NeuroPace, Inc. (NPCE), a medical device company specializing in neurostimulation technology, reported a robust first quarter in 2024 with a 25% increase in total revenue, amounting to $18.1 million. This growth is primarily attributed to the sales of their flagship RNS System and DIXI Medical SEEG products, coupled with a strategic biotechnology collaboration.
The company has effectively managed its cash burn, reducing it to $7.6 million, and extended the maturity of its term loan, enhancing its financial stability. Looking forward, NeuroPace is committed to broadening the adoption of the RNS System and has provided a revenue forecast for 2024 between $73 million and $77 million.
Key Takeaways
- NeuroPace's Q1 2024 revenue rose to $18.1 million, a 25% year-over-year increase.
- Sales of the RNS System and DIXI Medical SEEG products are the primary revenue drivers.
- The company reduced its cash burn to $7.6 million in Q1 and extended its term loan maturity to September 30, 2026.
- Revenue projections for 2024 are set between $73 million and $77 million, with an anticipated gross margin of 72% to 74%.
- NeuroPace aims to expand RNS System adoption in Level 4 epilepsy centers and beyond.
- Commercial activities include hiring additional sales representatives and expanding the commercial organization.
- Investments in R&D are focused on clinical research, product development, and AI and data monitoring.
- The company is optimistic about increased implant activities and referrals in the second half of the year.
Company Outlook
- NeuroPace projects a 12% to 18% increase in total revenue for 2024.
- The company maintains a positive outlook for expanding the adoption and utilization of the RNS System.
- Growth strategies include expanding access to RNS therapy and updating progress throughout 2024.
Bearish Highlights
- Despite revenue growth, the company experienced a significant cash burn of $9.8 million in the first quarter of 2023.
Bullish Highlights
- NeuroPace has a strong pipeline of patients and has seen normalized volumes in epilepsy monitoring units (EMUs).
- The company is satisfied with the positive trends in patient identification and implant rates.
Misses
- There were no specific misses mentioned in the earnings call transcript summary provided.
Q&A Highlights
- NeuroPace is investing in clinical research, product development, and AI for data monitoring and management.
- The NAUTILUS and Lennox-Gastaut studies are significant R&D investments.
- The company is balancing long-term and medium-term product and clinical data development initiatives.
NeuroPace continues to focus on its growth strategy, emphasizing the expansion of the RNS System's adoption and exploring new indications for its use. With a solid financial strategy in place and a commitment to R&D, NeuroPace is poised to further its mission of providing innovative treatments for drug-resistant epilepsy patients. As of March 31, 2024, NeuroPace reported a healthy balance of cash and short-term investments at $58.9 million, with long-term borrowings standing at $58 million. The company's strategic investments and commercial activities are set to foster increased implant activities and referrals, promising a dynamic year ahead for NeuroPace and its stakeholders.
InvestingPro Insights
NeuroPace, Inc. (NPCE) has shown remarkable revenue growth in the first quarter of 2024, yet the company's stock performance and analyst sentiment reveal a more nuanced picture. Here are some key insights based on real-time data and InvestingPro Tips:
InvestingPro Data indicates that the company's market capitalization stands at $244.12 million, with a high Price / Book ratio of 17.02 as of the last twelve months leading up to Q1 2024. Despite the recent increase in revenue, the company's P/E Ratio is negative at -7.82, reflecting that it is not currently profitable. However, revenue growth remains strong, with a 42.07% increase over the last twelve months and a 25.23% quarterly growth in Q1 2024.
InvestingPro Tips suggest caution, as the Relative Strength Index (RSI) indicates that the stock is in oversold territory, and three analysts have revised their earnings expectations downwards for the upcoming period. Additionally, the stock has experienced a significant decline over the last week, month, and three months, with a one-week price total return of -37.68% and a one-month return of -37.04%. Despite these challenges, the company has had a high return over the last year at 99.53%.
