Neuropace, Inc.

Good afternoon and welcome to Neuropace's first quarter earnings conference call. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Tripp Taylor from Gilmartin 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 Babbitt, CEO, and Rebecca Kuhn, CFO. Earlier today, NeuroPace released financial results for the first quarter ended March 31st, 2023. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal security 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 NeuroCase's business opportunities, 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 on 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 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 SEC, including our annual report on Form 10-K for the year ended December 31st, 2022, filed with the SEC on March 2nd, 2023, and our quarterly report on Form 10-Q for the quarter ended March 31st, 2023 to be filed with the SEC, 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 May 4th, 2023. 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 today. Today, I will highlight our first quarter performance and provide an update on our key business priorities for the year. I will then turn the call over to Rebecca to detail the financial results before we open the call to questions. To begin, our strong commercial and operational execution led to record revenue in the first quarter. Total revenue was $14.5 million, representing growth of 27% compared to the prior year period and 13% compared to the fourth quarter of 2022. The strong performance was driven by increased utilization of the RNS system within comprehensive epilepsy centers, or CECs, and contributions from our Dixie Medical Distribution Partnership, which began in the fourth quarter of 2022. As expected, replacement implant revenue continued to decline compared to prior quarters and now represents less than 10% of total revenue. With our continued focus on expense management, we increased revenue in the first quarter without a corresponding increase in expense compared to the fourth quarter of 2022. Based on the strong underlying fundamentals of our business, we now expect full year 2023 total revenue of $52 to $54 million, up from our original expectation of $50 to $52 million. Growth in 2023 will continue to be driven primarily by increasing utilization of the RNS system within CECs, coupled with our first full year selling Dixie medical products. Overall, I am pleased with the progress we have made with our strategy, and I'm happy to see epileptologists recognizing the differentiated features and benefits of our RNS system. Our customers reported that epilepsy monitoring unit, or EMU, Patient volumes have remained stable over the last year. While we continue to believe that patient volumes are not all the way back to pre-pandemic levels, they continue to show signs of improvement. Now I will discuss our commercial objectives in more detail. To increase utilization of the RNS system and support our initial implant revenue growth in 2023, our strategy concentrates on three objectives. One, expanding patient selection. Two, managing the patient pipeline. And three, driving adoption of the RNS system with new prescribers and additional implanting centers. Our first quarter 2023 results demonstrate that awareness of the clinical benefits of the RNS system is growing as we continue to develop a strong presence amongst epileptologists and neurosurgeon customers. We remain focused on highlighting the need to close the treatment gap so that more of their patients can realize the life-changing benefits provided by our products. Specifically, our team continues to educate physicians on the benefits of the RNS system and the importance of providing advanced treatment to their drug-resistant epilepsy patients. As we share and discuss the clinical evidence that supports expanding patient selection criteria to the full scope of RNS systems indication, we are seeing improvements in utilization. We are working to actively manage the patient pipeline within the CECs. We are identifying and educating potential RNS patients at an earlier stage in their treatment journey, which we believe is crucial to increasing RNS system adoption. Our patient education and marketing programs enable us to convert more patient leads to RNS system implants. Patient leads are being identified through our field team working with the CECs and through direct-to-consumer campaigns. We leverage NeuroPACE nurse navigators to guide the patients in our pipeline through the diagnostic process. Additionally, our team, along with a network of RNS patient ambassadors, provide in-depth patient education on the benefits of our RNS system. We are very pleased with the results of the first two quarters distributing the Dixie Medical Stereo EEG products in the United States. This product line is driving additional revenue through our commercial team, and has enabled us to identify and interact with potential RNS candidates earlier in their patient journey. As a reminder, stereo EEG electrodes are used to determine where epileptic seizures originate. Most RNS patients and most surgical resection and ablation patients in the United States are being localized with stereo EEG prior to therapeutic intervention. Over time, we believe that we can grow the revenue from Dixie Medical products by leveraging our large epilepsy-focused commercial team to convert competitive accounts and leverage this product line to accelerate adoption of our RNS system. We are making good progress in our efforts to increase the number of implanting centers and prescribing positions. With our expanded field team, we are calling on additional CECs and increasing the number of prescribing positions. Improving patient access to care by increasing the number of providers utilizing the RNS system is an important part of our effort to close the treatment gap. We are doing this by expanding professional education programs and through the work of our field team. Moving to our clinical trial updates, we continue to make strong progress in our top clinical priority, the expansion into generalized epilepsy. As a reminder, this represents a meaningful market expansion opportunity as approximately 40% of drug-resistant epilepsy patients have generalized epilepsy. Diagnosis of these patients is simpler and faster than for focal epilepsy because it does not require advanced diagnostics, and there are few treatment options because resection and ablation are not applicable, and no neuromodulation therapy is approved for this patient group. Enrollment of the approximately 100 patients in the Nautilus study is on track to be completed in the first quarter of 2024. As a reminder, the primary endpoint is evaluating the safety and efficacy of the device at a one-year follow-up evaluation after implantation. We intend for the results from this study to support a PMA supplement to expand the RNS system indication to include the treatment of primary generalized epilepsy. Additionally, our NIH-funded feasibility study for patients with Lennox-Gastaut syndrome, a type of symptomatic generalized epilepsy, continues to progress as planned. We look forward to potentially providing an optimal solution for an unmet need amongst this patient population. To summarize, we are off to a great start for the year, executing across the entire business. Increasing utilization of the RNS system at CECs drove growth and initial implant revenue, and our team is gaining traction with the distribution of the Dixie Medical Stereo EEG products. We are invigorated by the increasing utilization trajectory and remain focused on ensuring patients receive the care that they need. Our Nautilus Pivotal Study for Primary General Epilepsy and the NIH Study for Lennox-Gastaut Syndrome are progressing as planned. We successfully accomplished all of this while continuing to improve our cash burn trajectory. We believe our recent achievements keep us well positioned for a successful 2023. With that, I will now turn the call over to Rebecca to review our first quarter financial results.