Neuropace, Inc.

Good day and thank you for standing by. Welcome to the Q3 2022 NeuroPace Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tripp Taylor, Investor Relations. Please go ahead.

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 its financial results for the third quarter ended September 30th, 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 Security 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 narrow-paces business development opportunities or projections, market conditions, clinical trials, and those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, market opportunity, revenue outlook, and commercial expansion 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 those forward-looking statements. Accordingly, you should not place undue reliance on these statements. For more detailed descriptions of the risks and uncertainties associated with our business, please refer to the risk factors section of our public filings with the Securities and Exchange Commission, or SEC, including our annual report on Form 10-K for the year ended December 31st, 2021, filed with the SEC on March 10, 2022, and our quarterly report on Form 10Q to be filed with the SEC on November 8, 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 this live broadcast on November 8, 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 now turn the call over to Mike.

Thanks, Tripp. Good afternoon, everyone, and thank you for joining us. I will start today's call with updates on our commercial progress and advancements with our clinical initiatives before turning the call over to Rebecca to provide details regarding our quarterly results and full year 2022 financial outlook. We will then open the call to questions. Our third quarter results represent increased adoption of RNS therapy. Total revenue was $11.2 million, representing growth of 8% compared to the prior year period and 9% compared to the second quarter of 2022. We drove strong initial implant revenue of $9.2 million, representing growth of 18% compared to the prior year period and 15% sequentially. Previously noted second quarter improvements in the epilepsy monitoring unit or EMU operating environment contributed to an increased patient pipeline and strong RNS system implants in the third quarter. Along with improved market conditions, awareness of the clinical benefits and differentiated features of RNS therapy is growing and resonating with physicians. Commercial and operational execution drove increased utilization of our technology within comprehensive epilepsy centers which we believe demonstrates a higher percentage of overall EMU patients being treated with the RNS system. In the third quarter, we observed stable EMU patient volumes, sustaining the improvements we observed in the second quarter operating environment. From our discussion with epilepsy centers, we anticipate continued gradual increases in the capacity for diagnostic monitoring of patients, and thus an increase in the pipeline of potential interventional therapy candidates as market dynamics normalize. Now I'd like to talk about three strategic growth objectives designed to drive increased utilization of RNS therapy and comprehensive epilepsy centers. By leveraging the expansion of our field team and distribution agreement with Dixie Medical, we are better positioned to, one, take share in EMUs, two, increase the patient flow into EMUs through expanding referral networks and DTC marketing, And three, drive adoption of the RNS system at additional comprehensive epilepsy centers or CECs. I'd like to further discuss our top focus of taking share in the EMU by treating an increased percentage of patients admitted for monitoring. We believe consistent, positive, real-world patient outcomes further proves the benefits of RNS therapy to clinicians and is an imperative factor to support increased utilization of the technology. Our team will continue to reiterate and emphasize the benefits of RNS therapy for patients. We are working to ensure clinicians include RNS as an option in their epilepsy treatment algorithms and educating them on expanded patient selection criteria for prescribing RNS. We are also prioritizing education of non-prescribing clinicians at active CECs in order to increase the overall number of prescribers. Another important initiative is identifying potential RNS patients earlier in the diagnostic process and providing patient education and awareness of the benefits of RNS therapy. Our recent agreement with Dixie Medical to distribute their stereo EEG product portfolio meaningfully improves the potential reach of these efforts by providing greater visibility and earlier touch points with providers and patients in the diagnostic and therapy selection process. We believe through earlier engagement, we can have greater influence and a stronger voice explaining the benefits of the RNS system. We expect this will have a positive impact on the RNS patient pipeline. We are off to a strong start distributing the Dixie Stereo EEG products and are pleased that the initial experience in the field has aligned with the intended strategic rationale of the agreement. As planned, our team began selling Dixie products on October 1st. Stereo EEG electrodes are used in comprehensive