Neuropace at Needham Conference: Strong Growth and Future Plans

On Tuesday, 08 April 2025, Neuropace (NASDAQ: NPCE) participated in the 24th Annual Needham Virtual Healthcare Conference. The company's leadership highlighted its robust revenue growth and strategic initiatives aimed at expanding its market presence. While Neuropace showcased its achievements, it also outlined challenges ahead, such as maintaining operational efficiency amidst ambitious expansion plans.

Key Takeaways

• Neuropace reported a 22% revenue growth in 2024, reaching $79.9 million.
• The company aims to achieve cash flow breakeven by 2027, bolstered by recent financing.
• Key growth strategies include expanding RNS therapy access and developing AI-enabled tools.
• Revenue guidance for 2025 is set between $92 million and $96 million.

Financial Results

• 2024 Revenue: $79.9 million, marking a 22% increase year-over-year.
• Operating Expenses: Growth limited to 7%, demonstrating financial discipline.
• Cash Position: Ended 2024 with $52.8 million, increasing to $68.6 million post-financing in February 2025.
• 2025 Guidance: Revenue expected to be between $92 million and $96 million, with operating expenses projected at $92 million to $95 million.

Operational Updates

• Active Prescribers: Continued expansion with record highs in each quarter.
• Project CARE: Expanded into level three and community service centers, showing strong momentum.
• NAUGHTLIST Trial: Completed implants in March 2024; 12-month follow-up finished by March 2025.
• AI Tools Development: Progress in AI-enabled software tools, with annual releases planned.
• SEEG Partnership: Will conclude by the end of Q3 2025, allowing focus on the RNS system.

Future Outlook

• Clinical Development: Focus on post-approval studies and trials for idiopathic generalized epilepsy and pediatric focal epilepsy.
• Market Expansion: Continued efforts with Project CARE and direct-to-consumer initiatives.
• Product Development: Emphasis on AI software and remote programming enhancements.
• Indication Expansion: Targeting broader adoption within level four centers and beyond.

Q&A Highlights

• Data Superiority: RNS data outperforms other neuromodulation devices like VNS and DBS.
• Project CARE's Impact: Contributing meaningfully to revenue.
• Trial Results: NAUGHTLIST trial follow-ups complete, with results expected before FDA submission later in the year.
• Pediatric Indication: Following a similar timeline to generalized indication, with FDA submission anticipated in the second half of the year.

The full transcript of the conference call provides additional insights into Neuropace's strategic direction and financial performance.

Full transcript - 24th Annual Needham Virtual Healthcare Conference:

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Good afternoon. Thanks for joining us again at the twenty fourth Annual Needham Healthcare Conference. I'm Mike Matson, and I lead of the tech and diagnostics equity research team at Needham and Company. I'm pleased to introduce Neuropace. Presenting from the company today, we have CEO Joel Becker and CFO Rebecca Kuhn.

Joel is going to give a presentation, and then we'll open it for questions at the end. If you do have questions you would like to ask, you could submit them through the conference website or feel free to email them to me at m batsnenetaco dot com, and I'll do my best to fit them in. So with that, I'll turn it over to Joel and Rebecca.

Joel Becker, President and CEO, Neuropace: Thank you, Mike, and thanks, Needham, for having us here today and the opportunity to present to this group as well as the full day that we've enjoyed with many of you. We've appreciated those discussions and your interest. So I'll plan to take us through a presentation on NeuroPace today. I work here, as Mike mentioned, as the President and CEO, have been with the company since July of twenty twenty three. If we go to the next slide, please.

Our disclaimer slide. Next slide. And I wanted to start our presentation in this discussion with a moment on the mission of the business. It really does guide and animate the things that we do here and catalyzes all the decisions that we make. And our mission is to transform the lives of people suffering from epilepsy by reducing or eliminating the occurrence of debilitating seizures.

