What changed in this filing

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Item 1. Business

2023-03-02 compared with 2022-03-10 · 131 added, 165 removed, 863 unchanged (26% of the section changed)

We are a commercial-stage medical device company focused on transforming the lives of people suffering from epilepsy by reducing or eliminating the occurrence of debilitating seizures.

We are a commercial-stage medical device company focused on transforming the lives of people living with epilepsy by reducing or eliminating the occurrence of debilitating seizures.

Our novel and differentiated RNS System is the first and only commercially available, brain-responsive neuromodulation system that delivers personalized, real-time treatment at the seizure source.

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We believe the therapeutic advantages of our RNS System, combined with the insights obtained from our extensive brain data set, offer a significant leap forward in epilepsy treatment.

As of December 31, 2021, nearly 4,000 patients have received our RNS System.

As of December 31, 2022, over 4,000 patients have received our RNS System.

We believe our compelling body of long-term clinical data, demonstrating continuous improvement in outcomes over time, will support the continued adoption of our RNS System among the approximately 575,000 adults in the United States with drug-resistant focal epilepsy.

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Our paradigm-shifting RNS System is currently indicated in the United States for use in adult epilepsy patients, meaning patients who are 18 years of age or older, with drug-resistant focal epilepsy, which we believe represents an approximately $26 billion total addressable market.

While we are presently focused on this significant market opportunity, we have investigational device exemption, or IDE, approval for clinical trials to evaluate use of the RNS System to treat drug-resistant epilepsy in patients under the age of 18 and in idiopathic generalized epilepsy and we may later seek regulatory approval in markets outside the United States.

We currently do not believe we will need to modify our RNS System for potential use in patients under the age of 18 or in generalized epilepsy;

While we are presently focused on this significant market opportunity, we have investigational device exemption, or IDE, approval for clinical trials to evaluate use of the RNS System to treat drug-resistant idiopathic generalized epilepsy and patients between ages 12 and 17 and we may later seek regulatory approval in markets outside the United States.

We currently do not believe we will need to modify our RNS System for potential use in generalized epilepsy or in patients under the age of 18;

however, we will need to complete clinical studies and obtain FDA approval prior to marketing the RNS Systems for these indications.

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We will need to conduct additional studies to determine if any modifications to the RNS System are necessary to address these other brain disorders and to obtain FDA approval for any new indications.

Our commercial efforts are focused on the comprehensive epilepsy centers, or Level 4 CECs, in the United States that facilitate appropriate care for drug-resistant epilepsy patients, including procedures for implantation of epilepsy neuromodulation devices such as our RNS System.

While most drug-resistant epilepsy patients begin their

care at physician offices or community hospitals, we estimate that approximately 24,000 adult drug-resistant focal epilepsy patients are treated in Level 4 CECs in the United States each year.

We estimate that this patient pool represents an annual core market opportunity of approximately $1.1 billion for initial RNS System implants, and we expect that it will continue to grow as the number of Level 4 CECs and epilepsy specialists increases, and as more patients are referred to these CECs.

In addition, the FDA recently approved labeling changes indicating that our RNS System has an estimated average battery life of nearly eleven years, an increase from the previous assumption of eight years.

Our commercial efforts are focused on the comprehensive epilepsy centers, or CECs, including Level 4 CECs, in the United States that facilitate appropriate care for drug-resistant epilepsy patients, which may include implantation of epilepsy neuromodulation devices such as our RNS System or the ongoing treatment of patients with

neuromodulation devices.

While most drug-resistant epilepsy patients begin their care at physician offices or community hospitals, we estimate that approximately 24,000 adult drug-resistant focal epilepsy patients are treated in Level 4 CECs in the United States each year.

We estimate that this patient pool represents an annual core market opportunity of approximately $1.1 billion for initial RNS System implants, and we expect that it will continue to grow as the number of CECs, including the number of Level 4 CECs, and epileptologists increases, and as more patients are referred to these CECs.

Our RNS System has an estimated average battery life of nearly eleven years, an increase from the previous model of the device.

The sale of replacement neuromodulation devices provides a recurring revenue stream that is additive to our current $1.1 billion annual market opportunity for initial implants.

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We have established a significant account base at these Level 4 CECs.

Given the concentrated and underpenetrated nature of our target market, we believe there is a significant opportunity to efficiently grow our account base, drive higher utilization within these centers, and expand our referral pathways to increase the number of drug-resistant patients referred to Level 4 CECs with accelerated salesforce expansion.

Given the concentrated and underpenetrated nature of our target market, we believe there is a significant opportunity to efficiently drive higher utilization within these centers, grow our account base, and expand our referral pathways to increase the number of drug-resistant patients referred to Level 4 CECs with accelerated salesforce expansion.

The implant procedure for our RNS System and the ongoing patient treatment provided by clinicians, including monitoring and programming, are reimbursed under well-established physician and hospital codes.

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We are also pursuing studies to support label expansion for our RNS System in additional epilepsy populations.

We have experienced considerable growth since we began commercializing our RNS System.

Our revenue increased from $28.5 million for the year ended December 31, 2018 to $37.0 million for the year ended December 31, 2019, representing approximately 30% growth.

The COVID-19 pandemic and the measures imposed to contain the pandemic impacted our business during 2020 and 2021.

In this pandemic-impacted environment, revenue increased to $41.1 million for the year ended December 31, 2020, representing year over year growth of 11.3% and to $45.2 million for the year ended December 31, 2021, representing year over year growth of 10%.

In 2021, revenue from initial implant procedures increased to $33.7 million, representing year over year growth of 20%.

Our net losses were $36.1 million and $30.0 million for the years ended December 31, 2020 and December 31, 2021, respectively.

We have experienced considerable revenue growth since we began commercializing our RNS System.

Our revenue increased from $37.0 million for the year ended December 31, 2019 to $45.5 million for the year ended December 31, 2022, representing growth of 23% over this time period despite being impacted by the COVID-19 pandemic beginning in 2020.

Competitive Strengths

We are focused on transforming the lives of people suffering from epilepsy by developing, manufacturing, continuously improving, and commercializing our innovative and clinically-validated RNS System that we believe offers significant advances in the treatment of drug-resistant epilepsy.

We are focused on transforming the lives of people living with epilepsy by developing, manufacturing, continuously improving, and commercializing our innovative and clinically-validated RNS System that we believe offers significant advances in the treatment of drug-resistant epilepsy.

We believe our continued growth will be driven by the following competitive strengths:

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This enables our RNS System to deliver therapy precisely when and where it is needed, providing exceptional outcomes with approximately three minutes of stimulation on average per day.

As such, we believe our RNS System offers material efficacy and tolerability advantages relative to alternative neuromodulation approaches, offering clinicians insights based on their patients’ brain activity which help in making better treatment

decisions and optimizing patient care.

