Neuropace, Inc.

Good afternoon and welcome to NeuroPace's second quarter 2023 earnings conference call. As a reminder, this conference is being recorded. I would now like to turn the call over to Irena Ridley, Chief Legal Officer and Head of Investor Relations for a few introductory comments.

Good afternoon. Thank you for joining us for NeuroPace's second quarter 2023 financial and operating results conference call. On today's call, we will hear from Joel Becker, Chief Executive Officer, and Rebecca Kuhn, the Financial Officer. Earlier today, NeuroPace released financial results for the second quarter ended June 30, 2023. A copy of the press release is available on the company's website at neuropace.com. Before we begin, I would like to remind you that throughout this call, we will make statements that include forward-looking statements within the meaning of federal security 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 Neuropace's projections, business opportunities, commercial expansion, 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, estimates of market opportunity and forecasts of market and revenue growth 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 31, 2022, filed with the SEC on March 2nd, 2023. Our quarterly report on Form 10-Q for the period ended March 31, 2023, filed with the SEC on May 4th, 2023. And our quarterly report on Form 10-Q for the quarter ended June 30th, 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 August 8, 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 NeuroPACE's Chief Executive Officer, Joel Becker. Joel?

Thank you, Irina, and good afternoon, everyone. It is my pleasure to be here with you today on my first quarterly earnings call with NeuroPace. I'm excited about and committed to advancing our company's mission to transform the lives of people living with epilepsy with RNS therapy. I'm pleased with what I've seen in the solid underlying fundamentals of the business, excited by the opportunities that lie ahead, and committed to leading NeuroPace to deliver on our commitments of consistent revenue growth, operating discipline, and effective cash management. I'm also very thankful for the opportunity to lead the talented and experienced team at NeuroPace. On today's call, I will provide highlights from the second quarter of 2023 and review our key business priorities for the remainder of the year. I will then turn the call over to our CFO, Rebecca Kuhn, to present the details of financial performance for the quarter before opening the call to Q&A. I'm pleased to report total revenue was $16.5 million, representing growth of 62% compared to the prior year period and 14% compared to the first quarter of 2023. The strong performance was primarily driven by increased utilization of the RNS system within comprehensive epilepsy centers, or CECs, revenue contribution from our partnership with Dixie Medical to distribute their SEEG electrodes in the United States, and implants of our RNS system in the Nautilus study. As we've previously communicated, replacement implant revenue continues to decline as we complete our transition to our second generation device with a longer lasting battery. It now represents approximately 5% of total revenue and is expected to decline further in the second half of 2023. Given the strong underlying fundamentals of the business, we are raising full year 2023 revenue guidance to range between $59 million and $61 million up from $52 million to $54 million and from our original expectations of $50 million to $52 million at the start of the year. I am committed to delivering consistent and repeatable operating results and I look forward to updating you on our progress. Through a disciplined and focused effort on expense management, cash burn has been significantly reduced. from $9.8 million in the first quarter of 2023 to $4 million in the second quarter of 2023 without compromising revenue growth. Cash burn improvement was primarily driven by three components, revenue growth, gross margin improvement, and expense management, all of which will be key areas of focus as we continue to grow and scale the business. We remain committed to ongoing financial discipline with a focus on appropriate resource allocation and expense management. I now want to update you on the core elements of our business that comprise of the rationale for our change in guidance before providing some initial thoughts on where I will be focused as I continue to dive deeper into the business. Our commercial strategy is focused on closing the treatment gap for drug-resistant epilepsy patients by expanding access to RNS therapy. Expanding access to RNS therapy is comprised of expanding patient access to and treatment within CECs, expanding patient indications for the RNS system, and expanding the number of clinicians and centers with access to RNS therapy. With regard to CECs and currently indicated patients, The number of new RNS system implants in the second quarter demonstrates that recognition of our RNS system's distinct features and benefits continues to grow, despite our belief that patient volumes in the epilepsy monitoring units, or EMUs, have not yet entirely returned to 2019 levels and corresponding growth rates. We believe that patient volumes will continue to improve, providing an even greater funnel of patients that could benefit from our RNS system. We have recently made changes to our sales leadership and, as previously