value of his or her stock holdings, often in exchange for all or part of the potential for upside appreciation in the stock. Such transactions allow the officer, director, or employee to continue to own the covered securities, but without the full risks and rewards of ownership. When that occurs, the officer, director, or employee may no longer have the same objectives as the Company’s other stockholders. Therefore, such transactions involving the Company’s equity securities are prohibited by this Policy. D. Purchases of the Company’s Securities on Margin; Pledging the Company’s Securities to Secure Margin or Other Loans Purchasing on margin means borrowing from a brokerage firm, bank, or other entity in order to purchase the Company’s securities (other than in connection with a cashless exercise of stock options under the Company’s equity plans). Margin purchases of the Company’s securities are prohibited by this Policy. Pledging the Company’s securities as collateral to secure loans is also prohibited. This prohibition means, among other things, that you cannot hold the Company’s securities in a “margin account” (which would allow you to borrow against your holdings to buy securities). E. Partnership Distributions Nothing in this Policy is intended to limit the ability of a venture capital partnership or other similar entity with which a director is affiliated to distribute Company securities to its partners, members, or other similar persons. It is the responsibility of each affected director and the affiliated entity, in consultation with their own counsel (as appropriate), to determine the timing of any distributions, based on all relevant facts and circumstances and applicable securities laws. VI. Rule 10b5-1 Trading Plans, Section 16, and Rule 144 A. Rule 10b5-1 Trading Plans The trading restrictions set forth do not apply to transactions under a previously established contract, plan, or instruction to trade in the Company’s stock in accordance with the terms of Rule
10b5-1 and all applicable state laws (a “Trading Plan”) that: • has been submitted to and preapproved by the Company’s General Counsel or Chief Financial Officer, or such other person as the Board of Directors may designate from time to time (the “Authorizing Officer”), at least 120 days before the commencement of any transactions under the Trading Plan; • you entered into in good faith at a time when you were not in possession of material nonpublic information about the Company and contains a representation in the Trading Plan certifying that at the time of the adoption or modification of the Trading Plan, (1) you were not aware of material nonpublic information about the Company or its securities, and (2) you were adopting the plan in good faith and not
12 as a part of a plan or scheme to evade the prohibitions of Rule 10b-5; and • either (i) specifies the amounts, prices, and dates of all security transactions under the Trading Plan, (ii) provides a written formula, algorithm, or computer program for determining the amount, price, and date of the transactions, or (iii) prohibits you from exercising any subsequent influence over the transactions. You may adopt more than one Trading Plan at a time, provided that the Trading Plans satisfy one of the following categories: • You may enter into more than one Trading Plan with different broker-dealers or other agents to execute trades and treat the Trading Plans as a single Rule 10b5-1 Trading Plan, provided that the individual constituent contracts with each broker- dealer or other agent, when taken together as a whole, meet all of the applicable conditions of and remain collectively subject to the provisions of this Rule 10b5-1, including that a modification of any individual contract acts as modification of the whole contract, instruction of plan, as defined in paragraph (c)(1)(iv) of Rule 10b5- 1; • You may adopt one later-commencing Trading Plan so long as trading under the later-commencing Trading Plan is not authorized to begin until after all trades under the earlier-commencing Trading Plan are completed or expire without execution. If the earlier-commencing Trading Plan is terminated earlier, the later-commencing Trading Plan must have a cooling-off period that starts when the first Trading Plan terminates; or • You may have an additional Trading Plan for eligible sell-to-cover transactions, where the Trading Plan authorizes an agent to sell only such securities as are necessary to satisfy tax withholding obligations arising exclusively from the vesting of a compensatory award, such as restricted stock or stock appreciation rights, and the insider does not otherwise exercise control over the timing of such sales. You may only amend or revoke a Trading Plan outside of quarterly trading blackout periods when you do not possess material nonpublic information. Any amendment or revocation of a Trading Plan must be preapproved by the Authorizing Officer at least 120 days before you trade under an amended or outside of a revoked Trading Plan, and at least 120 days before you establish a
