Good morning. I'm Josh Jennings from the TD Cowen Medical Devices team, and we are moving down the med device track here with fireside chat with executives from Ceribell who are thrilled to have for the first time as a public company. We have Jane Chao, co-founder and CEO, and Scott Blumberg, Chief Financial Officer. Jane, Scott, thanks so much for making it out east and joining us here this week.
Thank you, Josh. Thank you for having us.
Absolutely.
Can you hear me in the back?
A little bit higher.
Higher? Okay.
Maybe it's the technician. This mic may be a little bit soft in the middle.
Can you hear me?
Okay. Great. I think we're set. 2024 was a big year for Ceribell, clearly. Not only did you make the transition to becoming a public company, but you also had super strong commercial success expanding adoption of the Ceribell system. Maybe you could just take a minute and talk us through some of the milestones you achieved as a company last year, and then we'll dive into the outlook for 2025 and beyond.
Yeah, absolutely. It's a transformative year for Ceribell. I'm just going to hold it. It's easier. We grew the business by 45%, adding close to about 100 accounts. We acquired ATO, a VA System, which allowed us to roll out our entire solution that's cloud-based in the VA System. We also published significant clinical evidence, about 10 publications, including the SAFER Trial showed four days' length of stay reduction and 18% better patient outcome association. We also built a very strong team, including hiring our Chief Revenue Officer, our CPO, and the SVP of Marketing. Not to mention that we became a public company. We are very proud of what we have accomplished.
Thank you for that. I wanted to just talk about 2025 just from a high level and revenue guidance range of 24%-30% off of a strong 2024. Maybe just walk us through some of the underlying assumptions that you're making to drive that type of growth. Maybe just also, Jane and Scott, just remind us of just your philosophy on guidance as a company as you're looking to set expectations as a public company now.
Sure thing, Josh. Our guidance for the year was $81-$85 million. Nothing has been reinforced to us as a private company more than the need to achieve your guidance as a new public company. We have applied an appropriate level of conservatism there. We feel that the growth range that we have put forth, 24%-30%, is reasonable and reflects our status as a high-growth company. It is also important to remember that 25% of our revenue is from SaaS, which is very projectable, and most of our revenue is from headbands, which is recurring with our high customer retention rates and predictability of revenue.
Great. Just remind us of, I think we talked a little bit about it on the recent earnings call, just any seasonality in the business as we think about respiratory viruses, ICU concentrated admissions in different times of the year. Just walk us through kind of the cadence and any seasonality that we should be thinking of, including what you guys have well described, just those last two weeks of the year where you're not, where you've learned over the years that you may not have as strong of an initial ramp during that holiday period if those centers are getting up and running during those last two weeks.
Yeah, we do have some seasonality. I'd say it's far less than, say, companies that are subject to a capital purchasing cycle. What we see is a little less volume during the summer months and a little higher volume during the winter months, which, as you pointed out, we believe correlates with the ICU respiratory season. The other factor is one that was by design, which is every year during December, starting the second week in this past year, we held true to this philosophy. We paused launching new accounts because we found that the distraction of the winter holidays doesn't create the best environment for us to maximize utilization.
If we think about the new account add trajectory in 2024, especially in fourth quarter, you guys outpaced the street's expectations meaningfully. Maybe just talk a little bit about the strength in Q4, just on the new account add metric and that result. Then how should investors be thinking about new account additions through 2025?
We added 25 new accounts in Q4. With the openness of our philosophy of not launching in the back half of December, we were able to appropriately schedule our launches with our reps and with customers. We think it was a pretty accurate reflection of what's to come. As you know, we've made pretty significant investments in our sales force in the past six months and intend to build the team up to 55 by middle of 2025. With our sales cycle, that's more likely going to accelerate growth starting in 2026. We believe Q4 was a reasonable reflection of what's to come in the coming near-term quarters.
If we think about the, just for instance, the 25 new accounts in the fourth quarter that were added and how those accounts can ramp on the utilization side, maybe just take us through kind of a typical utilization ramp at a new center. I know there's probably many variables in terms of the size of the account, size of the number of beds, number of ICUs within the hospital, but maybe just help us think through that ramp trajectory using the 25 new accounts in fourth Q as a kind of foundation.
