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What changed in NeuroPace Inc's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of NeuroPace Inc's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+470 added−437 removedSource: 10-K (2026-03-03) vs 10-K (2025-03-04)

Top changes in NeuroPace Inc's 2025 10-K

470 paragraphs added · 437 removed · 378 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

119 edited+25 added−24 removed303 unchanged
Biggest changeThe collaboration evaluates biomarker changes in currently implanted RNS System patients that enroll in Rapport’s Phase 2a clinical trial of its product candidate. Pursuant to this agreement, we provide information to Rapport that will help evaluate the impact of their product candidate on certain biomarkers of patients with focal onset seizures.
Biggest changePursuant to this agreement, we provided information to Rapport to help evaluate the impact of their product candidate on certain biomarkers of patients with focal onset seizures. We have since agreed to extend our collaboration with a subsequent agreement to provide further monitoring and data analysis services as a part of Rapport’s continuing clinical trial.
Patients from the Feasibility and Pivotal Studies were subsequently enrolled in our LTT study that followed these patients for an additional seven years, culminating in a total of nine years of follow-up data. We are currently conducting a prospective Post-Approval Study evaluating “real world” outcomes across more than 300 additional patients.
Patients from the Feasibility and Pivotal Studies were subsequently enrolled in our LTT that followed these patients for an additional seven years, culminating in a total of nine years of follow-up data. We are currently conducting a prospective Post-Approval Study evaluating “real world” outcomes across more than 300 additional patients.
Enrolled patients were studied over a median follow-up of 8.97 years, representing 1,895 cumulative patient-implant years. The primary effectiveness objective of the LTT study was to evaluate the long-term efficacy of our RNS System in reducing the frequency of disabling seizures in patients who participated in the Feasibility Study or Pivotal Study.
Enrolled patients were studied over a median follow-up of 8.97 years, representing 1,895 cumulative patient-implant years. The primary effectiveness objective of the LTT was to evaluate the long-term efficacy of our RNS System in reducing the frequency of disabling seizures in patients who participated in the Feasibility Study or Pivotal Study.
Centers for Medicare and Medicaid Services Medicare is a federal program administered by CMS through fiscal intermediaries, Medicare Administrative Contractors and carriers.
Centers for Medicare & Medicaid Services Medicare is a federal program administered by CMS through fiscal intermediaries, Medicare Administrative Contractors and carriers.
For example, the collection, use, disclosure, transfer, or other processing of personal information regarding individuals in the EU, including personal health data, is subject to the European Union General Data Protection Regulation (EU) 2016/679, or EU GDPR.
For example, the collection, use, disclosure, transfer, or other processing of personal information regarding individuals in the EU, including personal health data, is subject to the European Union General Data Protection Regulation 2016/679, or EU GDPR.
If the FDA determines that we failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: • untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; • unanticipated expenditures to address or defend such actions; • customer notifications for repair, replacement, refunds; • recall, detention or seizure of our RNS System or any future products; • operating restrictions or partial suspension or total shutdown of production; • refusal of or delay in granting our requests for 510(k) clearance or PMA approval of new products or modified products; • operating restrictions; 31 • withdrawing 510(k) clearance or PMA approvals that are already granted; • refusal to grant export approval for our RNS System or any future products; or • criminal prosecution.
If the FDA determines that we failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: • untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; • unanticipated expenditures to address or defend such actions; • customer notifications for repair, replacement, refunds; • recall, detention or seizure of our RNS System or any future products; • operating restrictions or partial suspension or total shutdown of production; • refusal of or delay in granting our requests for 510(k) clearance or PMA approval of new products or modified products; • operating restrictions; • withdrawing 510(k) clearance or PMA approvals that are already granted; • refusal to grant export approval for our RNS System or any future products; or • criminal prosecution.
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; 30 • 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.
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; 30 • QMSR 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; • 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.
Any changes in federal legislation, regulations and policy affecting CMS coverage and reimbursement relative to the procedures of implanting or using our RNS System could have a material effect on our performance. CMS also administers the Medicaid program, a cooperative federal/state program that provides medical assistance benefits to qualifying low income and medically needy persons.
Any changes in federal legislation, regulations and policy affecting CMS 34 coverage and reimbursement relative to the procedures of implanting or using our RNS System could have a material effect on our performance. CMS also administers the Medicaid program, a cooperative federal/state program that provides medical assistance benefits to qualifying low income and medically needy persons.
According to the International League Against Epilepsy, or ILAE, drug-resistant epilepsy, or DRE, is defined as a patient failing to achieve sustained seizure freedom after trying two antiseizure medications. These drug-resistant epilepsy patients struggle with a variety of life-impacting challenges including psychological dysfunction, social stigmatization, reduced quality of life, and increased risk of mortality.
According to the International League Against Epilepsy, or ILAE, drug-resistant epilepsy is defined as a patient failing to achieve sustained seizure freedom after trying two antiseizure medications. These drug-resistant epilepsy patients struggle with a variety of life-impacting challenges including psychological dysfunction, social stigmatization, reduced quality of life, and increased risk of mortality.
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. 21 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. Hospitals code for implantation of our RNS System neurostimulator and implantation of the leads using separate ICD-10 procedure codes.
We do not believe we will need to modify our RNS System for potential use in patients under the age of 18 or in generalized epilepsy; however, we will need to complete our clinical studies and obtain FDA approval prior to marketing the RNS System for these indications. • Continue building and using our unique data asset and our monitoring and analysis capabilities.
We do not believe we will need to modify our RNS System for potential use in patients under the age of 18 or in idiopathic generalized epilepsy; however, we will need to complete our clinical studies and obtain FDA approval prior to marketing the RNS System for these indications. • Continue building and using our unique data asset and our monitoring and analysis capabilities.
Patient and Clinician Experience Once an adult patient has been determined to have drug-resistant focal epilepsy, we believe the patient should be considered for our RNS System. 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.
Patient and Clinician Experience Once an adult patient has been determined to have drug-resistant focal epilepsy, we believe the patient should be considered for our RNS System. Our RNS System is initially implanted by a neurosurgeon in an inpatient 12 procedure. Detection is turned on at the end of the implant procedure when the neurostimulator is placed.
We believe our brain-responsive RNS System is a platform that can drive a better standard of care for patients living with drug-resistant epilepsy and can also offer a more personalized solution and improved outcomes to the large population of patients living with other brain disorders. 20 Our research and development activities encompass basic research, clinical research and product development.
We believe our brain-responsive RNS System is a platform that can drive a better standard of care for patients living with drug-resistant epilepsy and can also offer a more personalized solution and improved outcomes to the large population of patients living with other brain disorders. Our research and development activities encompass basic research, clinical research and product development.
As has and continues to be required for our RNS System, all clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators.
As has and continues to be required for our RNS System, all clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study 29 investigators.
We believe our versatile, closed-loop, brain-responsive neuromodulation platform has potential applications in other brain disorders including depression, memory disorders, and post-traumatic stress disorder. For each of these conditions, we are collaborating with 10 academic investigators in early IDE feasibility studies using our RNS System in patients.
We believe our versatile, closed-loop, brain-responsive neuromodulation platform has potential applications in other brain disorders including depression, memory disorders, and post-traumatic stress disorder. For each of these conditions, we are collaborating with academic investigators in early IDE feasibility studies using our RNS System in patients.
The LTT study, which enrolled 230 patients, is the largest and longest prospective trial published in the field of neuromodulation to date and provided additional evidence that our RNS System is safe, reduces seizure frequency, and improves QOL in adults with drug-resistant focal epilepsy with one or two seizure foci.
The LTT, which enrolled 230 patients, is the largest and longest prospective trial published in the field of neuromodulation to date and provided additional evidence that our RNS System is safe, reduces seizure frequency, and improves QOL in adults with drug-resistant focal epilepsy with one or two seizure foci.
Violations of these laws can lead to significant civil and criminal penalties, including fines, disgorgement, imprisonment and exclusion from participation in federal healthcare programs, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings and the forced curtailment or restructuring of our operations.
Violations of these laws can lead to significant administrative, civil and criminal penalties, including fines, disgorgement, imprisonment, exclusion from participation in federal healthcare programs, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings and the forced curtailment or restructuring of our operations.
In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic 27 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 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.
If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, for example, due to a finding of a lack of a predicate device, that the device has a new intended use or different technological characteristics that raise different questions of safety or effectiveness when the device is compared to the cited predicate device, the device is automatically designated as a Class III device.
If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, for example, due to a finding of a lack of a predicate device, that the device has a new intended use or different technological characteristics that raise different questions 28 of safety or effectiveness when the device is compared to the cited predicate device, the device is automatically designated as a Class III device.
Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the Federal Trade Commission and by state regulatory and enforcement authorities. Recently, promotional activities for FDA-regulated products have been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes.
Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the Federal Trade Commission and by state regulatory and enforcement authorities. Promotional activities for FDA-regulated products have been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes.
Long-Term Treatment (LTT) Study The LTT study was a seven-year prospective, open-label study that followed patients originally treated in either the Feasibility or Pivotal Study. In total, this provided approximately nine years of prospective data on the safety and efficacy of our RNS System.
Long-term Treatment Trial The Long-term Treatment Trial, or LTT, was a seven-year prospective, open-label study that followed patients originally treated in either the Feasibility or Pivotal Study. In total, this provided approximately nine years of prospective data on the safety and efficacy of our RNS System.
Research and Development We focus our research and development efforts on advancing the treatment of patients living with disabling neurological disorders. These efforts are enhanced by the strong relationships that we have developed with epileptologists and neurosurgeons, as well as other neuroscientists and experts, through our clinical and commercial activities.
Research and Development We focus our research and development efforts on advancing the treatment of patients living with disabling neurological disorders. These efforts are enhanced by the strong relationships that we have developed with 20 epileptologists and neurosurgeons, as well as other neuroscientists and experts, through our clinical and commercial activities.
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; 22 • 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; • long operating histories; • established relationships with healthcare professionals; • established manufacturing scale and supplier networks; • financial resources for product development; and • name recognition.
For our talent pipeline development, we utilize a variety of tools and work closely with individual business functions to provide training and hands-on support for managers and leaders for assessing talent, identifying development opportunities, and discussing succession planning. Communication is also key to our employee development and retention.
For our talent pipeline development, we utilize a variety of tools and work closely with individual business functions to 37 provide training and hands-on support for managers and leaders for assessing talent, identifying development opportunities, and discussing succession planning. Communication is also key to our employee development and retention.
Intellectual Property Our commercial success depends in part on our ability to obtain and maintain intellectual property protection for our RNS System and any future products, to prevent others from infringing, misappropriating, or otherwise violating our intellectual property rights, to defend and enforce our intellectual property rights, and to operate without infringing, misappropriating, or otherwise violating valid and enforceable intellectual property rights of others.
Intellectual Property Our commercial success depends in part on our ability to obtain and maintain intellectual property protection for our RNS System and any future products, to prevent others from infringing, misappropriating, or otherwise violating our intellectual property rights, to defend and enforce our intellectual property rights, and to operate 23 without infringing, misappropriating, or otherwise violating valid and enforceable intellectual property rights of others.
During the follow-up visit, the epileptologist will make 12 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.
We rely on a strategy that combines the use of patents, trademarks, trade secrets, know-how, and license agreements, as well as other 23 intellectual property laws, employment, confidentiality and invention assignment agreements, and contractual protections, to establish and protect our intellectual property rights.
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.
Acceptance of an IDE application for review does not guarantee that the FDA will approve the IDE and, if it is 29 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 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.
United States Health Reform Changes in healthcare policy could increase our costs and subject us to additional regulatory requirements that may interrupt commercialization of our RNS System and future products. Changes in healthcare policy could increase our costs, decrease our revenue and impact sales of and reimbursement for our RNS System and future 34 products.
United States Health Reform Changes in healthcare policy could increase our costs and subject us to additional regulatory requirements that may interrupt commercialization of our RNS System and future products. Changes in healthcare policy could increase our costs, decrease our revenue and impact sales of and reimbursement for our RNS System and future products.
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) 28 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) marketing clearance or, depending on the modification, PMA approval.
In addition, the government may assert that a claim, including items or services resulting from a violation of federal Anti- Kickback Statute, constitutes a false or fraudulent claim for purposes of the civil False Claims Act or the civil monetary penalties statute, which imposes fines against any person who is determined to have presented or caused to be presented claims to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
In addition, the government may assert that a claim, including items or services resulting from a violation of federal Anti- Kickback Statute, constitutes a false or fraudulent claim for purposes of the civil False Claims Act, or FCA, or the civil monetary penalties statute, which imposes fines against any person who is determined to have presented or caused to 32 be presented claims to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
Similar to the federal Anti- 32 Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
As we expand our footprint, we plan to continue to drive increased adoption and utilization of our RNS System within new and existing accounts 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.