Investors interested in deeper analysis can find additional InvestingPro Tips on https://www.investing.com/pro/NPCE, which might offer further insights into the stock's performance and the company's financial health. For those considering a subscription, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
In summary, while NeuroPace's revenue growth is promising, the InvestingPro Insights suggest that investors should be mindful of the broader financial metrics and market sentiment that could impact the company's stock in the near term.
Full transcript - Neuropace (NPCE) Q1 2024:
Operator: Good afternoon and welcome to NeuroPace's First Quarter 2024 Conference Call. As a reminder, this call is being recorded. I would now like to turn the call over to Jeremy Feffer from LifeSci Advisors for a few introductory comments. Please go ahead.
Jeremy Feffer: Good afternoon. Thank you for joining us for NeuroPace's first quarter 2024 financial and operating results conference call. On today's call, we will hear from Joel Becker, Chief Executive Officer, and Rebecca Kuhn, Chief Financial Officer. Earlier today, NeuroPace released financial results for the first quarter ended March 31st, 2024. A copy of the press release is available on the company's website at neuropace.com. Before we begin, I would like to remind you that throughout this call, we will make statements that include forward-looking statements within the meaning of federal security laws, which are made pursuant to the safe harbor provisions of the Private Security Litigation Reform Act of 1995. Any statements made during this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including those around NeuroPace's projections, business opportunities, commercial expansion, market conditions, clinical trials, and those relating to our operating trends and future financial performance, expense management, estimates of market opportunity, and forecasts of market and revenue growth are based on current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For more detailed descriptions of the risks and uncertainties associated with our business, please refer to the risk factors sections of our public filings with the SEC, including our recent annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 5, 2024, and our quarterly report on Form 10-Q for the quarter ended March 31, 2024, to be filed with the SEC, and any other reports that we may file with the SEC in the future. This conference call contains time-sensitive information, which we believe is accurate only as of this live broadcast on May 8, 2024. NeuroPace disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I will now turn the call over to NeuroPace's Chief Executive Officer, Joel Becker. Joel?
Joel Becker: Thank you, Jeremy, and good afternoon, everyone. I will start out today's call by reviewing our performance in the first quarter and key business priorities for the remainder of 2024, before turning the call over to our CFO, Rebecca Kuhn, to present the details of our financial performance for the quarter ended March 31, 2024, which will be followed by a Q&A session. Let's get started. We are pleased with the start to 2024, reporting total revenue of $18.1 million for the first quarter, up 25% compared to the same period last year. Revenue for the quarter included strong year-on-year growth contributions from sales of the RNS System and DIXI Medical SEEG products, and contribution from our strategic biotechnology collaboration. Over the past year, we have worked to find a balance between investing in top-line growth and maintaining strong financial discipline across our business. We are proud of the success we have achieved on both of these fronts. The first quarter was another example of this, as we held our cash burn to $7.6 million, which included increased payments for variable compensation as a result of our strong operating performance. We are also pleased to have recently extended the maturity date of our term loan to September 30, 2026, further increasing the company's financial flexibility. With those high-level comments about the quarter providing an overview for today's update, let me now dive into some of the details that helped drive this performance. As we review the results and performance of the business in the first quarter of 2024, we are, and will remain, focused on execution of growth opportunities in our current target market, which is estimated to be approximately $2 billion annually, that offers significant near-term opportunities for growth in treating patients at comprehensive epilepsy centers in the U.S., while also investing in and executing on our longer-term strategy to expand our reach beyond these Level 4 centers and bring NeuroPace's total market opportunity to more than $55 billion. Our objective is to help close the treatment gap for drug-resistant epilepsy patients by expanding access to RNS therapy through increasing adoption and utilization in Level 4 centers, expanding referrals to and implants outside of Level 4 centers, and expanding indications for RNS therapy, including to generalized epilepsy in patients. Progress was made on this strategy in Q1, as we remain laser-focused on increasing adoption of the RNS System. One of the metrics we used to measure this progress is total active prescribers, and while we will