NeuroPace (NPCE) Q2 Earnings call transcript Aug 13, 2024

In the second quarter of 2024, NeuroPace reported a solid performance, with a 17% year-over-year revenue growth to $19.3 million. The growth was primarily driven by the sales of the RNS System and DIXI Medical SEEG products. The company's strategic focus on expanding access to the RNS System, particularly in Level 4 centers, has contributed to this revenue growth.

Joel Becker, NeuroPace's Chief Executive Officer, highlighted the company's three-part growth strategy of expanding, adoption, and utilization. The company has been successful in increasing adoption and utilization of the RNS System in Level 4 centers by training more epileptologists and expanding the number of new RNS prescribers. The annual market opportunity for drug-resistant epilepsy patients within Level 4 centers is estimated to be over $2 billion, indicating significant opportunities for growth.

NeuroPace is also making progress in the second phase of its long-term growth strategy of expanding access to RNS therapy outside Level 4 centers through the Project CARE program. The program has shown encouraging early metrics, particularly in the number of patient referrals associated with it. The company is currently in the pilot phase of the program and is seeing an increasing number of referrals from the program into Level 4 centers for RNS implants.

The third phase of NeuroPace's growth strategy is focused on expanding the approved indications for the RNS System. The NAUTILUS study, which requires evaluation of a primary safety endpoint and an effectiveness evaluation 12 months post implant, is expected to complete the 1-year follow-up in the first quarter of 2025. If approved, the RNS System would be the first device with an FDA-approved indication for generalized epilepsy, representing a highly meaningful market expansion opportunity.

NeuroPace's exclusive partnership with DIXI Medical to market and sell their diagnostic electrodes and related products for epilepsy has also contributed to revenue growth. The partnership provides NeuroPace with an additional opportunity to call on physicians at the CECs, and the sales team can utilize the DIXI Medical products to generate more sales.

In the financial results for the second quarter of 2024, NeuroPace reported a revenue of $19.3 million, representing a 17% year-over-year growth. The company's gross margin improved to 73.4%, primarily due to an increase in volume as the fixed manufacturing overhead costs were spread over more units. Operating expenses grew by only 3% due to the focus on driving revenue growth while effectively managing operating expenses. Net loss was $7.5 million for the quarter, down from $9.1 million in the second quarter of 2023. The company's cash and short-term investments balance as of June 30, 2024, was $55.5 million, with a long-term borrowings total of $59 million.

NeuroPace's guidance for 2024 revenue is expected to be in the range of $76 million to $78 million, an increase of approximately 16% to 19%. This growth is expected to be mostly driven by an increase in sales of the RNS System, with growth from the sales of DIXI Medical products continuing to make a meaningful contribution. The company expects its gross margin to be in a range of 72% to 74% for 2024, although there may be small variability due to fluctuations in the proportion of DIXI Medical revenue to overall revenue and other factors. Operating expenses for 2024 are expected to range between $80 million and $84 million, including approximately $12 million in stock-based compensation and noncash expense.

The tone and sentiment during the call were positive, with management expressing confidence in the company's performance and future growth prospects. The company's focus on expanding access to the RNS System, particularly in Level 4 centers, and the progress in the Project CARE program are key positives. The successful completion of the NAUTILUS study and the potential for an FDA-approved indication for generalized epilepsy further highlight the company's potential for growth and market expansion.

Investors and analysts were particularly interested in the Project CARE program, with questions about the referral sources and the potential for future growth outside of Level 4 centers. NeuroPace's management provided insights into the increasing number of referrals from the program into Level 4 centers, indicating the impact of the program in generating broader awareness of RNS therapy and educating physicians and centers on which patients are good candidates. The company's focus on professional education and commercial activities to support the Project CARE program is expected to contribute to future growth.

Overall, NeuroPace's second quarter 2024 earnings call highlights a solid performance and a positive outlook for the company's future growth. The focus on expanding access to the RNS System, particularly in Level 4 centers, and the progress in the Project CARE program are key positives. The potential for an FDA-approved indication for generalized epilepsy further underscores the company's potential for market expansion and growth. Investors and analysts will be closely watching the company's progress in executing its growth strategy and expanding the approved indications for the RNS System.