As we expand our footprint, we plan to continue to increase adoption and utilization of our RNS System within new and existing accounts 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.
These products are used in the epilepsy monitoring units, or EMUs, of Level 4 CECs to determine where epileptic seizures originate. 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.
These products are used in the epilepsy monitoring units, or EMUs, of Level 4 CECs to determine where epileptic seizures originate. In addition to providing us with an incremental revenue stream, the DIXI Medical partnership provided us with improved visibility of patients moving through the EMUs, many of whom may be candidates for our RNS System.
As of December 31, 2024, commercial insurance companies that address over 200 million covered lives in the United States have positive written coverage policies for responsive neuromodulation for drug-resistant focal epilepsy, which includes our RNS System. Medicare and Medicaid also routinely provide coverage for implantation of our RNS System and follow-up care.
As of December 31, 2025, commercial insurance companies that address over 200 million covered lives in the United States have positive written coverage policies for responsive neuromodulation for drug-resistant focal epilepsy, which includes our RNS System. Medicare and Medicaid also routinely provide coverage for implantation of our RNS System and follow-up care.
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 and utilization of our RNS System within Level 4 CECs .
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: • Increase adoption and utilization of our RNS System within Level 4 CECs .
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.
Given the concentrated and underpenetrated nature of our target market, we believe there is a significant opportunity to efficiently foster 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.
In February 2025, we received approximately $69.8 million in net proceeds from the sale of 7,475,000 shares of our common stock, including 975,000 shares from the exercise of the underwriters’ option to purchase additional shares, at a public offering price of $10.00 per share.
In February 2025, we received $69.7 million in net proceeds from the sale of 7,475,000 shares of our common stock, including 975,000 shares from the exercise of the underwriters’ option to purchase additional shares, at a public offering price of $10.00 per share.
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.
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 QMSR requirements.
Manufacturing processes for commercial products are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use.
Manufacturing processes for commercial products are required to comply with the applicable portions of the QMSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use.
We initiated a pilot program to begin our outreach to these clinicians in 2024 and have commenced program expansion that will continue through 2025. We plan to address this opportunity in a targeted manner with incremental expansion of our sales force.
We initiated a pilot program to begin our outreach to these clinicians in 2024 and have commenced program expansion that will continue through 2026. We plan to address this opportunity in a targeted manner with incremental expansion of our sales force.
The QSR also requires, among other things, maintenance of a device master file, design history file, device history records, and complaint files. As a manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA.
The QMSR also requires, among other things, maintenance of a device master file, design history file, device history records, and complaint files. As a manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA.
Violations of the federal Anti-Kickback Statute may also result in civil and criminal penalties, including criminal fines and imprisonment, or exclusion from Medicare, Medicaid or other governmental programs. Certain arrangements between medical device companies and referring, or prescribing clinicians have been identified in fraud alerts issued by the OIG as implicating the Anti-Kickback Statute.
Violations of the federal Anti-Kickback Statute may also result in civil and criminal penalties, including criminal fines and imprisonment, or exclusion from Medicare, Medicaid or other governmental programs. Certain arrangements between medical device companies and referring, or prescribing clinicians have been identified in fraud alerts issued by the Office of Inspector General, or OIG, as implicating the Anti-Kickback Statute.
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 childcare 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 37 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 childcare spending accounts, Section 529 college savings plan, three weeks paid vacation for most employees at start, 12 paid holidays, and paid time off for sick time and family emergencies.
Failure to maintain compliance with the QSR requirements could result in the shut-down of, or restrictions on, manufacturing operations and the recall or seizure of products, which would harm our business.
Failure to maintain compliance with the QMSR requirements could result in the shut-down of, or restrictions on, manufacturing operations and the recall or seizure of products, which would harm our business.
One single MS‐DRG payment is intended to cover all hospital costs associated with treating an individual during his or her hospital stay, with the exception of clinician charges associated with performing medical procedures, which are reimbursed through CPT codes and payments.
One single MS‐DRG payment is intended to cover all hospital costs associated with treating an individual during his or her hospital stay, with the exception of clinician charges associated with performing medical procedures, which are reimbursed through Current Procedural Terminology, or CPT, codes and payments.
Our manufacturing and distribution operations are subject to regulatory requirements of the FDA’s Quality System Regulation, or QSR, for medical devices sold in the United States. The FDA monitors compliance with the QSR through periodic inspections of our facilities and may include our suppliers’ facilities as well.
Our manufacturing and distribution operations are subject to regulatory requirements of the FDA’s Quality Management System Regulation, or QMSR, for medical devices sold in the United States. The FDA monitors compliance with the QMSR through periodic inspections of our facilities and may include our suppliers’ facilities as well.
When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines, award treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs. In addition, various states have enacted false claim laws analogous to the federal False Claims Act.
When an entity is determined to have violated the federal civil FCA, the government may impose civil fines, award treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs. In addition, various states have enacted false claim laws analogous to the federal FCA.
Effective in 2024, these codes include new CPT code 61889 for implantation of the RNS neurostimulator in addition to CPT codes 61850 or 61860 for cortical leads or CPT codes 61863 and 61864 for depth leads. We believe these codes for depth leads are the same CPT codes used for reimbursement of physician services for epilepsy DBS procedures.
These codes include CPT code 61889 for implantation of the RNS neurostimulator in addition to CPT codes 61850 or 61860 for cortical leads or CPT codes 61863 and 61864 for depth leads. We believe these codes for depth leads are the same CPT codes used for reimbursement of physician services for epilepsy DBS procedures.
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, as noted above, we are planning for regulatory clearances in non-U.S. jurisdictions, including the European Union (EU), Canada, and Japan, and may be subject to non-U.S. data privacy and security laws, rules, 36 regulations and standards as our operations expand.
Our commercial efforts have primarily been focused on the Level 4 CECs where drug-resistant focal epilepsy patients are actively seeking treatment. In 2024 there were approximately 200 Level 4 CECs in the United States. We estimate that there are approximately 1,200 epileptologists affiliated with these centers, approximately five to seven per center on average.
Our commercial efforts have primarily been focused on the Level 4 CECs where drug-resistant focal epilepsy patients are actively seeking treatment. In 2025 there were over 230 Level 4 CECs in the United States. We estimate that there are approximately 1,200 epileptologists affiliated with these centers, approximately five to seven per center on average.
The qui tam provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted or caused the submission of a false claim to the federal government, and to share in any monetary recovery.
The qui tam provisions of the FCA allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted or caused the submission of a false claim to the federal government, and to share in any monetary recovery.
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 26 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 QMSR, facility registration and product listing, reporting of adverse medical events and malfunctions through the submission of Medical Device Reports, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials.
The ILAE guidelines state that DRE patients who may not appear to be appropriate candidates for resective or ablative epilepsy surgery should still be referred to a tertiary epilepsy center to evaluate other potential interventions.
The ILAE guidelines state that drug-resistant epilepsy patients who may not appear to be appropriate candidates for resective or ablative epilepsy surgery should still be referred to a tertiary epilepsy center to evaluate other potential interventions.
NAUTILUS Study Supported by evidence published in peer-reviewed journals, we also believe that our current RNS System may be able to effectively treat patients with drug-resistant generalized epilepsy. In February 2021, our RNS System received Breakthrough Device Designation from the FDA for the treatment of IGE.
Supported by evidence published in peer-reviewed journals, we believe that our current RNS System may be able to effectively treat patients with drug-resistant idiopathic generalized epilepsy. In February 2021, our RNS System received Breakthrough Device Designation from the FDA for the treatment of IGE.
Accordingly, physician reimbursement for device programming and ECoG review during a typical RNS System follow-up visit could range from $148 to $189. 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 $159 to $204. We believe physicians submit claims for VNS device programming using code 95976 or 95977, depending on the number of device parameters changed.
The civil False Claims Act imposes liability on any person or entity who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program.
The civil FCA imposes liability on any person or entity who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program.
We are focused on developing high quality products that address critical patient needs and maintaining a work environment where employees are respected and encouraged to excel. As of December 31, 2024, we had 184 employees, all of which are based in the United States.
We are focused on developing high quality products that address critical patient needs and maintaining a work environment where employees are respected and encouraged to excel. As of December 31, 2025, we had 209 employees, all of which are based in the United States.
In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR.
In addition, the FDA 27 will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QMSR.
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, 2024, over 6,000 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, 2025, over 8,000 patients have received our RNS System.
Replacement procedures are typically performed on an outpatient basis and take approximately one hour. Clinicians are able to view the device’s battery status through our Patient Data Management System or on our Physician Tablet, and can plan accordingly with the patient for replacement procedures.
Replacement procedures are typically performed on an outpatient basis and take approximately one hour. Clinicians are able to view the device’s battery status through our PDMS or on our Physician Tablet, and can plan accordingly with the patient for replacement procedures.
Post-Approval Study We are currently engaged in follow up and data collection for our FDA-mandated prospective open-label “real-world” study of our RNS System in drug-resistant focal epilepsy patients with a planned follow up period of five years, or the Post-approval Study.
Post-Approval Study We are currently engaged in follow up and database lock activities for our FDA-mandated prospective open-label “real-world” study of our RNS System in drug-resistant focal epilepsy patients with a planned follow up period of five years, or the Post-approval Study.
We believe physician services for the VNS implantation procedure are reimbursed under CPT code 64568 which is associated with a 2025 Medicare national average payment rate of approximately $590. After implantation of our RNS System, the patient’s ongoing care, including device programming and data review, is typically managed by an epileptologist or other qualified clinician.
We believe physician services for the VNS implantation procedure are reimbursed under CPT code 64568 which is associated with a 2026 Non-Qualifying AMP Medicare national average payment rate of approximately $660. After implantation of our RNS System, the patient’s ongoing care, including device programming and data review, is typically managed by an epileptologist or other qualified clinician.
Collaborations and Partnerships DIXI Medical Distribution Agreement In August 2022, we entered into an exclusive distribution agreement, or the Distribution Agreement, with DIXI Medical, pursuant to which we became the exclusive U.S. distributor of DIXI Medical’s stereo electroencephalography, or Stereo EEG, product line beginning in October 2022.
Collaborations and Partnerships DIXI Medical Distribution Agreement In 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 stereo electroencephalography, or Stereo EEG, product line.
We expect the Medicare average payment rate in 2025 will be approximately $32,500. The neurosurgeons who implant our RNS System may seek reimbursement for their services using a variety of Category I CPT codes, depending on the type of leads implanted.
We expect the Medicare average payment rate in 2026 will be approximately $45,000. The neurosurgeons who implant our RNS System may seek reimbursement for their services using a variety of Category I CPT codes, depending on the type of leads implanted.
The remaining patients include approximately 40%, or 20,000 patients with drug-resistant generalized epilepsy and approximately 12%, or 6,000 patients under the age of 18 with drug-resistant focal epilepsy.
The remaining patients include approximately 40%, or 20,000 patients with drug-resistant generalized epilepsy and approximately 12%, or 6,000 patients under the age of 18 with drug-resistant focal epilepsy. Of the patients with generalized epilepsy, approximately 50% of those patients have idiopathic generalized epilepsy.
Our sales team has begun to target epileptologists and functional neurosurgeons practicing outside of Level 4 CECs to expand access to RNS therapy, both in the community and through referral of patients to Level 4 CECs.
Since 2023, our sales team has targeted epileptologists and functional neurosurgeons practicing outside of Level 4 CECs to expand access to RNS therapy, both in the community and through referral of patients to Level 4 CECs.
Based on Medicare national average payment rates, payment under these codes is expected to range from $36 to $48. 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 Non-Qualifying AMP 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.
Hospitals are generally reimbursed for inpatient procedures based on Medicare Severity Diagnosis Related Group, or MS‐DRG, classifications derived from ICD-10 codes that describe the patient’s diagnoses and procedure(s) performed during the hospital stay.
Hospitals are generally reimbursed for inpatient procedures based on Medicare Severity Diagnosis Related Group, or MS‐DRG, classifications derived from the International Classification of Diseases, Tenth Revision, or ICD-10, codes that 21 describe the patient’s diagnoses and procedure(s) performed during the hospital stay.
Our clinical team has conducted three prospective clinical studies on our RNS System and completed enrollment in a fourth, prospective Post-Approval Study, in addition to the ongoing NAUTILUS and RESPONSE studies.
Our clinical team has conducted three prospective clinical studies on our RNS System and nearing completion of a fourth, prospective Post-Approval Study, in addition to the ongoing NAUTILUS and RESPONSE studies.
The discovery of previously unknown problems with our product, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a clinician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls.
