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NeuroPace Inc

NeuroPace IncNPCEEarnings & Financial Report

Nasdaq · Health Care · Surgical & Medical Instruments & Apparatus

NeuroPace Inc is a medical technology company focused on developing and commercializing innovative implantable neurostimulation systems to treat neurological disorders, primarily drug-resistant epilepsy. Its core RNS System delivers personalized responsive stimulation to reduce seizure frequency, serving patients across North America and select global markets via partnerships with healthcare providers.

What changed in NeuroPace Inc's 10-K — 2022 vs 2023

Top changes in NeuroPace Inc's 2023 10-K

524 paragraphs added · 558 removed · 442 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

172 edited+27 added−34 removed346 unchanged
Medicare and Medicaid also routinely provide coverage for implantation of our RNS System and follow-up care. Based on our experience, less than 1% of potential RNS System patients have been unable to undergo an implant procedure with our RNS System due to lack of payor coverage.
Medicare and Medicaid also routinely provide coverage for implantation of our RNS System and follow-up care. Based on our experience, less than 1% of potential RNS System patients have been unable to undergo an implant procedure with our RNS System due to lack of payor coverage.
Supported by evidence published in peer reviewed journals, we believe that our current RNS System may also be able to effectively treat patients under age 18 with drug-resistant focal epilepsy as well as drug-resistant generalized epilepsy patients and we are pursuing clinical studies to support label expansion for these indications.
Supported by evidence published in peer reviewed journals, we believe that our current RNS System may also be able to effectively treat drug-resistant generalized epilepsy patients as well as patients under age 18 with drug-resistant focal epilepsy and we are pursuing clinical studies to support label expansion for these indications.
Additionally, we believe the insights obtained from our extensive brain data set are driving improvements in overall therapy effectiveness across patient cohorts over time.
Additionally, we believe the insights obtained from our extensive brain data set are driving improvements in overall therapy effectiveness across patient cohorts over time.
In addition, we believe our RNS System is 22 superior in tolerability and efficacy to other neuromodulation approaches. We anticipate that the accruing evidence base from our ongoing Post-Approval Study and commercial experience with our RNS System will continue to demonstrate strong and improving clinical outcomes over time, which will support continued adoption.
In addition, we believe our RNS System is superior in tolerability and efficacy to other neuromodulation approaches. We anticipate that the accruing evidence 22 base from our ongoing Post-Approval Study and commercial experience with our RNS System will continue to demonstrate strong and improving clinical outcomes over time, which will support continued adoption.
Data from the two-year Feasibility Study supported IDE approval for our two-year Pivotal Study, a double 23 blinded randomized, sham-stimulation controlled multi-center study that was initiated in 2005 and provided Class I evidence of the safety and effectiveness of our RNS System. Data from the Pivotal Study supported FDA PMA approval of our RNS System.
Data from the two-year Feasibility Study supported IDE approval for our two-year Pivotal Study, a double blinded, randomized, sham-stimulation controlled multi-center study that was initiated in 2005 and provided Class I 23 evidence of the safety and effectiveness of our RNS System. Data from the Pivotal Study supported FDA PMA approval of our RNS System.
These include: • Annual Reports: As is required for our RNS System, continued FDA approval may be contingent upon the submission of periodic reports, required under 21 CFR 814.84, at intervals of one year (unless otherwise specified) from the date of approval of the original PMA; • Post-Approval Study Report: As is required for our RNS System, continued FDA approval may also be contingent upon the submission of Post-Approval Study data, as requested by the FDA; • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers and contract manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling regulations and FDA prohibitions against the promotion of investigational products, or “off-label” uses of cleared or approved products; • requirements related to promotional activities; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; 38 • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
These include: • Annual Reports: As is required for our RNS System, continued FDA approval may be contingent upon the submission of periodic reports, required under 21 CFR 814.84, at intervals of one year (unless otherwise specified) from the date of approval of the original PMA; • Post-Approval Study Report: As is required for our RNS System, continued FDA approval may also be contingent upon the submission of Post-Approval Study data, as requested by the FDA; • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers and contract manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling regulations and FDA prohibitions against the promotion of investigational products, or “off-label” uses of cleared or approved products; • requirements related to promotional activities; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices; 37 • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
The GDPR also permits data protection authorities to require destruction of improperly gathered or used personal information and/or impose substantial fines for violations of the GDPR, which can be up to four percent of global revenues or 20 million Euros, whichever is greater, and confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR.
The EU GDPR also permits data protection authorities to require destruction of improperly gathered or used personal information and/or impose substantial fines for violations of the EU GDPR, which can be up to four percent of global revenues or 20 million Euros, whichever is greater, and confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the EU GDPR.
Class I devices include those with the lowest risk to the patient and are those for which safety and effectiveness can be reasonably assured by adherence to the FDA’s “general controls” for medical devices, which include compliance with the applicable portions of the QSR, facility registration and product listing, reporting of adverse medical events and malfunctions through the submission of Medical Device Reports, or MDRs, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials.
Class I devices include those with the lowest risk to the patient and are those for which safety and effectiveness can be reasonably assured by adherence to the FDA’s “general controls” for medical devices, which include compliance with the applicable portions of the QSR, facility registration and product listing, reporting of adverse 33 medical events and malfunctions through the submission of Medical Device Reports, or MDRs, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials.
While AEDs can help control seizures for many individuals, approximately one third of patients do not achieve complete seizure control, which is defined as seizure freedom without life-impacting side effects associated with treatment. According to a 2018 article published in JAMA 13 Neurology, the chance of achieving complete seizure control after failing two AED regimens is less than 5%.
While AEDs can help control seizures for many individuals, approximately one third of patients do not achieve complete seizure control, which is defined as seizure freedom without life-impacting side effects associated with treatment. According to a 2018 article published in JAMA Neurology, the chance of achieving complete seizure control after failing two AED regimens is less than 5%.
Unlike other neuromodulation devices for epilepsy, which provide hours of stimulation each day to non-specific targets and have been shown to negatively impact sleep, mood, memory, or vocal characteristics, our RNS System stimulates the precise seizure targets and only when needed, resulting in a highly effective therapy with approximately three minutes of stimulation on average per day in total.
Unlike other neuromodulation devices for epilepsy, which provide hours of stimulation each day to non-specific targets and have been shown to negatively impact sleep, mood, memory, or vocal characteristics, our RNS System stimulates the seizure targets and only when needed, resulting in a highly effective therapy with approximately three minutes of stimulation on average per day in total.
Additionally, we have pending applications with claims directed to: detecting anomalous brain activity and the source thereof; modulating brain activity - such as with electrical stimulation - to treat disorders and diseases of the nervous system; efficient 31 communication or data transfer between implantable and external components of a neuromodulation system; the use of data to optimize therapy outcomes, such as by using artificial intelligence and deep learning techniques; and various combinations thereof.
Additionally, we have pending applications with claims directed to: detecting anomalous brain activity and the source thereof; modulating brain activity - such as with electrical stimulation - to treat disorders and diseases of the nervous system; efficient communication or data transfer between implantable and external components of a neuromodulation system; the use of data to optimize therapy outcomes, such as by using artificial intelligence and deep learning techniques; and various combinations thereof.
Certain other changes to an approved device require the submission of a new PMA, 35 such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness.
Certain other changes to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness.
By continuously monitoring the brain’s electrical activity, recognizing patient-specific abnormal electrical patterns, and responding in real time with imperceptible electrical pulses to prevent seizures, our RNS System is programmed by clinicians to deliver the precise amount of therapy when and where it is needed and provides exceptional clinical outcomes with approximately three minutes of stimulation on average per day.
By continuously monitoring and analyzing the brain’s electrical activity, recognizing patient-specific abnormal electrical patterns, and responding in real time with imperceptible electrical pulses to prevent seizures, our RNS System is programmed by clinicians to deliver the precise amount of therapy when and where it is needed and provides exceptional clinical outcomes with approximately three minutes of stimulation on average per day.
We have IDE approval for an open label study of our RNS System in adolescent patients between ages 12 and 17 who have drug-resistant focal epilepsy from one or two foci. The objective of this study is to demonstrate safety and effectiveness in this patient population, and to obtain data on quality of life, neuropsychological function, and social function.
We have IDE approval for an open label study of our RNS System in adolescent patients between ages 12 and 17 who have drug-resistant focal epilepsy from one or two foci. The objective of this study is to demonstrate safety and 26 effectiveness in this patient population, and to obtain data on quality of life, neuropsychological function, and social function.
The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors.
The EU GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal information, including requirements relating to processing health and other sensitive information, obtaining consent of the individuals to whom the personal information relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors.
As employees of NeuroPace, we each uphold the following core values that drive our culture and define the way we do business: • Innovation: We develop world class technology • Integrity: We do what’s right • Leadership: We are becoming the standard of care • Patient Focus: We transform lives • Science: We enable fundamental discoveries It is our philosophy to foster open communication.
As employees of NeuroPace, we each uphold the following core values that drive our culture and define the way we do business: • Innovation: We develop world class technology • Integrity: We do what’s right • Leadership: We are becoming the standard of care 44 • Patient Focus: We transform lives • Science: We enable fundamental discoveries It is our philosophy to foster open communication.
While these MS-DRG and CPT codes are generally employed by both private insurers and government payors, the payment rates typically differ substantially, with private insurers generally providing reimbursement at higher rates than Medicare or Medicaid. Hospitals code for implantation of our RNS System neurostimulator and implantation of the leads using separate ICD-10 procedure codes.
While these MS-DRG and CPT codes are generally employed by both private insurers and government payors, the payment rates typically differ substantially, with private insurers generally providing reimbursement at higher rates than Medicare or Medicaid. 28 Hospitals code for implantation of our RNS System neurostimulator and implantation of the leads using separate ICD-10 procedure codes.
We rely on a strategy that combines the use of patents, trademarks, trade secrets, know-how, and license agreements, as well as other intellectual property laws, employment, confidentiality and invention assignment agreements, and contractual protections, to establish and protect our intellectual property rights. Patents Patent Portfolio Our patents and patent applications assert claims generally related to devices, methods and systems.
We rely on a strategy that combines the use of patents, trademarks, trade secrets, know-how, and license agreements, as well as other 30 intellectual property laws, employment, confidentiality and invention assignment agreements, and contractual protections, to establish and protect our intellectual property rights. Patents Patent Portfolio Our patents and patent applications assert claims generally related to devices, methods and systems.
Unlike other neuromodulation devices, our RNS System continuously monitors the brain’s electrical activity, recognizes patient-specific abnormal patterns, and delivers treatment at the seizure source when needed, providing significant, sustained, and improving reductions in seizure frequency, including, in some cases, eliminating seizures, without stimulation-related side effects at therapeutic settings.
Unlike other neuromodulation devices, our RNS System continuously monitors and analyzes the brain’s electrical activity, recognizes patient-specific abnormal patterns, and delivers treatment at the seizure source when needed, providing significant, sustained, and improving reductions in seizure frequency, including, in some cases, eliminating seizures, without stimulation-related side effects at therapeutic settings.
The remaining approximately 20% of patients are pediatric, meaning under the age of 18, and we estimate that approximately 145,000 of these pediatric patients have focal epilepsy. 14 Overview of Epilepsy Care The National Association of Epilepsy Centers, or NAEC, which is considered the primary accreditation organization for epilepsy centers in the United States, classifies epilepsy care into four levels.
The remaining approximately 20% of patients are pediatric, meaning under the age of 18, and we estimate that approximately 145,000 of these pediatric patients have focal epilepsy. Overview of Epilepsy Care The National Association of Epilepsy Centers, or NAEC, which is considered the primary accreditation organization for epilepsy centers in the United States, classifies epilepsy care into four levels.
The Federal Physician Payments Sunshine Act under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively referred to as the Affordable Care Act, which require certain applicable manufacturers of devices, drugs, biologics, kits that required FDA approval or clearance, and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, or CHIP, to report annually to CMS information related to payments and other transfers of value to physicians, defined to include doctors, dentists, optometrists, podiatrists and chiropractors, and teaching hospitals, other healthcare professionals (such as physician assistants and nurse practitioners), and applicable manufacturers and group purchasing organizations, and to report annually ownership and investment interests held by physicians and their immediate family members.
The Federal Physician Payments Sunshine Act under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively referred to as the Affordable Care Act, which require certain applicable manufacturers of devices, drugs, biologics, kits that required FDA approval or clearance, and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, or CHIP, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, defined to include doctors, dentists, optometrists, podiatrists and chiropractors, and teaching hospitals, other healthcare professionals (such as physician assistants and nurse practitioners), and applicable manufacturers and group purchasing organizations, and to report annually ownership and investment interests held by physicians and their immediate family members.
The key efficacy and safety benefits of our RNS System are demonstrated by four multi-center FDA approved prospective clinical studies that collectively include approximately 600 patients with up to nine years of follow-up, as well as multiple retrospective studies reporting real-world outcomes.
The key efficacy and safety benefits of our RNS System are demonstrated by four multi-center FDA approved prospective clinical studies that collectively include approximately 600 patients with up to nine years of follow-up, 8 as well as multiple retrospective studies reporting real-world outcomes.
We plan to increase penetration of our target market by increasing utilization by the epileptologists that are already actively prescribing our RNS System. We have seen that utilization typically increases once clinicians become familiar with the technology and experience the benefits that our RNS System and long-term iEEG data bring to improving patient care.
We plan to increase penetration of our target market by increasing utilization by the epileptologists that are already prescribing our RNS System. We have seen that utilization typically increases once clinicians become familiar with the technology and experience the benefits that our RNS System and long-term iEEG data bring to improving patient care.
In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.
In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic 34 reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.
Employee input on ways to improve our business strategy and tactics, work environment and organization is valued and encouraged. We believe that our ability to provide 45 employees with a dynamic and challenging environment where they are empowered to succeed and accountable to lead further drives a culture embedded in our values.
Employee input on ways to improve our business strategy and tactics, work environment and organization is valued and encouraged. We believe that our ability to provide employees with a dynamic and challenging environment where they are empowered to succeed and accountable to lead further drives a culture embedded in our values.
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. 12 • Broaden indications for our RNS System to include patients with generalized epilepsy and patients under age 18.
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. • Broaden indications for our RNS System to include patients with generalized epilepsy and patients under age 18.
However, we estimate that only approximately 20% of drug-resistant focal epilepsy patients meet these requirements and are willing to undergo a surgery. For the approximately 80% of drug-resistant focal epilepsy patients who are not ideal candidates for resective or ablative epilepsy surgery, neuromodulation devices are an attractive treatment alternative.
However, we estimate that only approximately 20% of drug-resistant focal epilepsy patients meet these requirements and are willing to undergo a surgery. 16 For the approximately 80% of drug-resistant focal epilepsy patients who are not ideal candidates for resective or ablative epilepsy surgery, neuromodulation devices are an attractive treatment alternative.
Our Field Clinical Engineers have substantial experience training clinicians on the use of sophisticated technology and providing ongoing support for medical 27 centers as they increase adoption of new therapies. We do not currently sell our product in markets outside the United States.
