Neuropace Inc.

11/04/2025 | Press release | Distributed by Public on 11/04/2025 15:23

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions, which are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled "Risk Factors," under Part II, Item 1A of this report and those discussed in our other disclosures and filings.
Overview
We are a medical device company focused on transforming the lives of people living with epilepsy by reducing or eliminating the occurrence of debilitating seizures. Our novel and differentiated RNS System is the first and only commercially available, brain-responsive neuromodulation system that delivers personalized, real-time treatment at the seizure source. By continuously monitoring and analyzing the brain's electrical activity, recognizing patient-specific abnormal electrical patterns, and responding in real time with imperceptible electrical pulses to prevent seizures, our RNS System delivers the precise amount of therapy when and where it is needed and provides exceptional clinical outcomes with approximately three minutes of stimulation on average per day. Our RNS System is also the only commercially available device that records continuous brain activity data and allows clinicians to monitor patients not only in person, but also remotely, providing them the data they need to make more informed treatment decisions, thus optimizing patient care. 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.
Our RNS System is currently indicated in the United States for use in adult epilepsy patients, meaning patients who are 18 years of age or older, with drug-resistant focal epilepsy. 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). 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.
We are conducting studies to expand our indication for use in patients with drug-resistant 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 generalized epilepsy completed one year of follow up. 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. The primary effectiveness endpoint did not reach statistical significance in the overall study. However, the study data illustrates the overall value of the RNS System to individualize patient treatment over time, showing statistically significant and clinically meaningful, prespecified secondary endpoints. 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. We continue to actively engage with the FDA to finalize a pathway to submitting an application seeking the expanded indication for patients with generalized epilepsy. There are no changes in the Company's plan to file the expanded label submission to the FDA prior to the end of 2025.
To support our RESPONSE study for label expansion in focal epilepsy patients under the age of 18, we are collaborating with the National Evaluation System for health Technology, or NEST, and the FDA to pursue the use of real-world data.
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. 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 are expanding these efforts through 2025. 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 September 30, 2025, we had an accumulated deficit of $549.7 million, cash, cash equivalents and short-term investments of $60.0 million, and $58.7 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. Our research and development activities include clinical studies to demonstrate the safety and effectiveness of our RNS System, including in expanded indications, and to obtain, as well as retain, FDA approval. 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 have also made significant investments in building our field commercial team and intend to make significant investments in sales and marketing efforts in the future, including initiatives to drive awareness and expand our referral channel to increase the number of drug-resistant epilepsy patients referred to CECs. We may in the future seek to acquire or invest in additional businesses, products, or technologies that we believe could complement or enhance our products, enhance our technical capabilities or otherwise offer growth opportunities, although we currently have no agreements or understandings with respect to any such acquisitions or investments. 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.
Based on our current planned operations, we believe our existing cash, cash equivalents and short-term investments will allow us to continue our operations for at least the next 12 months. See "Liquidity and Capital Resources - Future Funding Requirements" for additional information.
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. 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. 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. During the six-month wind-down period following expiration of the Distribution Agreement, we are exercising our right to sell any DIXI product inventory that we held on the date of expiration. At the end of this wind-down period, DIXI Medical is required to buy back, at cost, any DIXI product inventory held by us that has at least six months of remaining shelf life.
Rapport Agreement
In November 2023, we entered into a collaboration agreement with Rapport Therapeutics, Inc., or Rapport, a clinical-stage biotechnology company, to leverage our data as well as our RNS System's unique biomarker monitoring and data analysis capabilities. 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. In June 2025, we executed an agreement to extend our
collaboration with Rapport and to continue providing differentiated data, monitoring and data analysis services for the next phase of Rapport's clinical trial of its product candidate. We expect this work to continue through first half of 2028.
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 intend to continue to promote awareness of our RNS System within existing and new accounts through additional investments in training and education of clinicians, epilepsy centers, hospitals and patients on the clinical benefits of our RNS System for the treatment of drug-resistant epilepsy. In addition, we intend to publish additional clinical data in scientific journals and to continue presenting at medical conferences. We plan to continue building patient awareness through direct-to-patient marketing initiatives, which include advertising, social media and online education. We also intend to continue supporting patient and referring clinician outreach efforts to help increase the number of appropriate patients with drug-resistant epilepsy being treated at CECs and outside of CECs, including by way of our expansion into the community setting. These efforts require significant investment by our marketing and sales organization.
