Neuropace, Inc.

Good afternoon, and welcome to NeuroPace's first quarter earnings conference call. At this time, all participants are listening on remote. We'll be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Matt Baxo from the Gil Martin Group for a few introductory comments.

Thank you, operator. Good afternoon, and thank you for participating in today's call. Joining me from NeuroPace are Mike Favit, CEO, and Rebecca Kuhn, CFO. Earlier today, NeuroPace released financial results for the first quarter ended March 31, 2022. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including those around NeuroPACES clinical trials and those relating to our operating trends and future financial performance, FDA approvals, the impact of COVID-19 on our business, and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunity, revenue outlook, commercial expansion, product performance, and product pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward-looking statements. Accordingly, you should not place under-reliance on these statements. For a more detailed description of the risks and uncertainties associated with our business, please refer to the risk factor section of our Public Violence with the Securities and Exchange Commission, or SEC, including our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 10, 2022, and our quarterly report on Form 10-Q to be filed with the SEC on May 12, 2022, as well as any reports that we may file with the SEC in the future. This conference call contains time-sensitive information, which we believe is accurate only as of the live broadcast on May 12, 2022. Neuropace disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I will turn the call over to Mike.

Thanks, Matt. Good afternoon, everyone, and thank you for joining us. For today's call, I will provide opening comments and a business update, followed by Rebecca, who will provide additional detail regarding our quarterly results in full year 2022 financial outlook before opening the call to Q&A. Moving on to our quarterly results. We started the year strong, generating $11.4 million of total revenue for the first quarter of 2022. Initial implant revenue in the first quarter of 2022 was $8.8 million and came in above the top end of the first quarter guidance range. We experienced significant business disruption from January through early February, primarily as a result of the Omicron variant, resulting in one of our most COVID impacted periods to date. We rebounded nicely in the second half of the quarter. Specifically, in the second half of February, we saw a marked improvement in procedure volumes from January levels. Our business improved further in March when we saw a meaningful uptick in implant procedure volumes, which we believe to be a combination of rescheduled procedures from earlier in the quarter and new procedures. Given the COVID-19-related challenges faced in the early part of the quarter, we are pleased with our results. Although we experienced a nice recovery fueled in part by rescheduled implant procedures in March, we believe that severe COVID-related disruptions in January and February caused a significant reduction in the number of patients coming through epilepsy monitoring units or EMUs during that time. The patients coming through the EMU diagnostic process feed the pipeline for our RNS system implants. We believe that the EMU volumes largely returned to 2021 levels in March, as the impact from Omicron subsided, but that the reduced number of patients coming through the EMUs in the first half of Q1 will limit the number of patients implanted with the RNS system in the second quarter. Given what we saw in the first quarter of 2022, we believe that we remain on track for our 2022 revenue guidance of $45 to $48 million, as well as meeting our 2022 target of approximately 10% growth in centers implanting our RNS systems. Without additional COVID disruptions, we also expect that the number of patients coming through the EMU diagnostic process will return to pre-pandemic levels and continue to grow. We believe that there is a growing backlog of patients at the EMUs, both as a result of the most recent disruptions in the first half of the quarter, as well as the longer-term impacts of the COVID-19 pandemic. It typically takes approximately six months from initial EMU admission until the implant of an RNS system. Given this, we believe that our growth in 2022 will be driven by commercial execution, resulting in an increasing number of centers implanting our RNS system and increased utilization within those centers. We expect that longer-term growth will be assisted by an increasing number of patients coming through the diagnostic process. In anticipation of an improving environment with increasing EMU patient volumes, We previously announced a number of commercial initiatives. Specifically, we are on track with our accelerated field hiring plan with many of the new hires already in place. The larger field team will allow us to increase focus on epilepsy specialists who practice outside of level four centers. This provides additional market opportunity for our business. We plan to educate these epilepsy specialists about the RNS system. helping them collaborate with CECs to have our RNS system implanted. Through these relationships, we can make RNS therapy available to a larger number of patients with ongoing device programming and patient management provided by epilepsy specialists practicing outside the Level 4 CECs. We believe that the ability to have device monitoring and oversight done locally will have a significant benefit to patients. Of note, we are resuming in-person physician education events starting this summer for the first time since the start of the pandemic, and our field team access to customers has improved significantly. We believe this trend is a leading indicator of improved clinician engagement and future adoption. We are also driving demand generation by identifying and educating drug-resistant epilepsy patients earlier in their treatment journey as they consider treatments beyond medication. We are expanding our marketing programs, including an increase in digital and social advertising, lead generation efforts, and patient ambassador connections. As we connect with more RNS candidates earlier in their care journey, our patient education team will provide information about NeuroBase's RNS system and guide appropriate patients through the process. Moving on to recent clinical updates and future indication expansion opportunities. We remain on track to start enrolling patients around the middle of the year in our Nautilus pivotal trial to support a PMA supplement to expand our indication to include primary generalized epilepsy. While we are still early in our pursuit of generalized epilepsy indication expansion, we are excited about what this would mean for our business and for patients. In addition to expanding the RNS indication to cover a larger number of patients, there are important differences from our current focal epilepsy patient population that make this an excellent opportunity for our RNS therapy. Surgical resection and ablation are not appropriate for treatment of generalized epilepsy, and there are no other approved neuromodulation therapies for this patient population. We believe that the diagnostic process for generalized epilepsy will be faster and simpler than for focal epilepsy with less need for EMU evaluation and no need for invasive monitoring. Upon FDA approval, we expect a relatively fast commercial rollout because we anticipate selling to the same physicians who are already treating focal epilepsy patients using the same neuro-based device. We are excited to begin enrollment in the Nautilus study and look forward to an indication expansion into this underserved patient population. Next, I would like to provide an update on replacement implant revenue. As stated last quarter, we received approval from the FDA to update our labeling to claim an estimated average battery life of nearly 11 years under typical use conditions. This updated label represents more than a two-year increase from our previously approved labeling, and we have been actively marketing this benefit to customers. Early customer feedback has been very positive, as a longer battery life removes an important barrier for initial implant adoption and gives us a distinct competitive advantage over other neuromodulation devices for epilepsy, which have much shorter expected battery life. Revenue from replacement implants was $2.6 million in the first quarter of 2022, which came in slightly above the top end of our Q1 guidance range. Due to the timing of when the first-generation implants are replaced, There can be variations quarter to quarter. That said, replacement revenue trends remain in line with our expectations and historical replacement rates. To provide continued transparency, as of March 31, 2022, there were 207 patients being actively treated with first-generation devices. Replacement revenue trends remain unchanged, and we continue to expect quarterly replacement revenue to sequentially decline throughout the year, with a full year 2022 replacement revenue of approximately $6 million. In summary, we started the year strong, despite meaningful COVID headwinds in the first half of the quarter, and continue to make significant progress on key strategic initiatives. On the clinical side, we remain on track to begin enrolling patients in the Nautilus study around mid-year. which will be an important step to expand the market opportunity for our R&S system. On the commercial side, we increased the number of centers implanting our R&S system in the first quarter and are on track with our field team expansion and patient demand generation initiatives. All of these position us well as we anticipate EMU patient volumes increasing, leading to more patients being deemed candidates for our R&S system. With that, I will turn the call over to Rebecca, Neuropace's Chief Financial Officer.