Hey, everyone. Good morning. I'm Lily Lozada. I'm on the MedTech research team here at J.P. Morgan, and I'm happy to have the NeuroPace management team with us here today. I'll pass it over to CEO Joel Becker for a presentation, and then we'll do some Q&A.
Good morning. Thank you, Lily. Thank you to J.P. Morgan as well for having us, and thanks to all of you for being with us here, bright and early on a Thursday morning, and to everybody joining. My name is Joel Becker. I'm the President and CEO of NeuroPace, and I'm excited to be here with our leadership team members of our leadership team to tell you about who we are and what we do, our current status, and why we're excited about where we're headed. So with that, I'll get right to it. Please note our disclaimers. I'll start with who NeuroPace is. It's best defined by our mission. You can see it here, and that is to transform the lives of people suffering from epilepsy by reducing or eliminating debilitating seizures.
This mission, this mission really animates everything we do as a company, and we are a very mission-driven culture focused on helping patients improve their lives and address the debilitating seizures that impact them. So who we are is also captured here from a business perspective with a number of highlights that go around the demographics of NeuroPace, as it were. We start with the large, under-penetrated market and the fundamental unmet need that we see here, in particular in drug-resistant epilepsy patients. Our core comprehensive market is greater than a $2 billion original market within Comprehensive Epilepsy Centers, and the broader U.S. addressable market is greater than $50 billion in the drug-resistant epilepsy population. We address that population with a unique technology.
It is a closed-loop, responsive neuromodulation system, the only one, a unique and differentiated technology, and I'll spend some time talking about that as well. That technology has generated some highly compelling clinical evidence, evidence that is differentiated, and importantly, has demonstrated an ability to improve over time. We're now out a number of years with our original study, and that data continues to improve, as does the real-world registry data. So we're particularly excited about what a differentiated technology can do in demonstrating clinical outcomes in this drug-resistant population. We're focused on operating execution. We've been demonstrating momentum, both in accelerating revenue growth as well as from an operating discipline perspective and reducing our cash burn, and so getting good leverage through the way we're utilizing resources, and I'll spend a little bit of time talking about that as well.
That has resulted in a healthy balance sheet. We've got sufficient capital to execute on our operating activities at least through mid-2026, and in addition to everything that we've got going on in the current business, we see a number of future growth opportunities as well that we think are compelling and we're excited about. So I'll spend some time talking about that. I feel like we've demonstrated an ability to build momentum here, and I feel like we're really well positioned for 2024 and beyond, and I'll talk a little bit about why I think that is. So that's all supported and led by a strong and experienced management team. Some of those folks are with me in the front row today. And some of the folks that are back home as well.
Here you can see, people with a diverse set of experiences and background at a number of, highly significant companies from an experience perspective as well. So, in addition to having a compelling opportunity and a fundamentally differentiated technology, we're extremely well-led organization as well. So what we do, we treat epilepsy, and in particular, we treat patients that have drug-resistant epilepsy. To give you some perspective, epilepsy is a disorder that starts in the brain and is caused by abnormal electrical activity that then manifests as seizures. It is the fourth most common neurologic disorder in the United States, and there are significant direct medical costs to patients who suffer from epilepsy. And in addition to the direct medical costs, as you might imagine, people, patients who suffer from epileptic seizures, their lives are highly impacted.
I think, a note there here on the slide would indicate a 2-3 times higher unemployment rate among epilepsy patients. You can imagine what unpredictable and frequent seizures can do to your ability to have the life that you'd like, whether that's hold a job or drive a car or have the relationships that you'd like. It has a significant impact on both the quality as well as the capability within people's lives. Sadly, even further, drug therapy, medical management, which is where patients start, has been shown to be unable to control those seizures in 1 in 3 patients. So about 1/3 of those patients, even though, they're under subspecialist management and receiving drug therapy, go on a multi-year drug odyssey that results in them being drug-resistant to being managed with epileptic medications.
That's really where we come in with neuromodulation and device-based procedures. So as I mentioned, about a third of patients are drug refractory. And what the journey that these patients are on, they start by being diagnosed with epilepsy, and then there are multiple medications that these patients are managed on through a subspecialty of neurology, either a neurologist or a subspecialist that's known as an epileptologist. Many of these patients try multiple drugs and multiple combinations of drugs, and the guidelines indicate that once a patient has failed two anti-seizure medications, they should be referred for advanced intervention, including neuromodulation, even if they're not a candidate for surgical resection.