Our Field Clinical Engineers have substantial experience training clinicians on the use of sophisticated technology and providing ongoing support for medical centers as they increase adoption of new therapies. We do not currently sell our product in markets outside the United States.
While our RNS System is not yet approved for sale outside the United States, we plan to pursue regulatory approvals and reimbursement with a priority on markets in which we see significant potential opportunity. • Pursue additional indications, including outside of epilepsy .
While our RNS System is not yet approved for sale outside the United States, we plan to pursue regulatory approvals and reimbursement with a priority on markets in which we see significant potential opportunity. 13 • Pursue additional indications, including outside of epilepsy .
Epilepsy can be classified into two categories: focal epilepsy and generalized epilepsy. Approximately 60% of epilepsy patients have focal epilepsy, which is characterized by electrical discharges that originate in a specific part of the brain. Focal epilepsy patients typically have one or two seizure foci, or sites in the brain from which the electrical discharge originates.
Epilepsy can be classified into two categories: focal epilepsy and generalized epilepsy. Approximately 60% of epilepsy patients have focal epilepsy, which is characterized by electrical discharges that originate in a specific part 14 of the brain. Focal epilepsy patients typically have one or two seizure foci, or sites in the brain from which the electrical discharge originates.
These competitors are larger, well-capitalized companies with significant resources, which may include: • established sales and marketing programs and networks, including internationally; • broad product portfolios; • long operating histories; • established relationships with healthcare professionals; • established manufacturing scale and supplier networks; • financial resources for product development; and • name recognition.
These competitors are larger, well-capitalized companies with significant resources, which may include: • established sales and marketing programs and networks, including internationally; • broad product portfolios; 29 • long operating histories; • established relationships with healthcare professionals; • established manufacturing scale and supplier networks; • financial resources for product development; and • name recognition.
By continuously monitoring the brain’s electrical activity, recognizing and responding to patient-specific seizure onset 30 patterns, and recording ongoing iEEG data that clinicians can use to optimize patient care, we believe our RNS System addresses the primary unmet needs in epilepsy care today.
By continuously monitoring the brain’s electrical activity, recognizing and responding to patient-specific seizure onset patterns, and recording ongoing iEEG data that clinicians can use to optimize patient care, we believe our RNS System addresses the primary unmet needs in epilepsy care today.
The Cross-License provides that each party may 32 terminate the Cross-License if the other party materially breaches the Cross-License and does not cure the breach within a specified period of time. Trademarks Our trademark portfolio is designed to protect the brands of our RNS System and any future products.
The Cross-License provides that each party may terminate the Cross-License if the other party materially breaches the Cross-License and does not cure the breach within a specified period of time. Trademarks Our trademark portfolio is designed to protect the brands of our RNS System and any future products.
If an IDE application is approved by 37 the FDA and one or more IRBs, clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device is considered a “non-significant risk,” IDE submission to FDA is not required.
If an IDE application is approved by the FDA and one or more IRBs, clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device is considered a “non-significant risk,” IDE submission to FDA is not required.
The CARES Act made various tax law changes, including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted technical corrections so that qualified improvement property can be immediately expensed under IRC Section 168(k) and net operating losses arising in tax years beginning in 2017 and ending in 2018 can be carried back two years and carried forward twenty years without a taxable income limitation as opposed to carried forward 43 indefinitely, and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years.
The CARES Act made various tax law changes, including among other things (i) 42 increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted technical corrections so that qualified improvement property can be immediately expensed under IRC Section 168(k) and net operating losses arising in tax years beginning in 2017 and ending in 2018 can be carried back two years and carried forward twenty years without a taxable income limitation as opposed to carried forward indefinitely, and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years.
We believe the following strategies will contribute to growth in initial patient implants and advance our mission to dramatically improve clinical outcomes and quality of life for patients living with epilepsy and other disabling brain disorders: • Drive adoption of our RNS System .
We believe the following strategies will contribute to growth in initial patient implants and 11 advance our mission to dramatically improve clinical outcomes and quality of life for patients living with epilepsy and other disabling brain disorders: • Drive adoption of our RNS System .
There was no difference in stimulation-related side effects between active and sham patients in the blinded period and no adverse effects of responsive stimulation on cognitive function or mood. In fact, there were statistically significant improvements in a number of areas of cognitive function, including 24 executive function, language, and memory.
There was no difference in stimulation-related side effects between active and sham patients in the blinded period and no adverse effects of responsive stimulation on cognitive function or mood. In fact, there were statistically significant improvements in a number of areas of cognitive function, including executive function, language, and memory.
For companies that participate in this program, the FDA forgoes conducting routine facility inspections and pre-approval inspections in order to allow participants 33 to shift resources to innovation and improvement efforts. We believe that we are in compliance, in all material respects, with applicable FDA and QSR requirements.
For companies that participate in this program, the FDA forgoes conducting routine facility inspections and pre-approval inspections in order to allow participants to shift resources to innovation and improvement efforts. We believe that we are in compliance, in all material respects, with applicable FDA and QSR requirements.
In addition to the implantable components of our RNS System, our RNS System also includes external components such as the Patient Remote Monitor, as well as optional accessories. 19 Our Patient Remote Monitor is provided to each patient in order to collect and transmit data from the neurostimulator to our Patient Data Management System, a secure online database.
In addition to the implantable components of our RNS System, our RNS System also includes external components such as the Patient Remote Monitor, as well as optional accessories. Our Patient Remote Monitor is provided to each patient in order to collect and transmit data from the neurostimulator to our Patient Data Management System, a secure online database.
During the follow-up visit, the epileptologist 20 will make programming adjustments to the device’s detection parameters in order to optimize for early detection. Once the patient-specific detection parameters are established, the epileptologist will turn on the stimulation feature, activating the closed-loop treatment of our RNS System.
During the follow-up visit, the epileptologist will make programming adjustments to the device’s detection parameters in order to optimize for early detection. Once the patient-specific detection parameters are established, the epileptologist will turn on the stimulation feature, activating the closed-loop treatment of our RNS System.
Acceptance of an IDE application for review does not guarantee that the FDA will approve the IDE and, if it is approved, the FDA may or may not determine that the data derived from the trials support the safety and effectiveness of the device or warrant the continuation of clinical trials.
Acceptance of an IDE application for review does not guarantee that the FDA will approve the IDE and, if it is 36 approved, the FDA may or may not determine that the data derived from the trials support the safety and effectiveness of the device or warrant the continuation of clinical trials.
After a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) marketing clearance or, depending on the modification, PMA approval.
After a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) 35 marketing clearance or, depending on the modification, PMA approval.
In addition to data breach notification laws, some states have enacted statutes and rules requiring businesses to reasonably protect certain types of personal information they hold or to otherwise comply with certain specified data security requirements for personal information.
In addition to data breach notification laws, some states have 43 enacted statutes and rules requiring businesses to reasonably protect certain types of personal information they hold or to otherwise comply with certain specified data security requirements for personal information.
Memory improvements were most evident in patients with seizure onsets in memory regions and verbal fluency improvements were most significant in those with seizure onsets in language areas. Patients also experienced modest improvements in mood and a decrease in seizure worry at two years of treatment.
Memory improvements were most evident in patients with seizure onsets 24 in memory regions and verbal fluency improvements were most significant in those with seizure onsets in language areas. Patients also experienced modest improvements in mood and a decrease in seizure worry at two years of treatment.
The chart below illustrates how physicians may evaluate treatment options for their patients. 16 Resective and ablative surgery Surgery has been used to treat epilepsy for more than 100 years.
The chart below illustrates how physicians may evaluate treatment options for their patients. Resective and ablative surgery Surgery has been used to treat epilepsy for more than 100 years.
In addition, the GDPR provides that EU member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric, or health data.
In addition, the EU GDPR provides that EU member states may make their own further laws and regulations limiting the processing of personal information, including genetic, biometric, or health data.
Item 1. Business. Overview We are a commercial-stage medical device company focused on transforming the lives of people living with epilepsy by reducing or eliminating the occurrence of debilitating seizures. Our novel and differentiated RNS System is the first and only commercially available, brain-responsive neuromodulation system that delivers personalized, real-time treatment at the seizure source.
Item 1. Business. Overview We are a medical device company focused on transforming the lives of people living with epilepsy by reducing or eliminating the occurrence of debilitating seizures. Our novel and differentiated RNS System is the first and only commercially available, brain-responsive neuromodulation system that delivers personalized, real-time treatment at the seizure source.
Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) 34 premarket notification process, though certain Class II devices are exempt from this premarket review process.
Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) premarket notification process, though certain Class II devices are exempt from this premarket review process.
These laws can apply to entities that provide information on 40 coverage, coding, and reimbursement of their products and assistance with obtaining reimbursement to persons who bill payors.
These laws can apply to entities that provide information on coverage, coding, and reimbursement of their products and assistance with obtaining reimbursement to persons who bill payors.
Importantly, the more real-world results from a post-approval retrospective study published in 2020 showed a median seizure frequency reduction of 67% at one year (p 8 We received Pre-Market Approval, or PMA, from the FDA for our RNS System in late 2013 and began the commercial rollout of our RNS System in early 2014.
Importantly, the more recent real-world results from a post-approval retrospective study published in 2020 showed a median seizure frequency reduction of 67% at one year (p We received Pre-Market Approval, or PMA, from the FDA for our RNS System in late 2013 and began the commercial rollout of our RNS System in early 2014.
For example, the Budget Control Act of 2011, among other things, included reductions to CMS payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2031 unless additional Congressional action is taken.
For example, the Budget Control Act of 2011, among other things, included reductions to CMS payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2032 unless additional Congressional action is taken.
Of those who do, only half are seizure-free two years after surgery and many experience impairment in some aspect of neurological function.
Of those who do, only half are seizure-free two years after surgery and many experience impairment in some aspect of 17 neurological function.
Health and Wellness We offer a comprehensive benefits package including: 401(k) plan, medical, dental, and vision insurance, life and long-term disability insurance, health care and child care spending accounts, Section 529 college savings plan, three weeks paid vacation for most employees at start, eleven paid holidays, and PTO for sick time and family emergencies.
Health and Wellness We offer a comprehensive benefits package including: 401(k) plan, medical, dental, and vision insurance, life and long-term disability insurance, health care and child care spending accounts, Section 529 college savings plan, three weeks paid vacation for most employees at start, 12 paid holidays, and PTO for sick time and family emergencies.
Our Field Clinical Engineers are responsible for ongoing account management including training clinicians on the use of our RNS System, promoting its benefits within existing accounts, and driving increased clinician utilization. We support our sales organization with marketing and training initiatives designed to educate clinicians about our RNS System and support clinician adoption at CECs.
Our Field Clinical Engineers are responsible for ongoing account management including training clinicians on the use of our RNS System, promoting its benefits within existing accounts, and driving increased clinician utilization. We support our sales organization with marketing and training initiatives designed to educate clinicians about our RNS System and support clinician adoption.
Our paradigm-shifting RNS System is currently indicated in the United States for use in adult epilepsy patients, meaning patients who are 18 years of age or older, with drug-resistant focal epilepsy, which we believe represents an approximately $26 billion total addressable market.
Our paradigm-shifting RNS System is currently indicated in the United States for use in adult epilepsy patients, meaning patients who are 18 years of age or older, with drug-resistant focal epilepsy, which we believe represents an approximately $27 billion total addressable market.
Given the relatively young average age of our patient population, our payor mix has historically been more heavily weighted towards commercial payors. As of December 31, 2022, commercial payors have written positive coverage policies that address over 200 million covered lives in the United States.
Given the relatively young average age of our patient population, our payor mix has historically been more heavily weighted towards commercial payors. As of December 31, 2023, commercial payors have written positive coverage policies that address over 200 million covered lives in the United States.
Given the relatively young average age of our patient population, our payor mix has historically been more heavily weighted towards commercial payors and, as of December 31, 2022, positive written coverage policies from commercial payors address over 200 million covered lives in the United States.
Given the relatively young average age of our patient population, our payor mix has historically been more heavily weighted towards commercial payors and, as of December 31, 2023, positive written coverage policies from commercial payors address over 200 million covered lives in the United States.
Our RNS System continuously monitors the brain’s electrical activity and recognizes patient-specific abnormal electrical patterns that precede the onset of seizures. Our RNS System then uses that information to “close the loop” by responding in real time with imperceptible electrical pulses to prevent seizures at their source.
Our RNS System continuously monitors and analyzes the brain’s electrical activity and recognizes patient-specific abnormal electrical patterns that precede the onset 9 of seizures. Our RNS System then uses that information to “close the loop” by responding in real time with imperceptible electrical pulses to prevent seizures at their source.
It consists of a handheld wand and a specially programmed laptop computer. The patient holds the wand adjacent to the implanted device to wirelessly upload the data from the neurostimulator to the laptop, and then sends that encrypted data to our Patient Data Management System using an internet connection.
It consists of a handheld wand and a specially programmed tablet or laptop computer. The patient holds the wand adjacent to the implanted device to wirelessly upload the data from the neurostimulator to the tablet or laptop, and then sends that encrypted data to our Patient Data Management System using an internet connection.
As of December 31, 2022, we own 26 trademark registrations, four of which are U.S. trademark registrations and the rest in various other countries or regions. We own trademark registrations for “NeuroPace,” the “NeuroPace” logo, and “RNS” in the United States and various other countries, and “WINDOW TO THE BRAIN” in the U.S.
As of December 31, 2023, we own 26 trademark registrations, four of which are U.S. trademark registrations and the rest in various other countries or regions. We own trademark registrations for “NeuroPace,” the “NeuroPace” logo, and “RNS” in the United States and various other countries, and “WINDOW TO THE BRAIN” in the U.S.
Additionally, we provide our Physician Tablet and access to our PDMS for use with our RNS System. Our Physician Tablet is used by the prescribing or managing clinicians for programming implanted devices and managing patient care.
Additionally, we provide our Physician Tablet and access to our PDMS and nSight Platform for use with our RNS System. Our Physician Tablet is used by the prescribing or managing clinicians for programming implanted devices and managing patient care.
In addition, we plan to increase awareness of our RNS System amongst clinicians who treat epilepsy patients early in their care, including general neurologists and epileptologists who practice outside of Level 4 CECs, through targeted education and outreach designed to drive patient referrals to Level 4 CECs. ◦ Improved visibility into patient pipeline : 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 product line beginning in October 2022.
In addition, we plan to increase awareness of our RNS System amongst clinicians who treat epilepsy patients early in their care, including general neurologists and epileptologists who practice outside of Level 4 CECs, through targeted education and outreach designed to not only drive care in the community, but also to drive patient referrals to Level 4 CECs. ◦ Improved visibility into patient pipeline : 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 product line beginning in October 2022.
Further, all 50 states have passed laws regulating the actions that a business must take if it experiences a data breach, such as prompt disclosure to affected customers.
Further, all 50 states have passed laws regulating the actions that a business must take if it experiences a data breach, such as prompt disclosure to affected individuals.
Our RNS System has an estimated average battery life of nearly eleven years, an increase from the previous model of the device. The sale of replacement neuromodulation devices provides a recurring revenue stream that is additive to our current $1.1 billion annual market opportunity for initial implants.