In addition, the non-destructive, reversible nature of the implant procedure makes it an attractive option for drug-resistant focal epilepsy patients, the majority of whom are not candidates for, or are unwilling to undergo, a resective or ablative brain surgery.

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We believe our RNS System offers a significant leap forward relative to current practice for epilepsy treatment in which clinicians rely on patient-reported seizure data which are often unreliable and incomplete.

As of December 31, 2021, nearly 4,000 epilepsy patients have received our RNS System, yielding an extensive database of over nine million iEEG records.

We believe that we are able to continue to learn and innovate by leveraging this database and our data analytics capabilities, thereby improving and enhancing our products and creating actionable insights for clinicians that improve clinical outcomes for patients.

As of December 31, 2022, over 4,000 epilepsy patients have received our RNS System, yielding an extensive database of over twelve million iEEG records.

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We estimate that there are approximately 200 of these Level 4 CECs in the United States.

Our commercial organization of Therapy Consultants and Field Clinical Engineers has established a significant account base, resulting in 150 of these Level 4 CECs implanting our RNS System in 2021.

Our commercial organization remains focused on increasing the number of implanting Level 4 CECs, expanding our referral pathways to increase the number of drug-resistant patients referred to these centers and driving utilization within the centers.

Given the concentrated nature of our target market, we believe there is a significant opportunity to efficiently drive continued growth with accelerated salesforce expansion.

As the number of Level 4 CECs and epileptologists grows, we continue to leverage the concentrated nature of our patient and provider population with our highly-skilled and technically trained salesforce.

Our commercial organization of Therapy Consultants and Field Clinical Engineers has established a significant account base across these CECs, and remains focused on driving utilization within these centers, increasing the number of implanting Level 4 CECs, and expanding our referral pathways to increase the number of drug-resistant patients referred to these centers.

Given the concentrated nature of our target market, we believe there is a significant opportunity for our salesforce to

efficiently drive continued growth.

We believe that our focused and dedicated approach to these CECs has also enabled us to develop deep-rooted relationships with the clinicians that manage our target patient population, which provides a strong established channel for future potential products and indications.

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We expect that the near-term growth of our business will be primarily driven by new patients being treated with our RNS System.

We believe the following strategies will contribute to growth in initial patient implants and advance our mission to dramatically improve clinical outcomes and quality of life for patients suffering from epilepsy and other disabling brain disorders:

We believe the following strategies will contribute to growth in initial patient implants and advance our mission to dramatically improve clinical outcomes and quality of life for patients living with epilepsy and other disabling brain disorders:

• Drive adoption of our RNS System .

Our commercial efforts are primarily focused on the Level 4 CECs where drug-resistant focal epilepsy patients are actively seeking treatment.

The number of Level 4 CECs in the United States has been growing as more epilepsy specialists are trained and in 2021 there were approximately 200 Level 4 CECs in the United States.

Our focused commercial organization consists of Therapy Consultants and Field Clinical Engineers who supported 150 Level 4 CECs in performing initial

implant cases in 2021.

The number of Level 4 CECs in the United States has been growing as more epileptologists are trained and in 2022 there were approximately 200 Level 4 CECs in the United States.

Our focused commercial organization consists of Therapy Consultants and Field Clinical Engineers who supported our customers in performing initial implant cases in 2022.

Additionally, our sales team has the opportunity to engage with clinicians at programming centers outside of Level 4 CECs to facilitate the continued management of patient care.

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• Increase utilization of our RNS System within CECs .

As we expand our footprint across Level 4 CECs, we plan to continue to drive increased utilization of our RNS System within new and existing accounts.

We expect to accomplish this by (i) growing the number of epileptologists recommending our system within each center, (ii) increasing utilization of our system by existing prescribers, and (iii) expanding our referral pathways to increase the number of patients with drug-resistant epilepsy that are referred to CECs for the care that they need.

As we expand our footprint across CECs, we plan to continue to drive increased utilization of our RNS System within new and existing accounts.

We expect to accomplish this by (i) growing the number of epileptologists recommending our system within each center,

(ii) increasing utilization of our system by existing prescribers, and (iii) expanding our referral pathways to increase the number of patients with drug-resistant epilepsy that are referred to CECs for the care that they need.

◦ Growing the number of epileptologists recommending our system :

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While we have achieved significant commercial adoption of our RNS System to date, our target market remains highly underpenetrated and represents a significant opportunity for growth.

We estimate that approximately 48% of the 50,000 new drug-resistant epilepsy patients seen at a Level 4 CEC in 2021 are adults with focal epilepsy and that the clinical and technology benefits of our RNS System are such that it is an attractive therapy for many of these patients.

We estimate that approximately 48% of the 50,000 new drug-resistant epilepsy patients seen at a Level 4 CEC annually are adults with focal epilepsy and that the clinical and technology benefits of our RNS System are such that it is an attractive therapy for many of these patients.

We plan to increase penetration of our target market by increasing utilization by the epileptologists that are already actively prescribing our RNS System.

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We also engage in collaborative clinical research with epileptologists and neurosurgeons to provide additional data relevant to patient selection, patient care, and RNS treatment approaches.

◦ Driving increased referrals of drug-resistant epilepsy patients to Level 4 CECs :

While we estimate that there are approximately 1.2 million patients with drug-resistant epilepsy in the United States, only approximately 50,000 new patients were treated in a Level 4 CEC in 2021.

◦ Driving increased referrals of appropriate drug-resistant epilepsy patients to Level 4 CECs :

While we estimate that there are approximately 1.2 million patients with drug-resistant epilepsy in the United States, only approximately 50,000 new patients are treated in a Level 4 CEC annually.

We believe there is a significant opportunity to increase referrals of patients who could benefit from our RNS System to Level 4 CECs where they can receive specialized care.

To accomplish this, we will continue to drive awareness by engaging epilepsy patients and caregivers through our advocacy partnerships and marketing initiatives such as digital and social media campaigns, advertising, patient education, and patient ambassador programs.

In addition, we plan to increase awareness of our RNS System amongst clinicians who treat epilepsy patients early in their care, including general neurologists and epilepsy specialists who practice outside of Level 4 CECs, through targeted education and outreach designed to drive patient referrals to Level 4 CECs.

• Broaden indications for our RNS System to include patients under age 18 and patients with generalized epilepsy.

Of the 50,000 drug-resistant epilepsy patients that present at Level 4 CECs in the United States

annually, we estimate that approximately 48%, or 24,000, are adults with drug-resistant focal epilepsy who are currently candidates for our RNS System.

The remaining patients include approximately 12%, or 6,000 patients under the age of 18 with drug-resistant focal epilepsy and approximately 40%, or 20,000 patients with drug-resistant generalized epilepsy.