Our Ability to Retain Our Experienced Commercial Team and Increase its Productivity
We have made significant investments in, and will continue to invest in, recruiting, training and retaining our experienced and specialized direct sales team, which includes Therapy Consultants and Field Clinical Engineers. Significant education and training is required for our team to achieve the level of technical competency with our products that is expected by clinicians and to gain experience building demand for our RNS System. Upon completion of initial training, our personnel typically require time in the field to grow their network of accounts, build relationships with clinicians and increase their productivity to the levels we expect. We believe successfully training, developing and retaining our Therapy Consultants and Field Clinical Engineers will be required to achieve growth. In addition, the loss of any productive sales personnel would have a negative impact on our ability to grow our business.
Competition
Our industry is highly competitive and subject to rapid change from the introduction of new products and technologies and the marketing activities of industry participants. There are two primary treatment alternatives for adults with drug-resistant epilepsy: (i) an ablative or resective surgery; and (ii) implantation of a neuromodulation device. Within neuromodulation, we currently compete with two manufacturers of neuromodulation devices. These companies have longer operating histories, significantly greater resources and name recognition, and established relationships with physicians and hospitals that treat patients with epilepsy. In addition to competing for market share, we also compete against these companies for personnel, including qualified sales and other personnel that are necessary to grow our business.
Leveraging Our Manufacturing Capacity to Further Improve Our Gross Margin
With our current operating model and infrastructure, we believe that we have the capacity to significantly increase our manufacturing production. If we grow our revenue and sell more RNS Systems, our fixed manufacturing costs will be spread over more units, which we believe will reduce our manufacturing costs on a per-unit basis and in turn improve our gross margin. In addition, we intend to continue investing in manufacturing efficiencies in order to reduce our overall manufacturing costs. 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.
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. 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.
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.
Change in Product Mix
We derive revenue from sales of our RNS System to hospital facilities both for initial RNS System implant procedures and for replacement procedures when our implanted devices reach end of service. We launched our current neurostimulator model in 2018. This device has an average battery life of nearly eleven years, an increase from the previous model of the device. 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. During the Distribution Agreement wind-down period, we will continue to derive revenue from sales of DIXI Medical products. As sales wind down, the product mix between sales of our RNS System and DIXI Medical products will 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. Our revenue fluctuates primarily based on the volume of procedures performed and the procedure mix between initial and replacement implants. Our revenue has also fluctuated and will continue to fluctuate in the future from quarter-to-quarter due to a variety of factors, including the success of our sales force in expanding adoption of our RNS System in new accounts and the number of physicians who are aware of and prescribe our RNS System.
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. The Distribution Agreement expired on September 30, 2025, after which we may sell DIXI product inventory that we hold on the expiration date for the next six months.
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.
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.
Cost of Goods Sold and Gross Margin
Cost of goods sold consists primarily of costs related to materials, components and subassemblies, personnel-related expenses for our manufacturing and quality assurance employees, including stock-based compensation, manufacturing overhead and charges for excess, obsolete and non-sellable inventories. Overhead costs include the cost of quality assurance, testing, material procurement, inventory control, operations supervision and management personnel, an allocation of facilities and information technology expenses, including rent and utilities, and equipment depreciation. Cost of goods sold also includes certain direct costs such as those incurred for shipping our
RNS System. 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 expect cost of goods sold to increase in absolute dollars as more of our RNS Systems are sold, with less contribution from DIXI Medical products as sales wind down.
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. 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.
Operating Expenses
Our operating expenses consist of sales and marketing costs, research and development costs, and general and administrative costs.
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. 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. 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. 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. Our clinical trial expenses include costs associated with clinical trial design, clinical trial site development and study costs, data management costs, related travel expenses, the cost of products used for clinical activities, and costs associated with our regulatory compliance. We expense research and development costs as they are incurred. We expect our research and development expenses will increase in absolute dollars as we continue to develop new product offerings and product enhancements and conduct studies for expanded indications for use.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel-related costs, including stock-based compensation, for administrative personnel that support our general operations such as executive management and information technology, finance, accounting, customer services, human resources and legal personnel. General and administrative expenses also include costs attributable to professional fees for legal, accounting and tax services, insurance and recruiting fees. We expect our administrative expenses will increase as we increase our headcount to support our growth. 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.
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, and loss on debt extinguishment.