We're focused on the drug resistant epilepsy population, people for whom don't get adequate control of their epileptic seizures with medical management alone and are looking for reduction or elimination of those seizures through neuromodulation with the RNS system. Medical device companies tend to be mission driven places. I can tell you, this is, the most mission driven organization I've been a part of. You can really feel the stewardship that runs through everything that we do. And so, wanted to ground everybody here in the mission of the business.

Next slide, please. The business is led by a team of which you have some of here today. We're here at the American Association of Neurology meeting, Rebecca and IR, along with Doctor. Marty Morell, our Chief Medical Officer and Kelly Necklace, who leads our commercial organization. That's a subset of a strong leadership team where we've also recently added and brought in more senior talent and capacity in our R and D marketing and HR functions as well.

So a strong underlying team that's really guiding and leading Neuropace. Next slide, please. And the business is on really very strong fundamentals. It it has taken some time to get the business there as fundamentals do, but we feel like we're in a very strong position today, and that's really characterized here in the top half of this slide. Starting with a large underpenetrated market, many of you would be aware that the epilepsy population in The United States is about three point six million people, about one point two million of those are drug resistant epilepsy patients.

So when you take one point two million patients times a device that's in the mid 40 thousands from an ASP perspective, you had a couple billion dollar immediately addressable core market with an even larger market available to us. And this is the market within our comprehensive epilepsy centers is the fifty thousand or so patients who on an annual basis cycle through comprehensive epilepsy centers and then in excess of a $50,000,000,000 total addressable market when we think about that broader one point two million patients who suffer from drug resistant epilepsy. That kind of a large market opportunity is met with a unique technology. We have the only closed loop brain responsive neuromodulation system, which can monitor, record, and then allow for tailored treatment of patients with drug resistant epilepsy. And where that unique technology shows up is in compelling best in class clinical evidence.

We have differentiated outcomes that continue to improve over time. In fact, we issued a press release this morning and some of you may have seen yesterday afternoon, Don Eliashev from UCLA. Doctor. Eliashev presented the post approval study results here at the American Association of Neurology and continued to demonstrate the superiority of the data that RNS as a unique technology affords with more data to come. And we'll talk about our clinical study efforts in the idiopathic generalized pediatric focal and LGS trials.

So those are strong pillars around which the business is executing. Business has been executing well. We'll talk about 2024, our Q4 and 2024 recently reported. Our focus has been on growing the top line, growing the top line while protecting our gross margins and demonstrating operating expense discipline. We've done that in 2024.

We grew revenue at 20% plus, 22%, actually growing faster in the second half of the year at 23% than we did in the first half of the year, while also maintaining strong operating expense discipline of OpEx growth of 7%. So 20% plus revenue growth and single digit operating expense growth with very stable gross margins showing good discipline and leverage throughout the income statement. We've also put ourselves in a position to have a strong and healthy balance sheet. We're sufficiently capitalized to support our planned operations through cash flow breakeven. Recently completed a financing as well as have made significant progress on our cash burn rate through the financial discipline mentioned above.

And all of that is then met with some significant growth opportunities in front of us that I'll spend the rest of the presentation here really looking forward around, which are expansion in making RNS available both inside and outside Level four centers, inside Level four centers by expanding adoption and utilization within those current customers, but then expanding indications into a couple of important patient populations along with then market development activities associated with expanding site of service with Project CARE, leaning into direct to consumer, an area we found to have good elasticity in terms of patient awareness and flow through for us, as well as then our product development pipeline. So we feel like today, we've got some strong fundamentals underpinning the business. We've been executing on the current business and we have significant growth in front of us. Next step. Next slide, please.

So 2024 in review, I'd given you a little bit of that, but revenue grew 22% to $79,900,000 excluding the implants from the NAUGHTLIST study, which we had in '23, but it didn't repeat in the same magnitude in '24, revenue actually grew over 25%. Some important operating milestones for the business as well, continued to expand active prescribers. So our prescribers of active prescribers being anybody's prescribed a device in the last twelve months continued to set new highs. We set highs for the year for 2024, but also in each quarter. So we continued to stair step up for new prescribers one, two.

