Conference Transcript - NPCE 2026-03-11

Mike Gracchi, Analyst — Lear Inc.

Okay. We can kick things off. Thanks, everybody, for joining. I'm Mike Gracchi. I'm our senior med tech analyst here at Lear Inc. and very pleased to be joined today by Neuropace CEO, Joel Becker, and CFO, Patrick Williams, and in the crowd, Scott Schaefer from Investor Relations

Joel Becker, CEO

as well. So, gentlemen, thank you all for joining. Thank you. Thanks, Mike. Thanks for having us. Thanks to Lear Inc. and looking forward to a great program today. Great. So, you know,

Mike Gracchi, Analyst — Lear Inc.

has ended the year with significant commercial momentum for your core R&S business and focal drug-resistant epilepsy. Joel, I'd love to hear your perspective, just in terms of what have been the two to three most important factors driving some of the recent growth you've seen.

Joel Becker, CEO

It's a great question, Mike. There's really three things I'd point to. One, and you've heard us talk about this, we've been consistent in the execution of the strategy, which is really focused on and starts with driving increased both adoption and utilization in our core Level 4 Comprehensive Epilepsy Center customers. And that's really what has driven our growth, initial implants through both more people prescribing as well as then higher rates of utilization within those centers. One. Two, we've made some improvements in and some investments in our referral management. So really focusing on the pipeline of patients and how do we both identify patients as well as then remove some of the friction for those patients as they move through the pipeline and work to both have high yield of patients that move through the diagnostic process as well as speed that up. And then thirdly, really commercial execution. We've made ongoing investments in the commercial team as well as strengthened our training and our sales leadership team. And I think all those investments compounding are really contributing to the growth momentum that we've seen.

Mike Gracchi, Analyst — Lear Inc.

Excellent. And, you know, maybe just to take a step back, I'd love to hear you characterize RNS's current position in the market, you know, how you're seeing it versus some of the other neuromodulation treatments out there and how that could evolve over the next year or so.

Joel Becker, CEO

Also a great question. From an RNS perspective for Neuropace, we see our technology as one that's highly differentiated versus the other products that are available. And there really isn't anything that does what we do. It's the only closed-loop neuromodulation device. And what that means practically for a patient is that, and for the clinician who cares for them, is that we can monitor and record and analyze what's going on with that patient's particular brain activity and then tailor a therapy protocol to what meets their needs specifically. And so, as I mentioned, we're the only ones who do that and can do that. And so that's a real point of technology differentiation for us. And then the other thing I'd point to is clinical indication expansion. We're really at the forefront of developing the data. And I suspect you may have a question or two about our Nautilus trial here. Certainly will. But we're really at the forefront of developing the data and then the products that go along to support that technology and clinical differentiation with a robust product pipeline. So we start from a differentiated, punchline is we start from a differentiated position with the technology and we're further differentiating the technology as well as the clinical indications.

Mike Gracchi, Analyst — Lear Inc.

Well, certainly a lot to dig into. You know, it might be helpful to frame your 2026 outlook. you know recently issued your guidance 20 to 22 percent for RNS so we'd love to hear some of the factors that might cause you to land on the higher versus low end of that and what do you see is kind of the key points of sensitivity

Joel Becker, CEO

I'll say a little bit and then I'll ask Patrick to to really talk about the the year and it's really the guide is focused around our core business it's the core focal epilepsy business and our core comprehensive epilepsy center our customers. What has been driving the momentum in the business is what we're really focused on when we talk about our outlook for the year. But Patrick, what would you say?