not quantify this number, we were pleased to see this metric continue its upward trajectory and achieve an all-time high in the first quarter. We also made significant progress in hiring and training field representatives under the previously announced incremental expansion of our commercial organization. These new representatives are now moving through our in-depth training and education program. We expect the majority of these representatives will complete these activities in the first half of the year and begin to be signed off and able to engage in independent field activities in the second half of the year. We expect that these representatives will also begin to have an impact on the second phase of our long-term strategy, expanding access to RNS therapy beyond Level 4 centers. Pilot program activities have begun in targeted areas, including professional education activities such as webinars, symposia, and peer-to-peer programs. This is accompanied by additional commercial activities, such as the initiation of digital social media awareness programs, center contracting activities, and the placement of representatives in targeted geographies. While it is still early in the rollout of these programs, and they did not have a material impact on our results in the first quarter, we have begun to see both implant-related activity as well as the identification of additional patients in need of Phase 2 monitoring and referral to Level 4 centers. Additionally, the sales representatives that we have added are primarily focused in geographies where we have identified Project CARE center expansion opportunities, along with supporting geographies where we have been experiencing revenue growth in our RNS and DIXI product lines. We look forward to updating you further on these activities as they progress. Finally, the third phase of our RNS strategy is based on expanding the approved indications for the RNS System. This effort is currently focused on the pivotal NAUTILUS study, in which all implants are complete and the trial is in the follow-up phase. We believe that the strong interest in this study is further evidence of the significant unmet need that exists for patients with drug-resistant idiopathic generalized epilepsy. As a reminder, the NAUTILUS trial requires evaluation of a primary safety endpoint and an effectiveness evaluation 12 months post-implant. If approved, our RNS System would be the first device with an FDA-approved indication for generalized epilepsy. This study has the potential to represent a highly meaningful market expansion opportunity. In addition to the success our commercial team has had with our RNS System, we also continue to see revenue growth from our exclusive partnership with DIXI Medical to market and sell their diagnostic electrodes and related products for epilepsy. This is a highly complimentary offering to our RNS System, which provides our sales team with an additional opportunity to call on physicians at the CECs. Lastly, we are pleased with the strategic collaboration we entered into with the biotechnology company in the fourth quarter of 2023, which completed an important additional milestone in the first quarter of 2024. We believe this groundbreaking collaboration is another example of the value our RNS System can provide through its proven ability to collect and analyze data, which is then used to generate insights that can help inform treatment strategies. With that as an overview of our operational progress, let me now turn the call over to Rebecca to review our financial results for the first quarter of 2024. Rebecca?
Rebecca Kuhn: Thank you, Joel. NeuroPace's revenue for the first quarter of 2024 was $18.1 million, representing growth of 25% compared to $14.5 million for the first quarter of 2023. This growth was primarily driven by increased sales of our RNS System. We also generated meaningful revenue growth from sales of DIXI Medical products. Replacement implant revenue continued to decline compared to the same period last year and represented approximately 4% of total revenue. Gross margin for the first quarter of 2024 was 73.6% compared to 71.7% in the first quarter of 2023. Our gross margin for RNS products improved due to the increase in units produced and sold as our fixed manufacturing overhead costs were spread over more units. A collaboration with a biotech company also made a contribution to our gross margin in the first quarter of 2024. The increase in gross margin was partially offset by the lower gross margin from distribution of DIXI Medical products. R&D expense in the first quarter of 2024 was $5.8 million compared with $5.3 million in the same period of 2023. This increase was primarily driven by an increase in personnel-related expenses. SG&A expense in the first quarter of 2024 was $15.1 million compared with $13.4 million in the prior year period. This increase was primarily due to personnel-related expenses largely driven by the increase in our commercial team, as well as severance costs due to personnel changes. Total operating expenses in the first quarter of 2024 were $20.9 million compared with $18.7 million in the same period of the prior year. Consistent with recent quarters, operating expenses as a percentage of revenue were lower for both R&D and SG&A expenses relative to the prior year