What we know over time, what we've seen, is that once a patient fails two anti-seizure medications, the chances are 95% that they'll be drug resistant and additional medicines won't be effective in treating their epilepsy as well, and those numbers go up from there in terms of failing additional medications. So that results again in that about one in three population at about 1.2 million patients in the U.S. being drug refractory. That's where we come in. The RNS System, Responsive Neuromodulation System, that we've developed and provide to the epilepsy community, the drug-resistant epilepsy community. It is an implantable pulse generator with two different leads that sense and then treat patients with drug-resistant epilepsy. You can see the device itself on the slide here.
What I'd call your attention to is really the banner that goes across the top of the slide, which is monitoring, recognizing, and respond, and recording seizure data. As I mentioned, this is a differentiated technology in that it is the only technology that has the ability to continuously monitor the patient's brain activity, recognize and respond to when it begins to see the patient-specific seizure pattern, and then record that information as well, both for a clinician to be able to review and then to be able to tailor programming for that patient over time. So as a patient is treated and as a patient's disease evolves, we're able to tailor and program the device both individually for that patient, as well as then to treat the patient most effectively.
That then results in the data being able to be downloaded so that the physician can review it and analyze that data remotely, as well as then program the device. Here you can see just a schematic of the actual flow of the data where we identify the triggers. We're able to also see effects in therapy changes and then program the device and monitor the patient for the future. As I mentioned, the device and the technology are supported by a significant amount of best-in-class clinical data. Here you can see in the dark blue bars, this is the median seizure reduction percentage in drug-resistant epilepsy patients over time. The dark blue bars are original FDA study.
You can see that the data has continued to improve over time, where now we're more than 9 years out, and in that cohort of the population, we're showing a 75% median seizure reduction. Then on the left-hand side of the slide, the lighter blue bars you can see is our real-world registry data, and that data also has continued to improve over time and is actually better than the pivotal trial data that we've seen. You can see that not only is that data continuing to improve over time, it also starts at a higher point, and I think that's really emblematic of all that we've learned over time for how to program patients and how to start programming patients.
So in addition to the ability to tailor the therapy and tailor the therapy over time, which continues to contribute to patients improving over time, we've learned about how to program patients more generally and where best to start. As a result, showing 3 years in, an 82% reduction in median seizure rates in patients in our real-world registry data, which we're particularly excited about here as that data develops as well. There are alternatives as patients are evaluated in being drug resistant. Those alternatives do tend to have significant risks and side effects as well. One of the alternatives is surgery or ablation.
As you might imagine, a surgery and/or an ablation by definition, they're irreversible and destructive procedures, and as a result, it does remove some flexibility in terms of how a patient will be treated going forward. There are risks associated with memory, and loss of, in some cases, vision or part of the visual field, depending on the area that's impacted by the surgery or the ablation. About 20% of patients are considered ideal candidates for surgery. But as I mentioned, there are associated risks with that as well. Similarly, there are some neuromodulation competitors in the field. They don't offer the flexibility or the responsive nature of what the RNS System provides.
One of the things that is particularly important to think about here is, with the ability to sense and tailor therapy, the RNS System only delivers electrical stimulation when a patient needs it. So we can sense when that pre-epileptic seizure activity starts, and we deliver therapy then. With other neuromodulation therapies, it's what's known as a duty cycle approach. So the device is programmed, and it's on for a certain period of time and off for a certain period of time, whether the patient is seizing or not seizing. So where that ends up manifesting is in the amount of electrical stimulation delivered to the brain. The RNS System, on average, in the studies that I showed you, the RNS System, on average, delivers minutes of therapy per day per patient and only when the patient needs it.
Duty cycle therapies deliver hours of electrical stimulation to a patient's brain per day, whether they need it or not. As you might imagine, it turns out when you look at adverse event rates, if you don't need to stimulate someone's brain, you shouldn't, and when you need to stimulate someone's brain, you should, at the right levels and within the right programming parameters. That manifests in things like, 15% or so adverse event rates with other therapies and things like memory loss, mood impairment, depression, sleep disorders, and so higher complication and adverse event rates with lower efficacy rates as a result of not being able to tailor the therapy to what the individual patient needs and dose the therapy to when the patient needs it.