Yeah, so we invest a lot in our what we call launch. That's the period after purchase order and up to the first day of usage in the following 90 days. What we find is that the habits that we form in those 90 days are hard to break, both positively and negatively. We invest a lot of our commercial time on that. Once we launch, what we see is the customer will launch and use for a subset of patient populations. It is the job of our clinical account managers to reinforce that usage, but also to identify new physicians, new patient populations, and new departments to expand usage within that hospital.
Just in terms of the add to the new commercial leader, any kind of new strategies that are being adopted or being implemented? I am sure having a new veteran on the team and with a lot of experience can just help optimize some of the commercial strategy. I would love to hear what has happened to date and what is on tap for 2025 and beyond.
Yeah. The commercial strategy with the new leader is, I would say, it's more on the optimization front. Our CRO, Sean Manni, he was with Omnicell for more than a decade, so he's rather familiar with running a large-scale medical device company, public company. The area we focus even more now is how do we further elevate the hiring process and be very clear about the profile. Also, the training. We introduced an even more rigorous training process. This, we hope in the long run, can translate to even more predictable and robust productivity. The third area we focus on is really building up the sales leadership team as well. That's really the foundation of all the future success.
Great. We talked about just the strong account add performance in 2024 and more to come in 2025. I want to also just dig in on just in terms of driving higher utilization in accounts, not just new accounts, but established accounts as well. How do we think about, or just maybe give us some precedence? I think you shared some of this during the IPO process and on your quarterly calls, but just to review that ramp in utilization and kind of the typical progression as we think about three months, six months, nine months, twelve months, how long does it take for an account to kind of ramp up to max utilization or maybe most of your accounts still haven't even gotten there?
Yeah. We believe most of our accounts are only, on average, about 20%-30% penetrated in terms of all the patients they can monitor. As Scott alluded to, there are really three dimensions of growth, and we have proper process invest on. One is most of the time we're not in all the departments yet. We are often in the ICU, but how about the emergency department? How about the step-down units and the floor? The second dimension is even when we're in the departments, likely we have not trained all the providers who can order EEG because of the turnover or after-hour shift. The third dimension, even for the physicians that in the department we're in ordering our device, they might not be familiar with all the guidelines, the recent guideline on seizure management post-ischemic and hemorrhagic stroke.
We work with physicians and nurses to standardize some of the protocols that include rapid EEG. These are the different dimensions. In terms of timing, as Scott mentioned, it's rather non-linear. We don't see a typical three, six months. It depends on how they launch it. It depends on the champion and other dynamics with the specific accounts.
Understood. One of the dynamics that I feel like is probably already in play, but could get even stronger. I mean, there have been multiple society guidelines for EEG, multiple different indications, and they haven't been abided by really broadly across the United States. Now that there is a technology that is, and awareness is increasing, I mean, how much pressure do you think hospital systems are going to face to abide by the guidelines over the next 12, 24, 36 months and to get up to standard of care that Ceribell is kind of establishing this new bar?
Yeah. I think the hospitals, we definitely see a lot more uptake because of the guideline. We feel that we're still in the hospitals that are still in a relatively early adoption curve in terms of these guidelines. Most of them are not in the, say, strict quality metrics that Joint Commission and other bodies are evaluating the hospitals yet. Therefore, there's less of a negative driver. It's more about hospitals and physicians wanting to do the right thing for the patient, so they will look into it. The biggest ones are the cardiac arrest for post-cardiac arrest patients from American Heart Association and the recent post-stroke ones. We anticipate in the next few years it will be even a steeper adoption curve as we can see the future.
Great. Another element to, I mean, not only a big kind of marketing lever that your team, commercial team, can pull, but also just once a hospital has established accounts and they experience it. I mean, I would imagine some of our consultants have shared this with, but the ability to take DRG reimbursement and add that MCC code on top of it and drive reimbursement even higher per admission, because most of these patients are kind of in the hospital, like to stay as long in their kind of loss centers for hospitals, maybe just on both sides of both of those two buckets, how impactful is that as you're trying to drive new center adoption? Also, how impactful is it driving higher utilization? Because if they detect seizure during an admission, that DRG reimbursement can be as much as double, right?