period. This performance reflects our focus on driving revenue growth while also effectively managing our operating expenses and cash. We continue to focus on finding the appropriate resource allocation to balance these objectives which we expect to continue throughout 2024. Loss from operations was $7.5 million in the first quarter of 2024 compared with $8.3 million in the prior year period. We recorded $2.3 million of interest expense in the first quarter of 2024 compared to $2 million in the prior year period. Net loss was $8.9 million for the first quarter of 2024 compared with $10.4 million in the first quarter of 2023. As discussed previously, we have maintained a disciplined expense management strategy resulting in cash burn in the first quarter of 2024 of $7.6 million compared to $9.8 million in the first quarter of 2023. As a reminder, the first quarter of the fiscal year tends to be our highest cash burn quarter of the year primarily due to the timing of compensation-related payments. Our cash and short-term investments balance as of March 31, 2024 was $58.9 million. Our long-term borrowings totaled $58 million as of March 31, 2024. We announced today that we finalized an agreement with our lender to extend the final maturity of our debt by one year to September 30, 2026. We believe this extension further improves our overall financial position. Regarding annual guidance for 2024, we continue to expect our total revenue to be in a range of $73 to $77 million, an increase of approximately 12% to 18%. This growth is expected to be mostly driven by an increase in sales of our RNS System with growth from sales of DIXI Medical products continuing to make a meaningful contribution. We expect our gross margin to be in a range of 72% to 74% for 2024, although we may see small variability due to fluctuations in the proportion of DIXI Medical revenue to overall revenue and other factors. We expect operating expenses for 2024 to range between $80 million and $84 million, including approximately $12 million in stock-based compensation, a non-cash expense. I would now like to turn the call back over to Joel for closing remarks. Joel?
Joel Becker: Thank you, Rebecca. At NeuroPace, we are focused on the opportunity to help close the treatment gap for drug-resistant epilepsy patients by expanding access to RNS therapy. I look forward to continuing to execute on our growth strategy and to updating you on our progress throughout 2024. This concludes our prepared remarks. I would now like to turn the call over to the operator, who will open the call for questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Mike Kratky from Leerink Partners. Please go ahead.
Mike Kratky: Hi, everyone. Thanks for taking our questions. Can you just provide some additional color on what assumptions are being factored into your current guidance range at this point based on the commercial experience you saw in 1Q? I know it's maybe a little bit difficult to answer, but how is the product-level revenue that you saw in 1Q between RNS and DIXI really helping to shape any changes that you might be seeing from here? Thanks.
Joel Becker: Thanks, Mike. That's a great question. So, excuse me, pardon me. As we said in our prepared comments, we saw really good contributions across product lines here from a year-on-year growth perspective. And so when we look at that, we take that into account as we think about the rest of the year, as well as then a number of the activities that we mentioned that we have underway, whether that's the organizational expansion or the care activities or traction with prescribers. So we roll all that into how we're thinking about the year. Obviously, there's some headwinds there, as well, that we talked about in terms of the replacement cycle, in particular, being something here, particularly in the first half of the year. But when we take all that together, we feel like the guidance that we maintained with our comments today and that we issued a couple of months ago really represents our best view for what we expect for the business to generate in revenue here through the rest of the year with, again, good performance and contribution from both sales of - initial sales of the RNS Systems, as well as with DIXI.
Mike Kratky: Understood. And maybe just one follow-up to that. You had a nice beat in 1qand ultimately maintained the same guidance range for the year. Can you just confirm whether there was anything that you saw so far in Q2 that's giving you pause about potentially raising the guidance range or really a lot of the same factors that were being considered initially?
Joel Becker: Just as you mentioned, we were here not too long ago talking about Q1. And we're here today talking about Q1 and that quarter and guidance for the year. And really, when we set the guidance and when we maintain and confirm that guidance, it's with the full view of Q1 and then everything else that we've seen as we look forward to the rest of the year. So it really is a combination of both what we saw here at the beginning of the year and that we had contemplated, as well as then when we look at all those different factors going forward through the remainder of the year. We're, again, excited about a number of the opportunities here in front of us with a couple of noted headwinds, as well.