The discovery of previously unknown problems with our product, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a clinician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls. 31 The FDA has broad regulatory compliance and enforcement powers.
When combined with an ICD-10 diagnosis code for epilepsy, the codes map into MS-DRG 023 for payment to the hospital. In federal fiscal year 2025, which runs from October 2024 through September 2025, we expect the Medicare average payment rate for MS-DRG 023 at our customer accounts to be approximately $56,900.
When combined with a primary ICD-10 diagnosis code for epilepsy, the codes map into MS-DRG 023 for payment to the hospital. In federal fiscal year 2026, which runs from October 2025 through September 2026, we expect the Medicare average payment rate for MS-DRG 023 at our customer accounts to be approximately $58,675.
We believe that most DBS procedures for epilepsy map into MS-DRG 024 and we expect the Medicare average payment rate at these accounts will be approximately $38,400. We believe that VNS implantation procedures take place in a single outpatient procedure and map to Ambulatory Payment Classification, or APC, 5465.
We believe that most DBS procedures for epilepsy map into MS-DRG 024 and we expect the Medicare average payment rate at these accounts will be approximately $40,655. We believe that VNS implantation procedures take place in a single outpatient procedure and map to New Technology Ambulatory Payment Classification, or New Tech APC, 1580.
As a participant in this program, we have an on-site appraisal once a year during which an appraisal team assesses our processes to determine areas for improvement, and we have subsequent quarterly check-in assessments that are designed to discuss our progress in continuous improvement.
The FDA Voluntary Improvement Program is part of the FDA’s Case for Quality Program. As a participant in this program, we have an on-site appraisal once a year during which an appraisal team assesses our processes to determine areas for improvement, and we have subsequent quarterly check-in assessments that are designed to discuss our progress in continuous improvement.
Our breach of any license agreements or failure to obtain a license necessary to our business may have a material adverse impact on us. 24 On July 27, 2005, we entered into a cross-license agreement, or the Cross-License, with Medtronic, Inc., or Medtronic, directed to patent families in a field of use that is generally aligned with our business interests, including direct electrical stimulation or monitoring of the brain via electrodes attached to or implanted in the head for the treatment or diagnosis of epilepsy and other disorders, or the Field.
On July 27, 2005, we entered into a cross-license agreement, or the Cross-License, with Medtronic, Inc., or Medtronic, directed to patent families in a field of use that is generally aligned with our business interests, including direct electrical stimulation or monitoring of the brain via electrodes attached to or implanted in the head for the treatment or diagnosis of epilepsy and other disorders, or the Field.
In the second half of 2021, we received IDE approval to initiate a study in IGE, called the NAUTILUS study, and in March 2024, we completed implanting patients in NAUTILUS, for a total of 87 patients implanted across 23 centers.
In the second half of 2021, we received IDE approval to initiate a study in IGE, called the NAUTILUS study, and in March 2024, we completed implanting patients in NAUTILUS, for a total of 87 patients implanted across 23 centers. In March 2025, the last patient in our NAUTILUS study for IGE completed one year of follow up.
In the event that one of our suppliers fails to maintain acceptable quality requirements, we may have to find and qualify a new supplier and could experience a material adverse effect to our manufacturing operations and result in manufacturing delays. We believe our quality management system is compliant with FDA Quality Systems Regulations.
In the event that one of our suppliers fails to maintain acceptable quality requirements, we may have to find and qualify a new supplier and could experience a material adverse effect to our manufacturing operations and result in manufacturing delays.
It is unclear how any such challenges and the healthcare reform measures of the current administration will impact the Affordable Care Act. In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
It is possible that the Affordable Care Act will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the healthcare reform measures of the current administration will impact the Affordable Care Act. In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
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. The Distribution Agreement has an initial term of three years, which expires September 30, 2025.
This synergistic partnership leveraged our field organization that was already calling on the same customers and supported our objective to engage earlier in the diagnostic and therapy selection process. The Distribution Agreement had an initial term of three years, which expired on September 30, 2025.
As of December 31, 2024, 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, 2025, we own 25 trademark registrations, three 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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeCompliance with such regulations may limit our exclusive rights and limit our ability to contract with non-U.S. manufacturers. Certain of our patents are, and our future owned and in-licensed patents may be, discovered through government funded programs.
Biggest changeCertain of our patents are, and our future owned and in-licensed patents may be, discovered through government funded programs and thus may subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies. Compliance with such regulations may limit our exclusive rights and limit our ability to contract with non-U.S. manufacturers.
We cannot predict how quickly, if at all, we can grow utilization and adoption at the Level 4 CECs and in the community setting to build a pipeline through our sales and marketing efforts and whether primary care physicians, neurologists, and other healthcare providers, as well as caregivers will support use of our RNS System in the community setting or patient referrals to epileptologists and neurosurgeons at CECs over other therapy options.
We cannot predict how quickly, if at all, we can grow utilization and adoption at the Level 4 CECs and in the community setting to build a pipeline through our sales and marketing efforts and whether primary care physicians, neurologists, and other healthcare providers, as well as whether caregivers will support use of our RNS System in the community setting or patient referrals to epileptologists and neurosurgeons at CECs over other therapy options.
In addition, if we experience a significant increase in demand, 43 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, additional supplies of components, materials, or services, or 43 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.
Despite our efforts to retain valuable employees, members of our management and other key personnel may terminate their employment with us on short notice. Our employment arrangements with our employees provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without 47 notice.
Despite our efforts to retain valuable employees, members of our management and other key personnel may terminate their employment with us on short notice. Our employment arrangements with our employees provide for at-will 47 employment, which means that any of our employees could leave our employment at any time, with or without notice.
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.
The laws that may affect our ability to operate include, among others: • the Anti-Kickback Statute, which prohibits, among other things, knowingly and willingly soliciting, offering, receiving or paying remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual, or the purchase, order or recommendation of, items or services for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs; 50 • federal civil and criminal false claims laws, including the FCA, and civil monetary penalties laws, which prohibits, among other things, persons or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment of government funds and knowingly making, using or causing to be made or used, a false record or statement to get a false claim paid or to avoid, decrease or conceal an obligation to pay money to the federal government; • the Health Insurance Portability & Accountability Act of 1996, or HIPAA, which applies to our customers and some of their downstream vendors and contractors, imposes criminal and civil liability for, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making a materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services; and • the federal Physician Payments Sunshine Act, also known as Open Payments, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually, with certain exceptions to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or other “transfers of value” made to physicians, as defined by such law, other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members.
The laws that may affect our ability to operate include, among others: • the Anti-Kickback Statute, which prohibits, among other things, knowingly and willingly soliciting, offering, receiving or paying remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual, or the purchase, order or recommendation of, items or services for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs; • federal civil and criminal false claims laws, including the FCA, and civil monetary penalties laws, which prohibits, among other things, persons or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment of government funds and knowingly making, using or causing to be made or used, a false record or statement to get a false claim paid or to avoid, decrease or conceal an obligation to pay money to the federal government; • the Health Insurance Portability & Accountability Act of 1996, or HIPAA, which applies to our customers and some of their downstream vendors and contractors, imposes criminal and civil liability for, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making a materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services; and • the federal Physician Payments Sunshine Act, also known as Open Payments, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually, with certain exceptions to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or other “transfers of value” made to physicians, as defined by such law, other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members.
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.
The commencement and completion of clinical 58 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.
Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: • provide for a classified board of directors whose members serve staggered terms; • authorize our board of directors to issue, without further action by the stockholders, shares of undesignated convertible preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock; • require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our chief executive officer; • establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; • prohibit cumulative voting in the election of directors; • provide that our directors may be removed for cause only upon the vote of the holders of at least 66 2/3% of our outstanding shares of common stock; • provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and • require the approval of our board of directors or the holders of at least 66 2/3% of our outstanding shares of common stock entitled to vote at an election of directors to adopt, to amend our bylaws and certain provisions of our certificate of incorporation.
Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: • provide for a classified board of directors whose members serve staggered terms; • authorize our board of directors to issue, without further action by the stockholders, shares of undesignated convertible preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock; • require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our chief executive officer; • establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; • prohibit cumulative voting in the election of directors; • provide that our directors may be removed for cause only upon the vote of the holders of at least 66 2/3% of our outstanding shares of common stock; 88 • provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and • require the approval of our board of directors or the holders of at least 66 2/3% of our outstanding shares of common stock entitled to vote at an election of directors to adopt, to amend our bylaws and certain provisions of our certificate of incorporation.
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; 53 • 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; • 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.
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; 75 • 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; • 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; 77 • 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.
Additional risks related to operating in foreign countries include: • differing regulatory requirements in foreign countries, including with respect to data privacy and security; • differing reimbursement regimes in foreign countries, including price controls; • unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements; • economic weakness, including inflation, or political instability in particular foreign economies and markets; • compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; • foreign taxes, including withholding of payroll taxes; • foreign currency fluctuations, which could result in increased operating expenses or reduced revenue; 49 • difficulties staffing and managing foreign operations; • workforce uncertainty in countries where labor unrest is more common than in the United States; • potential liability under the U.S.
Additional risks related to operating in foreign countries include: • differing regulatory requirements in foreign countries, including with respect to data privacy and security; • differing reimbursement regimes in foreign countries, including price controls; • unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements; • economic weakness, including inflation, or political instability in particular foreign economies and markets; • compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; • foreign taxes, including withholding of payroll taxes; • foreign currency fluctuations, which could result in increased operating expenses or reduced revenue; • difficulties staffing and managing foreign operations; • workforce uncertainty in countries where labor unrest is more common than in the United States; • potential liability under the U.S.
The FDA and foreign regulatory bodies can delay, limit or deny clearance or approval of a device for many reasons, including: • our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our products are safe or effective for their intended uses; • the disagreement of the FDA or the applicable foreign regulatory body with the design or implementation of our clinical studies or the interpretation of data from clinical studies; • serious and unexpected adverse device effects experienced by participants in our clinical studies; • the data from our preclinical studies and clinical studies may be insufficient to support clearance or approval, where required; • our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; • the manufacturing process or facilities we use may not meet applicable requirements; and • the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval.
The FDA and foreign regulatory bodies can delay, limit or deny clearance or approval of a device for many reasons, including: • our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our products are safe or effective for their intended uses; • the disagreement of the FDA or the applicable foreign regulatory body with the design or implementation of our clinical studies or the interpretation of data from clinical studies; • serious and unexpected adverse device effects experienced by participants in our clinical studies; • the data from our preclinical studies and clinical studies may be insufficient to support clearance or approval, where required; • our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; • the manufacturing process or facilities we use may not meet applicable requirements; and 53 • the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval.
Disruptions in our information technology systems or data or those of third parties with whom we work, whether through breaches or failures of our systems, ransomware, unauthorized access or otherwise, may result in both an adverse impact to our products, as well as the unauthorized use, disclosure, modification or misappropriation of patient or other personal or sensitive information, the occurrence of fraudulent activity, or other information security-related incidents, all of which could result in adverse consequences, including but not limited to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse consequences, which could have a material and adverse impact on our business, financial condition and results of operations.
Disruptions in our information technology systems or data or those of third parties with whom we work, whether through breaches or failures of our systems, ransomware, unauthorized access or otherwise, may result in both an adverse impact to our products, as well as the unauthorized use, disclosure, modification or misappropriation of patient or other personal or sensitive information, the occurrence of fraudulent activity, or other information security-related incidents, all of which could result in adverse consequences, including but not limited to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; 62 reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse consequences, which could have a material and adverse impact on our business, financial condition and results of operations.
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.
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 QMSR 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.
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; 79 • 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, scheduling or cancelling of implant procedures 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; • 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, scheduling or cancelling of implant procedures 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; 81 • 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.
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 86 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.
If we or our employees are found to have violated any of the above laws we may be subjected to substantial criminal, civil and administrative penalties, including imprisonment, exclusion from participation in federal healthcare programs, such as Medicare and Medicaid, and significant fines, monetary penalties, forfeiture, disgorgement and damages, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.
If we or our employees are found to have violated any of the above laws we may be subjected to substantial criminal, civil and administrative penalties, including imprisonment, exclusion from participation in federal 51 healthcare programs, such as Medicare and Medicaid, and significant fines, monetary penalties, forfeiture, disgorgement and damages, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.
Regardless of the merits or eventual outcome, liability claims may result in: • decreased demand for our products; • injury to our brand or reputation; • initiation of investigations by regulators; • costs to defend the related litigation; • increased insurance premiums; • a diversion of management’s time and our resources; • substantial monetary awards to trial participants or patients; • regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions; • loss of revenue; • exhaustion of any available insurance and our capital resources; and • the inability to market and sell our products.