Yeah. On the account acquisition front, the newest development last year is the big SAFER Trial publication that we show four days length of stay shorter compared to conventional EEG. That really resonates with physicians as well as administrators. The previous publication we showed both DRG code can be potentially higher as well as really reduce patient transfer. All the CFOs are very incentivized, motivated to keep their patients in their hospital. They do not want to transfer patients out just because of EEG. On the driving adoption front, we rolled out a new process called quarterly business review. Our team would sit down with the physicians and the key administrators and use their own data to show, "Look, you reduced this much intubation, therefore avoided potentially this much ICU length of stay. You reduced the patient transfer.
We identified this many seizures that could potentially translate to proper reimbursement. That started to resonate as well because hospitals sometimes forgot about why they bring the device. They constantly need to be reminded and revalidated.
Great. We talked a little bit about expectation setting early in the discussion, but looking out at the operating expense guidance for 2025, you're investing, stepping up in R&D. I want to just review just the cadence of sales and marketing spend and G&A spending. As you mentioned, you guys are well aware that investors are tracking how these out of the gate of an IPO, not just the revenue performance, but also the expense control and this path to profitability ultimately.
Sure. Yeah, we were very fortunate to have raised an upsize IPO. We went to market intending to raise $100 million and ended up raising $189 million net. We have a wealth of opportunities to invest. Our first principle, of course, is the capital we have is sufficient to achieve breakeven. We feel very confident in that. Where we see the biggest opportunity for investment, as you pointed out, is R&D. We have a lot of projects that we have looked at and have a multi-year pipeline that we intended to invest sequentially, and some of those we will pull in and invest in parallel. We are starting this year by building out our R&D org so we have the manpower to pursue some of those projects.
On the commercial front, we're really focused on this commercial build that we started back in Q3 where we're expanding our territory management team to 55. As we go and learn about the core metrics of success of that org, we may choose to pause and optimize, or we may choose to keep going. We're going to evaluate the facts in front of us at the time as we look at more commercial investment. On G&A, we made fairly substantial investments last year to make sure we had the infrastructure appropriate to run the business as a public company. I think we'll see a little more operating leverage out of that part of the org. Acknowledging that now we're public, we've got a larger stock-based, non-cash stock-based comp expense to eat.
Great. You mentioned the ramping up to 55 territory managers by the end of 2Q. Where are you finding these new team members? I mean, how long is that? I think you've already mapped it out by the end of 2Q to get to 55. What is the kind of ideal background you're looking for in these candidates?
Yeah, we look for talents who usually have done complex sales before. That could be capital sales, but it doesn't have to. It's usually talent with a challenger mindset, which often translates to they have sold disruptive technology before, not just me-too technologies. The specific skill sets we're also looking for is someone who can quickly learn both on the clinical front as well as the health economics front because you have to be able to articulate both. Our talent tends to be less pure relationship-driven sales, but really selling on concepts. They need to be very organized so they can get different stakeholders together. ICU and ED experience are not necessary, more as a plus side. Overall, we don't see a particular company that we target, but we see companies that either sold disruptive ICU technology before or technology that completely transformed care.
It takes about three months to fill a position, to answer your question.
About three months. Once they're hired, what's the kind of getting them to full productivity, I guess, for territory managers? They're managing some of the other team members, but is that another three months or so before they're fully kind of secure in their position and have gotten their arms around the role and are able to be productive?
It's a bit longer when it translates to revenue contribution. You're probably right. It's three or four months when they get comfortable in the role. You have to run the sales process. You have to run the launch process. It is probably more like a year before they start contributing revenue. The beauty of the model is with the complete handoff of the relationship to the clinical account manager, once you've made that investment, there's no ceiling as to what they can do. They keep acquiring accounts, building accounts, and then handing them off. We do not run into capacity limitations that we've seen in other companies.
Great. Just to stick on the P&L below the revenue line, gross margins, Ceribell's gross margins are stellar, delivered mid to high 80% range. There are some tariffs that are being put in place and maybe stepping up a little bit, but just review the gross margin cadence over the course of the year and how the impact of tariffs is already baked into that guidance.
