Executive Summary / Key Takeaways

• NeuroPace is demonstrating strong operational momentum, achieving record Q3 2025 revenue of $27.4 million, a 30% year-over-year increase, primarily driven by its core RNS System sales which grew 31%. This performance underscores the effectiveness of its three-part growth strategy focused on Level 4 centers, Project CARE, and indication expansion.
• The RNS System's differentiated brain-responsive neuromodulation technology, offering personalized, real-time treatment and continuous iEEG data, provides a significant competitive advantage, leading to superior clinical outcomes with 82% median seizure reduction at 36 months and 27% seizure freedom at last follow-up, significantly outperforming competitors.
• NeuroPace is strategically refining its portfolio by exiting the lower-margin DIXI Medical distribution agreement by year-end 2025, a move expected to enhance overall gross margins to over 80% for the RNS business in 2026 and accelerate its path to cash flow breakeven.
• The company is advancing critical clinical and product development initiatives, including the NAUTILUS study for idiopathic generalized epilepsy (IGE) with PMA supplement submission expected by year-end 2025, and the development of AI-enabled software tools to further enhance RNS efficacy and ease of use.
• Despite historical losses, NeuroPace achieved positive adjusted EBITDA in Q3 2025, a significant milestone, and has strengthened its balance sheet through a recent equity offering and debt refinancing, providing sufficient capital to fund operations through cash flow breakeven by year-end 2027.

The Dawn of Personalized Epilepsy Care: NeuroPace's Foundational Strategy

NeuroPace, Inc. (NASDAQ: NPCE) stands at the forefront of transforming epilepsy treatment with its innovative RNS System, the only commercially available brain-responsive neuromodulation system designed for drug-resistant focal epilepsy. Since its commercial launch in 2014, NeuroPace has been dedicated to delivering personalized, real-time treatment directly at the seizure source. This foundational technology, coupled with a strategic vision for market expansion and operational efficiency, positions the company as a compelling investment in the rapidly evolving medical device landscape.

The company's overarching strategy is built on three pillars: deepening adoption and utilization within existing Level 4 comprehensive epilepsy centers (CECs), expanding site-of-service delivery through its Project CARE initiative, and broadening the indications for use of the RNS System. This multi-pronged approach aims to capture a significant share of the estimated $2 billion annual core market opportunity within Level 4 CECs alone. The medical device industry, particularly in neuromodulation, is highly competitive, featuring established players like Medtronic , Abbott Laboratories (ABT), Boston Scientific (BSX), and LivaNova . These larger competitors often boast extensive resources and broader portfolios. However, NeuroPace's specialized, data-driven approach carves out a distinct and defensible niche.

Technological Edge: The RNS System's Differentiated Power

At the heart of NeuroPace's investment thesis is its proprietary RNS System, a technological marvel that sets it apart from conventional neuromodulation devices. The RNS System continuously monitors and analyzes the brain's electrical activity, recognizing patient-specific abnormal electrical patterns, and responding in real-time with imperceptible electrical pulses to prevent seizures. This closed-loop stimulation system delivers therapy precisely when and where it is needed, offering a level of personalization unmatched by competitors.

The tangible benefits of this technology are compelling and quantitatively demonstrated. Data from NeuroPace's Post-Approval Study, the largest prospectively enrolled FDA-reviewed neuromodulation study, showed a 62.5% median seizure reduction at six months post-implant and an impressive 82% median seizure reduction at 36 months. Critically, 42.5% of patients experienced periods of seizure freedom for at least six months. When directly compared to competitors, RNS's efficacy shines: median seizure reduction rates at three years for RNS were 82%, significantly higher than 44% for LivaNova's VNS System and 40% for Medtronic's DBS System in their respective studies. Furthermore, 27% of RNS patients were seizure-free at last follow-up, compared to 8% for VNS and 4% for DBS. The current neurostimulator model, launched in 2018, boasts an average battery life of nearly eleven years, enhancing patient convenience and reducing replacement procedure frequency.

NeuroPace's commitment to innovation extends to its robust R&D pipeline. The company is developing a next-generation platform designed for increased capacity, Bluetooth communications, and enhanced ease of use, with testing and characterization of key components currently underway. A significant near-term development is the recent submission to the FDA of its first AI-enabled seizure iEEG software tool, "Seizure ID." This tool, leveraging NeuroPace's proprietary database of over 22 million recorded events, is designed to make it more efficient for clinicians to identify long-duration episodes and areas for therapy adjustments. This advancement aims to streamline programming workflows, offer automated therapy setting proposals, and provide predictive analytics for proactive patient management, ultimately leading to improved clinical outcomes and wider adoption. This unique data asset and the AI capabilities built upon it create a "self-reinforcing data moat," a significant competitive advantage that is difficult for rivals to replicate.

Strategic Expansion and Operational Excellence

NeuroPace's growth strategy is yielding tangible results. In Q3 2025, RNS growth was broad-based, with all sales regions exceeding planned sales. The number of prescribers, active accounts, and utilization reached all-time highs, primarily driven by increased adoption within Level 4 CECs. Complementing this, Project CARE, an initiative to expand RNS access into community settings, contributed meaningfully to revenue growth in the second half of 2024 and continued to scale in Q3 2025 with sequential increases in site engagement and implant volumes. This dual approach allows NeuroPace to reach a broader patient population, including those who might not typically be referred to Level 4 centers.