In addition, we plan to increase awareness of our RNS System amongst clinicians who treat epilepsy patients early in their care, including general neurologists and epileptologists who practice outside of Level 4 CECs, through targeted education and outreach designed to drive patient referrals to Level 4 CECs.

◦ Improved visibility into patient pipeline :

In August 2022, we entered into an exclusive distribution agreement, or the Distribution Agreement, with DIXI Medical USA Corp., or DIXI Medical, pursuant to which we became the exclusive U.S.

distributor of DIXI Medical’s product line beginning in October 2022.

DIXI Medical is a subsidiary of a European company that pioneered the development of stereo electroencephalography, or Stereo EEG, electrodes and related products.

These products are used in the epilepsy monitoring units, or EMUs, of comprehensive epilepsy centers to determine where epileptic seizures originate.

In addition to providing us with an incremental revenue stream, the DIXI Medical partnership will provide us with improved visibility of patients moving through the EMUs, many of whom may be candidates for our RNS System.

This synergistic partnership leverages our field organization that is already calling on the same customers and supports our objective to engage earlier in the diagnostic and therapy selection process.

• Broaden indications for our RNS System to include patients with generalized epilepsy and patients under age 18.

Of the 50,000 drug-resistant epilepsy patients that present at Level 4 CECs in the United States annually, we estimate that approximately 48%, or 24,000, are adults with drug-resistant focal epilepsy who are currently candidates for our RNS System.

The remaining patients include approximately 40%, or 20,000 patients with drug-resistant generalized epilepsy and approximately 12%, or 6,000 patients under the age of 18 with drug-resistant focal epilepsy.

Supported by evidence published in peer-reviewed journals, we believe that our current RNS System may be able to effectively treat these expanded patient populations without significant modifications to our existing product and we are pursuing clinical studies to support label expansion for these indications.

We have FDA approval for an investigational device exemption, or IDE, to treat drug-resistant focal epilepsy in adolescent patients ages 12 through 17 and began enrollment in late 2021.

In the second half of 2021, we also received IDE approval to initiate a study in drug-resistant generalized epilepsy and expect to begin enrollment in that study in mid-2022.

We have FDA approval for IDEs to treat both drug-resistant generalized epilepsy as well as drug-resistant focal epilepsy in adolescent patients between ages 12 and 17.

We are currently enrolling patients in both studies.

We currently do not believe we will need to modify our RNS System for potential use in patients under the age of 18 or in generalized epilepsy;

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Seizure-related injuries include burns, head and skeletal trauma, abrasions, lacerations, and potentially life-threatening accidents.

According to the World Health Organization, approximately 50 million people worldwide had epilepsy in 2019 and according to the Centers for Disease Control and Prevention, 3.4 million people in the United States were living with epilepsy in 2015, making it the fourth most common neurological disorder in the United States.

According to the World Health Organization, approximately 50 million people worldwide have epilepsy and according to the Centers for Disease Control and Prevention, 3.4 million people in the United States were living with epilepsy in 2015, making it the fourth most common neurological disorder in the United States.

First line treatment for epilepsy is antiepileptic drugs, or AEDs.

While AEDs can help control seizures for many individuals, approximately one third of patients do not achieve complete seizure control, which is defined as seizure freedom without life-impacting side effects associated with treatment.

According to a 2018 article published in JAMA Neurology, the chance of achieving complete seizure control after failing two AED regimens is less than 5%.

study concluded that despite the availability of over 15 new drugs in the past decade, overall complete seizure control in newly diagnosed patients has not fundamentally changed.

According to a 2018 article published in JAMA

Neurology, the chance of achieving complete seizure control after failing two AED regimens is less than 5%.

The study concluded that despite the availability of over 15 new drugs in the past decade, overall complete seizure control in newly diagnosed patients has not fundamentally changed.

This population of epilepsy patients is referred to as drug-resistant and we estimate that there are approximately 1.2 million drug-resistant epilepsy patients in the United States.

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Today, most drug-resistant epilepsy patients in the United States begin their care at physician offices or community hospitals, with Level 1 or 2 care by primary care physicians or general neurologists.

In 2021, we estimate that approximately 50,000 drug-resistant epilepsy patients were referred to, and treated in, Level 4 CECs, of which approximately 48%, or 24,000, were adults with focal epilepsy.

We estimate that approximately 50,000 drug-resistant epilepsy patients are referred to, and treated in, Level 4 CECs annually, of which approximately 48%, or 24,000, are adults with focal epilepsy.

Our Market Opportunity

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We estimate that there are approximately 575,000 adult drug-resistant focal epilepsy patients in the United States, which reflects a total addressable market opportunity of approximately $26 billion for our RNS System.

Our commercial efforts are focused on the Level 4 CECs in the United States that provide comprehensive epilepsy care.

Our commercial efforts are focused on the CECs in the United States that provide comprehensive epilepsy care.

As such, we view our core annual market as the 50,000 drug-resistant epilepsy patients who present at Level 4 CECs each year, of which 48% are adult drug-resistant focal epilepsy patients.

We estimate that this addressable patient pool of 24,000 patients represents an annual market opportunity of approximately $1.1 billion for initial RNS System implants, and we expect that it will continue to grow as the number of Level 4 CECs increase, the number of epilepsy specialists grows, and as referral pathways are expanded so more patients can be referred to Level 4 CECs.

The FDA recently approved labeling changes indicating that our RNS System has an

average battery life of nearly eleven years, an increase from the previous assumption of eight years, which, through the sale of replacement neuromodulation devices, provides a recurring revenue stream that is additive to our current $1.1 billion annual market opportunity.

We estimate that this addressable patient pool of 24,000 patients represents an annual market opportunity of approximately $1.1 billion for initial RNS System implants, and we expect that it will continue to grow as the number of CECs increase, the number of epileptologists grows, and as referral pathways are expanded so more patients can be referred to Level 4 CECs.

Our RNS System has an average battery life of nearly eleven years, an increase from the previous model of the device,

which, through the sale of replacement neuromodulation devices, provides a recurring revenue stream that is additive to our current $1.1 billion annual market opportunity.

The average age of initial implant patients in our clinical studies was approximately 34 and we expect that many of our patients will return multiple times for replacement procedures over their lifetimes.

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IGE is a subset of generalized epilepsy, is understood to have a strong underlying genetic basis and constitutes as many as one third of all epilepsies.

We believe that this breakthrough designation will help patients suffering from IGE have more timely access to our RNS System.

In the second half of 2021, we also received IDE approval to initiate a clinical study in generalized epilepsy and expect to begin enrollment in mid-2022.

We believe that this breakthrough designation will help patients living with IGE have more timely access to our RNS System.

In the second half of 2021, we also received IDE approval to initiate a clinical study in generalized epilepsy and have begun enrollment.