Mike Kratky: Got it. All right. Thanks very much.
Joel Becker: Thanks, Mike.
Operator: Thank you. And your next question comes from the line of Frank Takkinen from Lake Street Capital Markets. Please go ahead.
Frank Takkinen: Great. Thanks for taking the questions. Congrats on a solid start to the year. I was hoping to follow up on your comment about new prescribers, Joel. I know you said you're not going to quantify that, but I was hoping maybe you could give a little bit more color on where those prescribers are from and what I mean are they existing sites with new users who are now using the technology or are they new sites? And then just give us the kind of refresh on how those typically scale up.
Joel Becker: Great question, Frank. And, yeah, we were excited to see the new prescriber numbers there and the way that has been tracking in that metric. So the way that we look at that, it's the number of prescribers that have been associated with an initial RNS implant over the past 12 months. And so when we look at those and kind of look at where the prescriber is coming from, it's a combination of adoption within both current as well as new centers. So we see them coming from both. But given the nature of where we're at today, a lot of it is increased adoption within current centers. So we get new users and expansion of adoption of users within centers in which we're present today. But there's also a component of new users in new centers as well.
Frank Takkinen: Okay. And then the second half of that, just thinking about how the new users are ramped up, what's the training process like and how do you think about when they start to do as many procedures maybe as the overall average prescriber?
Joel Becker: Yeah, a great question. And so as you might imagine, when you have a new user, it can take a little bit for them to ramp up. And so just as we do with all new customers, we really start with the foundations and the basics of RNS and neuromodulation therapy in their practice and then how they can incorporate it into their practice and scale that up. So we have a well understood and reproducible training and implementation model there for both understanding where RNS fits in their practice as well as how to scale it up in terms of patient selection and how to manage those patients. And so we really work to take people through that education process and adoption process in really a described fashion that we've developed over time here.
Frank Takkinen: Okay. Perfect. And if I could just sneak maybe one more in on the biotech agreement, congrats on the milestone achievement. Can you quantify whether or not you received a milestone payment with that and what portion of the $3.7 million total contract value that was?
Rebecca Kuhn: Sure, Frank. We'll try and give you a little more color. So just as a reminder, the total payments and revenue over the anticipated nine quarters of the collaboration is up to a total of $3.7 million. So that occurs over time. The payments and the revenue have some variation. It's not terribly [ph] dramatic. So we're not going to give you specifics, but yes, there are payments that are received along the way and, of course, revenue recognized along the way. So I hope that's helpful.
Frank Takkinen: That's perfect. Thanks for taking the questions.
Joel Becker: Thank you, Frank.
Operator: Thank you. And your next question comes from the line of Vik Chopra from Wells Fargo. Please go ahead.
Vik Chopra: Hey, good afternoon. Thank you for taking the questions and congrats on a nice quarter. I also had a follow-up question on guidance. You had a pretty nice gross margin beat. Maybe just some additional color on what drove that. Why not raise the gross margin guide for the year and maybe just help us think about it for the year? And then I had a follow-up, please.
Rebecca Kuhn: Sure. So our gross margin, Vik, increased year-over-year largely due to the increase in units, RNS units produced and sold. That means that our fixed overhead costs are spread over a larger number of units. So we continue to see nice leverage there. We did see some contribution from our biotech collaboration. And, you know, as is always the case, the gross margin then is reduced. Our gross margin has been reduced by the lower gross margin from DIXI.
Vik Chopra: Okay. And then the follow-up question I had was on Project CARE. Maybe just help us understand where you are with the pilot programs and what metrics you'll be providing for us to track the progress? Thank you.