A pivotal strategic decision in 2025 was the termination of the exclusive distribution agreement for DIXI Medical SEEG products, effective September 30, 2025. This move, while impacting a revenue stream that constituted approximately 17% of total revenue in 2024, is a deliberate step to refocus resources on the higher-margin RNS business. DIXI products historically carried gross margins slightly below 50%, whereas RNS System gross margins consistently exceed 80%. This strategic refinement is expected to significantly enhance NeuroPace's overall margin profile, with management anticipating total company gross margin to trend towards 80% as DIXI sales phase out by year-end 2025.

Clinical development remains a cornerstone of NeuroPace's long-term growth. The NAUTILUS study for idiopathic generalized epilepsy (IGE) completed its one-year follow-up in March 2025. Despite the primary effectiveness endpoint not reaching statistical significance in the overall study due to a specific analysis method, prespecified secondary endpoints demonstrated statistically significant and clinically meaningful reductions in seizure frequency. Median IGE/GTC seizure reduction data signals better than 80% reduction at 18 and 24 months, with 45.2% of patients achieving GTC seizure freedom at 12 months. NeuroPace plans to submit the PMA supplement for NAUTILUS to the FDA before year-end 2025, with an anticipated 180-day review period potentially leading to approval by mid-2026. This expanded indication would open a significant new market segment, as IGE patients may not require Phase II invasive monitoring, potentially allowing for faster therapy access.

The company is also pursuing a pediatric focal epilepsy indication, leveraging real-world evidence through a collaboration with NEST and the FDA. This initiative draws upon extensive data from the Pediatric Epilepsy Research Consortium (PERC) and numerous peer-reviewed publications. While the submission timeline for this indication has been extended beyond 2025 to ensure robust protocol and data alignment, the pediatric market represents a large and high-urgency segment where neuromodulation can have a particularly profound impact on developmental brain function.

Financial Strength and Outlook

NeuroPace's financial performance in Q3 2025 reflects its operational momentum and strategic discipline. The company reported record total revenue of $27.4 million, a 30% increase year-over-year, with RNS System revenue growing 31% to $22.6 million. Gross margin for the quarter was 77.4%, up from 73.2% in Q3 2024, driven by improved manufacturing efficiency and favorable RNS pricing. Notably, NeuroPace achieved positive adjusted EBITDA of $0.1 million in Q3 2025, a significant milestone demonstrating the scalability of its business model and effective expense management. Operating expense growth of 21% in Q3 2025 remained meaningfully below revenue growth, further highlighting operating leverage.

For the full year 2025, NeuroPace raised its revenue guidance to a range of $97 million to $98 million, representing 21% to 23% year-over-year growth. This guidance anticipates Q4 RNS revenue between $20 million and $21 million, implying a 23% RNS growth in the second half of 2025, an acceleration from the 21% growth in the first half. Full-year gross margin guidance was also raised to 76% to 77%. Total operating expenses are projected to be between $94 million and $95 million, reflecting continued investment in sales and marketing (expected $47M-$48M) and R&D (expected $28M), while G&A is expected to be approximately $19 million.

Liquidity has been significantly bolstered. As of September 30, 2025, NeuroPace held $60 million in cash, cash equivalents, and short-term investments. A February 2025 follow-on equity offering generated $69.7 million in net proceeds, and a June 2025 debt refinancing secured a new $75 million credit facility with MidCap Financial, including a $60 million term loan and an undrawn $15 million revolving credit facility. This refinancing, which repaid the prior CRG Term Loan, is expected to save approximately $2 million in annual cash interest expense. Management confidently states that existing capital is sufficient to fund operations through cash flow breakeven, targeted by year-end 2027.

Competitive Dynamics and Risks

NeuroPace operates in a highly competitive medical device market. Its primary neuromodulation competitors, LivaNova (LIVN) (VNS System) and Medtronic (MDT) (DBS System), are larger, more diversified, and possess greater financial resources and established market relationships. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, NeuroPace's superior clinical data for RNS provides a strong differentiator. The company's focus on personalized, data-driven therapy allows it to compete effectively by offering unique benefits that address specific patient needs, potentially leading to higher average selling prices and better margins.

However, NeuroPace faces several risks. Dependence on a limited number of single-source suppliers for RNS System components creates vulnerability to supply shortages and price fluctuations. Regulatory delays, particularly for expanded indications like pediatrics, could impact growth timelines. While CMS maintained the current reimbursement structure for RNS in July 2025, future changes could diminish sales or profitability. Data privacy and cybersecurity risks are also significant, given the sensitive patient data handled by the RNS System and AI tools. Furthermore, the company's history of net losses and accumulated deficit, coupled with limitations on using net operating losses (NOLs) due to prior ownership changes, underscore the importance of achieving and sustaining profitability.

Conclusion

NeuroPace is at a pivotal juncture, transforming from a specialized medical device company into a leader in personalized epilepsy neuromodulation. The company's core RNS System, with its unparalleled brain-responsive technology and robust clinical data, provides a strong foundation for growth. Strategic decisions, such as exiting the DIXI Medical distribution, are sharpening its focus on higher-margin opportunities and accelerating its path to profitability. With significant clinical advancements in IGE and pediatric indications on the horizon, coupled with innovative AI-enabled software tools, NeuroPace is poised to expand its addressable market and further differentiate its offerings.

The recent achievement of positive adjusted EBITDA and a strengthened balance sheet underscore management's disciplined execution and commitment to financial sustainability. While competitive pressures and regulatory complexities remain, NeuroPace's unique technological moat and clear strategic roadmap position it to establish the RNS System as the standard of care in epilepsy neuromodulation. Investors should monitor the progress of its PMA supplement submissions, the continued adoption of Project CARE, and the successful integration of its AI-powered solutions as key indicators of its long-term value creation.