We secure our headband, most of the build from China. We do the final inspection and labeling in the U.S., and then we assemble our recorder entirely in the U.S., but with parts internationally, including China. We are subject to tariffs. Our 88% gross margins in Q4 and 87% for the full year of 2024 included a 25% tariff. Now we are subject to 35% and then maybe 45% soon. We have previously said and continue to believe that even with the presumptive doubling of tariffs from that 25%, we should still be able to have margins in the mid to high 80% range. Of course, we have a number of contingency plans in place to the extent that the economics make it favorable to move or the political situation does.
Just in that setting, hypothetical scenario, I mean, with the contingency plan, how long could it take to kind of execute that and reoptimize the gross margin trajectory?
Yeah. We have invested heavily in automation of our manufacturing process, really started during COVID, right? Securing global supply chain has been our top priority even before the whole tariff changes. We are not reactive. To directly answer your question, it depends on where we want to relocate to. Let's say if we want to relocate to another country in Asia, that might take, say, less than a year. If we might, say, want to relocate back to the US, that might take a little bit longer because then we'll do it more from in-house instead of leveraging OEM. Either way, we are not talking about a three, five-year horizon. We feel very well positioned.
In the interim, you're still looking at mid-80s gross margins, maybe just a touch lower if the situation evolves negatively.
Correct. Yeah. We're in the high end of mid to high 80s, and we'll be looking at a few points lower, but still in the mid to high 80% range.
Great. I wanted to touch on the pipeline. There's a lot of exciting developments on tap here in 2025 and beyond. I think in the nearest term, there's potential 510(k) clearance for Clarity in pediatric patients and then a Neonate Clarity algorithm submission plan in 2026. Just help us think through those opportunities and the TAM expansion potential with those indications coming on board.
Yeah. The pediatric population, the TAM is probably more marginal in that most of the PICU is a smaller population. Most kids do not get as sick. And even when they are in the ICU, they do not typically have stroke or cardiac arrest, which are the top population that have seizure. That is a smaller market. However, we see pediatric opportunity more in the emergency department. Kids are actually more subject to having seizure. You could argue the threshold that goes to the ED because of seizure also is lower. When they arrive in the ED, the doctor orders everything except EEG because EEG is usually not available. We see the pediatric population bundled with our initiative and effort in the ED expansion. NICU is slightly different. Actually, a neonate who ends up in the ICU is a pretty large population.
There is a very high prevalence rate of seizure. Very similar to adult, there is a low availability of EEG. You could argue having a very, very young brain having seizure, the cognitive consequences are even higher. We are not quantifying NICU market yet because we are planning to submit next year. As we understand this market even more, we will provide further guidance. This directionally also opened the market of older children, about 200-plus children's hospitals in the US that we have a couple, but we have not formally targeted yet. When we gain both NICU and PQ, that naturally will be another market focus we can tap into.
Great. Delirium is another indication that you guys have been working on and have, I think, a unique opportunity to access. It is a big problem for hospitals and patients, even more importantly. You guys have talked about submitting the filing later this year. I think our understanding is there is a potential for the FDA to require a 510(k) or a de novo 510(k) pathway. Maybe just help us think through the elements of that decision with the FDA. Is there an expectation internally for one path or the other? Sorry for the multi-tiered question, but just thinking, could a de novo pathway kind of create a bigger competitive moat because the requirement is a little bit higher, or is that not really a factor in your thinking?
Yeah. Currently, there's no EEG device approved for delirium. That's why we're exploring both 510(k) as well as de novo. However, FDA does have a category with psychiatric disorder with EEG. That's why 510(k) is potentially on the table. We'll gain a lot more clarity there. In terms of do we want to pursue de novo as a strategic advantage, the current thinking is we want to get the product to the market as soon as possible. If 510(k) is on the table, we probably would pursue 510(k).
Understood. Maybe just to help frame up the opportunity a little bit as well, in thinking maybe, I mean, I think you've educated us and we're aware of what a problem this is for hospitals and patients and their families. How challenging is delirium to diagnose? Maybe walk us through the current standard of care and why the Ceribell system could have such a big impact.
Yeah. It's a disease state that impacts a huge number of patients in the ICU. It has severe, significant clinical health economic outcome impact. Current standard of care has major holes, gaps. I walk all the three points. The first one, it impacts a big number of ICU patients. For patients that are on the mechanical ventilator, 50-80% of these patients have delirium. If they're not on the ventilator, it's about 30-50%. Basically, when you walk in the ICU, about half of the patients have delirium. Delirium has been proven to be affiliated and associated with much longer lengths of stay in the ICU and also the post-ICU cognitive neurological outcome. There are one study showed that patients are much more likely to acquire dementia if they had delirium in the ICU as well.