Our RNS System has an estimated average battery life of nearly eleven years, an increase from the previous model of the device. The sale of replacement neuromodulation devices provides a recurring revenue stream that is additive to the annual market opportunity for initial implants.
We market our RNS System in the United States through a direct sales organization primarily to the epileptologists and neurosurgeons who respectively prescribe and implant neuromodulation devices in the approximately 200 Level 4 CECs in the United States. We have established a significant account base at these Level 4 CECs.
We have historically marketed our RNS System in the United States through a direct sales organization primarily to the epileptologists and neurosurgeons who respectively prescribe and implant neuromodulation devices in the approximately 200 Level 4 CECs in the United States. We have established a significant account base at these CECs.
Our RNS System is initially implanted by a neurosurgeon in an inpatient procedure at a Level 4 CEC. Detection is turned on at the end of the implant procedure when the neurostimulator is placed. The patient typically remains in the hospital overnight, then returns home and resumes normal activities.
Our RNS System is initially implanted by a neurosurgeon in an inpatient procedure. Detection is turned on at the end of the implant procedure when the neurostimulator is placed. The patient typically remains in the hospital overnight, then returns home and resumes normal activities.
We expect to accomplish this by (i) growing the number of epileptologists recommending our system within each center, 11 (ii) increasing utilization of our system by existing prescribers, and (iii) expanding our referral pathways to increase the number of patients with drug-resistant epilepsy that are referred to CECs for the care that they need. ◦ Growing the number of epileptologists recommending our system : We estimate that there are approximately 1,200 epileptologists affiliated with the approximately 200 Level 4 CECs in the United States and that this number will continue to grow as more clinicians are trained in the specialty.
We expect to accomplish this by (i) growing the number of epileptologists recommending our system within each customer account, (ii) increasing utilization of our system by prescribers, and (iii) expanding our referral pathways to increase the number of patients with drug-resistant epilepsy that are referred to CECs for the care that they need. ◦ Growing the number of epileptologists recommending our system : We estimate that there are approximately 1,200 epileptologists affiliated with the approximately 200 Level 4 CECs in the United States and that this number will continue to grow as more clinicians are trained in the specialty.
In addition to providing us with an incremental revenue stream, the DIXI Medical partnership will provide us with improved visibility of patients moving through the EMUs, many of whom may be candidates for our RNS System.
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.
Supported by evidence published in peer-reviewed journals, we believe that our current RNS System may be able to effectively treat these expanded patient populations without significant modifications to our existing product and we are pursuing clinical studies to support label expansion for these indications.
Supported by a growing body of evidence published in peer-reviewed journals, we believe that our current RNS System may be able to effectively treat these expanded patient populations without significant modifications to our existing product and we are pursuing clinical studies to support label expansion for these indications.
Accordingly, physician reimbursement for device programming and ECoG review during a typical RNS System follow-up visit could range from $156 to $200. We believe physicians submit claims for VNS device programming using code 95976 or 95977, depending on the number of device parameters changed.
Accordingly, physician reimbursement for device programming and ECoG review during a typical RNS System follow-up visit could range from $150 to $192. We believe physicians submit claims for VNS device programming using code 95976 or 95977, depending on the number of device parameters changed.
Based on Medicare national average payment rates, payment under these codes is expected to range from $40 to $53. Competition Our industry is competitive and has been evolving rapidly with the introduction of new products and technologies as well as the market activities of industry participants.
Based on Medicare national average payment rates, payment under these codes is expected to range from $38 to $51. Competition Our industry is competitive and has been evolving rapidly with the introduction of new products and technologies as well as the market activities of industry participants.
In addition, the GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including the U.S. and, as a result, increases the scrutiny that such rules should apply to transfers of personal data from clinical trial sites located in the EEA to the U.S.
In addition, the EU GDPR also imposes strict rules on the transfer of personal information to countries outside the EU, including the United States, and, as a result, increases the scrutiny that such rules should apply to transfers of personal information from clinical trial sites located in the EEA to the U.S.
By focusing on individual performance, as well as teamwork and collaboration, we believe that we foster an environment that helps employees excel as individuals and as team members. Seventy-one employees, or 43% of our workforce, have been at NeuroPace for at least five years.
By focusing on individual performance, as well as teamwork and collaboration, we believe that we foster an environment that helps employees excel as individuals and as team members. Seventy-seven employees, or 45% of our workforce, have been at NeuroPace for at least five years.
Our continued success depends on our ability to: • continue to demonstrate safety and efficacy in our Post-Approval Study and in ongoing commercial use; • expand our footprint of Level 4 CECs implanting our RNS System and increase utilization in new and existing CECs; • increase the number of epileptologists recommending and the number of neurosurgeons implanting our RNS System; • drive awareness to increase the number of drug-resistant epilepsy patients referred to Level 4 CECs by expanding our referral pathways; • maintain adequate reimbursement for procedures using our product; • attract and retain skilled research, development, sales and clinical personnel; • continue to innovate in order to improve therapy effectiveness and enhance the patient and provider experience; • obtain and maintain regulatory clearances and approvals, including for expanded indications; • cost-effectively manufacture, market and sell our product; and • obtain, maintain, enforce and defend our intellectual property rights and operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others.
Our continued success depends on our ability to: • continue to demonstrate safety and efficacy in our Post-Approval Study and in ongoing commercial use; • expand our customer footprint within CECs and in the community setting, and increase utilization among these customers; • increase the number of epileptologists recommending and the number of neurosurgeons implanting our RNS System; • drive awareness to increase the number of drug-resistant epilepsy patients referred to CECs by expanding our referral pathways; • maintain adequate reimbursement for procedures using our product; • attract and retain skilled research, development, sales and clinical personnel; • continue to innovate in order to improve therapy effectiveness and enhance the patient and provider experience; • obtain and maintain regulatory clearances and approvals, including for expanded indications; • cost-effectively manufacture, market and sell our product; and • obtain, maintain, enforce and defend our intellectual property rights and operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others.
We believe the therapeutic advantages of our RNS System, combined with the insights obtained from our extensive brain data set, offer a significant leap forward in epilepsy treatment. As of December 31, 2022, over 4,000 patients have received our RNS System.
We believe the therapeutic advantages of our RNS System, combined with the insights obtained from our extensive brain data set, offer a significant leap forward in epilepsy treatment. As of December 31, 2023, over 5,000 patients have received our RNS System.
In addition, as noted above, we are planning for regulatory clearances in non-U.S. jurisdictions, including the EU, Canada, and Japan, and therefore would be subject to non-U.S. data privacy and security laws, rules, regulations 44 and standards as our operations expand.
In addition, as noted above, we are planning for regulatory clearances in non-U.S. jurisdictions, including the EU, Canada, and Japan, and may be subject to non-U.S. data privacy and security laws, rules, regulations and standards as our operations expand.
In addition, Therapy Consultants support epileptologists and their staff in incorporating our RNS System into their practice, and provide resources to help with patient education, as well as working to expand our referral pathways to increase referrals into Level 4 CECs.
In addition, Therapy Consultants support epileptologists and their staff in incorporating our RNS System into their practice, and provide resources to help with patient education within the CECs and community setting, as well as working to expand our referral pathways to increase referrals into Level 4 CECs.
Given the concentrated and underpenetrated nature of our target market, we believe there is a significant opportunity to efficiently drive higher utilization within these centers, grow our account base, and expand our referral pathways to increase the number of drug-resistant patients referred to Level 4 CECs with accelerated salesforce expansion.
Given the concentrated and underpenetrated nature of our target market, we believe there is a significant opportunity to efficiently drive higher adoption and utilization within these centers, grow our account base, and expand our referral pathways to increase the number of drug-resistant patients referred to Level 4 CECs.
Our robust and growing body of clinical evidence, which includes nine-year follow-up with over 2,500 years of patient data, provides the largest and longest published prospective clinical data set in the field of neuromodulation devices for epilepsy.
Our robust and growing body of clinical evidence, which includes nine-year follow-up with over 3,200 years of patient data, provides the largest and longest published prospective clinical data set in the field of neuromodulation devices for epilepsy.
We believe our RNS System offers a significant leap forward relative to current practice for epilepsy treatment in which clinicians rely on patient-reported seizure data which are often unreliable and incomplete. As of December 31, 2022, over 4,000 epilepsy patients have received our RNS System, yielding an extensive database of over twelve million iEEG records.
We believe our RNS System offers a significant leap forward relative to current practice for epilepsy treatment in which clinicians rely on patient-reported seizure data which are often unreliable and incomplete. As of December 31, 2023, over 5,000 epilepsy patients have received our RNS System, yielding an extensive database of over fifteen million iEEG records.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

188 edited+42 added−56 removed491 unchanged
Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, or comparable foreign regulations; 57 • challenges enforcing our contractual and intellectual property rights as well as intellectual property theft or compulsory licensing, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States; and • business interruptions resulting from geopolitical actions, including tariffs, war and terrorism.
Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, or comparable foreign regulations; • challenges enforcing our contractual and intellectual property rights as well as intellectual property theft or compulsory licensing, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States; and 57 • business interruptions resulting from geopolitical actions, including tariffs, war and terrorism.
Additionally, certain data privacy and security obligations may require us to implement and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems and sensitive data. While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective.
Additionally, certain data privacy and security obligations may require us to implement and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems and sensitive information. While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective.
In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial negative impact on our common stock price.
In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial negative impact on our common stock price.
Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately.
Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately.
For example: • others may be able to make products that are similar to our products or utilize similar technology but that are not covered by the claims of our patents or that incorporate certain technology in our products that is in the public domain; • our intellectual property strategy may be limited, we may not seek protection for intellectual property that may ultimately become relevant to our business or our invention disclosure process may prove insufficient to encourage inventors to come forward with protectable intellectual property; • we, or our current or future licensors or collaborators, might not have been the first to make the inventions covered by the applicable issued patent or pending patent application that we own now or may own or license in the future; • we, or our current or future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions; 82 • we, or our current or future licensors or collaborators, may fail to meet our obligations to the U.S. government regarding any future patents and patent applications funded by U.S. government grants, leading to the loss or unenforceability of patent rights; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; • it is possible that our current or future pending patent applications will not lead to issued patents; • it is possible that there are prior public disclosures that could invalidate our patents, or parts of our patents; • it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claims covering our products or technology similar to ours; • it is possible that our patents or patent applications omit individuals that should be listed as inventors or include individuals that should not be listed as inventors, which may cause these patents or patents issuing from these patent applications to be held invalid or unenforceable; • issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; • the claims of our patents or patent applications, if and when issued, may not cover our products or technologies; • the laws of foreign countries may not protect our proprietary rights or the rights of current or future licensors or collaborators to the same extent as the laws of the United States; • the inventors of our patents or patent applications may become involved with competitors, develop products or processes that design around our patents, or become hostile to us or the patents or patent applications on which they are named as inventors; • our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; • we have engaged in scientific collaborations in the past and will continue to do so in the future and our collaborators may develop adjacent or competing products that are outside the scope of our patents; • we may not develop additional proprietary technologies that are patentable; • the patents of others may harm our business; or • we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.
For example: • others may be able to make products that are similar to our products or utilize similar technology but that are not covered by the claims of our patents or that incorporate certain technology in our products that is in the public domain; • our intellectual property strategy may be limited, we may not seek protection for intellectual property that may ultimately become relevant to our business or our invention disclosure process may prove insufficient to encourage inventors to come forward with protectable intellectual property; • we, or our current or future licensors or collaborators, might not have been the first to make the inventions covered by the applicable issued patent or pending patent application that we own now or may own or license in the future; • we, or our current or future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions; • we, or our current or future licensors or collaborators, may fail to meet our obligations to the U.S. government regarding any future patents and patent applications funded by U.S. government grants, leading to the loss or unenforceability of patent rights; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; • it is possible that our current or future pending patent applications will not lead to issued patents; • it is possible that there are prior public disclosures that could invalidate our patents, or parts of our patents; • it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claims covering our products or technology similar to ours; • it is possible that our patents or patent applications omit individuals that should be listed as inventors or include individuals that should not be listed as inventors, which may cause these patents or patents issuing from these patent applications to be held invalid or unenforceable; • issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; • the claims of our patents or patent applications, if and when issued, may not cover our products or technologies; • the laws of foreign countries may not protect our proprietary rights or the rights of current or future licensors or collaborators to the same extent as the laws of the United States; • the inventors of our patents or patent applications may become involved with competitors, develop products or processes that design around our patents, or become hostile to us or the patents or patent applications on which they are named as inventors; 82 • our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; • we have engaged in scientific collaborations in the past and will continue to do so in the future and our collaborators may develop adjacent or competing products that are outside the scope of our patents; • we may not develop additional proprietary technologies that are patentable; • the patents of others may harm our business; or • we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.
Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA or state agencies, which may include any of the following actions: • untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; • removal from FDA’s Voluntary Improvement Program pilot; • unanticipated expenditures to address or defend such actions; • form 483s, or other compliance or enforcement notices, communications or correspondence, including customer notifications for repair, replacement or refunds; • recall, detention or seizure of our RNS System; • operating restrictions or partial suspension or total shutdown of production; • refusing or delaying our requests for 510(k) clearance or PMA of new products or modified products; • operating restrictions; • seizure or detention of products; • withdrawing 510(k) clearances or PMAs that have already been granted; • refusal to grant export approval for our RNS System; • criminal prosecution; or • civil penalties.
Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA or state agencies, which may include any of the following actions: • untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; • removal from FDA’s Voluntary Improvement Program pilot; • unanticipated expenditures to address or defend such actions; • form 483s, or other compliance or enforcement notices, communications or correspondence, including customer notifications for repair, replacement or refunds; • recall, detention or seizure of our RNS System; • operating restrictions or partial suspension or total shutdown of production; • refusing or delaying our requests for 510(k) clearance or PMA of new products or modified products; • operating restrictions; • seizure or detention of products; 61 • withdrawing 510(k) clearances or PMAs that have already been granted; • refusal to grant export approval for our RNS System; • criminal prosecution; or • civil penalties.
If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences, such as government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive data (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms.
If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences, such as government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal information); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms.
We are an emerging growth company, as defined in the JOBS Act, and we expect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including the auditor attestation requirements of Section 404, reduced disclosure obligations 91 regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved and extended adoption period for accounting pronouncements.
We are an emerging growth company, as defined in the JOBS Act, and we expect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved and extended adoption period for accounting pronouncements.
Misconduct by these parties could include intentional, reckless or negligent conduct or disclosure of unauthorized activities to us that violates: (i) the laws of the FDA and other similar foreign regulatory bodies, including those laws requiring the reporting of true, complete and accurate information to such regulators; (ii) manufacturing standards; (iii) healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws; or (iv) laws that require the true, complete and accurate reporting of financial information or data.
Misconduct by these parties could include intentional, reckless or negligent conduct or disclosure of unauthorized activities to us that violates: (i) the laws of the FDA and other similar foreign regulatory bodies, including those laws requiring the reporting of true, complete and accurate information to such regulators; (ii) manufacturing standards; (iii) healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws; or (iv) laws that require the true, complete and accurate 59 reporting of financial information or data.
Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program. In addition, our reliance on third-party service providers could introduce new cybersecurity risks and vulnerabilities, including supply-chain attacks, and other threats to our business operations.
Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program. 67 In addition, our reliance on third-party service providers could introduce new cybersecurity risks and vulnerabilities, including supply-chain attacks, and other threats to our business operations.
Using these third parties poses a number of risks, such as: • they may not perform to our standards or legal requirements; 89 • they may not produce reliable results; • they may not perform in a timely manner; • they may not maintain confidentiality of our proprietary information; • disputes may arise with respect to ownership of rights to products developed with our partners; and • disagreements could cause delays in, or termination of, the research, development or commercialization of our products or result in litigation or arbitration.
Using these third parties poses a number of risks, such as: • they may not perform to our standards or legal requirements; • they may not produce reliable results; • they may not perform in a timely manner; • they may not maintain confidentiality of our proprietary information; • disputes may arise with respect to ownership of rights to products developed with our partners; and • disagreements could cause delays in, or termination of, the research, development or commercialization of our products or result in litigation or arbitration.
Risks related to our intellectual property If we are unable to obtain, maintain, protect, enforce and defend patent or other intellectual property protection for our products, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, or as a result of our existing or any future out-licenses of our intellectual property, our competitors could 71 develop and commercialize products similar to or competitive with our products, our ability to continue to commercialize our RNS System, or our other products, may be harmed.
Risks related to our intellectual property If we are unable to obtain, maintain, protect, enforce and defend patent or other intellectual property protection for our products, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, or as a result of our existing or any future out-licenses of our intellectual property, our competitors could develop and commercialize products similar to or competitive with our products, our ability to continue to commercialize our RNS System, or our other products, may be harmed.
As a result, our dependence on third-party, including single source, suppliers, subjects us to a number of risks that could impact our ability to manufacture our products and harm our business, financial condition, and results of operations, including: • interruption of supply resulting from modifications to, or discontinuation of, a supplier’s operations, including due to the COVID-19 pandemic; • delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s failure to produce components that consistently meet our quality specifications; • delays in analytical results or failure of analytical techniques that we depend on for quality control and release of our products; • price fluctuations due to a lack of long-term supply arrangements with our suppliers for key components; • inability to obtain adequate supply in a timely manner or on commercially reasonable terms; • difficulty identifying and qualifying alternative suppliers for components in a timely manner; • inability of suppliers to comply with applicable provisions of the QSR or other applicable laws or regulations enforced by the FDA and other Federal and state regulatory authorities; • delays in regulatory approvals of any changes to manufacturing, including the use of new suppliers; • latent defects that may become apparent after our products have been released and that may result in an adverse event or a recall of such products; • inclusion of vendors of raw materials not in compliance with regulatory requirements; • natural or other disasters, global pandemics, labor disputes, financial distress, lack of raw material supply, issues with facilities and equipment, international conflict or war, or other forms of disruption to business operations affecting our manufacturer or its suppliers; • production delays related to the evaluation and testing of our products or the use of components from alternative suppliers; • failure to complete sterilization on time or in compliance with the required regulatory standards; and • delays in delivery by our suppliers of components, materials, or services due to changes in demand from us or their other customers.
As a result, our dependence on third-party, including single source, suppliers, subjects us to a number of risks that could impact our ability to manufacture our products and harm our business, financial condition, and results of operations, including: • interruption of supply resulting from modifications to, or discontinuation of, a supplier’s operations; • delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s failure to produce components that consistently meet our quality specifications; • delays in analytical results or failure of analytical techniques that we depend on for quality control and release of our products; • price fluctuations due to a lack of long-term supply arrangements with our suppliers for key components; • inability to obtain adequate supply in a timely manner or on commercially reasonable terms; • difficulty identifying and qualifying alternative suppliers for components in a timely manner; • inability of suppliers to comply with applicable provisions of the QSR or other applicable laws or regulations enforced by the FDA and other Federal and state regulatory authorities; • delays in regulatory approvals of any changes to manufacturing, including the use of new suppliers; • latent defects that may become apparent after our products have been released and that may result in an adverse event or a recall of such products; • inclusion of vendors of raw materials not in compliance with regulatory requirements; • natural or other disasters, global pandemics, labor disputes, financial distress, lack of raw material supply, issues with facilities and equipment, international conflict or war, or other forms of disruption to business operations affecting our manufacturer or its suppliers; • production delays related to the evaluation and testing of our products or the use of components from alternative suppliers; • failure to complete sterilization on time or in compliance with the required regulatory standards; and • delays in delivery by our suppliers of components, materials, or services due to changes in demand from us or their other customers.
Failure to comply with applicable U.S. requirements regarding, for example, promoting, manufacturing or labeling our RNS System, may subject us to a variety of administrative or judicial actions and sanctions, such as Form 483 observations, warning letters, untitled letters, product recalls, product seizures, and total or partial 61 suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Failure to comply with applicable U.S. requirements regarding, for example, promoting, manufacturing or labeling our RNS System, may subject us to a variety of administrative or judicial actions and sanctions, such as Form 483 observations, warning letters, untitled letters, product recalls, product seizures, and total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Companies settling federal civil FCA, Anti-Kickback Statute or civil monetary penalties law cases also may be required to enter into a Corporate Integrity 59 Agreement with the Office of Inspector General, or OIG, in order to avoid exclusion from participation (such as loss of coverage for their products) in federal healthcare programs such as Medicare and Medicaid.
Companies settling federal civil FCA, Anti-Kickback Statute or civil monetary penalties law cases also may be required to enter into a Corporate Integrity Agreement with the Office of Inspector General, or OIG, in order to avoid exclusion from participation (such as loss of coverage for their products) in federal healthcare programs such as Medicare and Medicaid.
The commencement and completion of clinical studies to support label retention and expansion for additional indications or for new products may be delayed, suspended or terminated as a result of many factors, including: • the delay or refusal of regulators or Institutional Review Boards, or IRBs, to authorize us to commence a clinical study at a prospective trial site; 70 • changes in regulatory requirements, policies and guidelines; • delays or failure to reach agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • delays in patient enrollment and variability in the number and types of patients available for clinical studies, including due to COVID-19, and delays in or the inability to monitor enrolled patients, including due to COVID-19; • the inability to enroll a sufficient number of patients in studies to observe statistically significant treatment effects in the trial; • having clinical sites deviate from the trial protocol or dropping out of a study; • safety or tolerability concerns that could cause us to suspend or terminate a trial if we find that the participants are being exposed to unacceptable health risks; • regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or safety concerns, among others; • lower than anticipated retention rates of patients and volunteers in clinical studies; • our CROs or clinical studies sites failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a trial; • delays relating to adding new clinical study sites; and • exceeding budgeted costs due to difficulty in accurately predicting costs associated with clinical studies.
The commencement and completion of clinical studies to support label retention and expansion for additional indications or for new products may be delayed, suspended or terminated as a result of many factors, including: • the delay or refusal of regulators or Institutional Review Boards, or IRBs, to authorize us to commence a clinical study at a prospective trial site; • changes in regulatory requirements, policies and guidelines; • delays or failure to reach agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • delays in patient enrollment and variability in the number and types of patients available for clinical studies and delays in or the inability to monitor enrolled patients; • the inability to enroll a sufficient number of patients in studies to observe statistically significant treatment effects in the trial; • having clinical sites deviate from the trial protocol or dropping out of a study; • safety or tolerability concerns that could cause us to suspend or terminate a trial if we find that the participants are being exposed to unacceptable health risks; • regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or safety concerns, among others; • lower than anticipated retention rates of patients and volunteers in clinical studies; • our CROs or clinical studies sites failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a trial; • delays relating to adding new clinical study sites; and • exceeding budgeted costs due to difficulty in accurately predicting costs associated with clinical studies.
In addition, if demand for our 49 products shifts such that our manufacturing facility is operated below our forecasts for an extended period, we may adjust our manufacturing operations to reduce fixed costs, which could lead to uncertainty and delays in manufacturing times and quality during any transition period. The manufacturing, sterilization and distribution of our products are technically challenging.
In addition, if demand for our products shifts such that our manufacturing facility is operated below our forecasts for an extended period, we may adjust our manufacturing operations to reduce fixed costs, which could lead to uncertainty and delays in manufacturing times and quality during any transition period. The manufacturing, sterilization and distribution of our products are technically challenging.
Since patent applications in the United States and most other countries are confidential for a period of time after filing or 78 until issuance, we could continue incurring costs without being certain that we were the first to file any patent application related to our products or invent any of the inventions claimed in our patents or patent applications.
Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we could continue incurring costs without being certain that we were the first to file any patent application related to our products or invent any of the inventions claimed in our patents or patent applications.
Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires us to devote significant resources and may necessitate changes to our services, information technologies, systems, and practices and to those of any third parties that process personal data on our behalf.
Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires us to devote significant resources and may necessitate changes to our services, information technologies, systems, and practices and to those of any third parties that process personal information on our behalf.
An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the 81 substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation.
An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation.
In addition, if we experience a significant increase in demand, additional supplies of components, materials, or services, or additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at all, which may negatively affect our business, financial condition, and results of operations.
In addition, if we experience a significant increase in demand, 51 additional supplies of components, materials, or services, or additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at all, which may negatively affect our business, financial condition, and results of operations.
Such proceedings also may result in substantial cost and require significant time from our management, even if the eventual outcome is favorable to us. In addition, if we initiate legal proceedings against a third party to enforce a patent covering our products, the defendant could counterclaim that such patent is invalid or unenforceable.
Such proceedings also may result in substantial cost and require significant time from our management, even if the eventual outcome is favorable to us. 73 In addition, if we initiate legal proceedings against a third party to enforce a patent covering our products, the defendant could counterclaim that such patent is invalid or unenforceable.
As the number of competitors in our market grows and the number of patents issued in this area increases, the possibility of patent infringement claims against us escalates. Moreover, we may face claims from non-practicing entities, or NPEs, which have no relevant product revenue and against whom our own patent portfolio may have no deterrent effect.
As the number of competitors in our market grows and the number of patents issued in this area increases, the possibility of patent infringement claims against us escalates. Moreover, we may face claims from non-practicing entities, or NPEs, which have no relevant product revenue and against whom our own patent 79 portfolio may have no deterrent effect.
Further, improvements of our existing products, any potential new products, and new indications for use of our current products will be subject to extensive regulation, and we may require permission from regulatory agencies and ethics boards to conduct clinical studies, as well as clearance or approval from the FDA prior to commercial sale.
Further, improvements of or changes to our existing products, any potential new products, and new indications for use of our current products will be subject to extensive regulation, and we may require permission from regulatory agencies and ethics boards to conduct clinical studies, as well as clearance or approval from the FDA prior to commercial sale.
Any of the previously identified or similar threats could cause a security incident or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive data or our information technology systems, or those of the third parties upon whom we rely.
Any of the previously identified or similar threats could cause a security incident or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive information or our information technology systems, or those of the third parties upon whom we rely.
During 67 times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our services.
During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our services.
We rely on third-party service providers and technologies to operate critical business systems to process sensitive data in a variety of contexts, such as and without limitation, cloud-based infrastructure, data center facilities, encryption and authentication technology, employee email, content delivery to customers, and other functions.
We rely on third-party service providers and technologies to operate critical business systems to process sensitive information in a variety of contexts, such as and without limitation, cloud-based infrastructure, data center facilities, encryption and authentication technology, employee email, content delivery to customers, and other functions.
We source and rely upon materials, components, and sub-assemblies of our RNS System, as well as manufacturing services from approved suppliers, most of which are single source suppliers. For example, Micro Systems Technologies Management AG and Greatbatch Ltd are single source suppliers of several key components 50 of our products, including printed circuit assemblies and batteries.
We source and rely upon materials, components, and sub-assemblies of our RNS System, as well as manufacturing services from approved suppliers, most of which are single source suppliers. For example, Micro Systems Technologies Management AG and Greatbatch Ltd are single source suppliers of several key components of our products, including printed circuit assemblies and batteries.
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent.
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or 77 government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent.
We could also encounter delays if a clinical study is suspended or terminated by us, by the IRBs or the Ethics Committees of institutions at which such studies are being conducted, by the Data Safety Monitoring Board for such trial or by the FDA or other regulatory authorities.
We could also encounter delays if a clinical study is suspended or terminated by us, by the IRBs or the Ethics Committees of institutions at which such studies are being conducted, by the Data Safety Monitoring Board for such 70 trial or by the FDA or other regulatory authorities.
Even if we are successful in defending against intellectual property claims, litigation or other legal proceedings relating to such claims may cause us to incur significant expenses, cause reputational harm, and could distract our technical and management personnel from their normal responsibilities.
Even if we are successful in defending against intellectual property claims, litigation or other legal proceedings relating to such claims may cause us to incur significant expenses, cause reputational harm, and could distract our 74 technical and management personnel from their normal responsibilities.
Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names or other intellectual property may be ineffective, could result in substantial costs, diversion of resources, or adverse impact to our brand and could harm our business, financial condition and results of operations.
Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names or other intellectual property may be ineffective, could result in 81 substantial costs, diversion of resources, or adverse impact to our brand and could harm our business, financial condition and results of operations.
We are party to an existing Term Loan Agreement, which contains restrictive covenants as well as financial maintenance covenants, and if we are unable to comply with these covenants then the lenders could declare an event of default wherein we may need to immediately repay the amounts due under the Term Loan Agreement.
We are party to an existing Term Loan Agreement, which contains restrictive covenants as well as financial maintenance covenants, and if we are unable to comply with these covenants then the lenders could declare an event of default and we may need to immediately repay the amounts due under the Term Loan Agreement.
If the results of our products do not meet the expectations of the patients, or the patient experiences adverse events, it could discourage the patient from continuing to use our device or referring our products to others. Dissatisfied patients may express 53 negative opinions through social media, advocacy, or other publicity.
If the results of our products do not meet the expectations of the patients, or the patient experiences adverse events, it could discourage the patient from continuing to use our device or referring our products to others. Dissatisfied patients may express negative opinions through social media, advocacy, or other publicity.
An inability to attract, hire, train and retain employees will harm our sales, business, financial condition, and results of operations. 55 We expect to increase the size of our organization in the future, and we may experience difficulties in managing the operational elements or timing of this growth.
An inability to attract, hire, train and retain employees will harm our sales, business, financial condition, and results of operations. We expect to increase the size of our organization in the future, and we may experience difficulties in managing the operational elements or timing of this growth.
For instance, before a new medical device, or a new intended use for an existing device, can be marketed in the United States, a company must first submit and receive either 510(k) 60 clearance or approval of a PMA from the FDA, unless an exemption applies.
For instance, before a new medical device, or a new intended use for an existing device, can be marketed in the United States, a company must first submit and receive either 510(k) clearance or approval of a PMA from the FDA, unless an exemption applies.