Results of Operations
Comparison of the Three Months Ended September 30, 2025 and 2024
The following table summarizes our results of operations for the periods indicated (in thousands):
Three Months Ended September 30,
2025 2024 Change % Change
Revenue $ 27,354 $ 21,060 $ 6,294 30 %
Cost of goods sold 6,186 5,640 546 10 %
Gross profit 21,168 15,420 5,748 37 %
Operating expenses
Sales and marketing 12,598 9,929 2,669 27 %
Research and development 6,576 5,754 822 14 %
General and administrative 4,594 3,980 614 15 %
Total operating expenses 23,768 19,663 4,105 21 %
Loss from operations (2,600) (4,243) 1,643 (39) %
Interest income 667 754 (87) (12) %
Interest expense (1,645) (2,182) 537 (25) %
Other income (expense), net 82 219 (137) (63) %
Net loss $ (3,496) $ (5,452) $ 1,956 (36) %
Revenue
Revenue increased by $6.3 million, or 30%, to $27.4 million during the three months ended September 30, 2025, compared to $21.1 million during the three months ended September 30, 2024. The increase in revenue was primarily 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. All of our revenue in the three months ended September 30, 2025 and with the exception of less than $0.1 million in the three months ended September 30, 2024, was generated from sales in the United States.
Cost of Goods Sold and Gross Margin
Cost of goods sold increased by $0.6 million, or 10%, to $6.2 million during the three months ended September 30, 2025, compared to $5.6 million during the three months ended September 30, 2024. The increase was primarily due to the increase in sales volume. Our gross margin increased from 73.2% for the three months ended September 30, 2024, to 77.4% for the three months ended September 30, 2025 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.
Sales and Marketing Expenses
Sales and marketing expenses increased by $2.7 million, or 27%, to $12.6 million during the three months ended September 30, 2025, compared to $9.9 million during the three months ended September 30, 2024, primarily due to an increase of $2.0 million in personnel-related expenses resulting from increases in sales and field support personnel costs during the three months ended September 30, 2025, compared to the three months ended September 30, 2024, and an increase of $0.6 million in sales, field support and marketing costs, including travel.
Research and Development Expenses
Research and development expenses increased by $0.8 million, or 14%, to $6.6 million during the three months ended September 30, 2025, compared to $5.8 million during the three months ended September 30, 2024, primarily due to an increase of $0.8 million in personnel-related expenses.
General and Administrative Expenses
General and administrative expenses increased by $0.6 million, or 15%, to $4.6 million during the three months ended September 30, 2025, compared to $4.0 million during the three months ended September 30, 2024. This increase was primarily due to an increase of $0.6 million in personnel-related expenses.
Interest Expense and Income
Interest expense decreased by $0.6 million to $1.6 million for the three months ended September 30, 2025, compared to $2.2 million for the three months ended September 30, 2024, 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. Interest income decreased by $0.1 million for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, primarily due to lower interest yields in the three months ended September 30, 2025.
Other Income (Expense), net
Other income (expense), net decreased by $0.1 million to $0.1 million during the three months ended September 30, 2025, compared to $0.2 million during the three months ended September 30, 2024, primarily due to lower unrealized gain, net on short-term investments in the three months ended September 30, 2025 compared to the three months ended September 30, 2024.
Comparison of the Nine Months Ended September 30, 2025 and 2024
The following table summarizes our results of operations for the periods indicated (in thousands):
Nine Months Ended September 30,
2025 2024 Change % Change
Revenue $ 73,398 $ 58,440 $ 14,958 26 %
Cost of goods sold 16,756 15,543 1,213 8 %
Gross profit 56,642 42,897 13,745 32 %
Operating expenses
Sales and marketing 35,644 29,718 5,926 20 %
Research and development 20,861 17,603 3,258 19 %
General and administrative 14,708 13,594 1,114 8 %
Total operating expenses 71,213 60,915 10,298 17 %
Loss from operations (14,571) (18,018) 3,447 (19) %
Interest income 2,178 2,343 (165) (7) %
Interest expense (5,857) (6,606) 749 (11) %
Other income (expense), net (486) 390 (876) (225) %
Net loss $ (18,736) $ (21,891) $ 3,155 (14) %
Revenue
Revenue increased by $15.0 million, or 26%, to $73.4 million during the nine months ended September 30, 2025, compared to $58.4 million during the nine months ended September 30, 2024. The increase in revenue was primarily 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. All of our revenue, with the exception of $0.4 million in the nine months ended September 30, 2025 and $0.2 million in the nine months ended September 30, 2024, was generated from sales in the United States.
