NeuroPace Inc

Previous wording

Since our inception, we have generated significant losses. We have financed our operations primarily through sales of our products, issuance of equity securities, and debt financing. As of June 30, 2024, we had an accumulated deficit of $520.2 million, cash, cash equivalents and short-term investments of $55.5 million, and $59.0 million of outstanding debt under a term loan, net of debt discount and issuance costs.

Current wording

Since our inception, we have generated significant losses. We have financed our operations primarily through sales of our products, issuance of equity securities, and debt financing. As of September 30, 2024, we had an accumulated deficit of $525.7 million, cash, cash equivalents and short-term investments of $56.8 million, and $59.3 million of outstanding debt under a term loan, net of debt discount and issuance costs.

Previous wording

In August 2022, we entered into an exclusive distribution agreement, or the Distribution Agreement, with DIXI Medical USA Corp., or DIXI Medical, pursuant to which we became the exclusive U.S. distributor of DIXI Medical’s stereo electroencephalography, or Stereo EEG, product line beginning in October 2022. DIXI Medical is a subsidiary of a European company that pioneered the development of Stereo EEG electrodes and related products. These products are used in the epilepsy monitoring units, or EMUs, of comprehensive epilepsy centers to determine where epileptic seizures originate. In addition to providing us with an incremental revenue stream, the DIXI Medical partnership provides us with improved visibility of patients moving through the EMUs, many of whom may be candidates for our RNS System. This synergistic partnership leverages our field organization that is already calling on the same customers and supports our objective to engage earlier in the diagnostic and therapy selection process. DIXI Medical provides us with ongoing commercial support and supplies the DIXI Medical products we order.

Current wording

DIXI Medical is a subsidiary of a European company that pioneered the development of Stereo EEG electrodes and related products. These products are used in the epilepsy monitoring units, or EMUs, of comprehensive epilepsy centers to determine where epileptic seizures originate. In addition to providing us with an incremental revenue stream, the DIXI Medical partnership provides us with improved visibility of patients moving through the EMUs, many of whom may be candidates for our RNS System. This synergistic partnership leverages our field organization that is already calling on the same customers and supports our objective to engage earlier in the diagnostic and therapy selection process. DIXI Medical provides us with ongoing commercial support and supplies the DIXI Medical products we order.

Previous wording

We derive revenue from sales of our RNS System to hospital facilities both for initial RNS System implant procedures and for replacement procedures when our implanted devices reach end of service. We launched our current neurostimulator model in 2018. This device has an average battery life of nearly eleven years, an increase from the previous model of the device. We expect that the percentage of our revenue from replacement procedures may continue to decrease over the next few years as a result of the extended replacement cycle of the newer device. In addition, a change in procedure mix between initial and replacement procedures may have a negative impact on our gross margin. We also derive revenue from sales of DIXI Medical products. A change in product mix between sales of our RNS System and DIXI Medical products would cause variability in our gross margin.

Current wording

We derive revenue from sales of our RNS System to hospital facilities both for initial RNS System implant procedures and for replacement procedures when our implanted devices reach end of service. We launched our current neurostimulator model in 2018. This device has an average battery life of nearly eleven years, an increase from the previous model of the device. We may experience changes in the percentage of our revenue from replacement procedures over the next few years as a result of the extended replacement cycle of the newer device, which may cause variability in our gross margin. We also derive revenue from sales of DIXI Medical products. A change in product mix between sales of our RNS System and DIXI Medical products would cause variability in our gross margin.

Previous wording

Revenue increased by $2.7 million, or 17%, to $19.3 million during the three months ended June 30, 2024, compared to $16.5 million during the three months ended June 30, 2023. The increase in revenue was primarily due to an increase in the number of RNS System units sold and an increase in sales of DIXI Medical products. Substantially all of our revenue, with the exception of $0.1 million in the three months ended June 30, 2024, was generated from sales in the United States.

