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Armed with Impressive Partnerships, Can This Emerging Innovator Become 2012's Most Successful Medical Device IPO?

June 27, 2012 -

Image-guided surgery has revolutionized the accuracy and cost of performing surgery - creating minimally-invasive procedures that allow patients quicker recovery and save clinics, physicians, patients, and health insurers time and money.
Fluoroscopy, for example, created a non-invasive alternative to open-heart surgery, with an estimated 1.5MM procedures performed annually. Similarly, the use of optics introduced endoscopy, with 1.2MM procedures performed each year. Yet minimally-invasive neurosurgery - or procedures in the brain - continue to be performed using archaic methods dating back more than 6 decades. These surgeries often require patients to be awake for their own brain surgery to describe 'what they are feeling' as the surgeon inserts surgical instruments into their brain. And because of the highly-complex nature of this surgery, only 300 specialized neurosurgeons in the United States can, potentially, perform a procedure that takes up to 8 hours under this dated protocol.
According to MRI Interventions (OTCBB:MRIC) (OTC:MRIC), ClearPoint is the only FDA-cleared imaging system that allows neurosurgeons to see into a patient's brain in real-time, and accurately pin-point their target. This technology allows for all neurosurgeons (not just a highly-specialized subset) to perform minimally-invasive neuro procedures. It's also estimated that procedure time is cut in half versus surgery using current methods (referring to the dated standard of care, discussed earlier). This means 3500 neurosurgeons can perform a minimally-invasive brain surgery in less time, with the patient under a general anesthesia (remember, under the standard of care the patient has to be awake in order to respond to 'sensations' as surgery is performed!).
ClearPoint is the first of its kind to provide an easy-to-use, real-time visualization tool to surgeons performing brain surgeries. The system, a suite consisting of a computer and monitor, intuitive software, and disposable components, is designed to fit into hospitals' existing MRI suites. This makes the transition to the next-generation technology for neurosurgery quick, convenient, and relatively inexpensive. In fact, ClearPoint procedures are covered under existing reimbursements codes. More importantly, ClearPoint procedures cost a hospital far less than a traditional procedure because it improves accuracy, delivery, and therefore shortens the length of a surgery (neurosurgeons' time is very expensive, let alone a 'specialized' neurosurgeon). This means that in the same time required to perform 10 neurosurgeries, ClearPoint can be used for 20 procedures, which ultimately generates greater revenue for hospitals, and lowers overhead (neurosurgeon's time, cost of operating room, etc.). In other words, ClearPoint offers attractive economics to hospital systems, all the while providing a safe and accurate guide during surgery and superior patient benefit (think how many patients would prefer being under anesthesia versus being awake during their surgery). In general, ClearPoint provides a superior technology benefiting all of its stakeholders (hospitals, physicians, surgeons, patients, insurers, etc.).
MRI Interventions made its public debut about one month ago, and now trades under the stock symbol 'MRIC.OB'. It's unclear exactly how much of the minimally-invasive neurosurgery space the company's ClearPoint system will engulf; however, leading neurosurgeons and opinion leaders across the world have spoken highly of their experiences with this MRI-guided technology during procedures.
So what is all of this worth? Or rather, what is this worth to the retail investor?
This is a great question and one probably equally as important as the technology behind MRI Interventions (which, by the way, is not limited to the ClearPoint system). If investors, today, conservatively value the company at $40MM, based on the ClearPoint system being installed in relatively few, albeit leading, centers in the United States and Europe, we can conservatively say that every 20 new centers that adopt ClearPoint add another $40MM to the current valuation.
The opportunity, using adoption of this product as a parameter, is 4500 MRI scanners in the U.S., and likely an equivalent (or greater) number ex-US. This means that at 10% penetration (in the U.S. alone), 450 centers will sport ClearPoint, suggesting a valuation at $900MM, or roughly 22X MRIC's current price.
The beauty of MRIC's business model is that for every neurosurgery performed, the hospital pays for a disposable component as part of the ClearPoint system. This component costs $7300, leaving hospitals - that are generally reimbursed $25,000 per procedure - a strong profit margin. However, as an investor in MRIC, sales of disposable components create recurring revenues which then become cash flows. These cash-flows then allow for a company that has invested over $60MM developing and protecting their technologies to become self-sustaining and provide a tremendous return-on-investment to its investors. Speaking of protecting its technologies - as of their last report - MRI Interventions has over 60 issued patents and more than 110 patents pending. This explains why medical device giants like Siemens (NYSE:SI) and Brain Lab chose to partner with MRI Interventions rather than compete with them. It's also worth mentioning that Boston Scientific (NYSE:BSX) has entered into a collaboration with the company, and is looking to license their technology for use in their own devices. This, in itself, could prove our return-on-investment estimates to be very conservative indeed.

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