Regardless of the merits or eventual outcome, liability claims may result in: • decreased demand for our products; • injury to our brand or reputation; • initiation of investigations by regulators; • costs to defend the related litigation; • increased insurance premiums; • a diversion of management’s time and our resources; 84 • substantial monetary awards to trial participants or patients; • regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions; • loss of revenue; • exhaustion of any available insurance and our capital resources; and • the inability to market and sell our products.
We currently maintain a cybersecurity insurance policy and business interruption coverage to mitigate certain potential losses but this insurance is limited in amount, and we cannot be certain that such potential losses will not exceed our policy limits, or will cover all potential claims to which we are exposed and may not be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.
We currently maintain a cybersecurity insurance policy and business interruption coverage to mitigate certain potential losses but this insurance is limited in amount, and we cannot be certain that such potential losses will not exceed our policy limits, or will cover all potential claims to which we are exposed and may not be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or 64 that such coverage will pay future claims.
If these third parties do not successfully carry out their duties or meet expected deadlines, or if the quality, completeness or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical study protocols or for 56 other reasons, our clinical studies or trials may need to be extended, delayed or terminated or may otherwise prove to be unsuccessful, and we may have to conduct additional studies, which would significantly increase our costs.
If these third parties do not successfully carry out their duties or meet expected deadlines, or if the quality, completeness or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical study protocols or for other reasons, our clinical studies or trials may need to be extended, delayed or terminated or may otherwise prove to be unsuccessful, and we may have to conduct additional studies, which would significantly increase our costs.
FDA regulations and regulations of similar agencies are wide-ranging and include, among other things, oversight of: • product design, development, manufacturing (including suppliers and materials) and testing; • laboratory, preclinical and clinical studies; • product safety and effectiveness; • product labeling; • product storage and shipping; • record keeping; 52 • pre-market clearance or approval; • marketing, advertising and promotion; • product sales and distribution; • product changes; • product recalls; and • post-market surveillance and reporting of deaths or serious injuries and certain malfunctions.
FDA regulations and regulations of similar agencies are wide-ranging and include, among other things, oversight of: • product design, development, manufacturing (including suppliers and materials) and testing; • laboratory, preclinical and clinical studies; • product safety and effectiveness; • product labeling; • product storage and shipping; • record keeping; • pre-market clearance or approval; • marketing, advertising and promotion; • product sales and distribution; • product changes; • product recalls; and • post-market surveillance and reporting of deaths or serious injuries and certain malfunctions.
Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks. A weak or declining economy could also strain our suppliers and manufacturers, possibly resulting in supply disruptions.
Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which coupled 90 with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks. A weak or declining economy could also strain our suppliers and manufacturers, possibly resulting in supply disruptions.
Claims related to our use of open-source software could also result in litigation, require us to purchase costly licenses or require us to devote additional research and development resources to change the software underlying our technology, any of which 77 would have a negative effect on our business, financial condition and operating results and may not be possible in a timely manner.
Claims related to our use of open-source software could also result in litigation, require us to purchase costly licenses or require us to devote additional research and development resources to change the software underlying our technology, any of which would have a negative effect on our business, financial condition and operating results and may not be possible in a timely manner.
As a result of the recent approval of a PMA-S, we are now able to expand our commercial efforts to the additional epileptologists and functional neurosurgeons practicing outside of Level 4 CECs, in the community setting. In our target patient population, there are two primary treatment options (i) an ablative or resective surgery, or (ii) implantation of a neuromodulation device.
As a result of the approval of a PMA-S, we are now able to expand our commercial efforts to the additional epileptologists and functional neurosurgeons practicing outside of Level 4 CECs, in the community setting. In our target patient population, there are two primary treatment options (i) an ablative or resective surgery, or (ii) implantation of a neuromodulation device.
The PMA process is typically 54 required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable device. The FDA could decline to approve any supplemental application that we submit in the future to expand the indications for which our RNS System can be used, which would harm our growth potential.
The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable device. The FDA could decline to approve any supplemental application that we submit in the future to expand the indications for which our RNS System can be used, which would harm our growth potential.
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.
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 which can result in voluntary corrective actions or agency enforcement actions and harm our reputation, business, financial condition and results of operations.
However, even if, at the relevant time, we have an issued patent covering our product, we may not be granted an extension if we were, for example, to fail to exercise due diligence during the testing phase or regulatory review process, to fail to apply within applicable deadlines or prior to expiration of relevant patents or otherwise to fail to satisfy applicable requirements.
However, even if, at the relevant time, we have an issued patent covering our product, we may not be granted an 71 extension if we were, for example, to fail to exercise due diligence during the testing phase or regulatory review process, to fail to apply within applicable deadlines or prior to expiration of relevant patents or otherwise to fail to satisfy applicable requirements.
In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of 89 incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
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 Integer Holdings Corporation (formally known as Greatbatch Ltd) are single-source suppliers of several key components 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 Integer Holdings Corporation (formally known as Greatbatch Ltd) are 42 single-source suppliers of several key components of our products, including printed circuit assemblies and batteries.
Any such delay or rejection could prevent us from supporting label retention and expansion for our RNS System. We may become subject to numerous laws and regulations related to anti-bribery and anti-corruption laws, such as the FCPA and the U.K. Bribery Act, in which violations of these laws could result in substantial penalties and prosecution.
Any such delay or rejection could prevent us from supporting label retention and expansion for our RNS System. 59 We may become subject to numerous laws and regulations related to anti-bribery and anti-corruption laws, such as the FCPA and the U.K. Bribery Act, in which violations of these laws could result in substantial penalties and prosecution.
If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition and results of operations may be harmed. Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition and results of operations may be harmed. 72 Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
If we give up, do not pursue, or are unable to obtain an exclusive license to any such third-party co-owners’ or licensee’s interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology.
If we give up, do not pursue, or are unable to obtain an exclusive license to any such third-party co-owners’ or licensee’s interest in 67 such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology.
Third parties may also raise claims challenging the validity or enforceability of our patents before administrative bodies in the United States or abroad, even outside the context of litigation, including through re-examination, post-grant review, IPR, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions (such as opposition proceedings).
Third parties may also raise claims challenging the validity or enforceability of our patents before administrative bodies in the United States or abroad, even outside the context of litigation, including through re-examination, post-grant review, IPR, interference proceedings, derivation proceedings and equivalent proceedings in 68 foreign jurisdictions (such as opposition proceedings).
If we are unable to successfully achieve substantial market acceptance and 40 adoption of our RNS System by additional clinicians, patients, and hospital facilities, or to expand the clinicians’ perspective as to the types of patients that can benefit from our RNS System, patients may be reluctant to use our products over alternative neuromodulation therapies.
If we are unable to successfully achieve substantial market acceptance and adoption of our RNS System by additional clinicians, patients, and hospital facilities, or to expand the clinicians’ perspective as to the types of patients that can benefit from our RNS System, patients may be reluctant to use our products over alternative neuromodulation therapies.
The loss of exclusivity or the narrowing of our patent claims could limit our ability to stop others from using or commercializing similar or identical technology and products. 72 Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
The loss of exclusivity or the narrowing of our patent claims could limit our ability to stop others from using or commercializing similar or identical technology and products. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
As such, we may be subject to claims that current or former employees, collaborators or other third parties have an interest in our patents, trade secrets or other intellectual property as an inventor or co-inventor. Additionally, we could become subject to significant intellectual property-related litigation and proceedings relating to our or third-party intellectual property and proprietary rights.
As such, we may be subject to claims that current or 73 former employees, collaborators or other third parties have an interest in our patents, trade secrets or other intellectual property as an inventor or co-inventor. Additionally, we could become subject to significant intellectual property-related litigation and proceedings relating to our or third-party intellectual property and proprietary rights.
In the event of a successful claim of infringement against us, we may be enjoined from further developing or commercializing the infringing products and/or have to pay substantial damages for use of the asserted intellectual property, including treble damages and attorneys’ fees were we found to willfully infringe such 73 intellectual property.
In the event of a successful claim of infringement against us, we may be enjoined from further developing or commercializing the infringing products and/or have to pay substantial damages for use of the asserted intellectual property, including treble damages and attorneys’ fees were we found to willfully infringe such intellectual property.
Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the product, which may limit the market for the product. Although we have obtained PMA approval to market our RNS System, our approval can be revoked if safety or efficacy problems develop.
Furthermore, even if we are granted 54 regulatory clearances or approvals, they may include significant limitations on the indicated uses for the product, which may limit the market for the product. Although we have obtained PMA approval to market our RNS System, our approval can be revoked if safety or efficacy problems develop.
During times of war and other major conflicts, we and the third parties with whom we work are vulnerable to a heightened 61 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 with whom we work are 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.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We expect that only a limited number of analysts will cover our company and we do not have any control over these analysts.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We expect that only a limited number of analysts will cover our 91 company and we do not have any control over these analysts.
We estimate that approximately 80% of drug-resistant focal epilepsy patients are either not ideal candidates for ablative or resective surgery or are unwilling to undergo a destructive surgical procedure and we compete primarily with two manufacturers of neuromodulation devices for the treatment of these patients.
We estimate that approximately 80% of drug-resistant focal epilepsy patients are either not ideal candidates for ablative or resective surgery or are unwilling to undergo a 44 destructive surgical procedure, and we compete primarily with two manufacturers of neuromodulation devices for the treatment of these patients.
We could be 67 forced, including by court order, to cease commercializing the infringing product. In addition, we could be found liable for monetary damages, which may be significant. If we are found to have willfully infringed a third-party patent, we could be required to pay treble damages and attorneys’ fees.
We could be forced, including by court order, to cease commercializing the infringing product. In addition, we could be found liable for monetary damages, which may be significant. If we are found to have willfully infringed a third-party patent, we could be required to pay treble damages and attorneys’ fees.
Recent cuts and staffing changes at the FDA could further delay our efforts to expand indications by creating significant and costly delays in the review process for our regulatory submissions; these delays would negatively impact our growth potential and ability to expand our market reach according to our financial plans.
Cuts and staffing changes at the FDA could further delay our efforts to expand indications by creating significant and costly delays in the review process for our regulatory submissions; these delays would negatively impact our growth potential and ability to expand our market reach according to our financial plans.
For example, we have been the target of 62 unsuccessful phishing attempts in the past and expect such attempts will continue in the future. A security incident or other interruption could disrupt our ability (and that of third parties with whom we work) to provide our services.
For example, we have been the target of unsuccessful phishing attempts in the past and expect such attempts will continue in the future. A security incident or other interruption could disrupt our ability (and that of third parties with whom we work) to provide our services.
Additionally, the value of our investment in development or business acquisitions could be reduced and third parties might make claims against us related to losses of their confidential or proprietary information. Any of the foregoing could materially and adversely affect our business, financial condition and results of operations.
Additionally, the value of our investment in development or business acquisitions could be reduced 78 and third parties might make claims against us related to losses of their confidential or proprietary information. Any of the foregoing could materially and adversely affect our business, financial condition and results of operations.
The interests of this group of stockholders may not coincide with the interests of other stockholders and they may want us to pursue strategies that deviate from the interests of other stockholders. 85 Our stock price has been volatile, an active or liquid market in our common stock may not be sustainable and the value of our common stock may decline.
The interests of this group of stockholders may not coincide with the interests of other stockholders and they may want us to pursue strategies that deviate from the interests of other stockholders. Our stock price has been volatile, an active or liquid market in our common stock may not be sustainable and the value of our common stock may decline.
Litigation is inherently unpredictable and can result in excessive or unanticipated verdicts, judgements, and/or injunctive relief that affect how we operate our business. We could incur judgments or enter into settlements of claims for monetary damages or for agreements to change the way we operate our business, or both.
Litigation is inherently unpredictable and can result in excessive or unanticipated verdicts, judgments, and/or injunctive relief that affect how we operate our business. We could incur judgments or enter into settlements of claims for monetary damages or for agreements to change the way we operate our business, or both.
Risks related to operational, commercial and manufacturing matters We currently rely on our RNS System, which can only be marketed in the United States for use in adults with drug-resistant focal epilepsy, as our primary source of revenue.
Risks related to operational, regulatory, commercial and manufacturing matters We currently rely on our RNS System, which can only be marketed in the United States for use in adults with drug-resistant focal epilepsy, as our primary source of revenue.
Through our arrangements with healthcare professionals and hospital facilities, we are exposed to broadly applicable anti-fraud and abuse, anti-kickback, false claims and other healthcare laws and regulations that may constrain our business, our arrangements and relationships with customers, and how we market, sell and distribute our marketed medical devices.
Through our arrangements with 50 healthcare professionals and hospital facilities, we are exposed to broadly applicable anti-fraud and abuse, anti-kickback, false claims and other healthcare laws and regulations that may constrain our business, our arrangements and relationships with customers, and how we market, sell and distribute our marketed medical devices.