Joel Becker: Hi, Vik. Thank you. That's a great question. Thanks for bringing up that topic. So just in terms of the specifics of some of the programs, we're initiating programs really in two buckets of activities right now. One is in professional education activities. So when we've - as I discussed in previous calls, we're taking a targeted approach here to initiation of activities with the pilot program. But within those targeted accounts, we're initiating professional education programs including educational symposia and webinars. I mentioned earlier in the question about new users and our plan and training for new users, we were engaging in professional education activities on some of those same topics here with these centers in terms of the foundations of RNS as a neuromodulation therapy and then the process and practice of including RNS as one of the treatment options within their practices. So they learn to understand patient selection as well as patient management, programming, reimbursement, all of the things that go along with really establishing this as part of their program. So clinical as well as practice development, and professional education as well as then peer-to-peer activities. So with peers who are experienced in using RNS and they can help guide centers through the early startup process. So that's then matched with a number of commercially related activities as well, including some initial work here from a social media perspective related to digital marketing and targeted geographies as well as then center contracting activities. And then I had mentioned we made a fair bit of progress here with regard to the hiring and initiation of training for the incremental expansion of our commercial organization. So getting those reps trained and in position and targeted care geographies as well have been some of the commercial activities that we've been executing on as well. So those are some of the activities and the major buckets. With regard to some of the metrics, its really - the way I think about it is really the building and development of the pipeline within each of these centers and then the ability to track our way through that. It really starts with everything from some of the activities that I just mentioned, starting and pacing off of initial contact and sales call processes to then the contracting timing and contracting throughput. We also measure the education process and the completion of the education and training process and then obviously patient identification and then moving patients to implants. So we track and measure all of that up through and including referrals of additional patients who may not be good direct to RNS patients outside of Level 4 centers but can be referred into Level 4 centers as well as then implant rate over time in these centers. So I think it's maybe a helpful way to think about it, just the development and then execution pipeline in each of the steps along the way for each of these targeted centers. And that's how we're managing it internally.
Operator: Thank you. And your next question comes from the line of Robbie Marcus from JPMorgan. Please go ahead.
Unidentified Analyst: Hi, this is Lily on for Robbie. Thanks for taking the question. Anything you can share on how we should be thinking about cadence for this year and any puts and takes that we should be keeping in mind for second quarter through fourth quarter? I think for second quarter, the street was at about $18.2 million. Is that sort of a fair place to be? And then I had a quick follow-up.
Joel Becker: Well, thank you for the question. We're not guiding quarterly. But I could maybe comment a little bit and then invite Rebecca to comment as well on kind of the balance of the year. We've talked about in the past that we don't see in this business, maybe some of the traditional calendarization and cadence that you might see in some others, but we do tend to see a couple of times during the year where there is some seasonality impact. We see some seasonality associated with summer vacations and summer holiday slowdowns in particular, kind of customer vacation times that can sometimes be toward the end of Q2 and beginning of Q3 kind of, some of the summer holiday breaks. And then the other kind of period of cadence and calendarization that we pointed out in the past is we have just like with the holidays for many, but for this business, we kind of go from, we go from Thanksgiving, and then in between Thanksgiving and Christmas, we have the biggest epilepsy society program of the year for us, the AES (NYSE:AES) meeting, the American Epilepsy Society meeting. That's the first week in December. So we kind of go from Thanksgiving to AES and then not too long, kind of right into Christmas. So the second half of Q4 can be a little more impacted, excuse me. I guess the thing that I mentioned kind of on top of that, though, is even though those kind of calendarized and cadence based events have been there at different times, there are obviously different things going on in the business that can kind of cover [ph] some of that up. So I recognize that that may not be entirely helpful in terms of building your quarterly model, but the mid-summer holidays and kind of the Thanksgiving AES, Christmas period of time in Q4 for us tend to be some of the times it can be impacted a little bit more from a cadence perspective.
Unidentified Analyst: Got it. Okay. And then just some replacement revenues. I think I heard you mention that you expect those headwinds to be strongest in the first half of the year. So should we expect those headwinds to moderate in the second half and beyond? Any color on how you're thinking about that line item growing would be helpful. Thank you.