Based on the additional approximately 6,000 drug-resistant focal epilepsy patients under the age of 18 and approximately 20,000 drug-resistant generalized epilepsy patients that were treated at Level 4 CECs in 2019, we estimate that these patient populations represent total market opportunities of approximately $6 billion and $22 billion, respectively, and annual market opportunities of approximately $270 million and $900 million, respectively for initial implants.

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As we collect iEEG data from our RNS System, our database of iEEG records continues to grow.

As of December 31, 2021, nearly 4,000 epilepsy patients have received our RNS System, yielding an extensive database of over nine million iEEG records.

As of December 31, 2022, over 4,000 epilepsy patients have received our RNS System, yielding an extensive database of over twelve million iEEG records.

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Patients also appreciate that the device is not visible to themselves or others.

The FDA recently approved labeling changes indicating that our current commercial model of our RNS System has an average battery life of nearly eleven years, an increase from the previous assumption of eight years.

Our RNS System has an average battery life of nearly eleven years, an increase from the previous model of the device.

The device requires replacement once it approaches the end of its battery life.

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Data from these studies collectively demonstrate that our RNS System provides significant, sustained, and improving reductions in disabling seizures with enduring improvements in quality of life and cognition for patients with drug-resistant focal epilepsy.

Our first prospective clinical trial, the Feasibility Study, was initiated to assess the safety and performance of our RNS System and to provide preliminary evidence of effectiveness for patients suffering from drug-resistant focal epilepsy.

Data from the two-year Feasibility Study supported IDE approval for our two-year Pivotal Study, a

double blinded randomized, sham-stimulation controlled multi-center study that was initiated in 2005 and provided Class I evidence of the safety and effectiveness of our RNS System.

Data from the two-year Feasibility Study supported IDE approval for our two-year Pivotal Study, a double

blinded randomized, sham-stimulation controlled multi-center study that was initiated in 2005 and provided Class I evidence of the safety and effectiveness of our RNS System.

Data from the Pivotal Study supported FDA PMA approval of our RNS System.

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These SAEs included procedural complications (such as device lead revision or damage, skin laceration, subdural hematoma, premature battery depletion, or implant site erosion), nervous system disorders (such as an increase in complex partial seizures, exacerbation or increase in tonic-clonic seizures, or hydrocephalus), implant site infections, death (seven instances with one for which we were unable to conclude whether there was association with the RNS System), pain, and discharge.

Patients were also assessed for changes in Quality of Life, or QOL, as measured by a comprehensive industry-recognized questionnaire that is validated and widely used for patients suffering from epilepsy.

As shown in the graph below, there were statistically significant sustained improvements in overall QOL as well as in every subdomain of QOL for patients who began treatment less than ten years after epilepsy onset at both one and two years of follow-up.

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Recent analyses of RNS System data describe cycles in seizure activity that were not previously recognized, and propose that these data could assist in forecasting times when patients are at greater risk for seizures.

In addition, a number of these publications are retrospective studies of the “real-world” efficacy and utility of our RNS System, some of which have been supported, in part, by NeuroPace.

In addition, a number of these publications are retrospective studies of the “real-world” efficacy and utility of our RNS System, some of which have been supported, in part, by us.

The largest of these published retrospective studies was a retrospective chart review of 150 patients across eight epilepsy centers who were treated with our RNS System according to the approved indication for use.

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We believe the improvement in seizure frequency outcomes between our Pivotal Study and both our Post-Approval Study and this retrospective study demonstrates the utility that our growing body of brain data is providing to drive better and faster seizure reduction outcomes.

Future Studies

We are pursuing studies to support label expansion for our RNS System in additional epilepsy populations.

We have IDE approval to conduct an open label study of our RNS System in adolescent patients ages 12 through 17 who have drug-resistant focal epilepsy from one or two foci.

Current Studies

We are conducting studies to support label expansion for our RNS System in additional epilepsy populations.

We have IDE approval for an open label study of our RNS System in adolescent patients between ages 12 and 17 who have drug-resistant focal epilepsy from one or two foci.

The objective of this study is to demonstrate safety and effectiveness in this patient population, and to obtain data on quality of life, neuropsychological function, and social function.

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Supported by evidence published in peer-reviewed journals, we also believe that our current RNS System may be able to effectively treat patients with drug-resistant generalized epilepsy.

In February 2021, our RNS System received Breakthrough Device Designation from the FDA for the treatment of IGE and in the second half of 2021, we received IDE approval to initiate a study in IGE.

We expect to begin enrollment in mid-2022.

In February 2021, our RNS System received Breakthrough Device Designation from the FDA for the treatment of IGE.

In the second half of 2021, we received IDE approval to initiate a study in IGE and have begun enrollment.

Commercial Strategy

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We also improve flow of appropriate patients to Level 4 CECs with sales and marketing initiatives designed to enhance awareness of our RNS System and increase referrals of drug-resistant epilepsy patients to these centers.

We believe that with modest additional resources, our commercial organization will have sufficient capacity to establish relationships with the remaining Level 4 CECs in the United States that are not yet using our RNS System and drive increased penetration in new and existing accounts.

We market and sell our RNS System in the United States through a direct sales organization that consists of sales representatives, known as Therapy Consultants, and clinical and programming support specialists, known as Field Clinical Engineers.

Our Therapy Consultants are highly skilled and technically trained with substantial experience launching new disruptive therapies, particularly in neuromodulation, and establishing them as a standard of care by increasing clinician adoption and utilization.

Our Field Clinical Engineers have substantial experience training clinicians on the use of sophisticated technology and providing ongoing support for medical centers as they increase adoption of new therapies.

Our commercial organization supported 150 of the approximately 200 Level 4 CECs in completing new patient implant procedures in 2021.

We believe that through accelerated growth in headcount and other resources, our commercial organization will have sufficient capacity to establish relationships with the remaining Level 4 CECs in the United States that are not yet using our RNS System and drive increased penetration in new and existing accounts.

Our Field Clinical Engineers have substantial experience training clinicians on the use of sophisticated technology and providing ongoing support for medical

centers as they increase adoption of new therapies.

We do not currently sell our product in markets outside the United States.

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Our Field Clinical Engineers are responsible for ongoing account management including training clinicians on the use of our RNS System, promoting its benefits within existing accounts, and driving increased clinician utilization.

We support our sales organization with marketing and training initiatives designed to educate clinicians about our RNS System and support clinician adoption at Level 4 CECs.

We support our sales organization with marketing and training initiatives designed to educate clinicians about our RNS System and support clinician adoption at CECs.

We have developed a robust professional education program that includes educational symposia, fellows training, programming workshops, and peer-to-peer forums.

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These programs include digital and social media campaigns, advertising, public relations, patient webinars, community outreach, support groups, and patient ambassador programs.