The current market, the current population focus, is really in what we call the Level 4 Comprehensive Epilepsy Centers. There are a couple—150-200 of those centers here in the United States that are referral centers for this drug-resistant epilepsy population for the RNS System. There are about 50,000 patients a year that are managed in those centers, and about 6,500 of those 50,000 patients progress to getting something other than medical management in that population. So what we see today is a significant treatment gap from how many drug-resistant epilepsy patients there are out there and how many of them are being both referred into Level 4 centers, as well as receiving advanced therapy in those Level 4 centers as well.
A lot of our strategy and a lot of what we're excited about going forward is about increasing access to RNS therapy to help close that treatment gap, and I'll say a little bit more about that. Before I do, I wanted just to give you some perspective as we set up that increasing access to RNS therapy, the significant segments of the population. So as I mentioned, the 1.2 million drug-resistant epilepsy patients and the 50,000 that are referred into the Level 4 centers, those are segmented primarily into 2 clinical indications. 1, focal patients, meaning, as you might imagine from the nature of the word, the seizure activity starts from a specific focused place in the brain.
Generalized epilepsy patients, where the nature of the epilepsy seizure, the genesis of that seizure is a more generalized seizure in different parts of the brain. 60% of the market, 60% of patients are focal patients, and about another 40% are generalized. Today, the RNS System is indicated for the focal drug-resistant epilepsy population. We are setting about increasing access to RNS therapy to close the treatment gap with 3 key planks in our strategy, and I'll walk you through each of those. They are all underway. They're more than the PowerPoint slide that you see here. I'll put some real substance around them and give you a feeling for where we're at in each one, but they really are one, expanding utilization and adoption inside the Level 4 centers where we are today.
And that's where our focus has been, and the momentum that we've seen has really been generated with execution around that strategy. 2 is increasing the availability of the therapy, being able to expand the clinician footprint for folks who can prescribe as well as implant the devices. And then 3, expanding the labeled indications for patients that can actually receive the therapy. And as you might imagine, that really involves building out from the focal indication today into the generalized indication as well. So I'll spend a little bit of time walking through each one of those strategies just very briefly. First, expanding therapy utilization. So within the focal patient population and within the Level 4 centers, we're really focused on taking what has been the traditional utilization of the technology and expanding it to what we call the modern RNS story.
Upon initial approval, for many, there was a very particular set of patients, perhaps a particular onset in a focal location where the device was being used. What we've come to understand and come to be able to demonstrate is there are a number of different places from a focal seizure origination perspective that the device can be effectively used. And so we're working to make sure that both epileptologists and functional neurosurgeons understand within the focal indication, there are a number of different places within the brain the device can be effectively utilized. One, two, there has been an emerging area of understanding that even though a seizure within a focal patient population may start in a particular location, the seizure then propagates through the brain through a network phenomenon.
So there's an opportunity for people to then place the device in focal patients in that network, and it allows for both flexibility as well as the potential for increased efficacy in some patients. So expanding from how people think about it, of just being able to treat a particular focal spot in the brain, to be able to treat a focal origination by also stimulating the network. And then thirdly, as I mentioned earlier, there are other therapy combinations, including surgery and ablation, and really working within these Level 4 centers to expand and kinda have people think differently about it. Likely, for a number of patients, again, remembering that about 20% of patients are considered ideal surgical candidates, it may be that RNS therapy could be used and should be used as a hybrid therapy, either in conjunction with surgery.
So surgery may be able to address part of why a patient is seizing and address that, that seizure origination, or it may also be the case that you can implant an RNS device that gives you information about the nature of a patient's seizures and helps inform a subsequent surgical procedure to be more targeted and effective. And so really, we see significant opportunities to build out within the Comprehensive Level 4 Epilepsy Centers, who are our customers today, a broader definition and utilization of the device across, again, what we call the modern RNS story. This is really where our focus has been and has been responsible for the momentum that we've been seeing in the business. That said, we're also working hard, again, to expand that access to RNS therapy. We start with expanding access with clinicians.