Current wording

Revenue increased by $4.6 million, or 28%, to $21.1 million during the three months ended September 30, 2024, compared to $16.4 million during the three months ended September 30, 2023. The increase in revenue was primarily due to an increase in the number of RNS System units sold and an increase in sales of DIXI Medical products. All of our revenue, with the exception of less than $0.1 million in both of the three months ended September 30, 2024 and 2023, was generated from sales in the United States.

Previous wording

Cost of goods sold increased by $1.3 million, or 15%, to $9.9 million during the six months ended June 30, 2024, compared to $8.6 million during the six months ended June 30, 2023. The increase was primarily due to the increase in sales volume. Our gross margin increased from 72.1% for the six months ended June 30, 2023, to 73.5% for the six months ended June 30, 2024 primarily due to lower fixed costs per unit as a result of increased production volume of the RNS System, partially offset by the lower gross margin from distribution of DIXI Medical products.

Current wording

Cost of goods sold increased by $1.4 million, or 34%, to $5.6 million during the three months ended September 30, 2024, compared to $4.2 million during the three months ended September 30, 2023. The increase was primarily due to the increase in sales volume. Our gross margin decreased from 74.5% for the three months ended September 30, 2023, to 73.2% for the three months ended September 30, 2024, primarily due to lower gross margin from distribution of DIXI Medical products.

Previous wording

Selling, general and administrative expenses decreased by $0.2 million, or 1%, to $14.3 million during the three months ended June 30, 2024, compared to $14.5 million during the three months ended June 30, 2023. This decrease was primarily due to a decrease of $0.6 million in personnel-related expenses, partly offset by an increase of $0.3 million in sales, field support and marketing costs, including travel.

Current wording

Selling, general and administrative expenses increased by $0.5 million, or 4%, to $13.9 million during the three months ended September 30, 2024, compared to $13.4 million during the three months ended September 30, 2023. This increase was primarily due to an increase of $0.6 million in sales and marketing personnel-related expenses, partially offset by a decrease of $0.2 million in general and administrative expenses.

Previous wording

Interest expense increased to $2.2 million for the three months ended June 30, 2024, compared to $2.1 million for the three months ended June 30, 2023, due to an increase in average balances of our Term Loan as a result of using the PIK option for interest whereby we added part of the interest due to the Term Loan's principal balance instead of paying it in cash for the payment dates from April 2022 through June 2024. Interest income increased by less than $0.1 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to higher interest yields in the three months ended June 30, 2024, partially offset by a decrease in average balances of our money market funds and short-term marketable securities.

Current wording

Interest expense was $2.2 million for both of the three months ended September 30, 2024 and 2023, due to an increase in the average balance of our Term Loan as a result of using the PIK interest option for the payment dates from January 2023 through June 2024, offset by the lower effective interest rate during the three months ended September 30, 2024. Interest income decreased by less than $0.1 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to a decrease in average balances of our money market funds and short-term marketable securities, partially offset by higher interest yields in the three months ended September 30, 2024.

Previous wording

Other income (expense), net was $0.1 million during the three months ended June 30, 2024, compared to $0.1 million during the three months ended June 30, 2023, and primarily consists of unrealized gain, net on short-term investments in the three months ended June 30, 2024 and 2023.

Current wording

Other income (expense), net was $0.2 million during the three months ended September 30, 2024, compared to $0.1 million during the three months ended September 30, 2023, and primarily consists of unrealized gain, net on short-term investments in the three months ended September 30, 2024 and 2023.

Previous wording

Revenue increased by $6.4 million, or 21%, to $37.4 million during the six months ended June 30, 2024, compared to $31.0 million during the six months ended June 30, 2023. The increase in revenue was primarily due to an increase in the number of RNS System units sold and an increase in sales of DIXI Medical products. Substantially all of our revenue, with the exception of $0.1 million in the six months ended June 30, 2024, was generated from sales in the United States.