In the second half of the year, in particular, our expansion of site of service that we call Project CARE, That pilot project began to demonstrate some increasing momentum in Q3 and Q4, so expanding into level three in community service centers, beginning to make an impact on our overall growth rate. And then finally, we did complete implants in the NAUGHTLIST trial in March of twenty twenty four as well. So went on the clock for twelve month follow-up rather, the one year follow-up in those patients starting March of twenty four and have completed that then in March of twenty five. So good good progress on Nautilus as well. Then just teeing up the product development pipeline as well.

We hadn't said quite as much about this, but if you're interested, we spent quite a bit of time in our Investor Day on the January 28 and that those materials are on our website by talking about our product pipeline, and in particular, made good progress in '24 on the development of a portfolio of AI enabled software tools that we plan to to release on a on an annual cadence here to really enable efficiency, ease of use and efficacy driven by the data and the software capability within the device. So that's a little bit of what we've accomplished here recently in 2024. Next slide, please. To ground us all, drug resistant epilepsy is a big disease. It's the fourth most common neurologic disorder in The United States, it's costly, significant both direct as well as under indirect mentioned, about one in three epilepsy patients suffer from drug resistant epilepsy.

Next slide. When we think about that drug resistant epilepsy patient population, the diagnosis and first line treatment is really medical management. And in fact, the vast majority of RNS neurostimulation usage is also and we are actually indicated conjunction with medicines. But for many of those patients, even after trying multiple medicines and combinations and dosages of those medicines, they end up as drug resistant and indicated for evaluation either for surgery or neuromodulation. Next slide.

And responsive neuromodulation is the RNS system. And so wanted to give you an overview of how the RNS system works. And the fundamental capabilities here are one, it monitors brain activity continuously. So we have an implantable pulse generator as well as two leads that monitor brain activity. The device is then able to recognize and respond to specific seizure patterns through programming of the device, both detection as well as therapy parameters are programmed into the device and then monitored through the patient remote monitor.

And then finally, the RNS system is able to uniquely record ongoing electrographic data for physicians to review that then allows for optimizing of seizure management for patients and tailoring the therapy both for them individually as well as for their disease as it changes over time. So these are the fundamental capabilities of the RNS system, which constitute that unique closed loop nature of the technology. Next slide, please. Next slide. I covered some of that already.

And so, again, where where that shows up, that unique nature of the technology shows up in the data. I'll have you click once more here, Alex, and just show you the full nature of the data. The dark blue bars in the histogram here are the original FDA study as well as our long term treatment trial. And what you can see is that interestingly, over time, rates improve. We're now up to nine years showing seventy five percent median seizure reductions in that cohort of the original treatment group.

And then in the light blue bars on the histogram here, what you see are the real world and post approval study data that that show how a couple of things. Number one, we continue to improve, and we also start at a higher level. So what that shows is that not only have we learned how to tailor individual patients over their treatment, but we've learned better where to start with patients. And, again, this is best in class data and, data that continues to improve, and we're really excited about the post approval trial data. I'd encourage everybody to read the press release and look at some of that data further.

Next slide, please. To point out a couple of things about the post approval study, it is the largest prospectively enrolled brain neuromodulation trial monitored by the FDA. This is an FDA based trial and then the largest ever done. So we have a significant both n within the study as well as level of clinical evidence that just really adds to the importance of this work being done. So a large number of patients with a very diverse location for lead placement.

The reason that's important is it allows us to demonstrate how different patient populations with seizures in different locations respond to the therapy. Some interesting findings that we found were, if you look at the bottom right of the slide here, the post approval study patients in contrast to the pivotal trial patients. Here in the post approval study, nineteen point four percent had had a prior epilepsy surgery, and that's contrasted with thirty four percent in the pivotal and long term treatment trial, which is an indicator that RNS therapy is moving up in the treatment continuum. Fewer had had prior epilepsy surgery, so patients going to RNS surgery RNS therapy before surgery. And then also very interesting, we thought that, you know, thirty two percent of the patients in the pivotal trial had had a prior VNS procedure, and only seven point seven percent in the most recent data with the post approval study had had a prior VNS.