epilepsy centers to determine where epileptic seizures originate. The stereo EEG approach to intracranial monitoring has become the predominant approach used in the United States, with most RNS patients and most surgical resection and ablation patients being localized with stereo EEG prior to therapeutic intervention. As a reminder, the intracranial monitoring market of the United States is estimated to be between $25 to $40 million. We believe the intracranial monitoring market is growing, driven by the benefits of stereo EEG compared to the previous monitoring approaches and the adoption of newer interventional therapies, including RNS. Stereo EEG electrodes are sold to CECs, the same call point our team is focused on for the RNS system. Most RNS implanting centers are not currently using Dixie electrodes, representing an opportunity for us to take share in this market. Approximately two-thirds of patients implanted with our RNS system are admitted to the EMU for intracranial monitoring as part of the process to identify where seizures originate. Results from intracranial monitoring helps clinicians determine if the RNS system is a fit for the patient. As such, we see this as a highly synergistic opportunity for our sales force to both generate additional revenue and strengthen our RNS patient pipeline. This opportunity builds upon our prior efforts to provide earlier patient education on the benefits of RNS therapy. At the highest level commercially, the entire team will remain focused on creating a more interventional mindset for treating drug-resistant epilepsy patients in CECs. In the third quarter, we were successful integrating and training the new members of our field team who joined in the first half of the year. We expect their ramping productivity aligned to high-value opportunities, including access to patients earlier in the treatment continuum, to be a growth driver. I will now turn to provide an update on replacement implant revenue. Revenue from replacement implants was $1.9 million in the third quarter of 2022, which was ahead of our expectations. As we have discussed in the past, we continue to expect quarterly replacement revenue to sequentially decline as the remaining first-generation devices are replaced with the longer-lasting second-generation devices. To provide continued transparency, as of September 30, 2022, there were 96 patients being actively treated with first-generation devices. We do not plan to provide this metric in 2023 as it becomes less and less material. Given our historic approximately 90% replacement rate, we believe most of the remaining first-generation devices will be replaced by the end of next year. Moving to recent clinical updates. In our Q2 earnings call, we announced the start of enrollment in the Nautilus study, and we recently announced the first patient in the study was implanted with our RNS system following collection of baseline seizure information. The Nautilus study is designed to evaluate the safety and efficacy of the RNS system for the treatment of primary generalized epilepsy. We intend for the results of this study to support a PMA supplement to expand the label for the RNS system. Approximately 40% of drug-resistant epilepsy patients have generalized epilepsy. So, our work on the Nautilus study, as well as the work on the NIH-funded Lennox-Gastaut study, represent a meaningful market expansion opportunity. In addition to representing a large market opportunity, generalized epilepsy is also of specific interest because surgical resection and ablation are not appropriate for these patients, and there are no approved neuromodulation therapies. Additionally, the process to diagnose and identify patients is easier and faster than for focal epilepsy. We are focused on bringing additional Nautilus study sites online and will continue to do so through the remainder of the year to support increased enrollment throughout 2023. We are excited about the opportunity to offer the benefits of RNS therapy to more people living with epilepsy. In summary, we are pleased with the demonstrated increase in RNS therapy utilization in the third quarter. We continue to increase the pipeline of patients considering RNS and are converting patients to implants at higher rates. Our expanded sales force is ramping productivity in current accounts, working to add new prescribers, and creating patient referral networks. Additionally, the team is beginning to leverage sales of Dixie Medical Stereo EEG electrodes to engage patients earlier in the therapy selection process to educate them on the benefits of RNS therapy. Lastly, we remain committed to expanding the market opportunity for our RNS system into generalized epilepsy through execution of our Nautilus study. While the EMU operating environment remains constrained relative to past levels, we are encouraged by the stability over the past six months and encouraged by the positive commentary from clinicians regarding intentions to increase patient capacity. Looking forward, we are well-positioned to execute commercially and operationally to both expand and further penetrate the drug-resistant epilepsy treatment market. With that, I will now turn the call over to Rebecca to detail the third quarter financial results.