Patrick F. Williams, CFO

Yeah, we guided 98 to 100 million. You talked about it. We had divested from one of our other product lines that we're distributing last year called Dixie. And so the way that we think about potential, maybe top end of the range, as you just stated, was a little bit of what Joel said. I think one of them is the increased productivity and focus of the sales force. And so we've added a lot of new investments. We talked about training. We have a 201 class. We're adding a 301 class. And I think really it's a shift from the company going from maybe a little bit more clinically focused in the past to trying to bring those in harmony with commercial and clinical at the same time. We also made a pretty significant investment in what we call our nurse navigators. And so these are folks that some of them actually came from level four CECs where they actually had the same title. So they navigated a patient that would come in for a workup that potentially could get some sort of medical device intervention for epilepsy. And now they're on our side of the fence. And their goal is to try to shepherd these patients through that process, which can take months, even up to a year, depending on where you're at. And then, you know, I think those are the big opportunities that we have for potential upside on the range. We do have a new product coming out called Seizure ID, which Joel can certainly talk more about but the goal behind that is really our first suite product in our AI suite of artificial intelligence and it's really to make the physicians life a little bit easier more efficient and I think whenever you can make things a little easier adoption can increase and so I would say with our core stuff we have right now that could potentially lead to some upside in that range and then of course the big one Nautilus we do not have the idiopathic indication in our guidance right now and we've talked about that coming in mid of this year, and then there'll be a ramp up on that. But with that, I'll stop and let you

Mike Gracchi, Analyst — Lear Inc.

ask the next question. Sounds great. Maybe just sticking with the focal side for now, but in terms of where we are today, just with level four CEC penetration, the number of patients treated there annually and where you are today, do you see any structural barriers that you think need to still be addressed to be able to drive greater adoption there and just your runway for

Joel Becker, CEO

those patients. A great question with regard to, in particular, some of the dynamics around, we've touched on it a couple of times already, kind of patient flow and patient management from the time when they're determined to be a drug-resistant epilepsy patient, then the diagnostic workup and who does that and where does that take place, etc. And a lot of that really takes place in the level 4 comprehensive epilepsy centers and so that's where we start and that's where our our commercial organization and our clinical organization is focused it's where our customer relationships are deepest and strongest there's about 75 000 patients a year that cycle through the comprehensive epilepsy centers and i know because we follow it closely you model closely our business and so folks can can figure out how many implants a year we do and so by any measure that's a very modest number in terms of penetration even within that core focused group of focal epilepsy patients your question is about constraints and the short answer is there aren't any structural constraints that we see that limit our ability to penetrate both that group as well as in the broader group of drug-resistant epilepsy patients. It's really a matter of effectively educating the clinicians along the way, effectively educating patients along the way, and then having that be, again, as frictionless and losing as few people as possible. And we're actually, we're excited about the things we're doing. Patrick mentioned and the nurse navigators were also excited about the indication expansion work there as well. Because when you think about the business that we're in today, the adult focal patient population, an argument could be made that that's actually the toughest patient population to get to. They have the longest diagnostic pathway. They've been sickest, longest, and some of the indication expansion that we're looking at in terms of idiopathic patients as well as in pediatrics, We think that there's the potential for the diagnostic pathway to be more abbreviated, as well as for some of the adoption dynamics to be even more conducive.

Mike Gracchi, Analyst — Lear Inc.

And, you know, maybe just picking up there, but focus has been historically on those Level 4 centers. Your project care initiative has seemingly been a great success already. Would love to hear you kind of characterize in terms of, you know, as that's progressed, have you seen greater adoption there? Has it largely been coming from a combination of, you know, patients treated outside of these level four centers and enabling that kind of diagnostic pathway or just the referral pathway in general?