In addition, we plan to increase awareness of our RNS System amongst clinicians who care for epilepsy patients early in their care, including general neurologists and epilepsy specialists who practice outside of Level 4 CECs, through education and outreach designed to expand our referral pathways to drive patient referrals to Level 4 CECs.

In addition, we plan to increase awareness of our RNS System amongst clinicians who care for epilepsy patients early in their care, including general neurologists and epileptologists who practice outside of Level 4 CECs, through education and outreach designed to expand our referral pathways to drive patient referrals to Level 4 CECs.

As we grow awareness and utilization of our RNS System, we plan to continue to enhance our marketing and analytics capabilities to support our growing customer base.

Research and Development

We focus our research and development efforts on advancing the treatment of patients suffering from disabling neurological disorders.

We focus our research and development efforts on advancing the treatment of patients living with disabling neurological disorders.

These efforts are enhanced by the strong relationships that we have developed with epileptologists and neurosurgeons, as well as other neuroscientists and experts, through our clinical and commercial activities.

We believe our brain-responsive RNS System is a platform that can drive a better standard of care for patients suffering from drug-resistant epilepsy, and can also offer a more personalized solution and improved outcomes to the large population of patients suffering from other brain disorders.

We believe our brain-responsive RNS System is a platform that can drive a better standard of care for patients living with drug-resistant epilepsy, and can also offer a more personalized solution and improved outcomes to the large population of patients living with other brain disorders.

Our research and development activities encompass basic research, clinical research and product development.

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Our near-term research and development efforts are focused on continuing to improve therapy effectiveness, enhancing the patient and provider experience, and expanding the population of patients that can be treated with our RNS System.

Our research and development activities have resulted in significant new releases of components of

RNS System that advanced these goals.

In 2018, we released a new easy-to-use tablet programmer for clinicians and a new neurostimulator for which the FDA recently approved labeling changes indicating an average battery life of nearly eleven years, an increase from the previous assumption of eight years.

In 2020, our neurostimulator received MRI conditional labeling.

In 2021, we released our nSight Platform.

Our near-term development pipeline includes enhancements that leverage our extensive database of iEEG data and our advanced data analysis and AI capabilities, which provide clinicians with additional information that they can use to enhance their clinical assessment and establish appropriate program settings for each patient.

Our research and development activities have resulted in significant new releases of components of the RNS System that advanced these goals.

program settings for each patient.

In addition to our near-term efforts, we continue to focus on developing our next-generation neurostimulator and developing new features such as streamlined, remote programming capabilities.

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Based on 2023 Medicare national average payment rates, we expect that physician reimbursement under appropriate combinations of these codes may be between approximately $2,500 to $2,730 per procedure for our RNS System and approximately $2,730 for epilepsy DBS procedures.

believe physician services for the VNS implantation procedure are reimbursed under CPT code 64568 which is associated with a 2022 Medicare national average payment rate of approximately $600.

We believe physician services for the VNS implantation procedure are reimbursed under CPT code 64568 which is associated with a 2023 Medicare national average payment rate of approximately $610.

When the battery in our RNS neurostimulator reaches end of service the neurostimulator is typically replaced in a hospital outpatient procedure.

Reimbursement for the facility in the outpatient setting is determined by CMS’ comprehensive Ambulatory Payment Classification, or APC, system which assigns codes specifically related to a single procedure.

Reimbursement for the facility in the outpatient setting is determined by the Centers for Medicare & Medicaid Services’, or CMS’, comprehensive Ambulatory Payment Classification, or APC, system which assigns codes specifically related to a single procedure.

Hospitals receive outpatient reimbursement based on the APC group assigned to the physician service or procedure performed, which are described by CPT codes.

Our RNS System replacement procedure is coded with a Category I CPT code, which maps into APC-5465 for payment to the hospital, and we believe this is the same code used for the initial implant procedure for VNS.

Our RNS System replacement procedure is coded with a Category I CPT code, which maps into APC-5465 for payment

to the hospital, and we believe this is the same code used for the initial implant procedure for VNS.

In 2023, we expect the Medicare average payment rate for APC-5465 at our Level 4 CEC accounts to be approximately $30,800.

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We believe that our RNS System is a paradigm-shifting approach to treating drug-resistant focal epilepsy.

By continuously monitoring the brain’s electrical activity, recognizing and responding to patient-specific seizure onset patterns, and recording ongoing iEEG data that clinicians can use to optimize patient care, we believe our RNS System addresses the primary unmet needs in epilepsy care today.

By continuously monitoring the brain’s electrical activity, recognizing and responding to patient-specific seizure onset

patterns, and recording ongoing iEEG data that clinicians can use to optimize patient care, we believe our RNS System addresses the primary unmet needs in epilepsy care today.

We compete primarily on the basis that our system is designed to offer superior tolerability and efficacy to other neuromodulation approaches, as well as access to continuous brain data.

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Patent and Trademark Office, or the USPTO.

patents, 26 have claims that cover our current RNS System or related products, such as the system itself and methods of using it, as well as the brain leads, lead connector, neurostimulator tray or ferrule, and elements used in the manufacture of the same.

Eight patents have expired in January and February of 2022 and the rest of the patents have anticipated expiration dates ranging from April 2022 to November 2034.

Additionally, 102 of our U.S.

patents and 14 pending applications have claims directed to:

Our patents have claims that cover our current RNS System or related products, such as the system itself and methods of using it, as well as the brain leads, lead connector, neurostimulator tray or ferrule, and elements used in the manufacture of the same.

Additionally, we have pending applications with claims directed to:

detecting anomalous brain activity and the source thereof;

modulating brain activity - such as with electrical stimulation - to treat disorders and diseases of the nervous system;

efficient communication or data transfer between implantable and external components of a neuromodulation system;

communication or data transfer between implantable and external components of a neuromodulation system;

the use of data to optimize therapy outcomes, such as by using artificial intelligence and deep learning techniques;

and various combinations thereof.

These other 102 U.S.

patents have anticipated expiration dates ranging from January 2022 to August 2039.

We own six issued foreign patents, including in Canada, Australia, the U.K., and Germany directed to systems and methods for modulating brain activity.

The six foreign patents are expected to expire in October 2028.

The anticipated expiration dates are without taking into account all possible patent term adjustments, extensions, or abandonments, and assuming payment of all appropriate maintenance, renewal, annuity, and other governmental fees.

We also own several issued foreign patents, including in Canada, Australia, the U.K., and Germany directed to systems and methods for modulating brain activity.

We continue to evaluate our intellectual property portfolio as patents reach end of life to determine the optimal course for continuing to protect our technology.

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with claims directed to inventions in the fields in which we operate or plan to operate.

It is uncertain

whether the issuance of any third-party patent would require us to alter our development or commercial strategies, seek licenses, cease certain activities, or participate in USPTO proceedings.

It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, seek licenses, cease certain activities, or participate in USPTO proceedings.