Any modifications to a PMA-approved device that could significantly affect its safety or effectiveness, including significant design and manufacturing changes, or that would constitute a major change in its intended use, manufacture, design, components, or technology requires approval of a new PMA application or PMA supplement.
Any modifications to a PMA-approved device that could significantly affect its safety or effectiveness, including significant design and manufacturing changes, or that would constitute a major change in its intended use, manufacture, design, components, materials, or technology requires approval of a new PMA application or PMA supplement.
Our products may also contain hazardous substances, and they are subject laws and regulations relating to labeling requirements and to their sale, collection, recycling, treatment, storage and disposal. Compliance with these laws and regulations may be expensive and noncompliance could result in substantial fines and penalties.
Our products may also contain hazardous substances, and they are subject laws and regulations relating to labeling requirements and to their sale, collection, recycling, treatment, storage and disposal. Compliance with these laws and regulations may be 69 expensive and noncompliance could result in substantial fines and penalties.
Further, we may not be able to obtain adequate remedies for any breach. 84 Our inability to use software licensed from third parties, or our use of open source software under license terms that interfere with our proprietary rights, could disrupt our business.
Further, we may not be able to obtain adequate remedies for any breach. Our inability to use software licensed from third parties, or our use of open source software under license terms that interfere with our proprietary rights, could disrupt our business.
A government mandated or voluntary product recall by us could occur because of, for example, component failures, device malfunctions or other adverse events, such as serious injuries or deaths, or quality-related issues, such as manufacturing errors or design or labeling defects.
A government mandated or voluntary product recall by us could occur because of, for example, component failures, device malfunctions or 63 other adverse events, such as serious injuries or deaths, or quality-related issues, such as manufacturing errors or design or labeling defects.
We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful. In addition, our patents or the patents of our licensing partners also may become involved in inventorship, priority or validity disputes.
We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful. 80 In addition, our patents or the patents of our licensing partners also may become involved in inventorship, priority or validity disputes.
The value to employees of stock options that vest over time may be significantly affected by fluctuations in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.
The value to employees of stock options that vest over time may be significantly affected by fluctuations in our stock price that are beyond our 55 control, and may at any time be insufficient to counteract more lucrative offers from other companies.
There likely will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future or their full impact.
There likely will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future or 64 their full impact.
Moreover, patients about whom we or our contractors or collaborators obtain or share health information, as well as the providers who share this information with us or whom we share this data with, may have statutory or 69 contractual rights that limit our ability to use and disclose the information.
Moreover, patients about whom we or our contractors or collaborators obtain or share health information, as well as the providers who share this information with us or whom we share this data with, may have statutory or contractual rights that limit our ability to use and disclose the information.
Such licenses may not be available on commercially reasonable terms, or at all, or may be non-exclusive. If we are 79 unable to obtain and maintain such licenses, we may need to cease the development, manufacture and commercialization of one or more of our products.
Such licenses may not be available on commercially reasonable terms, or at all, or may be non-exclusive. If we are unable to obtain and maintain such licenses, we may need to cease the development, manufacture and commercialization of one or more of our products.
Since we produce our products in one manufacturing facility, any contamination of the controlled environment, equipment malfunction, supply issues, personnel issues, including human error, or failure to strictly follow procedures can significantly reduce our yield.
Since we produce our products in one manufacturing facility, any contamination of the controlled environment, equipment malfunction, supply issues, personnel issues, including human error, or failure to strictly follow 49 procedures can significantly reduce our yield.
Any future debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. 85 Furthermore, we cannot be certain that additional funding will be available on acceptable terms, if at all.
Any future debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Furthermore, we cannot be certain that additional funding will be available on acceptable terms, if at all.
Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of our sensitive data and information technology systems, and those of the third parties upon which we rely.
Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of our sensitive information and information technology systems, and those of the third parties upon which we rely.
However, we may be 73 unable to acquire or secure such licenses to any or all intellectual property or proprietary rights from third parties that we identify as necessary for our RNS System or any future products we may develop.
However, we may be unable to acquire or secure such licenses to any or all intellectual property or proprietary rights from third parties that we identify as necessary for our RNS System or any future products we may develop.
This uncertainty includes changes to the patent laws through either legislative action to change 72 statutory patent law or court action that may reinterpret existing law or rules in ways affecting the scope or validity of issued patents.
This uncertainty includes changes to the patent laws through either legislative action to change statutory patent law or court action that may reinterpret existing law or rules in ways affecting the scope or validity of issued patents.
Furthermore, we may not be able to prevent the unauthorized disclosure or use of our 83 technical knowledge or other trade secrets by such third parties, despite the existence generally of these confidentiality restrictions.
Furthermore, we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by such third parties, despite the existence generally of these confidentiality restrictions.
Inventory levels in excess of customer demand may result in inventory write-downs or write-offs, which would cause our gross margin to be adversely affected and could 56 impair the strength of our brand.
Inventory levels in excess of customer demand may result in inventory write-downs or write-offs, which would cause our gross margin to be adversely affected and could impair the strength of our brand.
Congressional inquiries and proposed and enacted federal legislation designed to bring transparency to product pricing and reduce the cost of products and services under government healthcare programs, such as the recently enacted Inflation Reduction Act.
Congressional inquiries and proposed and enacted federal legislation designed to bring transparency to product pricing and reduce the cost of products and services under government healthcare programs, such as the recently enacted Inflation Reduction Act of 2022.
If we are forced to lower or are unable to increase the price we charge for our RNS System, our gross margins will decrease, which will harm our ability to invest in and grow our business.
If we are forced to lower or are unable to increase the price we charge for our RNS System, our gross margins will decrease, which will harm our ability to invest in and 56 grow our business.
Defense of infringement claims, regardless of their merit or outcome, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, and 80 may impact our reputation.
Defense of infringement claims, regardless of their merit or outcome, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, and may impact our reputation.
The theft or unauthorized use or publication of our trade secrets and other confidential business information could reduce the differentiation of our products, substantially and adversely impact our sales and commercial operations and harm our business.
The 83 theft or unauthorized use or publication of our trade secrets and other confidential business information could reduce the differentiation of our products, substantially and adversely impact our sales and commercial operations and harm our business.
In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable over the prior art.
In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our 71 inventions and the prior art allow our inventions to be patentable over the prior art.
If 77 we do not have adequate patent protection or other exclusivity for our products, our business, financial condition or results of operations could be adversely affected .
If we do not have adequate patent protection or other exclusivity for our products, our business, financial condition or results of operations could be adversely affected .
In September 2020, we entered into a Term Loan Agreement, or the Term Loan, pursuant to which the lender has made available to us an aggregate principal amount not to exceed $60.0 million, of which, as of December 31, 2022, we have drawn $50.0 million and the remainder was available to be drawn only if we met certain financial thresholds, which we did not meet.
In September 2020, we entered into a Term Loan Agreement, or the Term Loan, pursuant to which the lender has made available to us an aggregate principal amount not to exceed $60.0 million, of which, as of December 31, 2023, we have drawn $50.0 million and the remainder was available to be drawn only if we met certain financial thresholds, which we did not meet.
If any of our products cause or contribute to a death or a serious injury or malfunction in certain ways, we will be required to report under applicable medical device reporting regulations, or MDRs, which can result in voluntary corrective actions or agency enforcement actions and harm our reputation, business, financial condition and results of operations.
If any of our products or products that we distribute cause or contribute to a death or a serious injury or malfunction in certain ways, we will be required to report under applicable medical device reporting regulations, or MDRs, which can result in voluntary corrective actions or agency enforcement actions and harm our reputation, business, financial condition and results of operations.
Our ability to obtain components for our products could be disrupted if the operations of our suppliers were affected by a man-made or natural disaster or other business interruption. In addition, our corporate headquarters and manufacturing facility is 94 located in Mountain View, California, near major earthquake faults and fire zones.
Our ability to obtain components 93 for our products could be disrupted if the operations of our suppliers were affected by a man-made or natural disaster or other business interruption. In addition, our corporate headquarters and manufacturing facility is located in Mountain View, California, near major earthquake faults and fire zones.
Security incidents and attendant consequences may cause customers to stop using our services, deter new customers from using our services, and negatively impact our ability to grow and operate our business.
Security incidents and attendant consequences may cause customers to stop using our products and services, deter new customers from using our products and services, and negatively impact our ability to grow and operate our business.
We are actively expanding our presence in the United States through additional sales and education efforts to drive awareness of our RNS System amongst patients, clinicians and hospital facilities, to drive adoption of our RNS System at Level 4 CECs and increase utilization of our RNS System within new and existing accounts.
We are actively expanding our presence in the United States through additional sales and education efforts to drive awareness of our RNS System amongst patients, clinicians and hospital facilities, to drive adoption of our RNS System at Level 4 CECs and in the community setting and to increase utilization and adoption of our RNS System within new and existing accounts.
An active or liquid market in our common stock may not be sustainable and the market price of our common stock may continue to be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control or are related in complex ways, including: • actual or anticipated fluctuations in our financial condition and results of operations; • variance in our financial performance from expectations of securities analysts or investors; • changes in the coverage decisions, reimbursement or pricing of our products; • changes in our projected operating and financial results; • changes in laws or regulations applicable to our products; • announcements by us or our competitors of significant business developments, acquisitions, or new offerings; • publicity associated with issues related to our products; • our involvement in regulatory investigations or litigation; 95 • future sales of our common stock or other securities, by us or our stockholders, as well as the anticipation of lock-up releases; • changes in senior management or key personnel; • the trading volume of our common stock; • changes in the anticipated future size and growth rate of our market; • general economic, regulatory, and market conditions, including economic recessions or slowdowns; • the impact of the COVID-19 pandemic; • changes in the structure of healthcare payment systems; and • developments or disputes concerning our intellectual property or other proprietary rights.
An active or liquid market in our common stock may not be sustainable and the market price of our common stock may continue to be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control or are related in complex ways, including: • actual or anticipated fluctuations in our financial condition and results of operations; • variance in our financial performance from expectations of securities analysts or investors; • changes in the coverage decisions, reimbursement or pricing of our products; • changes in our projected operating and financial results; • changes in laws or regulations applicable to our products; • announcements by us or our competitors of significant business developments, acquisitions, or new offerings; • publicity associated with issues related to our products; 94 • our involvement in regulatory investigations or litigation; • future sales of our common stock or other securities, by us or our stockholders, as well as the anticipation of lock-up releases; • changes in senior management or key personnel; • the trading volume of our common stock; • changes in the anticipated future size and growth rate of our market; • general economic, regulatory, and market conditions, including economic recessions or slowdowns; • changes in the structure of healthcare payment systems; and • developments or disputes concerning our intellectual property or other proprietary rights.
Our quarterly and annual operating results may fluctuate due to a variety of factors, many of which are outside of our control, including, but not limited to: • the level of demand for our products and any future products, which may vary significantly from period to period; • expenditures that we may incur to acquire, develop or commercialize additional products and technologies; • the timing and cost of obtaining regulatory approvals or clearances to expand our indications and get future approvals of any future products or features; • pricing pressures; • our ability to expand the geographic reach of our commercial efforts; • the degree of competition in our industry and any change in the competitive landscape of our industry, including consolidation among our competitors or future partners; • coverage and reimbursement policies with respect to our products, and potential future products that compete with our products; • the timing and success or failure of preclinical or clinical studies for expanding the indications of our RNS System or any future products we develop or competing products; • positive or negative coverage in the media or clinical publications of our products or products of our competitors or our industry; • the timing of customer orders or scheduling of implants using our products and the number of available selling days in any quarterly period, which can be impacted by holidays, vacations, the mix of products sold and the geographic mix of where products are sold, including any related foreign currency impact; • the impact of COVID-19 on procedure volume or otherwise; • the timing and cost of, and level of investment in, research, development, licenses, regulatory approval, commercialization activities, acquisitions and other strategic transactions, or other significant events relating to our products, which may change from time to time; 97 • the cost of manufacturing our products, which may vary depending on the quantity of production and the terms of our agreements with third-party suppliers; and • future accounting pronouncements or changes in our accounting policies.
Our quarterly and annual operating results may fluctuate due to a variety of factors, many of which are outside of our control, including, but not limited to: • the level of demand for our products and any future products, which may vary significantly from period to period; • expenditures that we may incur to acquire, develop or commercialize additional products and technologies; • the timing and cost of obtaining regulatory approvals or clearances to expand our indications and get future approvals of any future products or features; • pricing pressures; • our ability to expand the geographic reach of our commercial efforts; • the degree of competition in our industry and any change in the competitive landscape of our industry, including consolidation among our competitors or future partners; • coverage and reimbursement policies with respect to our products, and potential future products that compete with our products; • the timing and success or failure of preclinical or clinical studies for expanding the indications of our RNS System or any future products we develop or competing products; • positive or negative coverage in the media or clinical publications of our products or products of our competitors or our industry; • the timing of customer orders or scheduling of implants using our products and the number of available selling days in any quarterly period, which can be impacted by holidays, vacations, the mix of products sold and the geographic mix of where products are sold, including any related foreign currency impact; • the impact of hospital accessibility and staffing shortages on procedure volume or otherwise; • the timing and cost of, and level of investment in, research, development, licenses, regulatory approval, commercialization activities, acquisitions and other strategic transactions, or other significant events relating to our products, which may change from time to time; 96 • the cost of manufacturing our products, which may vary depending on the quantity of production and the terms of our agreements with third-party suppliers; and • future accounting pronouncements or changes in our accounting policies.
Before a new medical device or service, or a new intended use for an existing product or service, can be marketed in the United States, a company must first submit and receive either 510(k) clearance or PMA from the FDA, unless an exemption applies.
Before a new medical device or service, or a new intended use for an existing product or service, or a change to an existing product or service can be marketed in the United States, a company must first submit and receive either 510(k) clearance or PMA from the FDA, unless an exemption applies.
We may at times fail (or be perceived to have failed) in our efforts to comply with our data privacy and security obligations. Moreover, despite our efforts, our personnel or third parties on whom we rely may fail to comply with such obligations, which could negatively impact our business operations.
We or the third parties upon which we rely may at times fail (or be perceived to have failed) in our efforts to comply with our data privacy and security obligations. Moreover, despite our efforts, our personnel or third parties on whom we rely may fail to comply with such obligations, which could negatively impact our business operations.
We will remain an emerging growth company until the earliest of (i) December 31, 2026, (ii) the first fiscal year after our annual gross revenues exceed $1.07 billion, (iii) the date on which we have, during the immediately preceding three-year period, issued more than $1.00 billion in non-convertible debt securities, or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million as of the end of the second quarter of that fiscal year.
We will remain an emerging growth company until the earliest of (i) December 31, 2026, (ii) the first fiscal year after our annual gross revenues exceed $1.235 billion, (iii) the date on which we have, during the immediately preceding three-year period, issued more than $1.0 billion in non-convertible debt securities, or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million as of the end of the second quarter of that fiscal year .
Our commercial success will depend on a continued flow of patient referrals to Level 4 CECs from treating primary care physicians, neurologists, and other healthcare providers and from caregiver support and encouragement around physician referrals and self-referrals to Level 4 CECs.