Cost of Goods Sold and Gross Margin
Cost of goods sold increased by $1.2 million, or 8%, to $16.8 million during the nine months ended September 30, 2025, compared to $15.5 million during the nine months ended September 30, 2024. The increase was primarily due to the increase in sales volume. Our gross margin increased from 73.4% for the nine months ended September 30, 2024, to 77.2% for the nine months ended September 30, 2025 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.
Sales and Marketing Expenses
Sales and marketing expenses increased by $5.9 million, or 20%, to $35.6 million during the nine months ended September 30, 2025, compared to $29.7 million during the nine months ended September 30, 2024, primarily due to an increase of $3.9 million in personnel-related expenses resulting from increases in sales and field support personnel costs and one-time severance costs during the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, an increase of $1.5 million in sales, field support and marketing costs, including travel, and an increase of $0.4 million in expenses related to commercial operations.
Research and Development Expenses
Research and development expenses increased by $3.3 million, or 19%, to $20.9 million during the nine months ended September 30, 2025, compared to $17.6 million during the nine months ended September 30, 2024, primarily due to an increase of $2.0 million in personnel-related expenses, an increase of $0.2 million in product development expenses, and a decrease of $1.1 million in grant funds received primarily under the NIH funding agreement which are recognized as a reduction in research and development expenses.
General and Administrative Expenses
General and administrative expenses increased by $1.1 million, or 8%, to $14.7 million during the nine months ended September 30, 2025, compared to $13.6 million during the nine months ended September 30, 2024. This increase was primarily due to an increase of $1.1 million in personnel-related expenses and one-time severance costs during the nine months ended September 30, 2025.
Interest Expense and Income
Interest expense decreased by $0.7 million to $5.9 million for the nine months ended September 30, 2025, compared to $6.6 million for the nine months ended September 30, 2024, 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. Interest income decreased by $0.2 million for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, primarily due to lower interest yields in the nine months ended September 30, 2025.
Other Income (Expense), net
Other income (expense), net decreased by $0.9 million to $(0.5) million during the nine months ended September 30, 2025, compared to $0.4 million during the nine months ended September 30, 2024, primarily due to a loss on extinguishment of the CRG Term Loan of $0.5 million and lower unrealized gain, net on short-term investments in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.
Liquidity and Capital Resources
We have financed our operations primarily through sales of our products, issuance of equity securities and debt financing. As of September 30, 2025, we had cash, cash equivalents and short-term investments of $60.0 million and $58.7 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. 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 sales and marketing, research and development, and general and administrative expenses, debt reduction and working capital.
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 would act as our sales agent and pursuant to which we could sell common stock for aggregate gross proceeds of up to $50.0 million. 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. On the date of termination, we had $38.3 million remaining under our ATM program.
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.
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. 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 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.
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. 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.
In June 2025, we repaid the entire obligation under the CRG Term Loan using the proceeds received from the MidCap Term Loan. At the time of repayment, the lender agreed to decrease the exit fee from 10% to 8% of the aggregate principal amount being prepaid or repaid.
MidCap Term Loan
In June 2025, we entered into a credit, security and guaranty agreement, or Credit Agreement, by and among the Company, MidCap Funding IV Trust, as agent, MidCap Financial Trust, as term loan servicer and the financial institutions and other entities from time to time party thereto, and borrowed $60.0 million, or MidCap Term Loan. The Credit Agreement also provided for a revolving credit facility in an aggregate principal amount not to exceed $15.0 million, or the Revolver and together with the MidCap Term Loan, the Loans. The Revolver has not been drawn upon as of September 30, 2025.
The Loans mature on June 4, 2030, and is due in one installment on June 4, 2030. The MidCap Term Loan bears interest at an annual rate of 30-day forward-looking term Secured Overnight Financing Rate, or SOFR, plus 5.5%, subject to a SOFR floor of 2.0%. Borrowing under the Revolver will accrue interest at an annual rate of 30-day forward-looking term SOFR plus 3.75%, subject to a SOFR floor of 2.0%. Following the initial borrowing of the Revolver, we will pay an unused line fee equal to 0.25% per annum of the average unused portion of the Revolver. Interest and unused line fee, if any, are payable monthly in arrears.