new Trading Plan. You are limited to adopting only one single-trade Trading Plan during any consecutive 12-month period. The Company reserves the right to publicly announce, disclose, or respond to inquiries from the media, regarding the implementation of Trading Plans or the execution of transactions made under a Trading Plan. The Company also reserves the right from time to time to suspend, discontinue, or otherwise prohibit transactions under a Trading Plan if the Authorizing Officer or the Board of Directors, in its discretion, determines that such suspension, discontinuation, or other prohibition is in the best interests of the Company. The cashless exercise of options under Trading Plans is permitted only through “same-day sales,” in which the option holder does not pay for the stock up front, but rather receives cash equal to the difference between the stock value and option exercise price. Transactions prohibited under Section V of this Policy, including short sales and hedging transactions, may not be carried out
13 through a Trading Plan. Compliance of a Trading Plan with the terms of Rule 10b5-1 and the execution of transactions pursuant to the Trading Plan are the sole responsibility of the person initiating the Trading Plan, and none of the Company, the Authorizing Officer, or the Company’s other employees assume any liability for any delay in reviewing and/or refusing a Trading Plan submitted for approval nor legality or consequences relating to a person entering into or trading under a Trading Plan. Trading Plans do not exempt you from complying with Section 16 short-swing profit rules or liability. During an open trading window, trades differing from Trading Plan instructions that are already in place are allowed as long as the Trading Plan continues to be followed. B. Section 16: Insider Reporting Requirements, Short-Swing Profits, and Short Sales (Applicable to Officers, Directors, and 10% Stockholders) 1. Reporting Obligations Under Section 16(a): SEC Forms 3, 4, and 5 Section 16(a) of the 1934 Act generally requires all officers, directors, and 10% stockholders (“Section 16 Insiders”), within 10 days after becoming a Section 16 Insider, to file with the SEC an “Initial Statement of Beneficial Ownership of Securities” on SEC Form 3, listing the amount of the Company’s stock, options, and warrants that the Section 16 Insider beneficially owns. Following the initial filing on SEC Form 3, changes in beneficial ownership of the Company’s stock, options, and warrants must be reported on SEC Form 4, generally within two days after the date on which such change occurs, or in certain cases on Form 5, within 45 days after fiscal year-end. The two-day Form 4 deadline begins to run from the trade date rather than the settlement date. A Form 4 must be filed even if, as a result of balancing transactions, there has been no net change in holdings. In certain situations, purchases or sales of Company stock made within six months prior to the filing of a Form 3 must be reported on Form 4. Similarly, certain purchases or sales of Company stock made within six months after an officer or director ceases to be a Section 16 Insider must be reported on Form 4. 2. Recovery of Profits Under Section 16(b) For the purpose of preventing the unfair use of information that may have been obtained by a
Section 16 Insider, any profits realized by a Section 16 Insider from any “purchase” and “sale” of Company stock during a six-month period, so called “short-swing profits,” may be recovered by the Company. When such a purchase and sale occurs, good faith is no defense. The insider is liable, even if compelled to sell for personal reasons, and even if the sale takes place after full disclosure and without the use of any material nonpublic information. The Section 16 Insider liability under Section 16(b) of the 1934 Act is only to the Company itself. The Company, however, cannot waive its right to short swing profits, and any Company stockholder can bring suit in the name of the Company. Reports of ownership filed with the SEC on Form 3, Form 4, or Form 5 pursuant to Section 16(a) (discussed above) are readily available to the public, and certain attorneys carefully monitor these reports for potential Section 16(b) violations. In addition, liabilities under Section 16(b) may require separate disclosure in the Company’s annual report to the SEC on Form 10-K or its proxy statement for its annual meeting of stockholders. No suit may be brought more than two years after the date the profit was realized.
