NeuroPace's Stock Selloff Presents a Rare Buying Opportunity: Subgroup Wins and Strong Fundamentals Signal a Turnaround

The recent 34% plunge in NeuroPace's stock following its NAUTILUS study results has created a compelling entry point for investors willing to look beyond the headline disappointment. While the trial's failure to meet its primary endpoint in the overall population sent shockwaves through the market, a deeper dive into the data reveals a path forward that could position the company for long-term growth. This analysis highlights why the selloff is overdone and why NeuroPace (NASDAQ: NPCE) now presents a high-reward, low-risk opportunity.

The NAUTILUS Study: Disappointment, but Not a Disaster

The NAUTILUS trial, evaluating the RNS System for idiopathic generalized epilepsy (IGE), missed its primary endpoint of extending time to a second generalized tonic-clonic seizure in the full population. However, the results were far from a failure. A statistically significant response emerged in a majority subgroup of patients with lower baseline seizure frequencies—a group representing the majority of trial participants. Secondary endpoints also delivered strong signals:
- Median seizure reduction of 42% in the full population.
- 42% of patients seizure-free for six+ months (aligned with three-year focal epilepsy data).
- Responder rates (≥50% reduction) improved significantly over time.

These outcomes, coupled with the system's established safety profile, set the stage for FDA negotiations. NeuroPace is now positioned to seek an indication refinement, targeting the subgroup where efficacy was proven. This narrower path could secure approval faster than a broader label, leveraging the FDA's Breakthrough Device Designation for IGE.

Why the Market Overreacted: Subgroup = Majority Market

The subgroup's statistical significance matters because it represents most IGE patients. With generalized tonic-clonic seizures occurring infrequently in many patients, the trial's design may have overestimated the difficulty of demonstrating efficacy. NeuroPace's plan to engage the FDA with subgroup and secondary endpoint data is strategically sound.

Investors fixated on the primary endpoint's miss have overlooked two critical facts:
1. Secondary endpoints align with prior successes: The RNS System's three-year post-approval data in focal epilepsy showed an 82% median seizure reduction, proving the technology's durability.
2. FDA flexibility in subgroup approvals: The agency has precedent for approving therapies with subgroup efficacy (e.g., cancer treatments targeting specific biomarkers).

Financial Fortitude Amid Regulatory Uncertainty

NeuroPace's financial health reinforces its staying power:
- Q1 2025 revenue rose 24% to $22.5M, driven by a 29% surge in RNS System sales (excluding trial-related implants).
- Full-year guidance raised to $93–97M, reflecting confidence in core business momentum.

The company's SEEG product distribution wind-down (ending late 2025) removes a non-core distraction, allowing focus on the RNS System's growth. While the stock price reflects regulatory uncertainty, the fundamentals suggest NeuroPace can weather the storm.

Backtest the performance of NeuroPace (NPCE) when 'buy condition' is positive quarterly earnings surprises and 'hold for 90 days', from 2020 to 2025.

The Long-Term Play: Neuromodulation's Untapped IGE Market

The global epilepsy market is $20B annually, with IGE affecting ~3 million people in the U.S. alone. Current treatments (e.g., drugs, VNS) fall short for many patients, making the RNS System's precision neuromodulation a game-changer.

Even a narrow IGE indication could unlock $200–30. million in annual revenue by 2028, given the subgroup's size and the system's $100,000+ price tag. Add this to the existing focal epilepsy market, and NeuroPace's addressable opportunity expands exponentially.

Risks, but Not Dealbreakers

• FDA approval timeline uncertainty: Discussions could stretch into 2026, but Breakthrough status and subgroup data create tailwinds.
• Ongoing losses: Q1's $6.6M net loss is offset by strong cash burn management and the raised guidance.

Conclusion: Buy the Dip, Play the Long Game

The NAUTILUS results were a hiccup, not a terminal illness. NeuroPace's technology, financials, and regulatory path all point to a multi-year growth story. At current levels (~$12 post-selloff), the stock trades at a 50% discount to its 2024 highs, despite a core business growing at 20%+ annually.

Investors who act now can capitalize on two catalysts:
1. FDA engagement updates (Q3–Q4 2025).
2. Two-year NAUTILUS data (2026), which could solidify subgroup efficacy.

This is a rare chance to buy a $400M market cap medtech leader at a deep discount, with catalysts lined up to drive a rebound. The RNS System's potential in IGE is too large to ignore—this pullback is a gift.

Action Item: Accumulate NPCE on dips below $13, targeting a $20–$25 price target by 2026.