So earlier in 2023, we were very pleased to receive an approval of a PMA supplement that allowed us to expand beyond the Level 4 comprehensive epilepsy centers. Traditionally, we've been limited by the labeled indications and the associated criteria around those indications to those Level 4 centers. What the PMA supplement approval has allowed us to do is take the technology out into what I'll call the community setting. So there are about 1,200 epileptologists that are associated with the Level 4 centers. There are an additional 1,800 epileptologists that are out in the community setting, not associated with those Level 4 centers.
So this PMA supplement approval allows us to now take the technology out to that additional group of 1,800 epileptologists and the rest of the functional neurosurgery community, and allows us to bring RNS therapy out into the community setting, where someone either couldn't or wouldn't have been referred back into a Level 4 center. As I mentioned, these patients have been managed on medicines for some time in many cases, and you might imagine that if somebody's being managed over time, the thought of them being referred to someplace else further away outside of their clinician's care, their local neurologist or epileptologist, that can be a big step for folks.
So we know that both being able to take the technology out to the community setting, as well as in the community, there are patients who won't need the expanded diagnostic workup that can only be done at a Level 4 center. Patients who receive an RNS device will go through either phase I or what we call phase II testing, a more invasive diagnostic testing. That phase II diagnostic testing is really only done at Level 4 centers, where we are currently. There are patients out in the community who will only need the phase I testing. This allows us to access those patients with RNS. Moving into the community also allows us to uncover more complex patients that either because there wasn't a referral relationship or people just weren't aware of the options and the resources in these advanced centers.
We already have seen, we're beginning to uncover complex patients out in the community that we can also then have referred into our current Level 4 customers. So we think moving into the community is a significant opportunity for us. We're particularly excited about that aspect of building out access to RNS. Our plans are to initiate the pilot for this in the first half of 2024, so we're just getting started with that here as we head into 2024, and then to expand the pilot in the second half of the year. But we're really excited about what this can mean for epilepsy patients, and epileptologists, and functional neurosurgeons to be able to bring RNS therapy out into the community setting. So that's point number 2 of our expansion strategy.
Point number three, as I mentioned earlier, is expanding indications. And so we are today, running a study—we're working on a study that has a breakthrough device designation with FDA to expand RNS into the generalized epilepsy population. We announced a couple of things here in December—well, one in December, one in early January. In December, we announced enrollment completion of the trial, and we announced that that enrollment completion was done about a quarter ahead of what had been expected. And then earlier this week, on Monday, we announced not only the completion of enrollment, but also the completion of implants. For some of you who may be familiar with implantable device trials, enrolling patients is one thing. Getting everybody implanted and getting the clock ticking on the follow-up is another....
And so we have now also implanted the required number of patients for submission in the FDA trial, and the one-year follow-up on those patients has begun. So we're excited about what that can mean for patients in the generalized population, pending successful completion of the trial. We're also excited about what the speed of the enrollment in the implant may portend in terms of interest, both in the clinical community and need for patients. There are no other devices that have a generalized epilepsy indication as well. This would be the first in the United States, so we're particularly excited about what this can mean.
And I'm not gonna go through each of the individual slides here in the build, but forward a little bit to show you that each of these individual planks works to expand our RNS access to help close the treatment gap. They also work together. As I mentioned, we continue to work and invest in expanding RNS usage in our Level 4 centers as we invest in and move into the community centers as well. That does a couple of things. As I mentioned, one, it gives us access to patients that are out in the community. It also gives us access to patients out in the community that need to be referred back into the Level 4 centers. And so those things are mutually reinforcing as we think about patient populations.
Secondly, then as we think about in parallel, working on the generalized epilepsy strategy, as we do that, we're working to expand and develop our position in the community. The reason that matters with regard to the generalized epilepsy strategy or the generalized epilepsy study is, again, pending successful completion of the trial, those generalized epilepsy patients don't require phase II testing. They all can be treated with phase I testing out in the community. So in parallel with working on the trial, we will have built a presence out in the community setting that will put us in position to be able to then treat well and be established in the community to treat the generalized epilepsy population. So that study is important in what it can mean to patients.