14 However, if the Section 16 Insider fails to file a report of the transaction under Section 16(a), as required, the two-year limitation period does not begin to run until after the transactions giving rise to the profit have been disclosed. Failure to report transactions and late filing of reports require separate disclosure in the Company’s proxy statement. Officers and directors should consult the attached “Short-Swing Profit Rule Section 16(b) Checklist” attached hereto as “Attachment A” in addition to consulting the General Counsel prior to engaging in any transactions involving the Company’s securities, including, without limitation, the Company’s stock, options, or warrants. 3. Short Sales Prohibited Under Section 16(c) Section 16(c) of the 1934 Act absolutely prohibits Section 16 Insiders from making short sales of the Company’s equity securities. Short sales include sales of stock that the Section 16 Insider does not own at the time of sale, or sales of stock against which the Section 16 Insider does not deliver the shares within 20 days after the sale. Under certain circumstances, the purchase or sale of put or call options, or the writing of such options, can result in a violation of Section 16(c). Section 16 Insiders violating Section 16(c) face criminal liability. You should consult the General Counsel if you have any questions regarding reporting obligations, short-swing profits or short sales under Section 16. C. Rule 144 (Applicable to Section 16 Insiders) Rule 144 provides a safe harbor exemption to the registration requirements of the Securities Act of 1933, as amended, for certain resales of “restricted securities” and “control securities.” “Restricted securities” are securities acquired from an issuer, or an affiliate of an issuer, in a transaction, or chain of transactions, not involving a public offering. “Control securities” are any securities owned by directors, executive officers, or other “affiliates” of the issuer, including stock purchased in the open market and stock received upon exercise of stock options. Sales of Company securities by affiliates (generally, Section 16 Insiders of the Company) must comply with the requirements of Rule 144, which are summarized below: • Current Public Information. The Company must have filed all SEC-required reports during the last 12 months. •
Volume Limitations. Total sales of Company common stock by a covered individual for any three-month period may not exceed the greater of: (i) 1% of the total number of outstanding shares of Company common stock, as reflected in the most recent report or statement published by the Company, or (ii) the average weekly reported volume of such shares traded during the four calendar weeks preceding the filing of the requisite Form 144. • Method of Sale. The shares must be sold either in a “broker’s transaction” or in a transaction directly with a “market maker.” A “broker’s transaction” is one in which the broker does no more than execute the sale order and receive the usual and customary commission. Neither the broker nor the selling person can solicit or arrange for the sale order. In addition, the selling person or member of the Board of Directors must not pay any fee or commission other than to the broker. A “market maker” includes a specialist permitted to act as a dealer, a dealer acting in the position of a block positioner, and a dealer who holds himself out as being willing
15 to buy and sell Company common stock for his own account on a regular and continuous basis. • Notice of Proposed Sale. A notice of the sale (a Form 144) must be filed with the SEC at the time of the sale. Brokers generally have internal procedures for executing sales under Rule 144 and will assist you in completing the Form 144 and in complying with the other requirements of Rule 144. If you are subject to Rule 144, you must instruct your broker who handles trades in Company securities to follow the brokerage firm’s Rule 144 compliance procedures in connection with all trades.
16 Schedule I Key Employees Subject to Preclearance Requirement None.
17 Attachment A Short-Swing Profit Rule Section 16(b) Checklist Note: ANY combination of PURCHASE AND SALE or SALE AND PURCHASE within six months of each other by an officer, director, or 10% stockholder (or any family member living in the same household or certain affiliated entities) results in a violation of Section 16(b), and the “profit” must be recovered by ClearPoint Neuro, Inc. (the “Company”). It makes no difference how long the shares being sold have been held or, for officers and directors, that you were an insider for only one of the two matching transactions. The highest priced sale will be matched with the lowest priced purchase within the six-month period. Sales If a sale is to be made by an officer, director, or 10% stockholder (or any family member living in the same household or certain affiliated entities): 1. Have there been any purchases by the insider (or family members living in the same household or certain affiliated entities) within the past six months? 2. Have there been any option grants or exercises not exempt under Rule 16b-3 within the past six months? 3. Are any purchases (or nonexempt option exercises) anticipated or required within the next six months? 4. Has a Form 4 been prepared? Note: If a sale is to be made by an affiliate of the Company, has a Form 144 been prepared and has the broker been reminded to sell pursuant to Rule 144? Purchases And Option Exercises If a purchase or option exercise for Company stock is to be made: 1. Have there been any sales by the insider (or family members living in the same household or certain affiliated entities) within the past six months? 2. Are any sales anticipated or required within the next six months (such as tax-related or year-end transactions)? 3. Has a Form 4 been prepared? Before proceeding with a purchase or sale, consider whether you are aware of material nonpublic information that could affect the price of the Company stock. All transactions in the Company’s securities by officers and directors must be precleared by contacting the Company’s General Counsel or Chief Financial Officer.
List of Subsidiaries
Name of Subsidiary
Jurisdiction of Formation
ClearPoint Neuro (Canada) Inc.
ClearPoint Neuro UK Ltd
ClearPoint Neuro Germany GmbH.
ClearPoint Neuro Italy, S.r.l.