Moreover, such licenses may not be available on commercially reasonable terms or at all.

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The term of the Cross-License extends through the life of the licensed patents, unless it is extended by the parties or otherwise terminated early pursuant to its terms.

The Cross-License provides that each party may terminate the Cross-License if the other party materially breaches the Cross-License and does not cure the breach within a specified period of time.

The Cross-License provides that each party may

terminate the Cross-License if the other party materially breaches the Cross-License and does not cure the breach within a specified period of time.

Our trademark portfolio is designed to protect the brands of our RNS System and any future products.

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Our failure, or the failure of our suppliers, to maintain acceptable quality requirements could result in substantial fines, the shutdown of our manufacturing operations or the recall of our components of our RNS System, which would harm our business.

In the event that one of our suppliers fails to maintain acceptable quality

requirements, we may have to find and qualify a new supplier and could experience a material adverse effect to our manufacturing operations and result in manufacturing delays.

In the event that one of our suppliers fails to maintain acceptable quality requirements, we may have to find and qualify a new supplier and could experience a material adverse effect to our manufacturing operations and result in manufacturing delays.

We believe our quality management system is compliant with FDA Quality Systems Regulations.

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As a participant in this program, we have an on-site appraisal once a year during which an appraisal team assesses our processes to determine areas for improvement, and we have subsequent quarterly check-in assessments that are designed to discuss our progress in continuous improvement.

For companies that participate in this program, the FDA forgoes conducting routine facility inspections and pre-approval inspections in order to allow participants to shift resources to innovation and improvement efforts.

For companies that participate in this program, the FDA forgoes conducting routine facility inspections and pre-approval inspections in order to allow participants

to shift resources to innovation and improvement efforts.

We believe that we are in compliance, in all material respects, with applicable FDA and QSR requirements.

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Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA approval of a PMA, clearance of a 510(k) premarket notification, or grant of a de novo request for classification.

regulatory control needed to provide reasonable assurance of its safety and effectiveness.

Under the FDCA, medical devices are classified into one of three classes—Class I, Class II, or Class III—depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to provide reasonable assurance of its safety and effectiveness.

Classification of a device is important because the class to which a device is assigned determines, among other things, the necessity and type of FDA review required prior to marketing the device, making changes to the device, or otherwise using the device.

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Class II devices are moderate risk devices subject to the FDA’s general controls, and any other “special controls” deemed necessary by the FDA to ensure the safety and effectiveness of the device, such as performance standards, product-specific guidance documents, special labeling requirements, patient registries, or post-market surveillance.

Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) premarket notification process, though certain Class II devices are exempt from this premarket review process.

Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k)

premarket notification process, though certain Class II devices are exempt from this premarket review process.

When required, the manufacturer must submit to the FDA a premarket notification, or 510(k), submission demonstrating that the device is “substantially equivalent” to a legally marketed device, which in some cases may require submission of clinical data.

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The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s).

The FDA may approve a PMA with post-approval conditions intended to ensure the

safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical trial that supported PMA approval or requirements to conduct additional studies post-approval.

The FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical trial that supported PMA approval or requirements to conduct additional studies post-approval.

The FDA may also condition PMA approval on some form of post-market surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a larger population or for a longer period of use.

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PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory panel.

Certain other changes to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness.

Certain other changes to an approved device require the submission of a new PMA,

such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness.

Changes to our existing product or the development of new products may require the approval of a PMA or additional submissions of PMA supplements.

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The device sponsor must then fulfill more rigorous PMA requirements, or can request a risk-based classification determination for the device in accordance with the “de novo” process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.

that needs to be provided so that the FDA may complete its evaluation of substantial equivalence, and such information may be provided within the time allotted by the FDA or in a new 510(k) submission should the original 510(k) submission have been withdrawn.

If the FDA determines that the information provided in a 510(k) submission is insufficient to demonstrate substantial equivalence to the predicate device, the FDA generally identifies the specific information that needs to be provided so that the FDA may complete its evaluation of substantial equivalence, and such information may be provided within the time allotted by the FDA or in a new 510(k) submission should the original 510(k) submission have been withdrawn.

After a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) marketing clearance or, depending on the modification, PMA approval.

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Clinical trials are typically required to support a PMA, oftentimes for a de novo request for classification, and are sometimes required to support a 510(k) submission.

As has and continues to be required for our RNS System, all clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators.

As has and continues to be required for our RNS System, all clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators.

If the device presents a “significant risk,” as defined by the FDA, to human health, the FDA requires the device sponsor to submit an IDE application to the FDA, which must be approved prior to commencing clinical trials.

A significant risk device is one that presents a potential for serious risk to the health, safety, or welfare of a patient and either is implanted, like our RNS System, purported or represented to be used in supporting or sustaining human life, is for a use that is substantially important in diagnosing, curing, mitigating, or treating disorders or otherwise preventing impairment of human health, or

otherwise presents a potential for serious risk to a subject.

An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound.

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The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the study.

If an IDE application is approved by the FDA and one or more IRBs, clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA.

If an IDE application is approved by

the FDA and one or more IRBs, clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA.

If the device is considered a “non-significant risk,” IDE submission to FDA is not required.

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The qui tam provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted or caused the submission of a false claim to the federal government, and to share in any monetary recovery.

These laws can apply to entities that provide information on coverage, coding, and reimbursement of their products and assistance with obtaining reimbursement to persons who bill payors.

These laws can apply to entities that provide information on

coverage, coding, and reimbursement of their products and assistance with obtaining reimbursement to persons who bill payors.

When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines and, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs.

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In addition, many states, including California, also have state anti-“self-referral” and other laws that are not limited to Medicare and Medicaid referrals, with which we must comply.

HIPAA also created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

The Health Insurance Portability and Accountability Act, or HIPAA, also created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

The Federal Physician Payments Sunshine Act under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively referred to as the Affordable Care Act, which require certain applicable manufacturers of devices, drugs, biologics, kits that required FDA approval or clearance, and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, or CHIP, to report annually to the Centers for Medicare and Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, defined to include doctors, dentists, optometrists, podiatrists and chiropractors, and teaching hospitals, and applicable manufacturers and group

purchasing organizations, to report annually ownership and investment interests held by physicians and their immediate family members.

The Federal Physician Payments Sunshine Act under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively referred to as the Affordable Care Act, which require certain applicable manufacturers of devices, drugs, biologics, kits that required FDA approval or clearance, and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, or CHIP, to report annually to CMS information related to payments and other transfers of value to physicians, defined to include doctors, dentists, optometrists, podiatrists and chiropractors, and teaching hospitals, other healthcare professionals (such as physician assistants and nurse practitioners), and applicable manufacturers and group purchasing organizations, and to report annually ownership and investment interests held by physicians and their immediate family members.