We cannot be certain that violations of these laws and regulations, or releases of or exposure to hazardous substances, will not occur in the future or have not occurred in the past, including as a result of human error, 57 accidents, equipment failure or other causes.
We cannot be certain that violations of these laws and regulations, or releases of or exposure to hazardous substances, will not occur in the future or have not occurred in the past, including as a result of human error, accidents, equipment failure or other causes.
In addition, we may encounter delays if the FDA concludes that our financial relationships with investigators result in a perceived or actual conflict of interest that may have affected the interpretation of a study, the integrity of 58 the data generated at the applicable clinical study site or the utility of the clinical study itself.
In addition, we may encounter delays if the FDA concludes that our financial relationships with investigators result in a perceived or actual conflict of interest that may have affected the interpretation of a study, the integrity of the data generated at the applicable clinical study site or the utility of the clinical study itself.
We expect to continue to incur significant business expenses as we continue to enhance our efforts to promote our brand, increase sales, improve therapy effectiveness, enhance the patient and provider experience, and expand the population of eligible patients. In addition, we expect our selling, general and administrative expenses to increase as we continue to operate as a public company.
We expect to continue to incur significant business expenses as we continue to enhance our efforts to promote our brand, increase sales, improve therapy effectiveness, enhance the patient and provider experience, and expand the population of eligible patients. In addition, we expect our general and administrative expenses to increase as we continue to operate as a public company.
In addition, borrowings under the Term Loan are secured by substantially all of our properties, rights and assets, including intellectual property. Any declaration by our lender of an event of default could significantly harm our business and could cause the price of our common stock to decline.
In addition, borrowings under the MidCap Term Loan are secured by substantially all of our properties, rights and assets, including intellectual property. Any declaration by our lender of an event of default could significantly harm our business and could cause the price of our common stock to decline.
We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public 90 company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404.
We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404.
The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new approvals are necessary for products that we manufacture and distribute.
The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our 55 decisions regarding whether new approvals are necessary for products that we manufacture and distribute.
Defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example, with respect to proper priority claims, inventorship and the like, although we are unaware of any such defects that we believe are of importance.
Defects of form in the 66 preparation or filing of our patents or patent applications may exist, or may arise in the future, for example, with respect to proper priority claims, inventorship and the like, although we are unaware of any such defects that we believe are of importance.
Our continued success depends on, among other things, our ability to: • continue to demonstrate safety and efficacy in our Post-Approval Study and in ongoing commercial use; • expand our referral pathways; • expand the number of CECs implanting our RNS System and increase utilization across existing clinicians using the RNS System and adoption across new clinicians within these CECs; • increase the utilization and adoption of our RNS System outside of Level 4 CECs, in the community setting; • drive awareness to increase the number of drug-resistant epilepsy patients referred to CECs and treated outside of CECs, in the community setting; • maintain adequate reimbursement for implant procedures and for clinicians to provide ongoing care of patients treated with our RNS System; • attract and retain skilled research, development, sales, marketing and clinical personnel; • continue to innovate in order to improve therapy effectiveness and enhance the patient and provider experience; • adequately predict product performance; • obtain and maintain regulatory clearances and approvals, including for expanded indications; • cost-effectively manufacture, market and sell our RNS System; • obtain, maintain, protect, enforce and defend our intellectual property rights and operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others; • acquire products or technologies complementary to or necessary for our business; and • source materials, components, and sub-assemblies from suppliers on a cost-effective and timely basis. 45 Adoption of our RNS System depends on positive clinical data as well as clinician acceptance of the data and our products, and negative clinical data or perceptions among these clinicians would harm our sales, business, financial condition, and results of operations.
Our continued success depends on, among other things, our ability to: • continue to demonstrate safety and efficacy in ongoing clinical trials and in ongoing commercial use; • expand our referral pathways; • expand the number of CECs implanting our RNS System and increase utilization across existing clinicians using the RNS System and adoption across new clinicians within these CECs; • increase the utilization and adoption of our RNS System outside of Level 4 CECs, in the community setting; • drive awareness to increase the number of drug-resistant epilepsy patients referred to CECs and treated outside of CECs, in the community setting; • maintain adequate reimbursement for implant procedures and for clinicians to provide ongoing care of patients treated with our RNS System; • attract and retain skilled research, development, sales, marketing and clinical personnel; • continue to innovate in order to improve therapy effectiveness and enhance the patient and provider experience; • adequately predict product performance; • obtain and maintain regulatory clearances and approvals, including for expanded indications; • cost-effectively manufacture, market and sell our RNS System; • obtain, maintain, protect, enforce and defend our intellectual property rights and operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others; • acquire products or technologies complementary to or necessary for our business; and • source materials, components, and sub-assemblies from suppliers on a cost-effective and timely basis. 45 Adoption of our RNS System depends on positive clinical data as well as clinician acceptance of the data and our products, and negative clinical data or perceptions among these clinicians would harm our sales, business, financial condition, and results of operations.
If the breadth or strength of protection provided by the patents we hold or 65 pursue with respect to our products is challenged, it could dissuade companies from collaborating with us to develop, or threaten our ability to commercialize, our products. Patents have a limited lifespan.
If the breadth or strength of protection provided by the patents we hold or pursue with respect to our products is challenged, it could dissuade companies from collaborating with us to develop, or threaten our ability to commercialize, our products. Patents have a limited lifespan.
We cannot predict or estimate the amount of these additional costs or the timing of such costs. We may partner with or acquire other businesses, which could require significant management attention, disrupt our business, dilute stockholder value and harm our results of operations.
We cannot predict or estimate the amount of these additional costs or the timing of such costs. 92 We may partner with or acquire other businesses, which could require significant management attention, disrupt our business, dilute stockholder value and harm our results of operations.
We may expand sales of our RNS System internationally in the future, but we may experience difficulties in obtaining regulatory clearance or approval or in successfully marketing our RNS System internationally even if approved. A variety of risks associated with marketing our RNS System internationally could harm our growth potential.
We may expand sales of our RNS System internationally in the future, but we may experience difficulties in obtaining regulatory clearance or approval or in successfully marketing our RNS System internationally even if 49 approved. A variety of risks associated with marketing our RNS System internationally could harm our growth potential.
We also rely on third parties to provide other products, services, parts, or otherwise to operate our business. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place.
We also rely on third parties to provide other products, services, parts, or otherwise to operate our business. Our ability to monitor these third parties’ information 63 security practices is limited, and these third parties may not have adequate information security measures in place.
As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent.
As this 74 burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent.
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 41 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 procedures can significantly reduce our yield.
In addition to data privacy and security laws, we are contractually subject to industry standards adopted by industry groups and, we are or may become subject to such obligations in the future. 60 Obligations related to data privacy and security are quickly changing, becoming increasingly stringent, and creating regulatory uncertainty.
In addition to data privacy and security laws, we are contractually subject to industry standards adopted by industry groups and, we are or may become subject to such obligations in the future. Obligations related to data privacy and security are quickly changing, becoming increasingly stringent, and creating regulatory uncertainty.
There can be no assurance that such 76 third parties will not breach their agreements with us, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by competitors.
There can be no assurance that such third parties will not breach their agreements with us, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by competitors.
It is possible that we will not achieve profitability or that, even if we do achieve profitability, we may not remain profitable for any substantial period of time. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.
It is possible that we will not achieve profitability or that, even if we do 79 achieve profitability, we may not remain profitable for any substantial period of time. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.
The covenants related to 81 the Term Loan Agreement, as well as any future financing agreements into which we may enter, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies.
The covenants related to the Term Loan Agreement, as well as any future financing agreements into which we may enter, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies.
Although the prospects for the imminent enactment of major legislation are not certain at this time, the enactment of more targeted measures may be more likely due to the increased possibility of federal executive and legislative branch support for consideration of such measures.
Although the prospects for the imminent enactment of additional major legislation are not certain at this time, the enactment of more targeted measures may be more likely due to the increased possibility of federal executive and legislative branch support for consideration of such measures.
Moreover, changes in the leadership and senior staffs of the FDA could impact the 84 rulemaking, supervision, examination and enforcement priorities and policies of the agency. The potential impact of changes in agency personnel, policies and priorities on the medical device sector, including us, cannot be predicted at this time.
Moreover, changes in the leadership and senior staffs of the FDA could impact the rulemaking, supervision, examination and enforcement priorities and policies of the agency. The potential impact of changes in agency personnel, policies and priorities on the medical device sector, including us, cannot be predicted at this time.
These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits 88 against us and our directors, officers and other employees.
These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees.
Most healthcare providers, including hospitals from which we obtain patient health information, are subject to privacy and security regulations promulgated under 63 HIPAA, as amended by the Health Information Technology for Economic and Clinical Health, or HITECH.
Most healthcare providers, including hospitals from which we obtain patient health information, are subject to privacy and security regulations promulgated under HIPAA, as amended by the Health Information Technology for Economic and Clinical Health, or HITECH.
A drop in yield can increase our cost to manufacture our products or, in more severe cases, require us to halt the manufacture of our products until the problem is resolved. Identifying and resolving the cause of a drop in yield can require substantial time and resources.
A drop in yield can increase our cost to manufacture our products or, in more severe cases, require us to halt the manufacture of our products until the problem is resolved. Identifying 41 and resolving the cause of a drop in yield can require substantial time and resources.
Use of our RNS System requires appropriate neurosurgeon training for implantation and epileptologist training for programming and ongoing patient care, and inadequate training may lead to negative patient outcomes, which could harm our business, financial condition, and results of operations.
Use of our RNS System requires appropriate neurosurgeon training for implantation and epileptologist training for prescribing, programming and ongoing patient care, and inadequate training may lead to negative patient outcomes, which could harm our business, financial condition, and results of operations.
Numerous 59 U.S. states have enacted comprehensive privacy laws that impose certain obligations on covered businesses, including providing specific disclosures in privacy notices and affording residents with certain rights concerning their personal information.
Numerous U.S. states have enacted comprehensive privacy laws that impose certain obligations on covered businesses, including providing specific disclosures in privacy notices and affording residents with certain rights concerning their personal information.
Any failure to obtain, maintain, protect, enforce or defend patent and other intellectual property 64 protection with respect to our RNS System or other aspects of our business could harm our business, competitive position, financial condition and results of operations.
Any failure to obtain, maintain, protect, enforce or defend patent and other intellectual property protection with respect to our RNS System or other aspects of our business could harm our business, competitive position, financial condition and results of operations.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is 87 responsible for appointing the members of our management.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.
The successful use of our RNS System depends in part on the training and skill of the neurosurgeon performing the implant procedure as well as the clinician, typically an epileptologist, performing the subsequent programming of our RNS System and monitoring the patient response.
The successful use of our RNS System depends in part on the training and skill of the neurosurgeon performing the implant procedure as well as the clinician, typically an epileptologist, prescribing the RNS System, performing the subsequent programming and monitoring the patient response.
Additionally, data collection, privacy and security have become the subject of increasing public concern and changing preferences towards data collection, privacy and security could adversely affect patient willingness to consent to our collection of their health information.
Additionally, data collection, privacy and security have become the subject of increasing public concern and changing preferences towards data collection, privacy and security could adversely affect patient willingness to 65 consent to our collection of their health information.
We have conducted Section 382 studies and determined that we experienced ownership changes in 2016 and in 2021 which resulted in permanent limitation of our pre-change NOL and research and development credit carryforwards.
We have conducted Section 382 studies and determined 82 that we experienced ownership changes in 2016 and in 2021 which resulted in permanent limitation of our pre-change NOL and research and development credit carryforwards.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe board of directors receives periodic reports from our Privacy and Security Officer concerning significant cybersecurity threats to us and risk and the processes we have implemented to address them. The board of directors also has access to various reports, summaries or presentations related to cybersecurity threats, risk and mitigation.
Biggest changeThe board of directors also has access to various reports, summaries or presentations related to cybersecurity threats, risk and mitigation.
Depending on the environment, we implement and maintain various technical, physical, and organizational measures, processes, standards, and policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and Data, including, for example: incident detection and response, vulnerability management and disaster recovery policies, risk assessments, data encryption and data segregation of certain data, access controls and network security controls in certain environments, physical security controls, employee training, phishing simulation exercises, penetration testing, systems monitoring, cybersecurity insurance and asset and vendor management programs.
Depending on the environment, we implement and maintain various technical, physical, and organizational measures, processes, standards, and policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and Data, including, for example: incident detection and response, vulnerability 93 management and disaster recovery policies, risk assessments, data encryption and data segregation of certain data, access controls and network security controls in certain environments, physical security controls, employee training, phishing simulation exercises, penetration testing, systems monitoring, cybersecurity insurance and asset and vendor management programs.