Current wording

Revenue increased by $11.0 million, or 23%, to $58.4 million during the nine months ended September 30, 2024, compared to $47.4 million during the nine months ended September 30, 2023. The increase in revenue was primarily due to an increase in the number of RNS System units sold and an increase in sales of DIXI Medical products. All of our revenue, with the exception of $0.2 million in the nine months ended September 30, 2024 and less than $0.1 million in the nine months ended September 30, 2023, was generated from sales in the United States.

Previous wording

Cost of goods sold increased by $0.6 million, or 13%, to $5.1 million during the three months ended June 30, 2024, compared to $4.5 million during the three months ended June 30, 2023. The increase was primarily due to the increase in sales volume. Our gross margin increased from 72.5% for the three months ended June 30, 2023, to 73.4% for the three months ended June 30, 2024 primarily due to lower fixed costs per unit as a result of increased production volume of the RNS System, partially offset by the lower gross margin from distribution of DIXI Medical products.

Current wording

Cost of goods sold increased by $2.7 million, or 21%, to $15.5 million during the nine months ended September 30, 2024, compared to $12.8 million during the nine months ended September 30, 2023. The increase was primarily due to the increase in sales volume. Our gross margin increased from 72.9% for the nine months ended September 30, 2023, to 73.4% for the nine months ended September 30, 2024 primarily due to lower fixed costs per unit as a result of increased production volume of the RNS System, partially offset by the lower gross margin from distribution of DIXI Medical products.

Previous wording

Research and development expenses increased by $1.2 million, or 12%, to $11.8 million during the six months ended June 30, 2024, compared to $10.6 million during the six months ended June 30, 2023, primarily due to an increase of $1.2 million in personnel-related expenses, including stock-based compensation, and an increase of $0.7 million in product development and clinical trial expenses. The increases were offset in part by an increase of $0.7 million in grant funds received primarily under the NIH funding agreement which are recognized as a reduction in research and development expenses.

Current wording

Research and development expenses increased by $2.2 million, or 14%, to $17.6 million during the nine months ended September 30, 2024, compared to $15.4 million during the nine months ended September 30, 2023, primarily due to an increase of $1.9 million in personnel-related expenses, including stock-based compensation, and an increase of $1.0 million in product development and clinical trial expenses. The increases were offset in part by an increase of $0.7 million in grant funds received primarily under the NIH funding agreement which are recognized as a reduction in research and development expenses.

Previous wording

Selling, general and administrative expenses increased by $1.5 million, or 5%, to $29.4 million during the six months ended June 30, 2024, compared to $27.9 million during the six months ended June 30, 2023. This increase was primarily due to an increase of $1.2 million in personnel-related expenses driven by an increase in our sales and field support personnel during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, and an increase of $0.5 million in sales, field support and marketing costs, including travel. The increases were offset in part by a decrease of $0.3 million in general and administrative costs, primarily insurance.

Current wording

Selling, general and administrative expenses increased by $2.0 million, or 5%, to $43.3 million during the nine months ended September 30, 2024, compared to $41.3 million during the nine months ended September 30, 2023. This increase was primarily due to an increase of $1.8 million in personnel-related expenses driven by an increase in our sales and field support personnel during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, an increase of $0.4 million in sales, field support and marketing costs, including travel, and an increase of $0.2 million in expenses related to commercial operations. These increases were partially offset by a decrease of $0.4 million in general and administrative expenses, including insurance.

Previous wording

Interest expense increased to $4.4 million for the six months ended June 30, 2024, compared to $4.1 million for the six months ended June 30, 2023, due to an increase in average balances of our Term Loan as a result of using the PIK option for interest whereby we added part of the interest due to the Term Loan's principal balance instead of paying it in cash for the payment dates from April 2022 through June 2024 and to an increase in the Term Loan interest rate from 12.5% to 13.5% effective March 1, 2023. Interest income increased by $0.1 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to higher interest yields in the three months ended June 30, 2024, partially offset by a decrease in average balances of our money market funds and short-term marketable securities.