Joel Becker, CEO

Our focus has been more broadly on access to RNS. And so if we rewind a couple of years, actually our labeling required us to be focused on not only the adult focal patient population, which is still the case, but also focused on what turns out to be level four comprehensive epilepsy centers because of the requirements that people had to have in place in order to be able to implant RNS. so we actually had a PMA supplement that we filed and was accepted that allowed us to then expand outside the level four centers and what that has done for us is a couple is really two things one with our current approach today it has allowed us to improve education and as a result referral from community centers into level four centers just you can imagine if somebody's in a more far flung geography and they don't naturally have the relationships and connection with a comprehensive center we can help facilitate that so one it helps with referral to there are centers out in the community who can readily treat both diagnose as well as implant and then program RNS devices and so we've been able to bring additional implanting centers up and then thirdly we've been able to do that along the way as well and what I mean by along the way is some of these centers will become implanting centers they're not there quite yet and so we get a combination then of those people referring while they develop their program so referral implant as well as program development I think has all been helpful and additive to the growth that we've been seeing in the comprehensive epilepsy centers I consider it particularly encouraging however that the growth that we're seeing is primarily driven by adoption and utilization with regard to initial implants in the adult focal population in the comprehensive epilepsy centers so almost the most focal pardon the pun approach that we could have to the market is driving the growth that we're seeing today, and now we've got market development, clinical data development, and product development levers that we're executing on in our strategy that's going to broaden that approach, and I think will be salutary to growth going forward. Yeah, and maybe another one there, right, but on the

Mike Gracchi, Analyst — Lear Inc.

physician fees that you saw, a nice uplift there recently, recognizing it's still early days, but curious if you've been able to detect any impact from that yet, or just how you think about reimbursement in general as another potential source of upside? We had a good year in 2025

Joel Becker, CEO

with regard to reimbursement and the physician fees being one of them. Patrick actually leads our efforts there in reimbursement, so I'll ask him to say a little bit about that. But with regard to CPT and physician payment, with regard to outpatient payment, and with regard to inpatient reimbursement, we had momentum on all three fronts. Yeah, I agree. And I think the way that

Patrick F. Williams, CFO

we think about it is whenever CMS and reimbursement can move in a neutral to positive direction, that's a good thing. And I know there's been some other spaces within life science med device that have taken maybe a little bit more of a hit on this. We feel pretty good about where we're at. We feel very good about where we're at. 25 was a good year, so that means 26 is all set. We took a little bit on the CPT side, but that's the neurosurgeon, so that's the implanter. We don't really get, we don't get to monetize that side of it. The epileptologist and the level fours neurologists that are doing the work. I think there's some stuff that we can do there as we move forward to try to see if we can increase their reimbursement for monitoring and taking care of the patients. I think the big one for us was related to our DRG. There was a little bit of chatter and noise around a potential downgrading of that, and that did not happen. And so, you know, we were able to meet with CMS, have strong conversations with them, and they kept us stable and in the same DRG code that we have. And in fact, as we kind of look forward, we're looking at how we can up level that DRG as we move forward. So what you don't hear from us or hear from our hospital customers is that they're losing money on our procedure. And that's always a good thing. And so as a reminder, about 20% of our overall payer mix is what I would call just sort of standard traditional Medicare Medicaid. About another 30% is through the advantages, we'll call So Medicare Advantage Medicaid Advantage primarily and then the other 50% is what we would call our sort of Prototypical private payers and so you know we're as Joel likes to say We're trying to be a little bit more offensive or proactive on the reimbursement side and that will certainly segue into expanded indications We've got exactly the same DRG code. It's the same procedure. It's the same implant. It's the same call point And so all of that is being worked on very closely now I'm sure we'll talk about it, but you know It'll take a little bit of time to get those private pairs on board including the advantage ones And so what we've talked about is probably upwards of 12 months before we go through the full cycle of all of the coverage Policy things that we need to go through and get everyone on board, but we're being very proactive in that got it

Mike Gracchi, Analyst — Lear Inc.

Yeah, really helpful and you both knew it was coming. So would love to jump into the Nautilus side the IGE expansion You know you recently confirmed that the FDA accepted the PMA submission so review process ongoing, how would you characterize your current level of confidence on being able to get FDA approval for this new indication?