Canada (New Brunswick)
United Kingdom
Germany
Italy
EXHIBIT 21
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion or incorporation by reference of our report, dated March 12, 2024, with respect to the consolidated balance sheets of ClearPoint Neuro, Inc. (the
“Company”) as of December 31, 2023 and 2022 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, in (i) the
Company’s Registration Statement on Form S-8 (No. 333-183382), (ii) the Company’s Registration Statement on Form S-8 (No. 333-191908), (iii) the Company’s Registration
Statement on Form S-8 (No. 333-206432), (iv) the Company’s Registration Statement on Form S-8 (No. 333-220783), (v) the Company’s Registration Statement on Form S-8
(No. 333-238907), (vi) the Company’s Registration Statement on Form S-3 No. (333-252346); and (vii) the Company’s Registration Statement on Form S-8 No. (333-256789).
/s/ Cherry Bekaert LLP
Tampa, Florida
March 12, 2024
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 31.1
I, Joseph M. Burnett, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2023, of ClearPoint Neuro, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 12, 2024
/s/ Joseph M. Burnett
Joseph M. Burnett
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 31.2
I, Danilo D’Alessandro, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2023, of ClearPoint Neuro, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 12, 2024
/s/ Danilo D’Alessandro
Danilo D’Alessandro
Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(b) UNDER
THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 1350 OF
CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
EXHIBIT 32
Each of the undersigned, Joseph M. Burnett and Danilo D’Alessandro, certifies pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of
Chapter 63 of Title 18 of the United States Code, that (1) this annual report on Form 10-K for the fiscal year ended December 31, 2023, of ClearPoint Neuro, Inc. (the
“Company”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and (2) the information contained in this report fairly presents, in all
material respects, the financial condition and results of operations of the Company.
Date: March 12, 2024
/s/ Joseph M. Burnett
Joseph M. Burnett
Chief Executive Officer
/s/ Danilo D’Alessandro
Danilo D’Alessandro
Chief Financial Officer
ClearPoint Neuro, Inc.
Compensation Recoupment Policy
1. Purpose. The purpose of this Compensation Recoupment Policy of the Company (as amended from time to time, the “ Policy”), dated as of
October 3, 2023 (the “Adoption Date”) is to describe the circumstances in which current and former Executive Officers will be required to repay or
return Erroneously Awarded Compensation to members of the Company Group. The Company has adopted this Policy to comply with Section 954 of
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as codified by Section 10D of the Exchange Act, Exchange Act Rule 10D-1
promulgated thereunder, and the rules and requirements of Nasdaq (including Nasdaq Listing Rule 5608) (such legal requirements, and rules and
requirements of Nasdaq, collectively, the “SEC/Nasdaq Clawback Rules”). Each Executive Officer shall be required to sign and return to the Company
an acknowledgment to this Policy in the form attached hereto as Exhibit A pursuant to which such Executive Officer will agree to be bound by the terms
and comply with this Policy.
2. Administration. This Policy shall be administered by the Committee. The Committee is authorized to interpret and construe this Policy and
to make all determinations necessary, appropriate, or advisable for the administration of this Policy, and any such determinations made by the Committee
shall be in the Committee’s sole discretion, and shall be final and binding on all affected individuals. Subject to applicable legal requirements and the
rules and requirements of Nasdaq, the Committee may delegate any or all of its powers and duties under the Policy to authorized officers of the
Company, subject to such limitations on such delegated powers and duties as the Committee may impose, if any. Except as otherwise required by
applicable legal requirements or the rules and requirements of Nasdaq, any determinations of the Committee hereunder need not be uniform with respect
to one or more Executive Officers (whether current or former).
3. Definitions. For purposes of this Policy, the following capitalized terms shall have the meanings set forth below:
(a) “Accounting Restatement” shall mean an accounting restatement due to the material noncompliance of the Company with any financial
reporting requirement under the securities laws, including any required accounting restatement (i) to correct an error in previously issued financial
statements that is material to the previously issued financial statements (a “Big R” restatement), or (ii) that would result in a material misstatement if the
error were corrected in the current period or left uncorrected in the current period (a “little r” restatement).
(b) “Board” shall mean the Board of Directors of the Company.
(c) “Clawback Eligible Incentive Compensation” shall mean all Incentive-Based Compensation Received by any current or former Executive
Officer on or after the Nasdaq Effective Date, provided that:
(i)
(ii)
such Incentive-Based Compensation is Received after such individual began serving as an Executive Officer;
such individual served as an Executive Officer at any time during the performance period for such Incentive-Based Compensation;
(iii)
such Incentive-Based Compensation is Received while the Company has a class of securities listed on Nasdaq; and
(iv)
such Incentive-Based Compensation is Received during the applicable Clawback Period.