We may voluntarily prepay the Loans in whole or in part and terminate the respective commitments thereunder prior to the maturity date. Each of the MidCap Term Loan and the Revolver is subject to a prepayment premium equal to 3.0% of the amount terminated during the first year, 2.0% in the second year, 1.0% in the third year, and 0% thereafter. 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. See Notes 1 and 6 to our unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Material Cash Requirements
We have future minimum payments for the MidCap Term Loan totaling $89.6 million, with $6.1 million due within twelve months. 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 $15.1 million as of September 30, 2025. See Note 5 to our unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information about our facility lease.
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. We may incur additional expenses to further enhance our research and development efforts and to pursue commercial opportunities outside of the United States.
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 unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
Because of the numerous risks and uncertainties associated with research, development and commercialization of medical devices, we are unable to estimate the exact amount of our working capital requirements. 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.
If we raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Our ability to raise additional capital may be adversely impacted by global economic conditions and disruptions to, and volatility in, the financial markets in the United States and worldwide, as well as those more specifically impacting our industry. If 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.
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):
Nine Months Ended September 30,
2025 2024
Net cash (used in) provided by:
Operating activities $ (11,512) $ (13,152)
Investing activities (235) 7,033
Financing activities 18,965 3,479
Net increase (decrease) in cash and cash equivalents
$ 7,218 $ (2,640)
Cash Flows Used in Operating Activities
Net cash used in operating activities was $11.5 million for the nine months ended September 30, 2025. Cash used in operating activities was primarily a result of the net loss of $18.7 million, adjusted for non-cash charges of $11.2 million and change in operating assets and liabilities of $3.9 million. The non-cash charges primarily consisted of $8.5 million of stock-based compensation, $1.3 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. The change in operating assets and liabilities was due to an increase in accounts receivable of $2.1 million primarily due to an increase in sales of our products including our RNS System and DIXI Medical products, an increase in inventories of $4.9 million largely due to an increase in raw materials and finished goods, and a decrease in operating lease liabilities of $1.4 million, offset in part by an increase in accrued liabilities of $2.5 million and an increase in accounts payable of $1.7 million primarily due to the timing of payments to our vendors.
Net cash used in operating activities was $13.2 million for the nine months ended September 30, 2024. Cash used in operating activities was primarily a result of the net loss of $21.9 million, adjusted for non-cash charges of $11.2 million and change in operating assets and liabilities of $2.5 million. The non-cash charges primarily consisted of $7.7 million of stock-based compensation, $1.4 million of interest incurred but paid-in-kind, $1.2 million of amortization of right-of-use assets, $0.7 million of non-cash interest expense related to our Term Loan, offset in part by a gain on short-term investments of $0.3 million. The change in operating assets and liabilities was due to a decrease in operating lease liabilities of $1.2 million, a decrease in accrued liabilities of $1.1 million largely due to accrued payroll and related expenses, an increase in inventories of $1.1 million largely due to an increase in work-in-process inventory and raw materials, and a decrease in deferred revenue of $0.3 million, offset in part by a decrease in accounts receivable of $0.8 million, and a decrease in in prepaid expenses and other assets of $0.6 million.
Cash Flows Provided by (Used in) Investing Activities
Net cash used in investing activities was $0.2 million for the nine months ended September 30, 2025, which consisted of purchases of property and equipment.
Net cash provided by investing activities was $7.0 million for the nine months ended September 30, 2024, which primarily consisted of sales of short-term investments of $7.3 million, partially offset by purchases of property and equipment of $0.3 million.
Cash Flows Provided by Financing Activities
Net cash provided by financing activities was $19.0 million for the nine months ended September 30, 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 $1.2 million and $0.2 million of net cash proceeds from our at-the-market offering, partially offset by repayment of the CRG Term Loan of $60.5 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.
Net cash provided by financing activities was $3.5 million for the nine months ended September 30, 2024, which primarily consisted of $2.9 million of net cash proceeds from our At-the-Market offering and proceeds from the issuance of common stock under employee plans of $1.3 million, partially offset by taxes withheld and paid related to net share settlement of equity awards of $0.8 million.
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our estimates are based on our historical experience, knowledge of current events and actions we may undertake in the future, and on various other factors that we believe are reasonable under the circumstances.
Our critical accounting policies and estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in our Annual Report on Form 10-K filed with the SEC on March 4, 2025. There were no material changes to these accounting policies during the three months ended September 30, 2025.
JOBS Act Accounting Election
The JOBS Act permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult.
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.
Further, even after we no longer qualify as an emerging growth company, we may still qualify as a "smaller reporting company," which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.
Recent Accounting Pronouncements
See "Recent Accounting Pronouncements" in Note 2 to our unaudited interim condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
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