Our information security function is overseen by our Privacy and Security Officer and is supported by our Director of Information Technology and Chief of Operations and Development, as well as our engineering operations and third-party service providers. This function helps to identify, assess, and manage our cybersecurity threats and risks, including through the use of our risk register.
Our information security function is overseen by our Privacy and Security Officer and is supported by our Senior Director of Information Technology and Chief of Operations and Development, as well as our engineering operations and third-party service providers. This function helps to identify, assess, and manage our cybersecurity threats and risks, including through the use of our risk register.
Our cybersecurity risk assessment and management processes are implemented and maintained by certain NeuroPace management, including our Privacy and Security Officer, who has more than 20 years of experience in healthcare privacy and security, in coordination with our Director of Information Technology, who has more than 30 years of experience with information technology operations and seventeen years as a corporate privacy and security officer.
Our cybersecurity risk assessment and management processes are implemented and maintained by certain NeuroPace management, including our Privacy and Security Officer, who has more than 20 years of experience in healthcare privacy and security, in coordination with our Senior Director of Information Technology, who has more than 30 years of experience with information technology operations and seventeen years as a corporate privacy and security officer.
Our incident response and vulnerability management policies are designed to escalate certain cybersecurity incidents to members of management depending on the circumstances, including our Privacy and Security Officer, Director of Information Technology, Chief of Operations and Development and other designated individuals.
Our incident response and vulnerability management policies are designed to escalate certain cybersecurity incidents to members of management depending on the circumstances, including our Privacy and Security Officer, Senior Director of Information Technology, Chief of Operations and Development and other designated individuals.
Our Privacy and Security Officer, Director of Information Technology, and NeuroPace leadership are responsible for hiring appropriate personnel, helping to integrate cybersecurity risk considerations into our overall risk management strategy, and communicating key priorities to relevant personnel.
Our Privacy and Security Officer, Senior Director of Information Technology, and NeuroPace leadership are responsible for hiring appropriate personnel, helping to integrate cybersecurity risk considerations into our overall risk management strategy, and communicating key priorities to relevant personnel.
Governance 92 Our board of directors addresses our cybersecurity risk management as part of its general oversight function. The board of directors’ audit committee is responsible for overseeing our cybersecurity risk management processes, including oversight and mitigation of risks from cybersecurity threats.
Governance Our board of directors addresses our cybersecurity risk management as part of its general oversight function. The board of directors’ audit committee is responsible for overseeing our cybersecurity risk management processes, including oversight and mitigation of risks from cybersecurity threats.
Our Privacy and Security Officer in coordination with our Director of Information Technology is responsible for approving budgets, helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
Our Privacy and Security Officer in coordination with our Senior Director of Information Technology is responsible for approving budgets, helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
For a description of the risks from cybersecurity threats that may materially affect us and how they may do so, see our risk factors under the section titled “ Risks related to privacy, information technology and cybersecurity” located in Part 1. Item 1A. Risk Factors in this Annual Report on Form 10-K.
For a description of the risks from cybersecurity threats that may materially affect us and how they may do so, see our risk factors under the section titled “Risks related to privacy, information technology and cybersecurity” located in Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K.
Our Privacy and Security Officer works with our incident response team to help us mitigate and remediate cybersecurity incidents of which they are notified. In addition, our incident response and vulnerability management policies include reporting to the audit committee of the board of directors for certain cybersecurity incidents.
Our Privacy and Security Officer works with our incident response team to help us mitigate and remediate cybersecurity incidents of which they are notified.
Added
In addition, our incident response and vulnerability management policies include reporting to the audit committee of the board of directors for certain cybersecurity incidents. 94 The board of directors receives periodic reports from our Privacy and Security Officer concerning significant cybersecurity threats to us and risk and the processes we have implemented to address them.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. Legal Proceedings We are, and from time to time may become, involved in legal proceedings in the ordinary course of business. Such legal proceedings may negatively impact our business and financial position, result in brand or reputational harm, and divert the attention of our management from core operations of our business. Item 4. Mine Safety Disclosures.
Biggest changeItem 3. Legal Proceedings. Legal Proceedings From time to time, we may be subject to litigation and claims arising in the ordinary course of business.
Added
While the results of any litigation or other legal proceedings are uncertain, we are not currently a party to any material legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, financial position, results of operations or cash flows. Item 4. Mine Safety Disclosures. None. 95 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders of Common Stock As of February 28, 2025, there were approximately 145 stockholders of record of our common stock.
Biggest changeHolders of Common Stock As of February 27, 2026, there were approximately 134 stockholders of record of our common stock.
Removed
Use of Proceeds In April 2021, we closed our initial public offering of 6,900,000 shares of our common stock, including shares issued upon the exercise in full of the underwriters’ option to purchase 900,000 additional shares of common stock, at a public offering price of $17.00 per share. We received gross proceeds to us of $117.3 million.
Added
Purchases of Equity Securities by the Issuer and Affiliated Purchases None. Item 6. [Reserved] 96
Removed
All of the shares issued and sold in our initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-254663), which was declared effective by the SEC on April 21, 2021. J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC acted as joint lead book-running managers for the offering.
Removed
Wells Fargo Securities, LLC and SVB Leerink LLC also acted as book-running managers for the offering. Shares of our common stock began trading on the Nasdaq Global Market on April 22, 2021 and, following the sale of all the shares upon the closing of the initial public offering on April 26, 2021, the offer terminated.
Removed
The net proceeds to us after deducting underwriting discounts and commissions of $8.2 million and net offering expenses of approximately $3.6 million were $105.5 million.
Removed
No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.
Removed
There has been no material change in the planned use of proceeds from our initial public offering from those disclosed in the final prospectus for our initial public offering dated as of April 21, 2021 and filed with the SEC pursuant to Rule 424(b)(4) on April 23, 2021 and those disclosed in this Annual Report on Form 10-K.
Removed
As of December 31, 2024, approximately $92.7 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] 94

Item 7. Management's Discussion & Analysis

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

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Biggest changeThe increase in selling, general and administrative expenses was primarily due to an increase of $2.4 million in personnel-related expenses driven by an increase in our sales and field support personnel during the year ended December 31, 2024, compared to the year ended December 31, 2023, an increase of $0.3 million in sales, field support and marketing 100 costs, including travel, and an increase of $0.4 million in expenses related to commercial operations.
Biggest changeSales and Marketing Expenses Sales and marketing expenses increased by $6.9 million, or 17%, to $46.6 million during the year ended December 31, 2025, compared to $39.7 million during the year ended December 31, 2024, primarily due to an increase of $4.1 million in personnel-related expenses resulting from an increase in sales and field support personnel costs, including sales commissions, increase in headcount, employee bonus, and one-time severance costs, and an increase of $2.6 million in marketing expenses, including travel, for the year ended December 31, 2025. 102 Research and Development Expenses Research and development expenses increased by $4.2 million, or 18%, to $27.9 million during the year ended December 31, 2025, compared to $23.7 million during the year ended December 31, 2024, primarily due to an increase of $2.5 million in personnel-related expenses, including employee bonus and stock-based compensation, driven by an increase in headcount, and a decrease of $1.2 million in grant funds received primarily under the National Institutes of Health funding agreement which are recognized as a reduction in research and development expenses, and an increase of $0.5 million in product development expenses.
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 104 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 intend to continue making significant investments in research and development, clinical studies and regulatory affairs to support ongoing and future regulatory submissions for retaining and expanding indications of our RNS System, including to patients with drug-resistant generalized epilepsy and patients under the age of 18, support continuous improvements to our RNS System, and develop future products that address neurological disorders.
We intend to continue making significant investments in research and development, clinical studies and regulatory affairs to support ongoing and future regulatory submissions for retaining and expanding indications of our RNS System, including to patients with drug-resistant idiopathic generalized epilepsy and patients under the age of 18, support continuous improvements to our RNS System, and develop future products that address neurological disorders.
Factors Affecting Our Performance We believe there are several important factors that have impacted and that we expect will continue to impact our business and results of operations. These factors include: 96 Clinician, Hospital and Patient Awareness and Acceptance of Our RNS System Our goal is to establish our RNS System as a standard of care for drug-resistant epilepsy.
Factors Affecting Our Performance We believe there are several important factors that have impacted and that we expect will continue to impact our business and results of operations. These factors include: Clinician, Hospital and Patient Awareness and Acceptance of Our RNS System Our goal is to establish our RNS System as a standard of care for drug-resistant epilepsy.
We record adjustments to our inventory valuation for estimated excess, obsolete and non-sellable inventories based on assumptions about future demand, past usage, changes to manufacturing processes and overall market conditions. Cost of goods sold also includes costs of procuring and shipping DIXI Medical products.
We record adjustments to our inventory valuation for estimated excess, obsolete and non-sellable 100 inventories based on assumptions about future demand, past usage, changes to manufacturing processes and overall market conditions. Cost of goods sold also includes costs of procuring and shipping DIXI Medical products.
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.
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 general and administrative expenses may fluctuate from period to period as we continue to grow.
Beginning in the fourth quarter of 2023, we also derive revenue from services provided to Rapport pursuant to our collaboration agreement with Rapport. Our revenue from this collaboration fluctuates due to the timing of services provided and other factors.
Beginning in the fourth quarter of 2023, we also began to derive revenue from services provided to Rapport pursuant to our collaboration agreement with Rapport. Our revenue from this collaboration fluctuates due to the timing of services provided and other factors.
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. 107
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 $0.3 million and $0.2 million for the years ended December 31, 2024 and December 31, 2023, respectively.
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 $0.3 million for the years ended December 31, 2025 and 2024, respectively.
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 twelve months from the issuance of our financial statements as of and for the year ended December 31, 2024.
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 twelve months from the issuance of our financial statements as of and for the year ended December 31, 2025.
Our most critical accounting estimates subsequent to our IPO are those affecting the provision for excess and obsolete inventories. We regularly review inventory quantities in consideration of actual loss experiences, projected future demand, and remaining shelf life to record a provision for excess and obsolete inventory when appropriate.
Our most critical accounting estimates are those affecting the provision for excess and obsolete inventories. We regularly review inventory quantities in consideration of actual loss experiences, projected future demand, and remaining shelf life to record a provision for excess and obsolete inventory when appropriate.
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; • our revenue and costs related to the DIXI Medical distribution agreement; • 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; • the degree and rate of increased market acceptance of our RNS System in the United States and market acceptance elsewhere; • our need to implement additional infrastructure and internal systems; • our ability to hire additional personnel to support our operations as a public company; and 102 • 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; • the degree and rate of increased market acceptance of our RNS System in the United States and market acceptance elsewhere; • 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.
Cash Flows Provided by Financing Activities Net cash provided by financing activities was $4.3 million for the year ended December 31, 2024, which primarily consisted of $3.3 million of net cash proceeds from our At-the-Market offering and proceeds from the issuance of common stock under employee plans of $1.9 million, partially offset by taxes withheld and paid related to net share settlement of equity awards of $0.9 million.
Net cash provided by financing activities was $4.3 million for the year ended December 31, 2024, which primarily consisted of $3.3 million of net cash proceeds from our ATM offering and proceeds from the issuance of common stock under employee plans of $1.9 million, partially offset by taxes withheld and paid related to net share settlement of equity awards of $0.9 million.
Research and development expenses include personnel-related costs for our research and development employees, including stock-based compensation, and expenses related to consulting services, clinical trials, regulatory activities, prototyping, testing, materials and supplies, and allocated overhead including facilities and information technology expenses.
Research and development expenses include personnel-related costs for our research and development employees, including stock-based compensation, and expenses related to consulting services, clinical trials, regulatory activities, prototyping, testing, materials and supplies, and allocated facility and information technology expenses.
At-the-Market Equity Program 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.
At-the-Market Equity Program 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 acted as our sales agent and pursuant to which we could sell common stock for aggregate gross proceeds of up to $50.0 million.
The non-cash charges primarily consisted of $10.3 million of stock-based compensation, $1.6 million of amortization of right-of-use assets, $1.4 million of interest incurred but paid-in-kind, $1.0 million of non-cash interest expense related to our Term Loan, and $0.3 million of inventory write-downs.
The non-cash charges primarily consisted of $10.3 million of stock-based compensation, $1.6 million of amortization of right-of-use assets, $1.4 million of interest incurred but PIK, $1.0 million of non-cash interest expense related to our Term Loan, and $0.3 million of inventory write-downs.
Because of these and other factors, we expect to continue to incur net losses and negative cash flows for the next several years. We may require additional funding to support operations and pay our obligations or may opportunistically seek to raise additional capital, which may include future equity or debt financings.
Because of these and other factors, we expect to continue to incur net losses and negative cash flows for the near term. We may require additional funding to support operations and pay our obligations or may opportunistically seek to raise additional capital, which may include future equity or debt financings.