Our commercial success will depend on a continued flow of patient referrals to CECs from treating primary care physicians, neurologists, and other healthcare providers and from caregiver support and encouragement around physician referrals and self-referrals to CECs.
We are increasingly dependent on complex information technology systems for the efficient functioning of our business, including the manufacture, distribution and maintenance of our products, as well as for accounting, data storage, compliance, purchasing and inventory management purposes.
We are dependent on complex information technology systems for the functioning of our business, including the manufacture, distribution and maintenance of our products, as well as for accounting, data storage, compliance, purchasing and inventory management purposes.
The commercial success of our RNS System will continue to depend on a number of factors, including the following: • the degree to which drug-resistant epilepsy remains a chronic and debilitating condition; • the actual and perceived effectiveness, safety and reliability, and clinical benefit, of our RNS System, especially relative to alternative neuromodulation devices such as VNS or DBS; • the prevalence and severity of any adverse patient events involving our RNS System; • our ability to provide earlier awareness of and education about our RNS System to patients and clinicians, including through our partnership with DIXI Medical; • the degree to which clinicians, patients and hospital facilities, primarily Level 4 CECs, adopt our RNS System; • the continued effects of the COVID-19 pandemic; • the availability, relative cost and perceived advantages and disadvantages of alternative technologies or treatment methods for epilepsy; • the results of additional clinical and other studies relating to the health, safety, economic or other benefits of our RNS System; 47 • whether key thought leaders in the medical community accept that our clinical efficacy and safety results are sufficiently meaningful to influence their decision to adopt our RNS System over other neuromodulation therapies; • the extent to which we are successful in educating clinicians, patients, and hospital facilities about the benefits of our RNS System, including as a result of the extended battery life of the neurostimulator; • our reputation among clinicians, patients and hospital facilities; • our ability to predict product performance; • the strength of our marketing and distribution infrastructure, including our ability to drive adoption and utilization of our RNS System, our ability to develop and maintain relationships with programming centers, and our ability to expand referral pathways to CECs; • our ability to obtain, maintain, protect, enforce and defend our intellectual property rights, including in and to our RNS System; • our ability to maintain compliance with all legal and regulatory requirements, including those applicable to our RNS System; • our ability to continue to maintain a commercially viable manufacturing process at our manufacturing facility that is compliant with current Good Manufacturing Practices, or cGMP, and Quality Systems Regulations, or QSR; • our ability to maintain our contractual relationships with our vendors and component suppliers, including single-source vendors and suppliers, through which we obtain critical components for our RNS System; • the continued coverage of and adequate payment for the implantation procedure and for clinicians to provide ongoing care for patients implanted with our RNS System by third party payors, including both private and government payors; and • our ability to continue to attract and retain key talent.
The commercial success of our RNS System will continue to depend on a number of factors, including the following: • the degree to which drug-resistant epilepsy remains a chronic and debilitating condition; • the actual and perceived effectiveness, safety and reliability, and clinical benefit, of our RNS System, especially relative to alternative neuromodulation devices such as VNS or DBS; • the prevalence and severity of any adverse patient events involving our RNS System; • our ability to provide earlier awareness of and education about our RNS System to patients and clinicians, including through our partnership with DIXI Medical; • the degree to which clinicians, patients and hospital facilities, including at CECs and outside of CECs, in the community setting, adopt our RNS System; • the availability, relative cost and perceived advantages and disadvantages of alternative technologies or treatment methods for epilepsy; • the results of additional clinical and other studies relating to the health, safety, economic or other benefits of our RNS System; 47 • whether key thought leaders in the medical community accept that our clinical efficacy and safety results are sufficiently meaningful to influence their decision to adopt our RNS System over other neuromodulation therapies; • the extent to which we are successful in educating clinicians, patients, and hospital facilities about the benefits of our RNS System, including as a result of the extended battery life of the neurostimulator; • our reputation among clinicians, patients and hospital facilities; • our ability to predict product performance; • the strength of our marketing and distribution infrastructure, including our ability to drive adoption and utilization of our RNS System, our ability to expand referral pathways to CECs and beyond, and our ability to grow the market outside of Level 4 CECs, in the community; • our ability to obtain, maintain, protect, enforce and defend our intellectual property rights, including in and to our RNS System; • our ability to maintain compliance with all legal and regulatory requirements, including those applicable to our RNS System; • our ability to continue to maintain a commercially viable manufacturing process at our manufacturing facility that is compliant with current Good Manufacturing Practices, or cGMP, and Quality Systems Regulations, or QSR; • our ability to maintain our contractual relationships with our vendors and component suppliers, including single-source vendors and suppliers, through which we obtain critical components for our RNS System; • the continued coverage of and adequate payment for the implantation procedure and for clinicians to provide ongoing care for patients implanted with our RNS System by third-party payors, including both private and government payors; and • our ability to continue to attract and retain key talent.
If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims); additional reporting requirements and/or oversight; bans on processing personal data; and orders to destroy or not use personal data.
If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims) and mass arbitration demands; additional reporting requirements and/or oversight; bans on processing personal information; and orders to destroy or not use personal information.
All of the shares of common stock issuable upon exercise of outstanding stock options, vesting and settlement of RSUs, and exercise of settlement of any options or other equity incentives are registered for public resale under the Securities Act.
All of the shares of common stock issuable upon exercise of outstanding stock options, vesting and settlement of restricted stock units, or RSUs, and exercise or settlement of any other equity incentives are registered for public resale under the Securities Act.
Our products or products we sell may be subject to recalls after receiving FDA approval or clearance, which could divert managerial and financial resources, harm our reputation and our business.
Our products or products we distribute may be subject to recalls after receiving FDA approval or clearance, which could divert managerial and financial resources, harm our reputation and our business.
If we are unable to obtain adequate financing or financing on terms satisfactory to us, if needed, it could harm our business and growth prospects. 86 Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations. In general, under Section 382 of the U.S.
If we are unable to access our existing capital or obtain adequate financing or financing on terms satisfactory to us, if needed, it could harm our business and growth prospects. Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations. In general, under Section 382 of the U.S.
Our commercial success will depend in large part on the further acceptance by clinicians, patients and hospital facilities of our RNS System as safe, useful, and cost-effective, and increasing the number of patients treated at Level 4 CECs and other facilities.
Our commercial success will depend in large part on the further acceptance by clinicians, patients and hospital facilities of our RNS System as safe, useful, and cost-effective, and increasing the number of patients treated at Level 4 CECs and in the community setting.
We cannot predict how quickly, if at all, additional clinicians, patients, and hospital facilities will adopt our RNS System over continued noninterventional therapies or competing neuromodulation devices or surgical treatment options at Level 4 CECs and other facilities. For example, clinicians may be reluctant to use our RNS System due to familiarity with neuromodulation devices that are more established.
We cannot predict how quickly, if at all, additional clinicians, patients, and hospital facilities will adopt our RNS System over continued noninterventional therapies or competing neuromodulation devices or surgical treatment options. For example, clinicians may be reluctant to use our RNS System due to familiarity with neuromodulation devices that are more established.
The COVID-19 pandemic and related restrictions on access to clinicians as well as hospital staffing shortages have impacted, and will likely continue to impact, our ability to maintain such relationships. Finally, although we have demonstrated the safety, effectiveness and clinical advantages of our products in pivotal clinical studies, neuromodulation is still a relatively new approach to treating drug-resistant focal epilepsy.
Certain restrictions on access to clinicians as well as hospital staffing shortages have impacted, and will likely continue to impact, our ability to maintain such relationships. Finally, although we have demonstrated the safety, effectiveness and clinical advantages of our products in pivotal clinical studies, neuromodulation is still a relatively new approach to treating drug-resistant focal epilepsy.
Any future recalls of our products or products we sell could divert managerial and financial resources, harm our reputation and negatively impact our business.
Any future recalls of our products or products we distribute could divert managerial and financial resources, harm our reputation and negatively impact our business.
The CCPA provides for civil penalties of up to $7,500 per violation and allows private litigants affected by certain data breaches to recover significant statutory damages. Although the CCPA exempts some data processed in the context of clinical trials, the CCPA increases compliance costs and potential liability with respect to other personal data we maintain about California residents.
The CCPA provides for fines of up to $7,500 per intentional violation and allows private litigants affected by certain data breaches to recover significant statutory damages. Although the CCPA exempts some data processed in the context of clinical trials, the CCPA increases compliance costs and potential liability with respect to other personal information we maintain about California residents.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. Unregistered Sales of Equity Securities None.
Holders of Common Stock As of February 27, 2023, there were approximately 203 stockholders of record of our common stock.
Holders of Common Stock As of February 29, 2024, there were approximately 186 stockholders of record of our common stock.
Purchases of Equity Securities by the Issuer and Affiliated Purchases None. 100 Item 6. [Reserved] 101
As of December 31, 2023, approximately $75.3 million of the net proceeds had been used for general corporate purposes including cash used in operations and capital expenditures. Purchases of Equity Securities by the Issuer and Affiliated Purchases None. Item 6. [Reserved] 101
Removed
Securities Authorized for Issuance under Equity Compensation Plans Information about our equity compensation plans is incorporated by reference to Item 12 of Part III of this Annual Report on Form 10-K. Unregistered Sales of Equity Securities None.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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The Term Loan was interest-only through September 30, 2023, which could be extended through September 30, 2025 at our option if we completed our IPO on or prior September 30, 2023. In connection with closing the IPO, we extended the interest-only period to September 30, 2025.
The Term Loan was interest-only through September 30, 2023, which could be extended through September 30, 2025 at our option if we completed our IPO on or prior to September 30, 2023. In connection with closing the IPO, we extended the interest-only period to September 30, 2025.
By continuously monitoring the brain’s electrical activity, recognizing patient-specific abnormal electrical patterns, and responding in real time with imperceptible electrical pulses to prevent seizures, our RNS System delivers the precise amount of therapy when and where it is needed and provides exceptional clinical outcomes with approximately three minutes of stimulation on average per day.
By continuously monitoring and analyzing the brain’s electrical activity, recognizing patient-specific abnormal electrical patterns, and responding in real time with imperceptible electrical pulses to prevent seizures, our RNS System delivers the precise amount of therapy when and where it is needed and provides exceptional clinical outcomes with approximately three minutes of stimulation on average per day.
Overhead costs include the cost of quality assurance, testing, material procurement, inventory control, operations supervision and management personnel, an allocation of facilities and information technology expenses, including rent and utilities, and equipment depreciation. Cost of goods sold also includes certain direct costs such as those incurred for shipping our RNS System.
Overhead costs include the cost of quality assurance, testing, material procurement, inventory control, operations supervision and management personnel, an allocation of facilities and information technology expenses, including rent and utilities, and 105 equipment depreciation. Cost of goods sold also includes certain direct costs such as those incurred for shipping our RNS System.
We expense sales variable compensation when revenue related to the underlying sale is recognized. Selling, general and administrative expenses also include costs attributable to professional fees for legal, accounting and tax services, insurance and recruiting fees. 106 We intend to continue to increase our sales and marketing spending to support increased adoption of our RNS System.
We expense sales variable compensation when revenue related to the underlying sale is recognized. Selling, general and administrative expenses also include costs attributable to professional fees for legal, accounting and tax services, insurance and recruiting fees. We intend to continue to increase our sales and marketing spending to support increased adoption of our RNS System.
In addition to competing for market share, we also compete against these companies for personnel, including qualified sales and other personnel that are necessary to grow our business. Leveraging Our Manufacturing Capacity to Further Improve Our Gross Margin With our current operating model and infrastructure, we believe that we have the capacity to significantly increase our manufacturing production.
In addition to competing for market share, we also compete against these companies for personnel, including qualified sales and other personnel that are necessary to grow our business. 104 Leveraging Our Manufacturing Capacity to Further Improve Our Gross Margin With our current operating model and infrastructure, we believe that we have the capacity to significantly increase our manufacturing production.
The non-cash charges primarily consisted of $8.3 million of stock-based compensation, $2.7 million of amortization of right-of-use assets, $1.9 million of interest incurred but paid-in-kind, $0.9 million of non-cash interest expense related to our term loan and $0.4 million of realized loss from sale of short-term investments.
The non-cash charges primarily consisted of $8.3 million of stock-based compensation, $2.7 million of amortization of right-of-use assets, $1.9 million of interest 110 incurred but paid-in-kind, $0.9 million of non-cash interest expense related to our Term Loan and $0.4 million of realized loss from sale of short-term investments.
Upon completion of initial training, our personnel typically require time in the field to grow their network of accounts, build relationships with clinicians and increase their productivity to the levels we expect. We believe successfully training, developing and retaining our Therapy Consultants and Field Clinical Engineers will be required to achieve 104 growth.
Upon completion of initial training, our personnel typically require time in the field to grow their network of accounts, build relationships with clinicians and increase their productivity to the levels we expect. We believe successfully training, developing and retaining our Therapy Consultants and Field Clinical Engineers will be required to achieve growth.
Our gross margin may increase over the long term to the extent our production volume increases as our fixed manufacturing costs would be spread over a larger number of units, thereby reducing our per-unit manufacturing costs. We expect our gross margin to fluctuate from period to period, however, based upon the factors described above.
Our gross margin may increase over the long term to the extent our production volume increases as our fixed manufacturing costs would be spread over a larger number of units, thereby reducing our per-unit manufacturing costs. We expect our gross margin will fluctuate from period to period, however, based upon the factors described above.
As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult.
As a result, our financial statements 111 may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult.
Cost of Goods Sold and Gross Margin Cost of goods sold consists primarily of costs related to materials, components and subassemblies, personnel-related expenses for our manufacturing and quality assurance employees, including stock-based compensation, manufacturing overhead, charges for excess, obsolete and non-sellable inventories, and royalties.
Cost of Goods Sold and Gross Margin Cost of goods sold consists primarily of costs related to materials, components and subassemblies, personnel-related expenses for our manufacturing and quality assurance employees, including stock-based compensation, manufacturing overhead and charges for excess, obsolete and non-sellable inventories.
If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may adversely affect our stockholders’ rights.
If we raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may adversely affect our stockholders’ rights.
We expect our research and development expenses to increase in absolute dollars as we continue to develop new product offerings and product enhancements and conduct studies for expanded indications for use.
We expect our research and development expenses will increase in absolute dollars as we continue to develop new product offerings and product enhancements and conduct studies for expanded indications for use.
The loan agreement contains customary representations and warranties, covenants, events of default and termination provisions. The financial covenants require that we achieve minimum annual revenue thresholds commencing in 2021 and maintain a minimum balance of cash and cash equivalents. See Notes 6 and 14 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
The loan agreement contains customary representations and warranties, covenants, events of default and termination provisions. The financial covenants require that we achieve minimum annual revenue thresholds commencing in 2021 and maintain a minimum balance of cash and cash equivalents. See Notes 1 and 6 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
If we are unable to raise capital when needed, we will need to delay, limit, reduce or terminate planned commercialization or 110 product development activities in order to reduce costs.
If we are unable to raise capital when needed, we will need to delay, limit, reduce or terminate planned commercialization or product development activities in order to reduce costs.