(d) “Clawback Period” shall mean, with respect to any Accounting Restatement, the three completed fiscal years of the Company immediately
preceding the Restatement Date and any transition period (that results from a change in the Company’s fiscal year) of less than nine months within or
immediately following those three completed fiscal years.
(e) “Committee” shall mean the Compensation Committee of the Board.
(f) “Common Stock” shall mean the common stock, par value $0.01 per share, of the Company.
(g) “Company” shall mean ClearPoint Neuro, Inc., a Delaware corporation.
(h) “Company Group” shall mean the Company, together with each of its direct and indirect subsidiaries.
(i) “Erroneously Awarded Compensation ” shall mean, with respect to any current or former Executive Officer in connection with any
Accounting Restatement, the amount of Clawback Eligible Incentive Compensation Received by such current or former Executive Officer that exceeds
the amount of Clawback Eligible Incentive Compensation that otherwise would have been Received by such current or former Executive Officer had
such Clawback Eligible Incentive Compensation been determined based on the restated amounts as reflected in connection with such Accounting
Restatement, computed without regard to any taxes paid.
(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(k) “Executive Officer” shall mean any officer as defined in Rule 10D-1(d) (or any successor provision thereof) under the Exchange Act.
(l) “Financial Reporting Measures” shall mean measures that are determined and presented in accordance with the accounting principles used
in preparing the Company’s financial statements, and any other measures that are derived wholly or in part from such measures. For purposes of this
Policy, stock price and total shareholder return (and any measures that are derived wholly or in part from stock price or total shareholder return) shall be
considered Financial Reporting Measures. For the avoidance of doubt, a Financial Reporting Measure need not be presented within the Company’s
financial statements or included in a filing with the SEC.
(m) “Incentive-Based Compensation” shall mean any compensation that is granted, earned or vested based wholly or in part upon the
attainment of a Financial Reporting Measure.
(n) “Nasdaq” shall mean the Nasdaq Stock Market.
(o) “Nasdaq Effective Date” shall mean October 2, 2023.
(p) “Received” shall mean when Incentive-Based Compensation is received, and Incentive-Based Compensation shall be deemed received in
the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-Based Compensation award is attained, even if
payment or grant of the Incentive-Based Compensation occurs after the end of that period.
(q) “Restatement Date” shall mean the earlier to occur of (i) the date the Board, a committee of the Board or the officers of the Company
authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare
an Accounting Restatement, or (ii) the date a court, regulator or other legally authorized body directs the Company to prepare an Accounting
Restatement.
(r) “SEC” shall mean the U.S. Securities and Exchange Commission.
4. Recoupment of Erroneously Awarded Compensation.
(a) In the event that the Company is required to prepare an Accounting Restatement, (i) the Committee shall determine the amount of any
Erroneously Awarded Compensation for each applicable current or former Executive Officer (whether or not such individual is serving as an Executive
Officer at such time) (the “Applicable Executives”) in connection with such Accounting Restatement, and (ii) the Company will reasonably promptly
require the recoupment of such Erroneously Awarded Compensation from any such Applicable Executive, and any such Applicable Executive shall
surrender such
2
Erroneously Awarded Compensation to the Company, at such time(s), and via such method(s), as determined by the Committee in accordance with the
terms of this Policy. In such event, any such Applicable Executive shall enter into any recoupment or similar agreement as may be requested by the
Committee in connection with the Company’s recoupment of Erroneously Awarded Compensation from such Applicable Executive pursuant to the
terms of this Policy.
(b) For Incentive-Based Compensation based on (or derived from) stock price or total shareholder return where the amount of Erroneously
Awarded Compensation is not subject to mathematical recalculation directly from the information in the applicable Accounting Restatement, (i) such
amount shall be determined by the Committee based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or total
shareholder return upon which the Incentive-Based Compensation was Received, and (ii) the Company will maintain documentation of the
determination of that reasonable estimate and provide such documentation to Nasdaq.
(c) The Committee shall determine, in its sole discretion, the method(s) for recouping any Erroneously Awarded Compensation from any
Applicable Executive, which may include one or more of the following:
(i) requiring one or more cash payments to the Company Group from such Applicable Executive, including, but not limited to, the
repayment of cash Incentive-Based Compensation previously paid by the Company Group to such Applicable Executive;
(ii) seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer or other disposition of any equity-based
awards previously made by the Company to such Applicable Executive and/or otherwise requiring the delivery to the Company of shares of
Common Stock held by such Applicable Executive;
(iii) withholding, reducing or eliminating future cash compensation (including cash incentive payments), future equity awards and/or
other benefits or amounts otherwise to be paid or awarded by the Company Group to such Applicable Executive;
(iv) offsetting amounts against compensation or other amounts otherwise payable by the Company Group to such Applicable Executive;
(v) cancelling, adjusting or offsetting against some or all outstanding vested or unvested equity awards of the Company held by such
Applicable Executive; and/or
(vi) taking any other remedial and recovery actions with respect to such Applicable Executive permitted by applicable legal requirements
and the rules and regulations of Nasdaq, as determined by the Committee.