We recently announced our primary effectiveness endpoint data in our Post-approval Study in this patient population. The data showed that the RNS System efficacy improved over time, with a 62.5% median seizure reduction at six months after implant (n=314) and an 82.0% median seizure reduction at 36 months after implant (n=255).
Primary effectiveness endpoint data from our Post-approval Study in this patient population demonstrated that the RNS System efficacy improved over time, with a 62.5% median seizure reduction at six months after implant (n=314) and an 82.0% median seizure reduction at 36 months after implant (n=255).
The collaboration evaluates biomarker changes in currently implanted RNS System patients that enroll in Rapport’s Phase 2a clinical trial of its product candidate. Pursuant to this agreement, we provide information to Rapport that will help evaluate the impact of their product candidate on certain biomarkers of patients with focal onset seizures.
The collaboration evaluated biomarker changes in currently implanted RNS System patients that enroll in Rapport’s Phase 2a clinical trial of its product candidate. Pursuant to this 98 agreement, we provided information to Rapport to help evaluate the impact of their product candidate on certain biomarkers of patients with focal onset seizures.
In May 2024, we amended the Term Loan to extend the final maturity by one year to September 30, 2026 and eliminate the PIK interest option after June 30, 2024. The Term Loan includes a fee upon repayment of the loan equal to 10% of the aggregate principal amount being prepaid or repaid.
In May 2024, we amended the CRG Term Loan to extend the final maturity by one year to September 30, 2026 and eliminate the PIK interest option after June 30, 2024. The CRG Term Loan included an exit fee upon repayment of the loan equal to 10% of the aggregate principal amount being prepaid or repaid.
See Notes 1 and 6 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information. Material Cash Requirements We have future minimum payments for the Term Loan totaling $75.0 million, with $7.7 million due within twelve months.
See Notes 1 and 6 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information. Material Cash Requirements We have future minimum payments for the MidCap Term Loan totaling $87.5 million, with $5.9 million due within twelve months.
We have experienced and may continue to experience changes in the percentage of our revenue from replacement procedures over the next few years as a result of the extended replacement cycle of the newer device, which may cause variability in our gross margin. We also derive revenue from sales of DIXI Medical products.
We have experienced and may continue to experience changes in the percentage of our revenue from replacement procedures over the next few years as a result of the extended replacement cycle of the newer device, which may cause variability in our gross margin.
We plan to address this opportunity in a targeted manner with incremental expansion of our sales force. 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.
We are actively addressing this opportunity in a targeted manner with incremental expansion of our sales force. 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.
As of December 31, 2024, we had cash, cash equivalents and short-term investments of $52.8 million and $59.5 million outstanding under the Term Loan, net of debt discount and issuance costs. 2025 Follow-on Offering In February 2025, we received approximately $69.8 million in net proceeds after deducting underwriting discounts and commissions and offering expenses from the sale of 7,475,000 shares of our common stock, including 975,000 shares from the exercise of the underwriters’ option to purchase additional shares, at a public offering price of $10.00 per share.
As of December 31, 2025, we had cash, cash equivalents and short-term investments of $61.1 million and $58.9 million outstanding under the MidCap Term Loan, net of debt discount and issuance costs. 2025 Follow-On Offering In February 2025, we completed a follow-on offering and received $69.7 million in net proceeds after deducting underwriting discounts and commissions and offering expenses from the sale of 7,475,000 shares of our common stock, including 975,000 shares from the exercise of the underwriters’ option to purchase additional shares, at a public offering price of $10.00 per share.
Cash used in operating activities was primarily a result of the net loss of $27.1 million, adjusted for non-cash charges of $14.6 million and change in operating assets and liabilities of $5.4 million.
Cash used in operating activities was primarily a result of the net loss of $21.5 million, adjusted for non-cash charges of $14.5 million and change in operating assets and liabilities of $4.0 million.
Net cash provided by investing activities was $23.0 million for the year ended December 31, 2023, which primarily consisted of sales of short-term investments of $23.2 million, partially offset by purchases of property and equipment of $0.2 million.
Net cash provided by investing activities was $9.0 million for the year ended December 31, 2024, which primarily consisted of sales of short-term investments of $9.3 million, partially offset by purchases of property and equipment of $0.3 million.
Nearly all of our revenue results from sales in the United States, but we also have limited sales of our RNS System in Canada pursuant to a special program that involves case-by-case approvals of the use of our RNS System in adult patients with drug-resistant focal epilepsy.
Nearly all of our revenue results from sales in the United States, but we also have limited sales of our RNS System in Canada pursuant to a special program that involves case-by-case approvals of the use of our RNS System in adult patients with drug-resistant focal epilepsy, and in Israel where regulatory approval has been obtained.
Additionally, 42.5% of patients experienced a period of seizure-freedom for at least six months, and 22% of patients were seizure free for at least one year. Results will be presented at the American Academy of Neurology Annual Meeting, held April 5 through 9, 2025.
Additionally, 42.5% of patients experienced a period of seizure-freedom for at least six months, and 22% of patients were seizure free for at least one year were presented at the American Academy of Neurology Annual Meeting in April 2025.
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 stereo electroencephalography, or Stereo EEG, product line beginning in October 2022.
In August 2022, we entered into this exclusive distribution agreement, or the Distribution Agreement, with DIXI Medical, pursuant to which we became the exclusive U.S. distributor of DIXI Medical’s stereo electroencephalography, or Stereo EEG, product line beginning in October 2022.
All of our revenue, with the exception of $0.2 million and less than $0.1 million for the years ended December 31, 2024 and 2023, was generated from sales in the United States.
All of our revenue, with the exception of $0.9 million and $0.2 million for the years ended December 31, 2025 and 2024, respectively, was generated from sales in the United States.
In 2023, we received FDA approval of a Premarket Approval Supplement, or PMA-S, which updated the qualification criteria for centers and clinicians that may prescribe and implant the RNS System. We initiated a pilot program to begin our outreach to these centers and clinicians in 2024 and have commenced program expansion that will continue through 2025.
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. We initiated a pilot program to begin our outreach to these centers and clinicians in 2024 and are expanding these efforts through 2025.
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. We may incur additional expenses to expand our commercial organization to support our continued growth.
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.
On February 20, 2025, we terminated the Sales Agreement and closed the ATM program. On the date of termination, we had $38.3 million remaining under our ATM program. Term Loan In September 2020, we entered into the Term Loan with CRG Partners IV L.P. and its affiliates for total borrowings of up to $60 million and borrowed $50 million.
On the date of termination, we had $38.3 million remaining under our ATM program. 103 CRG Term Loan In September 2020, we entered into the CRG Term Loan with CRG Partners IV L.P. and its affiliates for total borrowings of up to $60 million and borrowed $50 million. The remaining $10.0 million expired without being drawn.
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.
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.
Our gross margin increased from 73.6% for the year ended December 31, 2023 to 73.9% for the year ended December 31, 2024 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.
Our gross margin increased from 73.9% for the year ended December 31, 2024 to 77.2% for the year ended December 31, 2025, primarily due to lower fixed costs per unit as a result of increased production volume of the RNS System.
As of December 31, 2024, we had an 95 accumulated deficit of $531.0 million, cash, cash equivalents and short-term investments of $52.8 million, and $59.5 million of outstanding debt under a term loan, net of debt discount and issuance costs. We have invested heavily and expect to continue to invest in research and development and commercial activities.
As of December 31, 2025, we had an accumulated deficit of $552.4 million, cash, cash equivalents and short-term investments of $61.1 million, and $58.9 million of outstanding debt under a term loan, net of debt discount and issuance costs. We have invested heavily and expect to continue to invest in research and development and commercial activities.
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. Other Income (Expense), Net Other income (expense), net primarily consists of gain and loss from short-term investments.
Interest income is predominantly derived from investing surplus cash in money market funds and short-term marketable securities. 101 Other Income (Expense), Net Other income (expense), net primarily consists of gain and loss from short-term investments, and loss on debt extinguishment.
From January 2023 through June 2025, we had 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.
From March 2023 through June 2024, we had the option to pay interest as follows: 8.5% per annum in cash and 5.0% per annum paid-in-kind, or PIK, by increasing the principal of the CRG Term Loan. For each payment date from March 2023 through June 2024, we elected the PIK option.
Selling, General and Administrative Expenses Our selling, general and administrative expenses consist primarily of personnel-related costs for our sales and marketing employees, including stock-based compensation and sales-based variable compensation, travel expenses, consulting, public relations costs, direct marketing, customer training, trade show and promotional expenses and allocated facility and information technology expenses, and for administrative personnel that support our general operations such as executive management and information technology, finance, accounting, customer services, human resources and legal personnel.
Sales and Marketing Expenses Our sales and marketing expenses consist primarily of personnel-related costs for our sales and marketing employees, including stock-based compensation and sales-based variable compensation, travel expenses, consulting, public relations costs, direct marketing, customer training, trade show and promotional expenses and allocated facility and information technology expenses.
For each payment date from January 2023 through June 2024, we elected the PIK option. 101 The Term Loan was interest-only through its original final maturity of September 30, 2025. Following the interest-only period, principal payment would have been due in one installment on September 30, 2025.
The CRG Term Loan was interest-only through its original final maturity of September 30, 2025. Following the interest-only period, principal payment would have been due in one installment on September 30, 2025.
We are planning to file the expanded label submissions to the FDA for both of these indications in the second half of 2025. Our commercial efforts have historically been focused on growing adoption and utilization across Level 4 comprehensive epilepsy centers, or CECs, in the United States that facilitate appropriate care for drug-resistant epilepsy patients.
These efforts are continuing into 2026. 97 Our commercial efforts have historically been focused on growing adoption and utilization across Level 4 comprehensive epilepsy centers, or CECs, in the United States that facilitate appropriate care for drug-resistant epilepsy patients.
Net cash used in operating activities was $19.7 million for the year ended December 31, 2023. 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.
Net cash used in operating activities was $17.9 million for the year ended December 31, 2024. Cash used in operating activities was primarily a result of the net loss of $27.1 million, adjusted for non-cash charges of $14.6 million and change in operating assets and liabilities of $5.4 million.
We are conducting studies to expand our indication for use to patients with drug-resistant generalized epilepsy and patients with drug-resistant focal epilepsy under the age of 18.
We are conducting studies to expand our indication for use in patients with drug-resistant idiopathic generalized epilepsy and patients with drug-resistant focal epilepsy under the age of 18. In March 2025, the last patient in our NAUTILUS study for drug-resistant idiopathic generalized epilepsy completed one year of follow up.
The remaining $10.0 million expired without being drawn. The Term Loan currently 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.
The CRG Term Loan bore interest at a rate of 13.5% per year. Payments under the loan were made quarterly with payment dates fixed at the end of each calendar quarter.
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.
We expense sales variable compensation when revenue related to the underlying sale is recognized. We intend to continue to increase our sales and marketing spending to support increased adoption of our RNS System.
Investing in Research and Development, Including Clinical Studies, to Expand Our Addressable Market We intend to continue investing in clinical studies and existing and next generation technologies to further improve our RNS System and clinical outcomes, enhance the patient and provider experience and broaden the patient population that can be treated with our RNS System.
However, other factors will continue to impact our gross margin such as the cost of materials, components and subassemblies, pricing, procedure mix, and geographic sales mix to the extent that we commercialize our RNS System outside of the United States. 99 Investing in Research and Development, Including Clinical Studies, to Expand Our Addressable Market We intend to continue investing in clinical studies and existing and next generation technologies to further improve our RNS System and clinical outcomes, enhance the patient and provider experience and broaden the patient population that can be treated with our RNS System.
The increase in revenue was primarily due to an increase in the number of RNS System units sold and an increase in sales of DIXI Medical products. Revenue from sales of DIXI Medical products represented approximately 17% of our total revenue for the year ended December 31, 2024, as compared to approximately 15% for the year ended December 31, 2023.
Revenue from sales of DIXI Medical products represented approximately 16% of our total revenue for the year ended December 31, 2025, as compared to approximately 17% for the year ended December 31, 2024.
To support our RESPONSE study for label expansion in focal epilepsy patients under the age of 18, we recently announced our collaboration with the National Evaluation System for health Technology, or NEST, and the FDA to pursue the use of real-world data from the Pediatric Epilepsy Research Consortium, or PERC.
In 2025, in an effort to further support the pediatric focal epilepsy label expansion efforts that we began with the RESPONSE study, we began a collaboration with the National Evaluation System for health Technology, or NEST, and the FDA to pursue the use of real-world data to support expanded labeling for patients ages 12 to 17.
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.