Joel Becker, CEO

Yeah, it's an important topic and important topic for us as well, as you mentioned. We submitted the PMA supplement for the idiopathic generalized patient population in December on time, and I think a high-quality submission. The agency, as you mentioned, has accepted that submission, which indicates that not only did it have the elements that they were looking for to be able to evaluate the application, but that they're active in looking at it. And so those are both positive indicators in our view. we we feel like the discussions have been productive and we think things are moving according to our expectations we are pleased that we have a breakthrough designation on the application because it allows us to be more interactive versus maybe in sometimes you'd think about more of an episodic interaction with the agency and you can't you submit something and then you kind of wonder what's going on, whereas with our breakthrough designation, and frankly, with a lot of the work that we've done to establish a dialogue with the agency on a number of different fronts, we have an ongoing, again, what I'd consider to be a very productive interaction. I'm not going to be in the game of predicting probabilities here, but again, I'd say that it's moving according to our expectations and we're excited about it yeah fantastic well maybe to to dig in

Mike Gracchi, Analyst — Lear Inc.

on the nautilus data a little bit um you know we saw the top line results come out and then we saw additional data come out throughout the year that um i think there was a lot to be excited about so maybe would love to get your perspective on you know maybe two or three of the main things that you came away from the results with, and any highlights from the data? Thank you.

Joel Becker, CEO

I'm working to pick out two or three because there's a lot of good stuff in there, and we spend a fair bit of time focused on it, so there's a lot we could... I've only got 12 minutes, but the two or three things. Okay, number one is, and sometimes, and I think it's appropriate, but sometimes we can gloss over this. But important bullet point number one would be just the extraordinarily safe device and procedure and therapy that we have here in this patient population. And sometimes, again, people would say, well, yeah, of course it's safe. Well, think about that for a minute. Yeah, of course it's safe. And so the first conversation any clinician is going to have with a patient, a question a patient is going to have is, is this safe for me? And the answer is yes. And it's safe both with regard to the surgical procedure. We have more than 8,000 patients treated now, and our most common complication is less than 2% infection rate at the site of the skin incision, which doesn't have anything to do with the RNS procedure or device. And so we have a very, very safe procedure, one. Before we did this trial, nobody knew whether it was both safe as well as viable to place our leads in the thalamus to record and stimulate the way that we do in this patient population. Nobody had ever systematically done it and evaluated it. And we have and we have level one evidence that says, yes, it's very safe to do procedurally placement wise and and from a therapy perspective. So, you know, not not to get too far ahead without saying we have a very safe procedure here to the the efficacy data in particular, the pre-specified secondary endpoints around median seizure reduction. The data was recently presented at the American Epilepsy Society meeting. A 77% median seizure reduction rate in a highly refractory population that does not have other options and suffers from what we call generalized tonic-clonic seizures, GTCs, the big ones, the ones that are particularly dangerous, have to carry a higher risk of injury, a higher risk of potential death for epilepsy patients. A 77% reduction at 18 months portends even better results than we see in the focal population we have approval for today. And then thirdly, both patient as well as physician impressions as to improvement in quality of life were significantly and consistently improved. So I think really across the board, we're excited about the Nautilus data and look forward to talking to folks about it, both regulators as well as then eventually clinicians.

Mike Gracchi, Analyst — Lear Inc.

Yeah, understood. And maybe on the efficacy side, I mean, when you think about KOL feedback and what you've been hearing from the medical community, how do they kind of value the different clinical measures of efficacy? And, you know, how do they think about median seizure reduction is something that they track for their patients?

Joel Becker, CEO

So it's a great question. And the feed is just to start with clinician feedback. So most of the clinician feedback that we get because we're still an investigative device is from the investigators. And those are the folks that we interact with most on the topic. and investigators were very pleased with the data and excited to see the outcomes. A number of congratulations and way to go and that kind of feedback, which is obviously great to see. And I think we also saw in the trial people voting with their feet, as it were, the trial enrolled ahead of schedule. And so, you know, trial enrollment schedules often move. They don't often move left. Most of the time they move right. And so we think that both with regard to what clinicians were seeing in their observational work during the trial, as well as the unmet need for this population, people are encouraged by what they were seeing and are further encouraged by the data that they have seen.

Mike Gracchi, Analyst — Lear Inc.