That study is also really important to us in expanding access, but in expanding access to patients who we believe will have a lower barrier to entry from a diagnostic process perspective, and can more quickly get to RNS therapy where it's appropriately indicated. So these things all are underway. We're working on them, and hopefully, you can see what we're doing in each one of them and how they work together as well. So what we're set about doing here, as I mentioned at the outset, is working to close the treatment gap. So from where we have been and what has constituted our business here up until 2023, has really been 150-200 customers and about that 30,000-50,000 patient grouping.
With the things that I just showed you, we're on our way toward expanding our footprint, our footprint of both clinicians as well as available patients to really be indicated for and encompass availability of the technology to that entire 1.2 million of the drug-resistant epilepsy population as we execute on these activities, here over the coming months and coming years. So we're particularly excited about that. We're also excited about some other areas of development of NeuroPace that I wanted to talk with you a little bit about as well. In the ability to collect, as well as analyze data for individual patients, as well as for our overall patient population, we have generated a tremendous amount of data.
And we've also invested in and developed a significant amount of expertise in being able to analyze that data, as well as develop algorithms and capabilities within AI, ML, and DL that give us insights into that information, that are continuing to develop around us. As part of that, and as I think a good external validator of the potential value of this data, we recently announced a strategic collaboration with an early-stage biotechnology company doing a phase II-A trial of their compound where in RNS patients, we're able to monitor the patient response to the delivery of that compound in their trial, and then give them indices data back that they can use to inform how the study is working and improve the efficiency with which these compounds can be evaluated.
The RNS device is indicated as an adjunct to medical management, so we're out there doing this every day in patients. You know, we're providing information as to how patients respond to medical management and lifestyle and other things. This has been an opportunity for us to really formalize and externalize the value of the way we can monitor and tailor that data. So we announced that later in 2023, and then again on Monday, we announced the completion of the initial milestones as part of this collaboration. So the partnership is underway and off to a good start. I wanted to mention here that we work closely with and distribute the products from our partner, DIXI Medical.
I mentioned the diagnostic process, the phase I and phase II diagnostic process. The phase II diagnostic process involves SEEG electrodes that are used in comprehensive epilepsy centers to localize the seizure. What that means is in patients where it is a focal seizure. These electrodes are used to localize the point of origination of that seizure. We began in Q4 of 2023 distributing these products from DIXI. We're really pleased about what that's brought, both obviously in terms of the revenue stream, of adding products to our portfolio, but it also allows us and our commercial and field clinical organization to be another step vertically integrated rather, in the diagnostic process with patients.
So as patients are evaluated and their epilepsy is diagnosed, we have reason, product-wise, we have reason in that diagnostic process to be a part of that and get greater visibility into how patients are being diagnosed and whether they may be good candidates for RNS therapy or not. So, this has been going well. We've been excited about the potential and what we're seeing here in our partnership with DIXI as well. So that's—this is really our approach to closing the treatment gap, leveraging an opportunity to increase access to RNS therapy as well as expand indications for it, is where our focus is and has been. That has resulted in what you see here in terms of the financial results.
You know, from a year ago, with quarterly revenue of about $12.5 million, to what we announced on Monday of our preliminary unaudited data for Q4 of 2023 of between $17.5 and $18 million, between 37% and 41% growth year-on-year in Q4. And then for the year, between $64.9 and $65.4 million, and 43%-44% growth there as well. A couple of other things. I mentioned earlier, our balance sheet, total cash of $66.5 million as of the end of 2023, including $7.9 million that we recently announced as part of an ATM equity financing facility that was utilized in Q4.
Again, we believe that we've got the capital that we need to execute our operations through mid-2026, and we're particularly excited about both where we sit today in terms of being positioned for growth. We've demonstrated some top-line momentum here, good operating discipline, and effective cash management as well. We've got significant opportunities that we have prioritized and are focused on to increase access and utilization and adoption through both the Project CARE expansion into the community as well as the indication expansion. We feel like we're particularly well-positioned to continue to advance the mission of helping patients that are suffering from epilepsy by reducing and eliminating the seizures that impact their lives. So I appreciate the time and the attention this morning, especially on an early Thursday morning here.
With that, those are my prepared comments, and I'd love to open it up for questions.
Great. Maybe if we could just start with the quarter. You guys pre-announced good Q4 results with sales of $17.5 million-$17.8 million, a healthy step above both what us and the street were thinking. So maybe if we could dive a little bit deeper into that. What do you think drove the strength in the quarter? And can you talk about some of the trends that you saw across both new center adds and utilization in current accounts?
