MRI INTERVENTIONS (MRIC $3.

05)
COMPANY STRATEGY UPDATE
MARCH 27, 2018
KRIS TUTTLE

Context
MRI Interventions “ClearPoint” system is well-known in the 2018 Catalysts for MRI Interventions
neurosurgery space as the most accurate, least invasive way
to perform brain surgery. It’s frequently used for deep brain + Accelerating growth from increased
stimulation, laser ablation and to deliver drugs to tiny areas utilization of existing systems.
in the brain to treat conditions like Parkinson’s Disease.
+ Higher drug delivery revenues as clinical
The company has grown consistently over the years but it’s
trials progress and pre-clinical programs
still small. Late in 2017 a new CEO, Joe Burnett, was
recruited to begin the next phase of growth and expansion move into the clinic.
from the existing base.
+ New products that attach to the
We covered Joe Burnett’s background in our November ClearPoint system to perform additional
report, but since that time we have continued to speak with surgical procedures.
people who know him and current investors in MRIC that
have had a chance to spend some time with him. The + Greatly expanded audience of investors
feedback confirms our own view that he is a good fit to help when the shares are up-listed to an
the MRIC team get the company to the next level of growth exchange.
and begin to realize the potential of ClearPoint.
+ Increasing awareness of the positioning
The company has recently started to lay out the key
strategic initiatives that will drive results for the next few of ClearPoint as a surgical platform and its
years. We’ll go through them in more detail and highlight role in delivery many approved drugs into
how they tie back to the foundations of the company as the brain.
described in our November report.1
+ Our IV model suggests valuation of
The four elements of the strategy are: $16.65/share.
1. Use best practices to make surgical procedures with
ClearPoint more efficient for current indications - deep brain stimulation, laser ablation and tumor
biopsy.
2. Increase penetration into drug delivery market.
3. Launch new therapy products including an MRI-guided aspiration device for ClearPoint.
4. Scaling the business model globally, and with additional products and services that can be
distributed via the existing therapy partners.

1
Our November report can be downloaded via this link: MRI Interventions: Becoming a Surgical Platform.
http://s3.amazonaws.com/Published_Research/MRI_Interventions_MRIC_SV_Report_FINAL_NOV_2017_DISC.pdf
These initiatives share the characteristic of requiring only marginal variable expenses and investments. They
leverage the existing assets, technology and expertise of the company and should generate high returns on
invested capital (ROIC) for shareholders.

Efficiency and Improved Utilization to Accelerate Case Volumes

Availability of MRI system time has been a major governing factor for surgeons to use ClearPoint. It is
steadily getting better but not at a rapid rate. MRI Interventions has worked extensively with leading centers
and has developed an inventory of “best practices” that can be applied to their entire installed base.

For example, by ensuring that a procedure can be completed in under four hours means that a surgeon can
schedule two surgeries during the same day of MRI time. Today in many centers surgeons don’t have that
clarity. By shifting from one to two procedures a day, MRIC can accelerate their growth rate without adding a
single center. Improved efficiency also makes each additional MRI machine or time slot worth more revenue.
It also means that new system placements can ramp faster and reach a higher run rate.

This will also increase the profitability of MRI time to the hospital which is becoming a greater focus within
the industry as healthcare providers begin to invest in improving profitability through better asset
utilization. By doing two procedures in one day, the total revenue related to the MRI use for the hospital
would increase to approximately $80,000 depending on the procedure.

In 2017, the company completed 629 procedures which generated “disposable product sales” of $5.3M. That
works out to an average of one procedure per month per center. If surgeons can get two procedures in during
one session and get one full session every other week (on average), it would work out to 24 days of MRI time
per center per year x 2 procedures per day x 52 centers for a total of 2,496 procedures and $25M in disposable
sales.

This isn’t going to happen overnight. But it’s a reasonable working expectation considering a viable surgical
practice would tend to schedule procedures for every other week (excluding holiday weeks). The question
is really when, not if.

One consideration that’s beyond the scope of this update is the advent of much better “yield management
software” for healthcare systems in general and MRI rooms in particular. These systems are being deployed
in some markets now and will continue to spread. As they do, it’s likely that MRI availability to high-value
procedures like surgery will increase.

Greater Exposure to Drug Delivery

Management is now breaking out “biologics and drug delivery systems” revenue separately and expects to
garner additional drug delivery customers in the future. It will also help investors appreciate the growing
importance of this area on the enterprise value of MRIC.