Overview We are a commercial-stage medical device company focused on transforming the lives of people living with epilepsy by reducing or eliminating the occurrence of debilitating seizures. Our novel and differentiated RNS System is the first and only commercially available, brain-responsive neuromodulation system that delivers personalized, real-time treatment at the seizure source.
Overview We are a medical device company focused on transforming the lives of people living with epilepsy by reducing or eliminating the occurrence of debilitating seizures. Our novel and differentiated RNS System is the first and only commercially available, brain-responsive neuromodulation system that delivers personalized, real-time treatment at the seizure source.
The increase in revenue was primarily due to an increase in the number of units sold for initial implant procedures as well as an increase in pricing, and the addition of sales of DIXI Medical products which began in the fourth quarter of 2022, partially offset by a decrease in units sold for replacement implant procedures in the year ended December 31, 2022 as compared to the year ended December 31, 2021.
The increase in revenue was primarily due to an increase in the number of units sold for initial implant procedures as well as an increase in pricing, and the addition of sales of DIXI Medical products which began in the fourth quarter of 2022, partially offset by a decrease in units sold for replacement implant procedures in the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Our future funding requirements will depend on many factors, including: • the costs of activities related to commercializing and marketing our RNS System in the United States and elsewhere, and manufacturing and distribution costs; • the research and development activities we intend to undertake, including product enhancements and clinical studies for indication expansions that we intend to pursue; • the impact of the COVID-19 pandemic on our business; • the cost of obtaining, maintaining, defending, enforcing, and protecting any patents and other intellectual property rights; • whether or not we pursue acquisitions or investments in businesses, products or technologies that are complementary to our current business; • the degree and rate of increased market acceptance of our RNS System in the United States and market acceptance elsewhere; • our revenue and cost projections related to the DIXI Medical distribution agreement • our need to implement additional infrastructure and internal systems; • our ability to hire additional personnel to support our operations as a public company; and • the emergence of competing technologies or other adverse market developments.
Our future funding requirements will depend on many factors, including: • the costs of activities related to commercializing and marketing our RNS System in the United States and elsewhere, and manufacturing and distribution costs; • the research and development activities we intend to undertake, including product enhancements and clinical studies for indication expansions that we intend to pursue; • the cost of obtaining, maintaining, defending, enforcing, and protecting any patents and other intellectual property rights; • whether or not we pursue acquisitions or investments in businesses, products or technologies that are complementary to our current business; 109 • the degree and rate of increased market acceptance of our RNS System in the United States and market acceptance elsewhere; • our revenue and cost projections related to the DIXI Medical distribution agreement; • our need to implement additional infrastructure and internal systems; • our ability to hire additional personnel to support our operations as a public company; and • the emergence of competing technologies or other adverse market developments.
We have also made significant investments in building our field commercial team and intend to make significant investments in sales and marketing efforts in the future, including initiatives to drive awareness and expand our referral channel to increase the number of drug-resistant epilepsy patients referred to Level 4 CECs.
We have also made significant investments in building our field commercial team and intend to make significant investments in sales and marketing efforts in the future, including initiatives to drive awareness and expand our referral channel to increase the number of drug-resistant epilepsy patients referred to CECs.
As of December 31, 2022, commercial payors have written positive coverage policies that address over 200 million covered lives in the United States. Medicare and Medicaid also routinely provide coverage for implantation of our RNS System and follow-up care.
As of December 31, 2023, commercial payors have written positive coverage policies that address over 200 million covered lives in the United States. Medicare and Medicaid also routinely provide coverage for implantation of our RNS System and follow-up care.
In addition, a change in procedure mix between initial and replacement procedures may have a negative impact on our gross margin. Beginning in the fourth quarter of 2022, we also derive revenue from sales of DIXI Medical products.
In addition, a change in procedure mix between initial and replacement procedures may have a negative impact on our gross margin. Beginning in the fourth quarter of 2022, we also began to derive revenue from sales of DIXI Medical products.
While most drug-resistant epilepsy patients begin their care at physician offices or community hospitals, we estimate that approximately 24,000 adult drug-resistant focal epilepsy patients are treated in CECs in the United States each year.
While most drug-resistant epilepsy patients begin their care at physician offices or community hospitals, we estimate that approximately 24,000 adult drug-resistant focal epilepsy patients are treated in Level 4 CECs in the United States each year.
Beginning in the fourth quarter of 2022, we also derive revenue from sales of DIXI Medical products, primarily to our current customer base. Our revenue from the sale of DIXI Medical products will fluctuate in the future due to a variety of factors, including our ability to take market share from competitive SEEG products.
Beginning in the fourth quarter of 2022, we also derive revenue from sales of DIXI Medical products, primarily to our current customer base. Our revenue from the sale of DIXI Medical products will fluctuate in the future due to a variety of factors, including our ability to take market share from competitive Stereo EEG products.
Our revenue also fluctuates and in the future will continue to fluctuate from quarter-to-quarter due to a variety of factors, including the success of our sales force in expanding adoption of our RNS System in new accounts and the number of physicians who are aware of and prescribe our RNS System.
Our revenue also has fluctuated and in the future will continue to fluctuate from quarter-to-quarter due to a variety of factors, including the success of our sales force in expanding adoption of our RNS System in new accounts and the number of physicians who are aware of and prescribe our RNS System.
As of December 31, 2022, over 4,000 epilepsy patients have received our RNS System. We believe our compelling body of long-term clinical data, demonstrating continuous improvement in outcomes over time, will support the continued adoption of our RNS System among the approximately 575,000 adults in the United States with drug-resistant focal epilepsy.
As of December 31, 2023, over 5,000 epilepsy patients have received our RNS System. We believe our compelling body of long-term clinical data, demonstrating continuous improvement in outcomes over time, will support the continued adoption of our RNS System among the approximately 575,000 adults in the United States with drug-resistant focal epilepsy.
DIXI Distribution Agreement 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 product line beginning in October 2022.
Collaborations and Partnerships DIXI Distribution Agreement 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 product line beginning in October 2022.
In addition to providing us with an incremental revenue stream, the DIXI Medical partnership will provide us with improved visibility of patients moving through the EMUs, many of whom may be candidates for our RNS System.
In addition to providing us with an incremental revenue stream, the DIXI Medical 103 partnership provides us with improved visibility of patients moving through the EMUs, many of whom may be candidates for our RNS System.
Additionally, we may incur increased expenses related to audit, legal, regulatory and tax-related services associated with being a public company, compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, and director and officer insurance premiums. Our selling, general and administrative expenses may fluctuate from period to period as we continue to grow.
Additionally, we may incur increased expenses related to audit, legal, regulatory and tax-related services, compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, and director and officer insurance premiums. Our selling, general and administrative expenses may fluctuate from period to period as we continue to grow.
We market our RNS System in the United States through a direct sales organization primarily to the epileptologists and neurosurgeons who respectively prescribe and implant neuromodulation devices in the approximately 200 CECs in the United States. We have established a significant account base at these CECs.
We have historically marketed our RNS System in the United States through a direct sales organization primarily to the epileptologists and neurosurgeons who respectively prescribe and implant neuromodulation devices in the approximately 200 Level 4 CECs in the United States. We have established a significant account base at these CECs.
This device has an average battery life of nearly eleven years, an increase from the previous model of the device. We expect that our revenue from replacement procedures will decrease over the next few years as a result of the extended replacement cycle of the newer device.
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.
Based on our current planned operations, we expect that our cash, cash equivalents and short-term marketable debt securities will enable us to fund our operating expenses for at least 12 months from the issuance of our financial statements as of and for the year ended December 31, 2022.
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 financial statements as of and for the year ended December 31, 2023.
We also intend to continue supporting patient and referring clinician outreach efforts to help increase the number of appropriate patients with drug-resistant epilepsy being treated at CECs. These efforts require significant investment by our marketing and sales organization.
We also intend to continue supporting patient and referring clinician outreach efforts to help increase the number of appropriate patients with drug-resistant epilepsy being treated at CECs, including by way of our expansion into the community setting. These efforts require significant investment by our marketing and sales organization.
We estimate that this patient pool represents an annual core market opportunity of approximately $1.1 billion for initial RNS System implants, and we expect that it will continue to grow as the number of CECs and the number of epileptologists increase, as more patients are referred to these CECs, and as more care for RNS-implanted patients can happen outside of the CECs.
We estimate that this patient pool represents an annual core market opportunity of approximately $1.1 billion for initial RNS System implants, and we expect that it will continue to grow as the number of Level 4 CECs and epileptologists increase, and as more patients are referred to these CECs.
Interest Expense and Income Interest expense consists primarily of interest expense related to our term loan facility, including amortization of debt discount and issuance costs. Interest income is predominantly derived from investing surplus cash in money market funds and short-term marketable debt securities.
Interest Expense and Income Interest expense consists primarily of interest expense related to our term loan facility, including amortization of debt discount and issuance costs. Interest income is predominantly derived from investing surplus cash in money market funds and short-term marketable securities. 106 Other Income (Expense), Net Other income (expense), net primarily consists of gain and loss from short-term investments.
We will cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (ii) the last day of our fiscal year following the fifth anniversary of the date of the closing of our IPO, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
We will cease to be an emerging growth company on the date that is the earliest of (i) December 31, 2026, (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years, or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
We expect our sales and marketing expenses will increase in absolute dollars as we hire additional personnel and add programs in order to more fully penetrate the market opportunity. We expect our administrative expenses, including stock-based compensation expense, will increase as we increase our headcount and expand our systems to support our operations as a public company.
We expect our sales and marketing expenses will increase in absolute dollars as we hire additional personnel and add programs in order to more fully penetrate the market opportunity. We expect our administrative expenses, including stock-based compensation expense, will increase as we increase our headcount to support our growth.
From January 2021 through June 2025, we have the option to pay interest as follows: 7.5% per annum paid in cash and 5.0% per annum PIK by increasing the principal of the loan. For each payment date from April 2022 through December 2022, we elected the PIK option, increasing the principal of the Term Loan by $1.9 million.
From January 2023 through June 2025, we have 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 April 2022 through December 2023, we elected the PIK option, increasing the principal of the Term Loan by $4.6 million.
Cash used in operating activities was primarily a result of the net loss of $47.1 million, adjusted for non-cash charges of $15.0 million and change in operating assets and liabilities of $4.8 million.
Net cash used in operating activities was $36.9 million for the year ended December 31, 2022. Cash used in operating activities was primarily a result of the net loss of $47.1 million, adjusted for non-cash charges of $15.0 million and change in operating assets and liabilities of $4.8 million.
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 will supply us with ongoing commercial support and will supply us with DIXI Medical products as ordered by us.
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.
Interest Expense and Income Interest expense increased by $0.1 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 due to an increase in average balances of our Term Loan as a result of using the paid-in-kind 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 on June 30, 2022, September 30, 2022 and December 31, 2022.
Interest Expense and Income Interest expense increased by $1.0 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, due to an increase in average balances of our Term Loan as a result of using the paid-in-kind 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 December 2023, and to an increase in the Term Loan interest rate from 12.5% to 13.5% during the year ended December 31, 2023.
Since our inception, we have generated significant losses. To date, we have financed our operations primarily through the sale of equity securities, debt financing arrangements and sales of our products.
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.
Interest income increased by $1.1 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to an increase in average balances of our money market funds and short-term marketable debt securities and higher interest yields in the year ended December 31, 2022.
Interest income increased by $1.5 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to higher interest yields in the year ended December 31, 2023, partially offset by a decrease in average balances of our money market funds and short-term marketable securities.
Our ability to raise additional capital may be adversely impacted by global economic conditions and the recent disruptions to, and volatility in, the financial markets in the United States and worldwide.
Our ability to raise additional capital may be adversely impacted by global economic conditions and disruptions to, and volatility in, the financial markets in the United States and worldwide, as well as those more specifically impacting our industry.
If our estimate of future demand is too high, we may have to write-down excess inventory for the product and record a charge to cost of goods sold, which could have a material adverse effect on our results of operations.
If our estimate of future demand is too high, we may have to write-down excess inventory for the product and record a charge to cost of goods sold, which could have a material adverse effect on our results of operations. Inventory write-downs were $0.2 million and $0.2 million for the years ended December 31, 2023 and December 31, 2022, respectively.
Cash Flows Provided by (Used in) Investing Activities Net cash provided by investing activities was $23.8 million for the year ended December 31, 2022, which primarily consisted of sales of marketable debt securities of $24.4 million, which amounts were partially offset by purchases of property and equipment of $0.6 million.
Net cash provided by investing activities was $23.8 million for the year ended December 31, 2022, which primarily consisted of sales of short-term investments of $24.4 million, partially offset by purchases of property and equipment of $0.6 million.
Cost of Goods Sold and Gross Margin Cost of goods sold increased by $1.3 million, or 11%, to $13.0 million during the year ended December 31, 2022, compared to $11.7 million during the year ended December 31, 2021.
Cost of Goods Sold and Gross Margin Cost of goods sold increased by $4.3 million, or 33%, to $17.3 million during the year ended December 31, 2023, compared to $13.0 million during the year ended December 31, 2022.
Summary Statements of Cash Flows The following table sets forth the primary sources and uses of cash and cash equivalents for the periods presented below (in thousands): Year Ended December 31, 2022 2021 Net cash provided by (used in): Operating activities $ (36,869) $ (24,577) Investing activities 23,797 (85,396) Financing activities 490 102,526 Net (decrease) increase in cash and cash equivalents $ (12,582) $ (7,447) Cash Flows Used in Operating Activities Net cash used in operating activities was $36.9 million for the year ended December 31, 2022.
Summary Statements of Cash Flows The following table sets forth the primary sources and uses of cash and cash equivalents for the periods presented below (in thousands): Year Ended December 31, 2023 2022 Net cash provided by (used in): Operating activities $ (19,701) $ (36,869) Investing activities 23,027 23,797 Financing activities 8,127 490 Net increase (decrease) in cash and cash equivalents $ 11,453 $ (12,582) Cash Flows Used in Operating Activities Net cash used in operating activities was $19.7 million for the year ended December 31, 2023.
Net cash used in investing activities was $85.4 million for the year ended December 31, 2021, which consisted of purchases of marketable debt securities of $85.0 million and purchases of property and equipment of $0.4 million. 111 Cash Flows Provided by Financing Activities Net cash provided by financing activities was $0.5 million for the year ended December 31, 2022, which primarily relates to receipt of proceeds from the issuance of common stock under employee plans of $0.9 million, partially offset by payment of deferred offering costs of $0.4 million.
Net cash provided by financing activities was $0.5 million for the year ended December 31, 2022, which primarily relates to receipt of proceeds from the issuance of common stock under employee plans of $0.9 million, partially offset by payment of deferred offering costs of $0.4 million.
Cash used in operating activities was primarily a result of the net loss of $36.1 million, adjusted for non-cash charges of $11.1 million and change in operating assets and liabilities of $0.4 million.
Cash used in operating activities was primarily a result of the net loss of $33.0 million, adjusted for non-cash charges of $15.7 million and change in operating assets and liabilities of $2.5 million.