Again, I think both of those things really owing to showing how RNS has been moving up in the treatment continuum and becoming a more and more clear choice for clinicians earlier in the therapy for drug resistant epilepsy patients. Next slide, please. And here you see the data. You can see here a significant number of patients in the trial, some really interesting parts of the data. If you look at the data table there, number one, quite quickly, even right off the bat in the first zero to six months, sixty two percent median seizure reduction.

Remember, these are patients that are not getting adequate seizure control with medicines. And if you look at that first quartile in excess of ninety percent of patients in the first quartile median seizure reduction rates, if you look at the bottom of the table here, forty two point five percent of patients had a period of seizure freedom, so complete seizure freedom of at least six months. That's a significant data point for these patients and twenty two percent of patients were seizure free for at least a year. So very encouraging seizure freedom data. And and then on the right hand side of the slide here, just importantly, some summary points about how we continue to see the data improve over time.

We see these super responders in the upper quartile both in excess of ninety percent within six months of implant and a hundred percent of patients of median seizure reduction for patients in the upper quartile at three years. And the results were better than the pivotal study because we learned a significant amount since then that both which patterns should be detected, where to place and stimulate, how we should start stimulation and then how to fine tune patients in the trial as well. So we're really excited about having this data out there now and presented. Next slide, please. The patients do have alternatives and some of those are listed here.

For about twenty percent of patients, either resection or ablation is an option. Interestingly, because of the way that we can record and monitor data, we do see use of RNS as a hybrid with surgery procedures as well. And then as I mentioned, VNS as well as DBS are also treatment options for these patients. In contrast to RNS where we have flexible ability to treat patients and tailor the therapy according to their needs, both VNS as well as DBS are more fixed in their therapeutic approach, both with regard to anatomic target as well as with regard to programming. Programming.

They're not responsive to brain activity but programmed for to be on for a period of time as well as off for a period of time. We think that those stimulation cycles result in some of the side effects that are seen that we don't see with RNS. In particular, particular, you end up delivering hours of stimulation a day with VNS and DBS, whereas on average, you get three to five minutes or so worth of stimulation where they need it, how they need it with RNS. And so we we see with ENS and DBS things like depression, memory impairment, and sleep disruption that we don't see with RNS into the in addition to the significantly better efficacy rates in terms of seizure reduction. Next slide, please.

So our focus is really on closing the treatment gap here of the number of patients that are out there versus the number of patients that move through the comprehensive epilepsy centers on an annual basis. Next slide, please. And we're really doing that by focusing on making RNS therapy more accessible. We currently are indicated in the adult focal population today with a number of initiatives initiatives designed to penetrate that as well as then, focused on expanding into the generalized epilepsy as well as pediatric focal epilepsy segments as well that have the opportunity to significantly expand our TAM. Next slide.

And we're focused on doing that with growth initiatives in three key areas of development for us. Clinical development, product development and market development, there are five key growth drivers that we have. The clinical development is really focused on our the post approval study that we published today, but coming here yet is the NAUGHTLIST IGE trial, the NEST pediatric focal work as well. From a market development perspective, two key growth drivers for us are site of service expansion with Project CARE and our expanded direct to consumer efforts. And then from a product development perspective in the near term here, our annual AI software releases and remote programming.

So those are all key growth catalysts that are underway in our development pipeline now. Next slide. Next slide, please, Alex. And one more. So here, I'll spend a little bit of time on these expansion catalysts.

Project CARE is a site of service market expansion initiative that we started as a pilot in 2024 and are now in the process of expanding. CARE is allowing us to expand beyond level four comprehensive epilepsy centers. We got a PMA supplement approved that allows us to move beyond those level four centers into level three as well as community centers. We've started that and again began to see impactful momentum in Q3 and Q4. This is important in that we can bring the therapy closer to patients by expanding into level three and community centers.