The current standard of care is a process called a CAM-ICU. It's a nursing procedure. Nurses would ask a set of questions. The challenge with that is multiple-fold. One is it's subjective. It depends on the nursing training, especially post-pandemic. Many nurses are not properly trained. There's a big variability or accuracy in terms of diagnosing delirium. Second, it's only in the best centers, they do twice per day. You only get a spot check. You don't have a continuous monitoring. The third challenge is that it's binary. The result will say, yes, have delirium, no, no delirium. The reality of this disease state is a continuing neurological abnormality. The patient is dynamic as well, similar to seizure. The patient can go in and out of delirium.
Potentially have a quantitative, objective, and continuous monitoring indicator for this disease state can significantly improve the patient management.
Great. Just to take that next step around patient management, standard of care, I think it's very challenging for the nursing staff and for providers in general to take the time to run through this delirium testing. I think sensitivity and specificity is very, very low. In a scenario where the Ceribell system is approved and being used on that patient management side, maybe just talk us through how impactful that could be. I mean, my understanding is that there could be patients that aren't diagnosed with delirium. They may get sent to a rehabilitation center. They need to be readmitted to the hospital. All those costs just start to add up. Maybe just add to how you see Ceribell being so impactful in not only diagnosing delirium, but also on the patient management side.
Yeah. We're obviously in the process of really ironing out the next level of how this can specifically change patient workflow. To your point, at high level, we see that the device could potentially make detection of delirium earlier, right? Because many hospitals actually don't have a nursing team that actually does the CAM-ICU. The earlier detection means earlier management, shorter lengths of stay potentially. The second dimension, of course, more accurately detecting delirium so that it's a proper management for the patient. The third one is potentially the continuous monitoring is important because it's not the single medication you can give to delirium. Doctors have to go through very complicated management pathways. Sometimes it takes them one or two days to know whether or not they are on the right track.
Having a continuous quantitative indicator can potentially guide the physicians, having more additional information to manage their patient better. That could translate to less patient transfer, less readmission, shorter lengths of stay, potentially better outcome. All those need to be studied and proven after we launch the product. We'll do what we have done with seizure and show that we can actually deliver those clinical impact.
I think there may be another just cost savings opportunity because, I mean, a lot of these delirium patients get worked up even further. Maybe if you make that diagnosis earlier, you're saving some of those maybe imaging costs, MRIs, CT scans, and just the strain on the provider team and trying to figure out what's going on, lab tests, et cetera, et cetera.
100%. One thing to your point I forgot to mention is there is an overlap between delirium and seizure patient because the symptom or the manifestation for the patients are similar. This patient is confused. Is it seizure? Is it delirium? This is another power of differentiating. If you figure out seizure or delirium, then you might not need that additional CT.
Great. I did not do justice here. We have one minute left to talk about the stroke indication. Maybe I think you have 200 patients enrolled. You may have seen the data. If you have, I mean, or not, either way, we can just talk about how the optimism for the Ceribell system to unlock access to stroke diagnosis, how that's built over the last 12-24 months, and how confident are you that you can achieve approval for stroke indication?
Yeah. We're very pleased and very excited about what we have on the stroke study front. The nature of the trial is to acquire EEG signal that's very, very close to imaging, to CT or CTA. Based on our knowledge, it's probably the first time any company were able to, any institute were able to acquire EEG in the stroke patient pathway where every minute counts, right? With that 200 patients, we are using that data to train the algorithm to see whether or not EEG signal can become a triage tool for stroke. We'll continue investing and expedite the patient enrollment on stroke in addition to the 200 this year. We are optimistic that with even more patients, the algorithm can become even more accurate. It's too early to comment on the confidence level and the FDA pathway.
We are very excited and committed to this new indication.
Outstanding. I think we ran up against the buzzer here. Jane, Scott, thanks so much for joining us for the 45th Annual TD Cowen Healthcare Conference. Great to see you in person. Congratulations on the first couple of quarters out of the gate as a public company.
Thank you for having us, Josh.