Rebecca Kuhn: Sure. You're a very good listener. Yes. For the year as a whole, we do expect that the trend in reduced replacement revenue will continue, but that that will be more pronounced in the first half of the year and likely to be less so in the second half of the year. You know, I'm not sure what I can add to that exactly, but that is basically, we've shared that before and continue to believe that that's true.
Unidentified Analyst: Got it. Thank you.
Operator: Thank you. And your next question comes from the line of Ross Osborn from Cantor Fitzgerald. Please go ahead.
Ross Osborn: Hey, guys, thanks for taking our questions and congrats on progress. So in terms of your patient population, would be curious to see if you're seeing any traction with the hybrid [ph] use case of your RNS offering for patients that have undergone surgery.
Joel Becker: I'm sorry, Ross, could you please just repeat that question? We broke up a little bit there.
Ross Osborn: Sure. I'm just curious if you're seeing any traction with the hybrid use case of your RNS therapy for patients that have undergone surgery.
Joel Becker: That's a great question. And we think about that patient population in particular as part of our focus on what we call telling [ph] the modern RNS story, where in particular in the Level 4 comprehensive epilepsy centers. In the past, I think in many cases, people would have thought about traditional patient identification and selection as the classic kind of first line therapy of resection surgery and then maybe a little bit of an either or with neuromodulation. And the reality is about 20% of patients are really ideal candidates for resection surgery. And that's not mutually exclusive in particular with RNS. And we do hear of examples and have examples of where, for example, folks were going to do a resection procedure, put the RNS device in first, and that really then informed further either not going to resection or the area in which they were going to resect. And so we do see a hybrid approach as a key component of that modern RNS story where number one, kind of the classic focal patient population. Number two, network stimulation for patients who may be multifocal in origination, but then also a hybrid approach to resection therapy using RNS plus or to inform resection surgery. So that's absolutely something that we see and something that we talk about with folks when we're talking about patient identification and selection with RNS.
Ross Osborn: Great. And then in terms of CARE [ph] you mentioned an implant activities are accelerating. Is it fair to assume that we should see revenue coming into the model during the second quarter or should be thinking more second half of this year?
Joel Becker: Yeah, I think what we're seeing is we're seeing implant activities underway and we're seeing referral as well for patients that either do need to be referred to Level 2 or Level 4 centers for Phase 2 monitoring rather, or for centers that are just getting underway, aren't completely ready to do implants yet, but are referring patients they identify for implant as well. So we do expect that both our activities in terms of the pilot program activities as well as rep impact and effectiveness will expand as we go throughout the year, in particular in the second half of the year. And so that's really what we're, what we're watching and focused on is those activities and the impact of those activities in the second half of the year.
Ross Osborn: Got it. Thanks for taking our questions.
Joel Becker: Thanks, Ross.
Operator: Thank you. And your next question comes from the line of Michael Polark from Wolfe Research. Please go ahead.
Michael Polark: Good afternoon. Thank you. I just have one topic on DIXI. It's kind of more than annualized into the model now. We had a good steer as to how big it was when you did the deal. I'm not asking for the disclosure in the quarter or the guidance for the year, but I am asking about what is the long term expectation for the DIXI product itself. Do you expect to grow this? Is this a focus of your sales force or is it likely to run at this level? And this is good. And then if it's supposed to grow, what would be the building blocks of that growth? Is kind of the use case of these electrodes increasing? So the market's growing or you think you're taking share any color around that would be good because admittedly I kind of - I had a good sense following this first kind of 18 months, but now I'm wondering what kind of the 3 year vision for DIXI might be. Thanks so much.