(d) Notwithstanding anything herein to the contrary, the Company shall not be required to recover Erroneously Awarded Compensation from
any Applicable Executive pursuant to the terms of this Policy if (1) the Committee determines that such recovery would be impracticable, and (2) any of
the following conditions is met:
(i) the direct expenses paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered, provided that,
before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on expense of enforcement
pursuant to this clause (i), the Company has (x) made a reasonable attempt to recover such Erroneously Awarded Compensation, (y) documented
such reasonable attempt(s) to recover, and (z) provided such documentation to Nasdaq;
(ii) recovery would violate home country law where that law was adopted prior to November 28, 2022, provided that, before
determining that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on violation of home country law,
the Company has obtained an opinion of home country counsel, acceptable to Nasdaq, that recovery would result in such a violation, has provided
copy of the opinion is provided to Nasdaq; or
3
(iii) recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of
the Company Group, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
5 . No Indemnification, Etc. The Company Group shall not (x) indemnify any current or former Executive Officer against the loss of any
Erroneously Awarded Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, or (y) pay or reimburse any current or
former Executive Officers for insurance premiums to recover losses incurred under this Policy.
6. Supersedure. This Policy will supersede any provisions in (x) any agreement, plan or other arrangement applicable to any member of the
Company Group, and (y) any organizational documents of any entity that is part of Company Group that, in any such case, (a) exempt any Incentive-
Based Compensation from the application of this Policy, (b) waive or otherwise prohibit or restrict the Company Group’s right to recover any
Erroneously Awarded Compensation, including, without limitation, in connection with exercising any right of setoff as provided herein, and/or (c)
require or provide for indemnification to the extent that such indemnification is prohibited under Section 5 above.
7. Amendment; Termination; Interpretation. The Committee may amend or terminate this Policy at any time, subject to compliance with all
applicable legal requirements and the rules and requirements of Nasdaq. It is intended that this Policy be interpreted in a manner that is consistent with
the SEC/Nasdaq Clawback Rules.
8. Other Recoupment Rights; No Additional Payments.
(a) Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be
available to the Company Group pursuant to (i) the terms of any recoupment provisions in any employment agreement, incentive or equity compensation
plan or award or other agreement, (ii) any other legal requirements, including, but not limited to, Section 304 of Sarbanes-Oxley Act of 2002 (subject to
Section 8(b) of this Policy below), and (iii) any other legal rights or remedies available to the Company.
(b) Notwithstanding anything herein to the contrary, to the extent that the Committee determines that any Erroneously Awarded Compensation
includes any amounts that have been actually reimbursed to the Company Group from any Applicable Executive pursuant to Section 304 of the
Sarbanes-Oxley Act (any such amounts that have been reimbursed to the Company Group, the “Applicable SOX Recoupment Amount ”), in order to
prevent duplicative recovery, the amount of any Erroneously Awarded Compensation to be recovered from any such Applicable Executive shall be
reduced by the Applicable SOX Recoupment Amount.
9. Successors. This Policy shall be binding and enforceable against all current and former Executive Officers and their beneficiaries, heirs,
executors, administrators or other legal representatives.
4
5
Exhibit A
Form of Acknowledgment
By signing below, the undersigned acknowledges and confirms that the undersigned has received and reviewed a copy of the ClearPoint Neuro,
Inc. Compensation Recoupment Policy (the “Policy”). Capitalized terms used but not otherwise defined in this acknowledgment shall have the meanings
ascribed to such terms in the Policy.
By signing this acknowledgment, the undersigned acknowledges and agrees that the undersigned is and will continue to be subject to the Policy
and that the Policy will apply both during and after the undersigned’s employment with the Company Group. Further, by signing below, the undersigned
agrees to abide by the terms of the Policy, including, without limitation, by returning any Erroneously Awarded Compensation to the Company Group to
the extent required by the Policy.
______________________________
Signature
Print Name
______________________________
______________________________
Date