Applicable manufacturers are required to submit annual reports to CMS.

Failure to submit required information may result in civil monetary penalties, which can be increased for “knowing failures”, for all payments, transfers of value or ownership or investment interests that are not timely, accurately, and completely reported in an annual submission, and may result in liability under other federal laws or regulations.

Effective January 1, 2022, these reporting obligations will extend to include transfers of value made during the previous year to certain non-physician providers such as physician assistants and nurse practitioners.

Numerous states have enacted laws prohibiting business corporations, such as us, from practicing medicine and other professions and employing or engaging physicians and other professionals to practice medicine, generally referred to as the prohibition against the corporate practice of medicine.

These laws are designed to prevent interference in the medical decision-making process by anyone who is not a licensed professional.

Violation of these corporate practices of medicine laws may result in civil or criminal fines, as well as sanctions imposed against the business corporation and/or the professional through licensure proceedings and programs and criminal penalties.

Violation of these corporate practice of medicine laws may result in civil or criminal fines, as well as sanctions imposed against the

business corporation and/or the professional through licensure proceedings and programs and criminal penalties.

In addition, various states have enacted false claim laws analogous to the federal False Claims Act, although many of these laws apply where a claim is submitted to any third-party payor and not merely a governmental payor program.

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The coverage, method and level of reimbursement vary from state to state and is subject to each state’s budget restraints.

Changes to the availability of coverage, method or level of reimbursement for our RNS System and

supplemental procedures may affect future revenue negatively if reimbursement amounts are decreased or discontinued.

Changes to the availability of coverage, method or level of reimbursement for our RNS System and supplemental procedures may affect future revenue negatively if reimbursement amounts are decreased or discontinued.

All CMS programs are subject to statutory and regulatory changes, retroactive and prospective rate adjustments, administrative rulings, interpretations of policy, intermediary determinations, and government funding restrictions, all of which may materially increase or decrease the rate of program payments to healthcare facilities and other healthcare providers, including those paid for the implantation of our RNS System and supplemental procedures.

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Changes in healthcare policy could increase our costs, decrease our revenue and impact sales of and reimbursement for our RNS System and future products.

The Affordable Care Act substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts our industry.

The Affordable Care Act substantially changes the way healthcare is financed by both governmental and

private insurers, and significantly impacts our industry.

The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our RNS System and any future products profitably.

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During its history, there have been judicial, executive and Congressional challenges to certain aspects of the Affordable Care Act, such as enactment of the Tax Cuts and Jobs Acts, which, among other things, removed penalties for not complying with the individual mandate to carry health insurance, known as the individual mandate.

On December 14, 2018, a U.S.

District Court Judge in the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the Affordable Care Act, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the Affordable Care Act are invalid as well.

On December 18, 2019, the U.S.

Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act.

The United States Supreme Court is currently reviewing this case, although it is unclear when a decision will be made.

It is unclear whether such litigation and other efforts to repeal and replace the Affordable Care Act will be successful.

On June 17, 2021 the U.S.

Supreme Court dismissed a challenge on procedural grounds that argued the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress.

In addition, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in Affordable Care Act marketplaces through plan year 2025.

The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program.

It is possible that the Affordable Care Act will be subject to judicial or Congressional challenges in the future.

It is unclear how any such challenges and the healthcare reform measures of the Biden administration will impact the Affordable Care Act.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.

amendments to the statute, will remain in effect through 2030 unless additional Congressional action is taken.

For example, the Budget Control Act of 2011, among other things, included reductions to CMS payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2031 unless additional Congressional action is taken.

Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 4% in the final fiscal year of this sequester.

Additionally, the American Taxpayer Relief Act of 2012, among other things, reduced CMS payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, was enacted in response to COVID-19 pandemic.

The CARES Act made various tax law changes, including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted technical corrections so that qualified improvement property can be immediately expensed under IRC Section 168(k) and net operating losses arising in tax years beginning in 2017 and ending in 2018 can be carried back two years and carried forward twenty years without a taxable income limitation as opposed to carried forward indefinitely, and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years.

indefinitely, and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years.

The provisions of the CARES Act were not materially impactful on our tax positions.

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We are not sure whether additional legislative changes will be enacted, or whether the current regulations, guidance or interpretations will be changed by the Biden administration or what the impact of such changes on our business, if any, may be.

Further, it is possible that additional governmental action is taken in response to the ongoing COVID-19 pandemic.

Certain of these changes could impose additional limitations on the rates we will be able to charge for our RNS System and future products or the amounts of reimbursement available for our RNS System and future products from governmental agencies or third-party payors.

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The Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, established uniform standards governing the conduct of certain electronic healthcare transactions and requires certain entities, called covered entities, to comply with standards that include the privacy and security of protected health information, or PHI.

HIPAA also requires business associates and their subcontractors, such as independent contractors or agents of covered entities that have access to PHI in connection with providing a service to or on behalf of a covered entity, of covered entities to enter into business associate agreements with the covered entity and to safeguard the covered entity’s PHI against improper use and disclosure.

HIPAA also requires business associates and their covered subcontractors, such as independent contractors or agents of covered entities that have access to PHI in connection with providing a service to or on behalf of a covered entity, of covered entities to enter into business associate agreements with the covered entity and to safeguard the covered entity’s PHI against improper use and disclosure.

In addition, companies, such as many medical device companies, that would not otherwise be subject to HIPAA may become contractually obligated to follow certain HIPAA requirements through agreements with Covered Entities and Business Associates, and some of our customers may require us to comply with certain of these provisions.

The HIPAA privacy regulations cover the use and disclosure of protected health information by covered entities as well as business associates and associated companies, which are defined to include subcontractors that create, receive, maintain, or transmit protected health information on behalf of a business associate.

They also set forth certain rights that an individual has with respect to his or her protected health information maintained by a covered entity, including the right to access or amend certain records containing protected health information, or to request restrictions on the use or disclosure of protected health information.

The security regulations establish requirements for safeguarding the confidentiality, integrity, and availability of protected health information that is electronically transmitted or electronically stored.

HITECH, among other things, established certain health information security breach notification requirements.

A covered entity must notify any individual whose protected health information is breached according to the specifications set forth in the breach notification rule.

The HIPAA privacy and security regulations establish a uniform federal “floor” and do not supersede state laws that are more stringent or provide individuals with greater rights with respect to the privacy or security of, and access to, their records containing

protected health information or insofar as such state laws apply to personal information that is broader in scope than protected health information as defined under HIPAA.

For HIPAA covered entities and business associates, HIPAA requires the notification of patients, and other compliance actions, in the event of a breach of unsecured protected health information, or PHI.

If notification to patients of a breach is required, such notification must be provided without unreasonable delay and in no event later than 60 calendar days after discovery of the breach.