Thanks, Lily. It's an excellent question. The quarter did come in strong, and we were pleased to see that, really pleased with the performance across the business. But when we think about the growth that we saw, and we think about the growth, in particular, the year-on-year growth numbers that we showed you there, the growth is really driven by sales of the RNS System. And so it's really RNS System sales that has driven the growth and driven the beat that we saw in Q4.
Great. And I know it's still early and there's no guidance out there yet, but it seems like there's a lot of moving pieces going into 2024 between, you know, Project CARE ramping up, these new partnerships, leveraging your data collection capabilities, continuing to recover in EMU volumes. So with some of those considerations in mind, is there any color you're willing to share on how we should be thinking about growth in 2024?
So, you're right, we haven't guided on 2024 yet. We'll be saying more about 2024, when we do our Q4 call here, later in Q1. I guess what I would say is, I'd just emphasize the things that I've spent time talking with you about, this morning and what you would have heard, from me here the past couple of quarterly calls as well. You know, I'm excited about where we are today and the work that we're doing and the results that you can see, with the work in our current customer group, with our current population of the Level 4 centers. I think we're particularly well-positioned here for, really for 2024, but 2024 and beyond.
We think we've got a good and clear strategy that we're prosecuting here, and I think it really sets us up well.
Great. Maybe if you could just talk through the trends that you're seeing at the top of the funnel in terms of EMU volumes and how that's translated into RNS implants. Seems like most med tech end markets are basically at or above pre-pandemic levels, but I think EMU volumes have taken a little bit longer to recover. So how are you thinking about the state of the operating environment in fourth quarter in 2024, and how would you compare current EMU volumes to pre-pandemic levels?
... Another very good question. And we spend a lot of time thinking about EMU volumes and gathering information, and obviously, the pipeline is critical to everything that we do. I think what we've said, and what I would reiterate, is that EMU volumes have been good, and we see the pipeline as being strong. We have seen a good return in EMU volumes. As you mentioned, I think for many in med tech, for a number of the different events that have transpired over the past couple of years, pipeline volumes and patient volumes in that pipeline were impacted, and there was a lot of variability in that pipeline. I think we've seen a good return in patient volumes and a strong pipeline.
I don't know that we would say that we feel like we are all the way back in terms of all of the dynamics there. But we do see the pipeline having returned strongly, and the beds in the EMUs and the utilization of the EMUs being busy. Pre-pandemic, we had seen EMU bed expansion and EMU expansion. I don't know that we have seen all of that fully return just yet, but in terms of pipeline and strength in pipeline and consistency in pipeline, I think we feel really good about what we're seeing here in the pipeline.
Great. Maybe just one last question in the last few minutes we have here. You haven't given concrete numbers on utilization in a while, but how should we be thinking about that growing in 2024? And what does utilization and adoption look like in some of your more seasoned and experienced accounts compared to the newer ones?
Yeah, it's a great question. And that really is that of that three-plank strategy that I laid out there, that utilization and adoption within the Level 4 centers and our current customers is really where our focus has been and really is the focus of that first plank of the strategy. That is where our focus is today and where we're spending our time. What I would say is that what we see is that among centers that have really adopted that, what I'll call the modern RNS story, of expanding utilization, both across different patient populations within the focal indication, and then in places where we have, while also broadening utilization, increased adoption within centers, we see a significantly higher utilization rate of RNS.
As you might imagine, in addition to broadening the types of patients in which RNS is used, if you go from having perhaps an advocate inside a center to having many times, you could kinda think about five or six epileptologists associated with any individual center, broadening from having an individual to then establishing across two or three or four or five of the epileptologists, really, RNS therapy as a standard of care for indicated patients, and then expanding that definition into what, again, we'll call the modern RNS story for patient populations. We see a significantly different level of utilization there, and so that gives us a lot of encouragement and confidence that inside those Level 4 centers, there's significant opportunity for us to. You know, we've got a lot of room to run, even inside those comprehensive centers.
Great. I think we're out of time, so thanks, Joel, and thanks, everyone, for joining.
Thanks, Lily. Thanks, everybody. Bye.