This year we will have existing customers like Voyager ramping their clinical trials and the prospect of
additional drug companies beginning to use ClearPoint for their future trials.

To appreciate the potential for MRIC in terms of drug delivery you should refer to that section of our
November Report. In summary, we took a probability-weighted estimate for each drug trial and applied that
to the revenue potential for MRIC. For example, this chart shows the probabilities for drugs moving through
clinical trials.

MRI Interventions Update Note March 2018 2

 ClearPoint is already being used in a
number of ongoing trials and they
also have a number of undisclosed
drugs that are using ClearPoint, but
in pre-clinical work. As these move
into Phase, we will learn more about
them and be able to include them in
our drug delivery analysis.

New Products for Neurology

In this section, the potential for
ClearPoint as a platform will become
more apparent. First, let me
oversimplify.

The ClearPoint system gets a doctor

to a very specific area of the brain. At that point it’s just a question of what “attachment” you need to
perform the procedure - electrodes for deep brain stimulation, a laser for ablation and a catheter for drug
delivery.

Many treatments require the surgeon to remove tissue via suction. By adding an aspiration attachment, the
ClearPoint system can handle this function as well or better than existing methods. The ClearPoint system
will always have an advantage in terms of control and accuracy. The Mayo Clinic is collaborating with MRIC
in developing this technology for use in treating stroke and brain hemorrhage.

For example, in situations where there is an intra-cerebral hemorrhage, the aspiration capability would allow
the ClearPoint system to treat it without requiring another system.

This isn’t in our model yet. It’s not yet clear if this will add to the number of procedures and/or increase the
average disposable revenue per procedure. Once we know more we can factor it in.

Global Expansion and Distribution

This is the most general of the four and fairly textbook in terms of business strategy. However, right now
MRIC has very little presence outside the US and they could leverage their existing US-based channel to
distribute additional products.

Given that MRI resources are not abundant in many economies, it’s not clear how much international
expansion is possible in the near term. There may be products that can be added to the ClearPoint sales kit.

As long as they are truly adjacent and won’t disrupt or distract the channel, this can be another high-margin
additive revenue stream. Our guess is that this is more of a long-term (2-3 year) component of the strategy.

Valuation & Investment Conclusion

Since we published our November 2017 report, the company has evolved to an improved focus and better
operating plan.

MRI Interventions Update Note March 2018 3

More quantitatively, trials like Voyager’s have moved forward and are enrolling patients for the next phase,
so there is better visibility on that.

All things considered, we now have a higher conviction level and believe that there is material upside to our
published model. Our Intrinsic Value (IV) target is now $16.65 after making a few modest tweaks to
expenses, share count and the balance sheet.

If one applies the IV target, the capitalization of the company would be ~$185M. That’s still only a fraction
of the total market potential. It’s also worth pointing out that increasing of ClearPoint drives greater
demand for MRI equipment. A modest $100K ClearPoint system sale helps to drive additional sales of much
more expensive scanners.

Furthermore, our forward estimates include quite a bit of the plan noted here but they under-represent any
approved drugs that would be delivered with ClearPoint. These approved drugs are still years away so it’s
reasonable to not fully include them from a five-year revenue analysis. Our probability-weighted model
suggests an incremental $135M in potential revenue based on potential drug approvals in the next three to
five years.

It’s unlikely that this potential drug delivery aspect of the MRIC stock story will forever remain unappreciated
by the investment community, but the precise timing of when they will begin to be recognized for it is
uncertain.

Additional Disclosures
In 2016 SoundView was paid to provide research and advisory services to MRI Interventions. These
services concluded in October of 2016. SoundView is not a broker/dealer, investment bank nor
MRI Interventions Update Note March 2018 4
registered investment advisor. This material is provided for educational purposes only. SoundView
receives subscription and consulting fees from investors for our stock research services. (See back
page for more general disclosures.)

Relevant Listed Companies

Primary: MRI Interventions (MRIC)

Secondary: Penumbra (PEN), Intuitive Surgical (ISRG), Voyager Therapeutics (VYGR), Medtronic
PLC (MDT), Philips NV (PHG), Boston Scientific (BSX), Mazor Robotics (MZOR).

MRI Interventions Update Note March 2018 5

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