Joel Becker: Well, I won't comment specifically on guiding for the next 3 years, Mike, but I will offer you some perspective here on my expectations for DIXI. And those expectations are really born out of the strategy behind having the product in the portfolio. And what we've seen in terms of clinical response and customer utilization. We absolutely expect to continue to grow DIXI as part of our growth story. We see the use of SEEG as a growing and emerging trend in comprehensive epilepsy centers as they pursue the Phase 2 monitoring of these patients. And we see the opportunity both to grow and develop that market as we look to leverage our presence in centers where there's significant neuromodulation presence. And we can help tell that story of SEEG usage as well as take share in places where folks are using other products for SEEG. SEEG, we think DIXI has a great story to tell in terms of the products and the performance of the products. And then when we think about the leverage that we can get from places where, you know, we have a strong presence and strong presence with those centers and those customers, clinically, you know, that's an opportunity for us to be in talking about SEEG and in places where the DIXI product line has a strong presence, we also look for places then where that's an opportunity for us to be more present with RNS therapy as well. And so I think the overall strategy here has been that it's a great product for us to have in the bag, both in terms of products available to sell, but also in terms of the ability to kind of vertically integrate into the diagnostic process, move further upstream in terms of patient identification, and then leverage both places where there's a strong RNS presence to having a stronger DIXI presence, as well as with then strong SEEG centers that provide an opportunity for us to both grow our market as well as take share from an RNS perspective. So we think there's a lot of points of leverage there and we expect to grow DIXI.
Michael Polark: Thank you.
Operator: Thank you. And your last question comes from the line of Drew Ranieri from Morgan Stanley. Please go ahead.
Drew Ranieri: Hey, Joel. Hey, Rebecca. Thanks for taking the questions. Maybe just on your R&D strategy. Understand, not a list wrapped up, it's in follow up now. R&D spending has like, ticked up over the last few quarters, but maybe just talk to us about, like, what else you're spending your money there from a clinical development standpoint or even just a product development standpoint?
Joel Becker: It's a great question. Thank you, Drew. And as you mentioned, within R&D, our investments in clinical research as well as in product research and product development. So, you know, and you just mentioned, you know, we're in the middle of the - we're in the middle of NAUTILUS. We've wrapped up the first part of NAUTILUS, but we're in the follow up stage now. And obviously that study is a significant investment for us, as well as the Lennox-Gastaut study that we're involved with as well. And then I didn't comment about it here today, but I did, in our last call, mention investments in and focus on from a research and development perspective that we're engaged with from an AI and data monitoring and management perspective as well. And I expect to say a bit more about that going forward. But the punchline here would be that we're investing in the business and we're working to strike that balance between optimizing investments in critical longer term, as well as medium term product development and clinical data development initiatives, as well as investing in commercial execution of the business while maintaining good operating discipline. And so I think what you're seeing from us here, if you look at the income statement, is some focused areas of investment in R&D, some expansion and investment in our commercial organization to continue to drive the top line, and real strong focus on expense control and operating discipline in all other areas.
Drew Ranieri: Got it. Thank you. And maybe just one on the procedure environment and diagnostic funnel environment in general, anything that you're seeing in the first quarter, into the second quarter and anything that you would highlight. Thanks for taking the questions.
Joel Becker: Thank you. Drew, another good question. Just with regard to Q1 in particular, I would say that we've seen, and have seen here for the past few quarters, good, strong pipeline of patients and good consistency and robustness of what we're seeing from individual centers and what we see from the pipeline more generally. So I think the pipeline looks good and consistent. Would you add anything to that, Rebecca?
Rebecca Kuhn: No, I think we're pleased with what we see in the pipeline. We track patients and we place a lot of emphasis on that. And I think we're pleased generally with seeing normalized EMU volumes and just where the patient pipeline is. So trends are positive.
Joel Becker: Thanks, Drew.
Operator: Thank you. There are no further questions at this time. Mr. Joel Becker, please proceed.
Joel Becker: Thank you, everyone, for listening to our Q1 2024 call today. As I mentioned earlier, here at NeuroPace, we're excited about and focused on the opportunity to help close the treatment gap for drug resistant epilepsy patients by expanding access to RNS therapy. We're excited about doing so. We look forward to executing on our growth strategy and to updating everyone our progress throughout 2024. Thank you.
Operator: Thank you. That concludes our conference for today. Thank you all for participating. You may all disconnect.
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