A change in product mix between sales of our RNS System and DIXI Medical products may have a negative impact on our gross margin. Components of Our Results of Operations Revenue We derive most of our revenue from sales of our RNS System to hospital facilities (typically Level 4 CECs) that implant our RNS System.
A change in product mix between sales of our RNS System and DIXI Medical products would cause variability in our gross margin. Components of Our Results of Operations Revenue We derive most of our revenue from sales of our RNS System to hospital facilities that implant our RNS System.
The increase in accrued liabilities and accounts payable was primarily the result of the timing of payments to our vendors.
The increase in prepaid expenses and other assets and accounts payable was primarily the result of the timing of payments to our vendors.
We paid $1.0 million in fees to the lender and third parties which is reflected as a discount on the loan and is being accreted over the life of the loan using the effective interest method.
We paid $1.0 million in fees to the lender and third parties which is reflected as a discount on the loan and is being accreted over the life of the loan using the effective interest method. Future Funding Requirements We expect to incur continued expenditures in the future in support of our commercialization efforts in the United States.
As of December 31, 2022, we had cash, cash equivalents and short-term marketable debt securities of $77.4 million, compared to $115.6 million at December 31, 2021, and $52.9 million outstanding under the Term Loan, net of debt discount and issuance costs, compared to $49.8 million at December 31, 2021.
As of December 31, 2023, we had cash, cash equivalents and short-term investments of $66.5 million, compared to $77.4 million at December 31, 2022, and $57.0 million outstanding under the Term Loan, net of debt discount and issuance costs, compared to $52.9 million at December 31, 2022.
Our gross margin decreased from 74.0% for the year ended December 31, 2021 to 71.4% for the year ended December 31, 2022 primarily due to higher fixed costs per unit as a result of the lower production volume, and lower gross margin for distribution of DIXI Medical products as compared to the gross margin for sales of our RNS System.
Our gross margin increased from 71.4% for the year ended December 31, 2022 to 73.6% for the year ended December 31, 2023 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.
Research and Development Expenses Research and development expenses increased by $3.7 million, or 21%, to $21.9 million during the year ended December 31, 2022, compared to $18.2 million during the year ended December 31, 2021.
Research and Development Expenses Research and development expenses decreased by $1.2 million, or 5%, to $20.8 million during the year ended December 31, 2023, compared to $21.9 million during the year ended December 31, 2022.
We received Premarket Approval, or PMA, from the FDA for our RNS System in late 2013 and began the commercial rollout of our RNS System in early 2014.
We may additionally seek to expand our operations to reach the approximately 16.5 million drug-resistant epilepsy patients globally. We received Premarket Approval, or PMA, from the FDA for our RNS System in late 2013 and began the commercial rollout of our RNS System in early 2014.
Future Funding Requirements 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.
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.
Given the concentrated and underpenetrated nature of our target market, we believe that through our sales force, there is a significant opportunity to efficiently drive higher utilization within these centers, grow our account base, and expand our referral channel to increase the number of drug-resistant patients referred to the CECs. 102 The implant procedure for our RNS System and the ongoing patient treatment provided by clinicians, including monitoring and programming, are reimbursed under well-established physician and hospital codes.
Given the concentrated and underpenetrated nature of our target market, we believe that there is a significant opportunity to efficiently drive higher adoption and utilization within these centers, grow our account base, and expand our referral channel to increase the number of drug-resistant patients referred to Level 4 CECs.
We believe our existing cash, cash equivalents and short-term investments will allow us to continue our operations for at least the next 12 months. Recent Developments COVID-19 Pandemic Update Our business, financial condition and results of operations have been and may continue to be significantly impacted by the COVID-19 pandemic.
We believe our existing cash, cash equivalents and short-term investments will allow us to continue our operations for at least the next 12 months.
In September 2020, we entered into the Term Loan for total borrowings of up to $60.0 million and borrowed $50.0 million.
In September 2020, we entered into the Term Loan for total borrowings of up to $60.0 million and borrowed $50.0 million. In April 2021, we completed our IPO and received $105.5 million in net proceeds after deducting underwriting discounts and commissions and offering costs.
We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions.
We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.
Net cash provided by financing activities was $102.5 million for the year ended December 31, 2021, which primarily relates to receipt of proceeds from our IPO of $109.1 million and proceeds from issuance of common stock under the employee stock purchase plan of $0.9 million, partially offset by payment of deferred offering costs of $3.4 million and repayment of debt obligations of $4.1 million under the PPP Loan.
Cash Flows Provided by Financing Activities Net cash provided by financing activities was $8.1 million for the year ended December 31, 2023, which primarily consisted of $7.9 million of net cash proceeds from our At-the-Market offering and proceeds from the issuance of common stock under employee plans of $0.8 million, partially offset by taxes withheld and paid related to net share settlement of equity awards of $0.3 million and payment of deferred offering costs of $0.3 million.
The revenue-based milestone was not met, and the remaining $10.0 million of the Term Loan expired without being drawn. The borrowings under the Term Loan are secured by substantially all of our properties, rights and assets, including intellectual property. The Term Loan bears interest at a rate of 12.5% per year.
The revenue-based milestone was not met, and the remaining $10.0 million of the Term Loan expired without being drawn. 108 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.
If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile. 112 Recent Accounting Pronouncements See “Recent Accounting Pronouncements” in Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
Recent Accounting Pronouncements See “Recent Accounting Pronouncements” in Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 The following table summarizes our results of operations for the periods indicated (in thousands): Years Ended December 31, 2022 2021 Change % Change Revenue $ 45,520 $ 45,183 $ 337 1 % Cost of goods sold 13,027 11,748 1,279 11 % Gross profit 32,493 33,435 (942) (3) % Operating expenses Research and development 21,946 18,211 3,735 21 % Selling, general and administrative 51,341 38,961 12,380 32 % Total operating expenses 73,287 57,172 16,115 28 % Loss from operations (40,794) (23,737) (17,057) 72 % Interest income 1,578 448 1,130 252 % Interest expense (7,529) (7,410) (119) 2 % Other income (expense), net (337) (5,381) 5,044 (94) % Net loss $ (47,082) $ (36,080) $ (11,002) 30 % Revenue Revenue increased by $0.3 million, or 1%, to $45.5 million during the year ended December 31, 2022, compared to $45.2 million during the year ended December 31, 2021.
Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 The following table summarizes our results of operations for the periods indicated (in thousands): Years Ended December 31, 2023 2022 Change % Change Revenue $ 65,421 $ 45,520 $ 19,901 44 % Cost of goods sold 17,299 13,027 4,272 33 % Gross profit 48,122 32,493 15,629 48 % Operating expenses Research and development 20,778 21,946 (1,168) (5) % Selling, general and administrative 54,518 51,341 3,177 6 % Total operating expenses 75,296 73,287 2,009 3 % Loss from operations (27,174) (40,794) 13,620 (33) % Interest income 3,050 1,578 1,472 93 % Interest expense (8,517) (7,529) (988) 13 % Other income (expense), net (315) (337) 22 (7) % Net loss $ (32,956) $ (47,082) $ 14,126 (30) % Revenue Revenue increased by $19.9 million, or 44%, to $65.4 million during the year ended December 31, 2023, compared to $45.5 million during the year ended December 31, 2022.
In addition, the sale of replacement neuromodulation devices when the battery in our RNS neurostimulator approaches end of service provides a recurring revenue stream that is additive to our current $1.1 billion annual market opportunity for initial implants.
Our RNS System has an estimated average battery life of nearly eleven years, an increase from the previous model of the device. The sale of replacement neuromodulation devices provides a recurring revenue stream that is additive to the annual market opportunity for initial implants.
There is no commitment to purchase our RNS System until the delivery of the product, as the procedure may be canceled at any time. 105 Our revenue fluctuates primarily based on the volume of procedures performed and the procedure mix between initial and replacement implants.
Our revenue fluctuates primarily based on the volume of procedures performed and the procedure mix between initial and replacement implants.
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 $23.0 million as of December 31, 2022. See “Facility Lease” in Note 5 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
See “Facility Lease” in Note 5 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information. As of December 31, 2023, we had cash, cash equivalents and short-term investments of $66.5 million.
We continue seeking indication expansion to, over time, more broadly reach the entire approximately 1.2 million drug-resistant epilepsy patients in the United States and have begun enrollment in clinical studies to broaden our indication including into generalized epilepsy. We may additionally seek to expand our operations to reach the approximately 16.5 million drug-resistant epilepsy patients globally.
We continue seeking indication expansion to, over time, more broadly reach the entire approximately 1.2 million drug-resistant epilepsy patients in the United States. In December 2023, we finished enrolling and implanting the requisite number of patients for FDA submission in our clinical trial to evaluate RNS System use in the generalized epilepsy population.
In November 2022, we filed a Registration Statement on Form S-3, or Shelf, with the SEC in relation to the registration of common stock, preferred stock, debt securities, warrants or any combination thereof for up to an aggregate of $150.0 million, of which $50.0 million may be issued and sold pursuant to an at-the-market, or ATM, offering program for sales of our common stock under a sales agreement, or Sales Agreement, with SVB Securities LLC, or SVB.
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.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $12.4 million, or 32%, to $51.3 million during the year ended December 31, 2022, compared to $39.0 million during the year ended December 31, 2021.
The decreases were offset in part by an increase of $0.7 million in personnel-related expenses, including stock-based compensation. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $3.2 million, or 6%, to $54.5 million during the year ended December 31, 2023, compared to $51.3 million during the year ended December 31, 2022.
The change in operating assets and liabilities was due to an increase in prepaid expenses and other assets of $1.2 million primarily due to the timing of payments to our vendors, an increase in inventories of $1.2 million largely due to an increase in finished goods, and a decrease in deferred rent of $0.6 million offset in part by a decrease in accounts receivable of $1.3 million primarily due to more timely payments by our customers, an increase in accrued liabilities of $1.7 million, and an increase in accounts payable of $0.5 million.
The change in operating assets and liabilities was due to an increase in accounts receivable of $4.9 million primarily due to an increase in sales of our products including our RNS System and DIXI Medical products, an increase in inventories of $1.7 million largely due to an increase in raw materials and finished goods partially offset by a reduction in work-in-process inventory, a decrease in operating lease liabilities of $1.4 million due to cash paid for rent net of the accretion of imputed interest, offset in part by a decrease in prepaid expenses and other assets of $0.4 million, an increase in accrued liabilities of $3.8 million primarily due to an increase in accrued employee bonuses and payroll related expenses, and an increase in deferred revenue of $1.1 million related to our collaboration agreement with Rapport Therapeutics.
As of December 31, 2022, we had an accumulated deficit of $470.9 million, cash, cash equivalents and short-term marketable debt securities of $77.4 million, and $52.9 million of outstanding term loans, net of debt discount and issuance costs.
As of December 31, 2023, we had an accumulated deficit of $503.8 million, cash, cash equivalents and short-term investments of $66.5 million, and $57.0 million of outstanding term loans, net of debt discount and issuance costs. We have invested heavily and expect to continue to invest in research and development and commercial activities.
The increases were offset in part by a decrease of $0.3 million in allocated facility and information technology expenses, including rent, utilities and depreciation.
The increases were offset in part by a decrease of $3.1 million in general and administrative costs, primarily outside services and insurance.
The non-cash charges primarily consisted of $5.2 million in change in the fair value of redeemable convertible preferred stock warrant liability, $0.8 million of non-cash interest expense related to our term loans, and $4.3 million of stock-based compensation.
The non-cash charges primarily consisted of $9.6 million of stock-based compensation, $2.7 million of interest incurred but paid-in-kind, $1.4 million of amortization of right-of-use assets, $1.1 million of non-cash interest expense related to our Term Loan, $0.3 million of amortization of debt discount and issuance costs and $0.3 million of loss from short-term investments.
Payments under the loan are made quarterly with payment dates fixed at the end of each calendar quarter. Through December 2020, we had the option to pay the entire interest paid-in-kind, or PIK, by increasing the principal of the Term Loan.
From January 2021 through December 2022, we had the option to pay interest as follows: 7.5% per annum in cash and 5.0% per annum paid-in-kind, or PIK, by increasing the principal of the Term Loan.
The increase was primarily due to cost associated with distribution of DIXI Medical products, as well as to an increase in indirect labor costs including stock-based compensation, partially offset by the decrease in sales volume for replacement procedures in the year ended December 31, 2022.
The increase in selling, general and administrative expenses was primarily due to an increase of $4.9 million in personnel-related expenses driven by an increase in sales-based variable compensation as a result of the increase in revenue during the year ended December 31, 2023, compared to the year ended December 31, 2022, and stock-based compensation, an increase of $0.8 million in sales, field support and marketing costs including expenses for ongoing commercial support provided by DIXI Medical in connection with distributing their products, and an increase of $0.4 million in expenses related to commercial operations.
Removed
Our commercial efforts are focused on the comprehensive epilepsy centers, or CECs, including Level 4 CECs, that facilitate appropriate care for drug-resistant epilepsy patients. This may include implantation of epilepsy neuromodulation devices such as our RNS System or the ongoing treatment of patients with neuromodulation devices.
Added
In 2023, we received FDA approval of a PMA-S, which updated the qualification criteria for centers and clinicians that may prescribe and implant the RNS System. This PMA-S allows us to expand our commercial efforts to target and be able to qualify approximately 1,800 additional epileptologists practicing outside of Level 4 CECs and the entire population of functional neurosurgeons.
Removed
On April 21, 2021, we completed our initial public offering of our common stock, or IPO, in which we issued and sold an aggregate of 6,900,000 shares of common stock (inclusive of 900,000 shares pursuant to the exercise by the underwriters of their option) at a price of $17.00 per share for aggregate cash proceeds of approximately $105.5 million, net of underwriting discounts and commissions and offering costs.
Added
We plan to address this opportunity in a targeted manner with incremental expansion of our sales force. 102 The implant procedure for our RNS System and the ongoing patient treatment provided by clinicians, including monitoring and programming, are reimbursed under well-established physician and hospital codes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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We do not believe that inflation, interest rate changes or exchange rate fluctuations have had a significant impact on our results of operations for any periods presented herein. 113
We do not believe that inflation, interest rate changes or exchange rate fluctuations have had a significant impact on our results of operations for any periods presented herein. 112
However, due to the short-term maturities and the low-risk profile of our cash equivalents and short-term marketable debt securities, an immediate 10% change in interest rates would not have a material effect on the fair value of our cash equivalents and short-term marketable debt securities.
However, due to the short-term maturities and the low-risk profile of our cash equivalents and short-term investments, an immediate 10% change in interest rates would not have a material effect on the fair value of our cash equivalents and short-term investments.
As of December 31, 2022, we had cash, cash equivalents and short-term marketable debt securities of $77.4 million, compared to $115.6 million at December 31, 2021, consisting of interest-bearing money market funds and fixed income mutual funds for which the fair value would be affected by changes in the general level of U.S. interest rates.
As of December 31, 2023, we had cash, cash equivalents and short-term investments of $66.5 million, compared to $77.4 million at December 31, 2022, consisting of interest-bearing money market funds and fixed income mutual funds for which the fair value would be affected by changes in the general level of U.S. interest rates.

Other NPCE 10-K year-over-year comparisons