Current wording

Interest expense increased to $6.6 million for the nine months ended September 30, 2024, compared to $6.3 million for the nine months ended September 30, 2023, due to an increase in the average balance of our Term Loan as a result of using the PIK interest option for the payment dates from January 2023 through June 2024. Interest income increased by $0.1 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to higher interest yields in the nine months ended September 30, 2024, partially offset by a decrease in average balances of our money market funds and short-term marketable securities.

Previous wording

Other income (expense), net increased by $0.9 million to $0.2 million during the six months ended June 30, 2024, compared to $(0.7) million during the six months ended June 30, 2023, primarily due to unrealized gain, net on short-term investments in the three months ended June 30, 2024.

Current wording

Other income (expense), net increased by $1.0 million to $0.4 million during the nine months ended September 30, 2024, compared to $(0.6) million during the nine months ended September 30, 2023, primarily due to unrealized gain, net on short-term investments in the nine months ended September 30, 2024.

Previous wording

We have financed our operations primarily through sales of our products, issuance of equity securities and debt financing. As of June 30, 2024, we had cash, cash equivalents and short-term investments of $55.5 million and $59.0 million outstanding under the Term Loan, net of debt discount and issuance costs.

Current wording

We have financed our operations primarily through sales of our products, issuance of equity securities and debt financing. As of September 30, 2024, we had cash, cash equivalents and short-term investments of $56.8 million and $59.3 million outstanding under the Term Loan, net of debt discount and issuance costs.

Previous wording

In November 2022, we entered into a Sales Agreement with Leerink Partners LLC, or Leerink, to sell shares of our common stock, from time to time, through an at-the-market, or ATM, equity offering program under which Leerink will act as our sales agent and pursuant to which we may sell common stock for aggregate gross sales proceeds of up to $50.0 million. In November 2023, we received net proceeds of approximately $7.6 million from the sale of shares of common stock pursuant to our ATM offering program, after deducting sales commission and offering expenses. As of June 30, 2024, we have $41.9 million remaining under our ATM program.

Current wording

In November 2022, we entered into a Sales Agreement with Leerink Partners LLC, or Leerink, to sell shares of our common stock, from time to time, through an at-the-market, or ATM, equity offering program under which Leerink will act as our sales agent and pursuant to which we may sell common stock for aggregate gross sales proceeds of up to $50.0 million. In November 2023, we received net proceeds of approximately $7.6 million from the sale of shares of common stock pursuant to our ATM offering program, after deducting sales commission and offering expenses. During the three months ended September 30, 2024, we received net proceeds of approximately $2.8 million after deducting sales commissions and offering expenses. As of September 30, 2024, we have $38.8 million remaining under our ATM program.

Previous wording

The Term Loan bears interest at a rate of 13.5% per year. Payments under the loan are made quarterly with payment dates fixed at the end of each calendar quarter. From January 2023 through June 2025, we had the option to pay interest as follows: 8.5% per annum in cash and 5.0% per annum PIK by increasing the principal of the Term Loan. For each payment date from January 2023 through June 2024, we elected the PIK option.

Current wording

The Term Loan currently bears interest at a rate of 13.5% per year. Payments under the loan are made quarterly with payment dates fixed at the end of each calendar quarter. From January 2023 through June 2025, we had the option to pay interest as follows: 8.5% per annum in cash and 5.0% per annum PIK by increasing the principal of the Term Loan. For each payment date from January 2023 through June 2024, we elected the PIK option.

Previous wording

The Term Loan was interest-only through September 30, 2023, which was extended to September 30, 2025 in connection with the closing of our IPO. Following the interest-only period, principal payment will be due in one installment on September 30, 2025. In May 2024, we amended the Term Loan to extend the final maturity by one year to September 30, 2026 and eliminate the PIK interest option after June 30, 2024. The Term Loan includes a fee upon repayment of the loan equal to 10% of the aggregate principal amount being prepaid or repaid.