In addition, under HIPAA, if the PHI of 500 or more individuals is improperly used or disclosed, such improper use or disclosure would have to be reported to the U.S.

Department of Health and Human Services, or HHS, which would post the violation on its website, and to the media.

Failure to comply with the HIPAA privacy and security standards can result in civil monetary penalties, and, in certain circumstances, criminal penalties and/or imprisonment.

HIPAA authorizes state attorneys general to file suit on behalf of their residents for violations.

Courts are able to award damages, costs and attorneys’ fees related to violations of HIPAA in such cases.

While HIPAA does not create a private right of action allowing individuals to file suit in civil court for violations of HIPAA, its standards have been used as the basis for duty of care cases in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.

In addition, HIPAA mandates that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities and their business associates for compliance with the HIPAA privacy and security standards.

It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the civil monetary penalty paid by the violator.

Further, many states have implemented similar privacy laws and regulations that impose restrictive requirements regulating the use and disclosure of health information and other personally identifiable information.

These laws and regulations are not necessarily preempted by HIPAA, particularly if a state affords greater protection to individuals than HIPAA.

As a company that maintains a substantial amount of patient-level data and interacts frequently with both Covered Entities and Business Associates, we may have certain obligations regarding the use and disclosure of any PHI that may be provided to us or data that is generated by us.

If we or our operations are found to be in violation of HIPAA, HITECH or their implementing regulations, and similar state laws, we may be subject to significant penalties, including civil, criminal and administrative penalties, fines, imprisonment and exclusion from participation in federal or state healthcare programs, and the curtailment or restructuring of our operations.

We are also subject to numerous other federal, state and foreign laws, rules, regulations and standards, including consumer protection laws and regulations that govern the collection, dissemination, use, access to, confidentiality and security of patient health and other personal information.

For example, the California state legislature passed the California Consumer Privacy Act, or the CCPA, in 2018 which regulates the processing of personal information of California residents and increases the privacy and security obligations of covered companies handling such personal information, including requiring covered companies to provide new disclosures to California residents, and affords such residents new abilities to opt-out of certain sales of personal information.

The CCPA went into effect on January 1, 2020, and while aspects its interpretation remain to be determined in practice, we are committed to complying with its obligations.

The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information that may increase the likelihood of, and risks associated with, data breach litigation.

The CCPA was amended in September 2018 and November 2019, and it is possible that further amendments will be enacted.

We cannot yet fully predict the impact of the CCPA on our business or operations, but developments regarding the CCPA and all privacy and data protection laws may require us to modify our data policies and practices and to incur substantial costs and expenses in an effort to maintain compliance on an ongoing basis.

Moreover, a new privacy law, the California Privacy Rights Act, or the CPRA, – a consumer privacy ballot initiative that amends and expands the CCPA -- was recently passed.

The CPRA affords California residents significantly more control over their personal information, imposes heightened compliance obligations on covered companies, and establishes a new enforcement agency dedicated to consumer privacy.

The CPRA’s substantive provisions become effective January 1, 2023, and new regulations are expected to be introduced in 2022.

Importantly, certain of CPRA’s provisions impact personal information collected during the ramp-up period, on or after January 1, 2022.

While aspects of the CPRA and its interpretation remain to be determined in practice, they create further uncertainty and may result in additional costs and expenses in an effort to comply.

In addition, Congress and various other states are considering new laws and regulations regarding the privacy and security of heath and other personal information to which we may become subject.

We are also subject to numerous other federal, state, local, and foreign laws, rules, regulations and standards related to data privacy, security and protection, including consumer protection laws and regulations that govern the collection, dissemination, use, access to, confidentiality and security of patient health and other personal information.

Such obligations may include, without limitation, the Federal Trade Commission Act, the California Consumer Privacy Act of 2018, or CCPA, the Canadian Personal Information Protection and Electronic Documents Act, and Canada’s Anti-Spam Legislation.

In addition, Congress and various other states have enacted or are considering new laws and regulations regarding the privacy and security of heath and other personal information to which we may become subject.

Further, all 50 states have passed laws regulating the actions that a business must take if it experiences a data breach, such as prompt disclosure to affected customers.

In addition to data breach notification laws, some states have enacted statutes and rules requiring businesses to reasonably protect certain types of personal information they hold or to otherwise comply with certain specified data security requirements for personal information.

We are also subject to the supervisory and enforcement authority of the Federal Trade Commission with regard to the collection, use, sharing, and disclosure of certain data collected from or about individuals.

We intend to continue to protect all personal information in our control and to comply with all applicable laws regarding the protection of such information.

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jurisdictions, including the EU, Canada, and Japan, and therefore would be subject to non-U.S.

data privacy and security laws, rules, regulations and standards as our operations expand.

data privacy and security laws, rules, regulations

and standards as our operations expand.

For example, the collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the EU, including personal health data, is subject to the GDPR, which took effect across all member states of the European Economic Area, or EEA, in May 2018.

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In addition, the GDPR provides that EU member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric, or health data.

For more information regarding the risks related to data privacy and security, please see “Risk Factors—Our collection, use, storage, disclosure, transfer and other processing of sensitive, and personal information, could give rise to significant costs, liabilities and other risks, including as a result of investigations, inquiries, litigation, fines, legislative and regulatory action and negative press about our privacy and data protection practices, which may harm our business, financial conditions, results of operations and prospects.”

and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security that could give rise to significant costs, liabilities and other risks, including as a result of investigations, inquiries, litigation, fines, legislative and regulatory action and negative press about our privacy and data protection practices, which may disrupt our business operations and harm our business, financial conditions, results of operations and prospects and cause other adverse business consequences.”

Human Capital Resources

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We are focused on developing high quality products that address critical patient needs and maintaining a work environment where employees are respected and encouraged to excel.

As of December 31, 2021, we had 166 employees, 60% of whom are in our Mountain View, CA headquarters with the rest located throughout the United States.

As of December 31, 2022, we had 167 employees.

We believe that the success of our business will depend, in part, on our ability to attract and retain qualified personnel.

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Employee input on ways to improve our business strategy and tactics, work environment and organization is valued and encouraged.

We believe that our ability to provide employees with a dynamic and challenging environment where they are empowered to succeed and accountable to lead further drives a culture embedded in our values.

We believe that our ability to provide

employees with a dynamic and challenging environment where they are empowered to succeed and accountable to lead further drives a culture embedded in our values.

Business Ethics

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By focusing on individual performance, as well as teamwork and collaboration, we believe that we foster an environment that helps employees excel as individuals and as team members.

Eighty-two employees, or 49% of our workforce, have been at NeuroPace for at least five years.

Seventy-one employees, or 43% of our workforce, have been at NeuroPace for at least five years.

To further engage and incentivize our workforce, we offer a wide range of programs and avenues for support, motivation, and professional development.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business