It also sets us up well for future indication expansion for those patients that won't need to be referred to level four centers, they can be treated in these community centers. Next slide, please. Secondly, indication expansion here into the idiopathic generalized population as well as in further clinical efforts in the Lennox Gastaut syndrome population. The NAUGHTLIST trial, we'll say a little bit more about, is a breakthrough designation trial for whom we've completed enrollment in implants as well as now follow-up. We have completed the follow-up here in March at twenty five, as well as in first of its kind joint venture with NIH to have them fund a feasibility study in the in the Lennox Gastaut population, a smaller population, but when they need a significant treatment, in enrollment and implants are complete there as well.

Next slide, please. So the planks in our enhanced RNS access strategy are one, increasing adoption and utilization within our level four centers. As I mentioned, we continue to increase both the number of prescribers as well as the cases that are done within the comprehensive epilepsy centers. So that's the business we've built today and the preponderance of the growth that we're seeing. And so that's really our first level of core focus.

Next. Second is the Project CARE site of service expansion, and that allows us then to bring the technology closer to patients to where they're at. Next slide, please. And then the third layer here in the strategy is indication expansion, both with regard to IgE as well as pediatrics and LGS. So multiple layers of growth strategy that are underway today and over the next two to three years will begin to impact the business.

Next slide. Next slide, please, Alex. So the financial performance of the business, can see here nice growth year on year from Q4 twenty four over Q4 twenty three and good progressive sequential quarter growth during the year as well. As I mentioned, 22% growth for the year and strong gross margin performance. Cash as of the end of twelvethirty onetwenty four was 52.8 and a pro form a cash balance post financing on the February 28 of 68,600,000.0.

Our guide for the year for 2025 is 92 to 96,000,000 in revenue, strong ongoing gross margin performance and 92,000,000 to $95,000,000 in operating expense. Next slide. So in summary, we feel like we're positioned for growth, both with regard to the way we've been executing the business and demonstrating that today as well as with future opportunities. We're focused and adoption of the system across both current as well as new customers, expanding site of service access to the technology outside of current customers, and then also expanding populations through the clinical data development work that we're doing, as well as the market development efforts associated with our direct to consumer education and the product development efforts associated with both their software as well as remote programming capability. So thank you for the opportunity to tell you about Neuropace and for the discussions today.

And again, thanks, Mike, and thanks, Tanit.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. No problem. Thanks, Joel. So I do have a few questions for you. You know, I guess, wanted to start with the the data that you showed that was just updated, I guess, at the the conference this week, you know, at the three year mark.

So it's pretty pretty interesting that the the results get better with time. It's not normally the trend you see with these types of studies. So, you know, why why do you think that's the case? Does it have something to do with, like, the feedback system feedback built in your your system? Or

Joel Becker, President and CEO, Neuropace: Mike, the data gets better because, we capture data from our patients, and that allows continuous learning about, how to best program patients. We use AIML techniques to mine this huge dataset we have of over 19,000,000 patient electrocorticogram segments, which allows us to just learn in a number of different ways. And that's really because of the closed loop nature of the system and the data that it that it provides, we're able to improve the therapy over time.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Okay. And then, you know, just how how does your data compare to competing technologies, either other neuromodulation, like VNS or DBS or even some of the drugs? And, I mean, I guess, I don't know if they all have the same sorts of endpoints. I imagine it's like seizure reductions is probably a common endpoint.

But and I don't know if you guys know this stuff off the top of your head either. But is it substantially better than these alternatives? Probably better than drugs, I would imagine.