Cash Flows Provided by Financing Activities Net cash provided by financing activities was $19.6 million for the year ended December 31, 2025, which primarily consisted of $69.7 million in proceeds, net of underwriting discounts and commissions, from our February 2025 follow-on offering of common stock, proceeds of $58.4 million from the MidCap Term Loan, net of discounts and issuance costs, proceeds from the issuance of common stock under employee plans of $1.9 million and $0.2 million of net cash proceeds from our ATM offering, partially offset by repayment of the CRG Term Loan of $60.5 106 million, a repurchase of common stock of $49.5 million, and taxes withheld and paid related to net share settlement of equity awards of $0.5 million.
During the year ended December 31, 2023, we received net proceeds of approximately $7.6 million from the sale of shares of common stock pursuant to our ATM offering program, after deducting sales commission and offering expenses. During the year ended December 31, 2024, we received net proceeds of approximately $3.2 million after deducting sales commissions and offering expenses.
During the year ended December 31, 2024, we received net proceeds of approximately $3.2 million after deducting sales commissions and offering expenses. In January 2025, we received net proceeds of approximately $0.2 million after deducting sales commissions and offering expenses. In February 2025, we terminated the Sales Agreement and the ATM program.
In addition, we are continuing to develop AI-enabled software tools, leveraging our extensive database of intracranial electroencephalogram, or iEEG, data and our advanced data analysis capabilities to equip clinicians with the data they need to establish optimal program settings for each patient. 97 While research and development and clinical studies are time consuming and costly, we believe that a pipeline of product enhancements and new products that improve effectiveness, safety and ease of use is important for supporting increased adoption of our RNS System.
In addition, we are continuing to develop AI-enabled software tools, leveraging our extensive database of intracranial electroencephalogram, or iEEG, data and our advanced data analysis capabilities to equip clinicians with the data they need to establish optimal program settings for each patient.
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, 2024 2023 Net cash (used in) provided by: Operating activities $ (17,949) $ (19,701) Investing activities 8,994 23,027 Financing activities 4,327 8,127 Net (decrease) increase in cash and cash equivalents $ (4,628) $ 11,453 Cash Flows Used in Operating Activities Net cash used in operating activities was $17.9 million for the year ended December 31, 2024.
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. 105 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: Year Ended December 31, (in thousands) 2025 2024 Net cash (used in) provided by: Operating activities $ (11,006) $ (17,949) Investing activities (332) 8,994 Financing activities 19,600 4,327 Net increase (decrease) in cash and cash equivalents $ 8,262 $ (4,628) Cash Flows Used in Operating Activities Net cash used in operating activities was $11.0 million for the year ended December 31, 2025.
In addition, 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 $17.3 million as of December 31, 2024. See Note 5 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
In addition, 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 $14.4 million as of December 31, 2025.
Our revenue fluctuates primarily based on the volume of procedures performed and the procedure mix between initial and replacement implants.
Components of Our Results of Operations Revenue We derive most of our revenue from sales of our RNS System to the hospital facilities that implant our RNS System. Our revenue fluctuates primarily based on the volume of procedures performed and the procedure mix between initial and replacement implants.
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.
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. Research and Development Expenses Our research and development activities primarily consist of engineering and research programs associated with our products under development and clinical studies.
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.
The non-cash charges primarily consisted of $11.1 million of stock-based compensation, $1.7 million of amortization of right-of-use assets, $0.5 million of loss on extinguishment of the CRG Term Loan, and $0.5 million of non-cash interest expense related to our term loans.
Other Income (Expense), net Other income (expense), net increased by 0.6 million to $0.3 million during the year ended December 31, 2024, compared to ($0.3) million during the year ended December 31, 2023, primarily due to unrealized gain, net on short-term investments in the year ended December 31, 2024.
Other Income (Expense), net Other income (expense), net decreased by $0.8 million to $(0.5) million during the year ended December 31, 2025, compared to $0.3 million during the year ended December 31, 2024, primarily due to a loss on extinguishment of the CRG Term Loan 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. 103 Cash Flows Provided by Investing Activities Net cash provided by investing activities was $9.0 million for the year ended December 31, 2024, which primarily consisted of sales of short-term investments of $9.3 million, partially offset by purchases of property and equipment of $0.3 million.
The change in operating assets and liabilities was due to an increase in inventories of $3.7 million largely due to an increase in raw materials and finished goods, an increase in accounts receivable of $1.8 million primarily due to an increase in sales of our products including our RNS System and DIXI Medical products, a decrease in operating lease liabilities of $1.9 million, a decrease in accounts payable of $0.7 million primarily due to the timing of payments to our vendors and a decrease in deferred revenue of $0.4 million, offset in part by an increase in accrued liabilities of $3.6 million and an increase in prepaid expenses and other assets of $0.9 million.
We expect cost of goods sold to increase in absolute dollars as more of our RNS Systems and DIXI Medical products are sold. We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, primarily by our manufacturing costs, pricing and product mix.
We expect cost of goods sold to increase in absolute dollars as more of our RNS Systems are sold, with no contribution from DIXI Medical product sales after December 31, 2025. We calculate gross margin as gross profit divided by revenue.
Cost of Goods Sold and Gross Margin Cost of goods sold increased by $3.5 million, or 20%, to $20.8 million during the year ended December 31, 2024, compared to $17.3 million during the year ended December 31, 2023.
Cost of Goods Sold and Gross Margin Cost of goods sold increased by $2.0 million, or 9%, to $22.8 million during the year ended December 31, 2025, compared to $20.8 million during the year ended December 31, 2024, primarily due to an increase in the number of RNS Systems sold and the costs of distributing DIXI Medical products.
We used $49.5 million of the net proceeds from the offering to repurchase all of the shares held by our significant stockholder, KCK Ltd. We intend to use the remaining net proceeds from the offering for general corporate purposes, which may include clinical trial and other research and development expenses, selling, general and administrative expenses, debt reduction and working capital.
We used $49.5 million of the net proceeds from the offering to repurchase all of the shares held by our significant stockholder, KCK Ltd.
The increase in research and development expenses was primarily due to an increase of $2.4 million in personnel-related expenses, including stock-based compensation, driven by an increase in personnel during the year ended December 31, 2024, and an increase of $1.2 million in product development expenses.
General and Administrative Expenses General and administrative expenses increased by $1.7 million, or 9%, to $19.1 million during the year ended December 31, 2025, compared to $17.4 million during the year ended December 31, 2024, primarily due to an increase of $1.7 million in personnel-related expenses and one-time severance costs.
Results of Operations Comparison of the Years Ended December 31, 2024 and 2023 99 The following table summarizes our results of operations for the periods indicated (in thousands): Years Ended December 31, 2024 2023 Change % Change Revenue $ 79,906 $ 65,421 $ 14,485 22 % Cost of goods sold 20,821 17,299 3,522 20 % Gross profit 59,085 48,122 10,963 23 % Operating expenses Research and development 23,653 20,778 2,875 14 % Selling, general and administrative 57,103 54,518 2,585 5 % Total operating expenses 80,756 75,296 5,460 7 % Loss from operations (21,671) (27,174) 5,503 (20) % Interest income 3,024 3,050 (26) (1) % Interest expense (8,798) (8,517) (281) 3 % Other income (expense), net 304 (315) 619 (197) % Net loss $ (27,141) $ (32,956) $ 5,815 (18) % Revenue Revenue increased by $14.5 million, or 22%, to $79.9 million during the year ended December 31, 2024, compared to $65.4 million during the year ended December 31, 2023.
Results of Operations Comparison of the Years Ended December 31, 2025 and 2024 The following table summarizes our results of operations for the periods indicated: Years Ended December 31, (in thousands) 2025 2024 Change % Change Revenue $ 99,986 $ 79,906 $ 20,080 25 % Cost of goods sold 22,766 20,821 1,945 9 % Gross profit 77,220 59,085 18,135 31 % Operating expenses: Sales and marketing 46,580 39,669 6,911 17 % Research and development 27,888 23,653 4,235 18 % General and administrative 19,090 17,434 1,656 9 % Total operating expenses 93,558 80,756 12,802 16 % Loss from operations (16,338) (21,671) 5,333 (25) % Interest income 2,816 3,024 (208) (7) % Interest expense (7,457) (8,798) 1,341 (15) % Other income (expense), net (486) 304 (790) (260) % Net loss $ (21,465) $ (27,141) $ 5,676 (21) % Revenue Revenue increased by $20.1 million, or 25%, to $100.0 million during the year ended December 31, 2025, compared to $79.9 million during the year ended December 31, 2024, due to an increase in the number of RNS System units sold, an increase in sales of DIXI Medical products, and an increase in service revenue.
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.
We also derived revenue from sales of DIXI Medical products, primarily to our current customer base.
Interest income decreased by less than $0.1 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to a decrease in average balances of our money market funds and short-term marketable securities, partially offset by higher interest yields in the year ended December 31, 2024.
Interest income decreased by $0.2 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, primarily due to lower interest yields.
The Term Loan is collateralized by substantially all of our assets. 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 and maintain a minimum balance of cash and cash equivalents.
In addition, we will pay an exit fee of 2% of the amount borrowed under the MidCap Term Loan upon prepayment or repayment. The Loans are collateralized by substantially all of our assets. The Credit Agreement contains customary representations and warranties, covenants, events of default and termination provisions.
These products are used in the epilepsy monitoring units, or EMUs, of comprehensive epilepsy centers to determine where epileptic seizures originate. 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.
These products are used in the epilepsy monitoring units, or EMUs, of comprehensive epilepsy centers to determine where epileptic seizures originate. The Distribution Agreement had an initial term of three years. In March 2025, we notified DIXI Medical of our intent to not renew the Distribution Agreement upon its expiration in September 2025.
Interest Expense and Income Interest expense increased by $0.3 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, due to an increase in the average balance of our Term Loan as a result of using the PIK interest option for the payment dates from January 2023 through June 2024.
Interest Expense and Income Interest expense decreased by $1.3 million to $7.5 million for the year ended December 31, 2025, compared to $8.8 million for the year ended December 31, 2024, primarily due to repayment of the CRG Term Loan and the lower annual effective interest rate pursuant to the MidCap Term Loan compared to the CRG Term Loan.
We expect our gross margin will fluctuate from period to period, however, based upon the factors described above. 98 Operating Expenses Our operating expenses consist of research and development costs and selling, general and administrative costs.
Operating Expenses Our operating expenses consist of sales and marketing costs, research and development costs, and general and administrative costs.
Removed
In March 2024, we completed implanting patients in our NAUTILUS study for generalized epilepsy and expect that the last patient will complete one year of follow up in March 2025, with the data lock and subsequent commencement of data analyses expected to begin in the second quarter of 2025.
Added
In May 2025, we announced the preliminary results from the NAUTILUS study based on analysis of the one-year data. The study met the 12-week post-implant primary safety endpoint, demonstrating excellent safety outcomes and confirming the favorable safety profile of the RNS System.
Removed
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.
Added
While the primary effectiveness endpoint did not reach statistical significance in the overall study, pre-specified secondary endpoints did show meaningful and clinically significant seizure reduction. In December 2025, we filed the Premarket Approval Supplement, or PMA-S, to support label expansion for our RNS System in patients who have drug-resistant idiopathic generalized epilepsy.
Removed
The Distribution Agreement has an initial term of three years, which expires September 30, 2025, and which will be automatically renewed for additional one-year terms, unless either party provides written notice to the other party of its intention to not renew at least 180 days prior to the expiration of the then-current term.
Added
The PMA-S is supported by pre-specified secondary endpoint data, which demonstrated robust 77% median GTC seizure reduction and a favorable safety profile in this highly refractory patient population at 18 months of therapy.
Removed
However, other factors will continue to impact our gross margin such as the cost of materials, components and subassemblies, pricing, procedure mix, and geographic sales mix to the extent that we commercialize our RNS System outside of the United States.
Added
Patients in the NAUTILUS trial continue to participate in the study through the completion of two years after the device implant, with prespecified collection of safety and effectiveness data occurring upon completion of the two years post-implant, and we anticipate the final patient two-year completion in the first half of 2026.
Removed
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 the hospital facilities that implant our RNS System.
Added
Collaborations and Partnerships DIXI Distribution Agreement As previously announced, the exclusive distribution agreement with DIXI Medical USA Corp., or DIXI Medical, expired on September 30, 2025.
Removed
Research and Development Expenses Our research and development activities primarily consist of engineering and research programs associated with our products under development and clinical studies.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2024, we had cash, cash equivalents and short-term investments of $52.8 million, compared to $66.5 million at December 31, 2023, 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.
Biggest changeAs of December 31, 2025, we had cash, cash equivalents and short-term investments of $61.1 million, compared to $52.8 million at December 31, 2024, 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.
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. 105
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. 108

Other NPCE 10-K year-over-year comparisons