communicated, have accelerated the growth of our commercial field organization. The new members of our field organization are now moving through their training cycle and are beginning to be able to more fully contribute to our commercial efforts. We look forward to demonstrating the impact to expanding RNS therapy access that this expanded team can make over time. Through our partnership with Dixie Medical, we are identifying and educating additional prospective RNS patients earlier in their treatment journey. Additionally, our nurse navigators and patient ambassadors are working with patients that come into our funnel either through referral, Dixie Medical, or through our direct-to-consumer campaigns to address patient questions or to testify firsthand as to the benefits of our RNS system. We believe that our clinician and patient education efforts as well as our marketing programs are contributing to the growth in initial implants and will lead to more patients being able to benefit from our RNS system. We have continued to be encouraged by the ongoing durability of our results. As we have previously communicated, not only has RNS therapy demonstrated exceptional results in our regulatory clinical studies, RNS patient real-world outcomes were even better than those seen in the pivotal trial, with patients achieving 82% median seizure frequency reductions at three years. This seizure frequency reduction rate has not been seen in any published studies from our competitors. In fact, a recently published study from a competitor's patient registry demonstrated substantially worse outcomes in real-world patient populations and routine clinical practice than had been observed in their controlled clinical trial and reinforced concerns related to side effects of non-responsive stimulation, such as memory impairment and depression. We are also working to simplify and make the delivery of RNS therapy more efficient. In line with those efforts, we are excited to launch in the third quarter our updated NSIGHT software tool designed to improve patient care by enhancing efficiency of case and patient data management. As an important part of our efforts to expand the populations of patients indicated for RNS therapy, we remain on track with our plans to expand our RNS systems indication into generalized epilepsy and expect to complete enrollment in our Nautilus trial in the first quarter of 2024. We are also pleased to announce that we have completed implanting our first cohort of patients in our groundbreaking NIH-funded feasibility study in Lennox-Gastaut syndrome, or LGS, a type of symptomatic generalized epilepsy. As a reminder, approximately 40% of drug-resistant epilepsy patients have generalized epilepsy. Given that localization is not necessary, diagnosis is typically easier and faster than for focal epilepsy. Few treatment options exist for patients with drug-resistant generalized epilepsy, as resection and ablation are not appropriate for this cohort of patients, and there are currently no neuromodulation therapies approved for this indication. We believe that expanding into generalized epilepsy will be meaningful to both our business and our mission. With regard to expanding clinician and site access to RNS therapy, in my first four weeks, I've identified what I believe to be a significant opportunity that will be an important part of our strategy and our market development efforts going forward. As a result of a PMAS approval from the FDA that has expanded RNS therapy site and clinician qualification requirements, Neuropace will now have the opportunity to target the additional approximately 1,800 epileptologists outside of level 4 CECs and the entire population of functional neurosurgeons, empowering them to provide the RNS system as a much-needed treatment option for their patients. We believe that with this program qualification expansion, we now have an opportunity to help a significant number of epilepsy patients who would not have been referred to level four CECs to access RNS therapy in the community setting, as well as enabling the potential for increased referrals to level four CECs. A fully developed strategy will take time and will be the topic of additional future commentary. but we have already begun accelerating our initial market development efforts around this opportunity and are currently working through the targeting and qualification process with a number of pilot sites. I'm excited about this opportunity to offer our RNS system through a significantly expanded group of epileptologists and functional neurosurgeons and expect this to be a core area of focus for NeuroPACE in doing our part to help close the drug resistant epilepsy patient treatment gap. I plan to keep you updated going forward on our threefold commercial expansion strategy and want to reiterate my commitment to executing on our plans of consistent revenue growth, operating discipline, and cash management. Finally, before we review our financial performance over the last quarter in detail, I would like to recognize the many contributions from Mike Favitt over the past four years. His execution with the team has brought NeuroPace to the position of solid footing on which we find ourselves today. And I, along with the rest of the management team, the board, and all of NeuroPace's employees, thank him for his efforts. With that, I will now turn the call over to Rebecca to review our strong second quarter financial results. Rebecca?