Current wording

The Term Loan was interest-only through its original final maturity of September 30, 2025. Following the interest-only period, principal payment would have been due in one installment on September 30, 2025. In May 2024, we amended the Term Loan to extend the final maturity by one year to September 30, 2026 and eliminate the PIK interest option after June 30, 2024. The Term Loan includes a fee upon repayment of the loan equal to 10% of the aggregate principal amount being prepaid or repaid.

Previous wording

We expect to incur continued expenditures in the future in support of our commercialization efforts in the United States. In addition, we intend to continue to make investments in clinical studies, development of new products, and other ongoing research and development programs. We may incur additional expenses to expand our commercial organization to support our continued growth. We may incur additional expenses to further enhance our research and development efforts and to pursue commercial opportunities outside of the United States. We lease our office and manufacturing facilities in Mountain View, California under a non-cancelable operating lease which expires in June 2030. Future minimum lease payments under non-cancelable operating leases were $18.8 million as of June 30, 2024. See Note 5 to our unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Current wording

We expect to incur continued expenditures in the future in support of our commercialization efforts in the United States. In addition, we intend to continue to make investments in clinical studies, development of new products, and other ongoing research and development programs. We may incur additional expenses to expand our commercial organization to support our continued growth. We may incur additional expenses to further enhance our research and development efforts and to pursue commercial opportunities outside of the United States.

Previous wording

Based on our current planned operations, we expect that our cash, cash equivalents and short-term investments will enable us to fund our operating expenses for at least 12 months from the issuance of our unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Current wording

Based on our current planned operations, we expect that our cash, cash equivalents and short-term investments will enable us to fund our operating expenses for at least twelve months from the issuance of our unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Previous wording

•our revenue and cost projections related to the DIXI Medical distribution agreement;

Current wording

•our revenue and costs related to the DIXI Medical distribution agreement;

Previous wording

Net cash used in operating activities was $11.4 million for the six months ended June 30, 2024. Cash used in operating activities was primarily a result of the net loss of $16.4 million, adjusted for non-cash charges of $8.0 million and change in operating assets and liabilities of $3.0 million. The non-cash charges primarily consisted of $5.1 million of stock-based compensation, $1.4 million of interest incurred but paid-in-kind, $0.8 million of amortization of right-of-use assets and $0.5 million of non-cash interest expense related to our Term Loan. The change in operating assets and liabilities was due to a decrease in accrued liabilities of $3.4 million largely due to accrued payroll and related expenses, a decrease in operating lease liabilities of $0.8 million, an increase in inventories of $0.2 million largely due to an increase in work-in-process inventory partially offset by a reduction in raw materials and finished goods, and a decrease in deferred revenue of $0.3 million, offset in part by a decrease in accounts receivable of $1.1 million, and a decrease in in prepaid expenses and other assets of $0.7 million.

Current wording

Net cash used in operating activities was $13.2 million for the nine months ended September 30, 2024. Cash used in operating activities was primarily a result of the net loss of $21.9 million, adjusted for non-cash charges of $11.2 million and change in operating assets and liabilities of $2.5 million. The non-cash charges primarily consisted of $7.7 million of stock-based compensation, $1.4 million of interest incurred but paid-in-kind, $1.2 million of amortization of right-of-use assets, $0.7 million of non-cash interest expense related to our Term Loan, offset in part by a gain on short-term investments of $0.3 million. The change in operating assets and liabilities was due to a decrease in operating lease liabilities of $1.2 million, a decrease in accrued liabilities of $1.1 million largely due to accrued payroll and related expenses, an increase in inventories of $1.1 million largely due to an increase in work-in-process inventory and raw materials, and a decrease in deferred revenue of $0.3 million, offset in part by a decrease in accounts receivable of $0.8 million, and a decrease in in prepaid expenses and other assets of $0.6 million.