Joel Becker, President and CEO, Neuropace: The results are substantially better than the other therapies. When we look at the neuromodulation device results at various time points, I mean, frankly, the RNS data is quite a bit better no matter what time point you pick and as you stack up that data side by side.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Okay. And then there was you guys announced recently that you ended this distribution partnership, this, SEEG agreement. Maybe you could just talk a little bit about that and why you made that

Joel Becker, President and CEO, Neuropace: decision. Sure. Fundamentally, we have so many growth catalysts lined up that are, near term. They're all in process, and we believe that our investors, our stakehold all stakeholders will be, best served if our team is just completely focused on our RNS business. The the distribution agreement had a three year term, and so, this was the logical time point to, consider whether or not to continue it.

And really, for the reasons I mentioned, we decided to not continue it after its expiration, which is the end of the third quarter of twenty twenty five. So we expect that this year will really be business as usual with distributing that product, and then there is a six month wind down period. And so as we get into 2026, our business will be RNS.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. And then I don't think you've quantified the revenue contribution from, the Project CARE program, to expand into level three centers. Can you give us any sort of anecdotes or anything about the progress you're seeing there?

Joel Becker, President and CEO, Neuropace: As Joe mentioned, we started a pilot, project, which we call project care, in 2024. As activities, we saw increasing momentum in the second half of the year. And, we haven't quantified specifically the contribution, but we but it is making a meaningful contribution, and we expect expect that to continue as we move into this year and, you know, implement what we've learned through the pilot.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Got it. And then let's see. I think you said previously that you expected all patient follow ups in NADALIST to be completed by March. So is that now done? And, you know, when when can we see the top line results and when you will you submit to the FDA?

Joel Becker, President and CEO, Neuropace: That's absolutely right. All patients have completed the one month follow-up period, in the NAWDLESS trial. Our clinical team is, busy at work with all of the steps it takes to get to an FDA submission, clinical and regulatory. And, as you may know, there's, you know, QC work necessary on the dataset, data lock, statistical analysis, communication with the FDA, making sure we're fully aligned with regard to the, statistical analysis and results. And, then and only then, well, we know the results.

It's a blinded trial, so we don't know the results today. We very much look forward to, learning the results of that trial and being able to communicate top line results, which we anticipate doing before, maybe shortly before, FDA submission in the second half of the year.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. And then can you provide any more details on the timeline for pediatric indication?

Joel Becker, President and CEO, Neuropace: The pediatric indication is following a similar timeline compared to the generalized indication where we expect FDA submission in the second half of the year. Haven't provided specifics beyond that, but, you know, similar timeline. And we're really looking forward to good results there and approval because we sure want to be able to help kids, as does the entire clinical community epilepsy community.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: And just out of curiosity, what's the I mean, what's the cutoff for for PE? Is it 16 or 18? Or

Joel Becker, President and CEO, Neuropace: We think it was 18. Our, indication today is 18 and older.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. So it did be, like, 18 down to is there a minimum? Or

Joel Becker, President and CEO, Neuropace: 18 down to TBD.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Alright. No. That's alright. Alright.

And then, you know, you did raise some additional cash in in February. So does that affect any of the timing of the the targets you set at the Investor Day back in January? Or did you take that, you know, capital raise? Did you kind of already plan for that in the the timing of everything?

Joel Becker, President and CEO, Neuropace: When we set expectations for, achieving cash flow breakeven by the end of our LRP period, meaning the end of twenty twenty seven at our Investor Day, that was without additional financing. And so now that we have completed a financing and put about $20,000,000 on the balance sheet, we feel even more confident today that we will be able to achieve cash flow breakeven by the end of our LRP period.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Okay.

Joel Becker, President and CEO, Neuropace: And that's even with the with wrapping up the distribution agreement.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Okay. Alright. Well, I think that's it for my questions. I don't see any from the, the viewers, so I think we're gonna have to wrap up there.

But thanks for coming to our conference, and, hope you had some good meetings.

Joel Becker, President and CEO, Neuropace: Thanks so much for having us. We had a very full day, and you guys always do a great job setting up meetings for us. We we really appreciate it. And thanks everyone for for meeting with us.

Mike Matson, Lead of Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. No problem. Thanks. Thanks, Mike.

Joel Becker, President and CEO, Neuropace: Take

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