Previous wording

Net cash used in operating activities was $14.1 million for the six months ended June 30, 2023. Cash used in operating activities was primarily a result of the net loss of $19.5 million, adjusted for non-cash charges of $8.3 million and change in operating assets and liabilities of $2.9 million. The non-cash charges primarily consisted of $4.8 million of stock-based compensation, $1.3 million of interest incurred but paid-in-kind, $0.7 million of amortization of right-of-use assets, $0.5 million of non-cash interest expense related to our Term Loan and $0.7 million of loss from short-term investments. The change in operating assets and liabilities was due to an increase in accounts receivable of $3.4 million primarily due to an increase in sales of our RNS System and DIXI Medical products, an increase in inventories of $0.4 million largely due to an increase in raw materials partially offset by a reduction in work-in-process inventory, a decrease in operating lease liabilities of $0.7 million, and a decrease in accounts payable of $0.2 million primarily due to the timing of payments to our vendors, offset in part by a decrease in prepaid expenses and other assets of $1.1 million, and an increase in accrued liabilities of $0.8 million.

Current wording

Net cash used in operating activities was $16.4 million for the nine months ended September 30, 2023. Cash used in operating activities was primarily a result of the net loss of $26.8 million, adjusted for non-cash charges of $12.1 million and change in operating assets and liabilities of $1.7 million. The non-cash charges primarily consisted of $7.2 million of stock-based compensation, $2.0 million of interest incurred but paid-in-kind, $1.1 million of amortization of right-of-use assets, $0.8 million of non-cash interest expense related to our term loan and $0.6 million of loss from short-term investments. The change in operating assets and liabilities was due to an increase in accounts receivable of $3.8 million primarily due to an increase in sales of our products including our RNS System and DIXI Medical products, an increase in inventories of $0.2 million largely due to an increase in raw materials partially offset by a reduction in work-in-process inventory, a decrease in operating lease liabilities of $1.1 million, and a decrease in accounts payable of $0.8 million, primarily due to the timing of payments to our vendors, offset in part by a decrease in prepaid expenses and other assets of $1.5 million, and an increase in accrued liabilities of $2.6 million primarily due to an increase in personnel-related expenses.

Previous wording

Net cash provided by investing activities was $5.6 million for the six months ended June 30, 2024, which primarily consisted of sales of short-term investments of $5.8 million, partially offset by purchases of property and equipment of $0.2 million.

Current wording

Net cash provided by investing activities was $7.0 million for the nine months ended September 30, 2024, which primarily consisted of sales of short-term investments of $7.3 million, partially offset by purchases of property and equipment of $0.3 million.

Previous wording

Net cash provided by investing activities was $15.4 million for the six months ended June 30, 2023, which primarily consisted of sales of short-term investments of $15.5 million, partially offset by purchases of property and equipment of $0.1 million.

Current wording

Net cash provided by investing activities was $19.6 million for the nine months ended September 30, 2023, which primarily consisted of sales of short-term investments of $19.7 million, partially offset by purchases of property and equipment of $0.1 million.

Previous wording

Net cash provided by financing activities was $0.6 million for the six months ended June 30, 2024, which primarily consisted of proceeds from the issuance of common stock under employee plans of $1.3 million, partially offset by taxes withheld and paid related to net share settlement of equity awards of $0.7 million.

Current wording

Net cash provided by financing activities was $3.5 million for the nine months ended September 30, 2024, which primarily consisted of $2.9 million of net cash proceeds from our At-the-Market offering and proceeds from the issuance of common stock under employee plans of $1.3 million, partially offset by taxes withheld and paid related to net share settlement of equity awards of $0.8 million.

Previous wording

Net cash used in financing activities was $0.1 million for the six months ended June 30, 2023, which primarily related to taxes withheld and paid related to net share settlement of equity awards of $0.2 million and payment of deferred offering costs of $0.1 million, which amounts were partially offset by receipt of proceeds from the issuance of common stock under employee plans of $0.2 million.

Current wording

Net cash used in financing activities was $0.1 million for the nine months ended September 30, 2023, which primarily consisted of taxes withheld and paid related to net share settlement of equity awards of $0.2 million and payment of deferred offering costs of $0.1 million, partially offset by proceeds from the issuance of common stock under employee plans of $0.2 million.