Understood. And, you know, I know it's we'll keep an eye out for the approval and FDA decision later this year. But as we think about the potential size of that market, you know, how would you kind of characterize what that could mean for your business and just the overall size of the opportunity?

Joel Becker, CEO

Maybe I'll start there with zooming out a little bit and talking about the universe of drug resistant epilepsy patients. So if I'll confine my commentary here to the United States. but if you think about in the United States there are about 3.6 million people who have epilepsy about a third of those are drug-resistant epilepsy patients so 1.2 million within the drug-resistant epilepsy population it segments to about 60% focal about 40% generalized when we think about generalized what we're talking about here is the idiopathic generalized epilepsy population. That group is the largest sub-segment of the generalized population and is about 50% of the generalized population. So when you zoom back out to that 1.2 million, about 20% of that entire population is the idiopathic generalized group. And so, you know, 40% of the 1.2 is about four hundred and eighty thousand patients so about two hundred and forty to two hundred and fifty thousand of those patients are formerly idiopathic generalized patients and so a large sub segment here that I think again I'll just I'll comment on a little bit I made reference to earlier some of the diagnostic pathway and potential adoption dynamics from a diagnostic pathway perspective that group of idiopathic patients doesn't need all of the diagnostic work that the focal group does and so has the potential to move from diagnosis to treatment more expeditiously one two there are no other approved and indicated devices for drug-resistant idiopathic generalized epilepsy patients and so being being the first to do so and to have the data to support it we think has the has the potential to really open up again back access for RNS sometimes people can say I think well okay the RNS system is on the market today and can't people just use it in an idiopathic generalized population and I would just have everybody consider again if we're back to where a lot of patients would live and where a lot of patients get treated you know our lives we tend to spend a lot of time thinking about cutting-edge technology and emerging indications and those kinds of things when you're a patient and somebody says here's the procedure we'd recommend for you and here's the device that the first thing is well what about all that and the second thing is it we believe it makes a difference if somebody says it's not approved by the FDA or it is approved by the FDA in that referral process and so we're doing the work to get the approval to demonstrate the leadership to really help improve access to the technology for patients yeah yeah no

Mike Gracchi, Analyst — Lear Inc.

You know, all very fair points there. I guess, you know, that's kind of the size of the opportunity. As you think about the preparations, the accessibility of that market, once you get an approval, you know, is this something where we could see an impact right away? Is it going to take some time beyond that? How should we think about the cadence of commercial adoption?

Joel Becker, CEO

It's another great question, and it's something we spend a lot of time thinking about, have been spending a lot of time thinking about. and there are a number of things that were we have been working on and are working on to put ourselves in position to take advantage of the approval and so we've been investing in our commercial organ so for example one we've been investing in our commercial organization for a couple years here to provide the capacity and you know importantly we have there's a lot required of our field people they work very closely with our clinicians and we have high expectations there. And so it takes us some time to find and train and then and then have clinically effective those folks. So we've been working over the past couple years to invest in and expand our commercial organization to be able to provide that level of support. And so we feel like with the additional investments we're making here in 2026, we'll have the capacity that we need and will be in position to support the potential for an approval, one. Two, the reimbursement work that Patrick mentioned, we're working in advance of approval to make sure that we have a good understanding of what the different private payers in particular are looking for and making sure we're well prepared to be in front of and a part of the medical director's review. the good news is it's the same product the codes already exist for focal it's a matter of getting those codes extended to the emerging indication so we don't see the same kind of lift that you need when you are just starting trying to get coverage for something but there will be work there and as you know I know and and others either in the room or listening are probably aware of as well Private payer insurance coverage decisions are on an annualized basis, primarily annualized, and they're somewhat staggered. And so there'll be a rolling process here of getting those folks to evaluate those coverage decisions and then extend those coverage decisions. And so it's going to take us a period of months, the 12 to, in some cases, maybe even as long as 18 months to get those things in place. We expect that we will be able to given the data and the fact that coverage exists for the technology already But those are all things that we have been working on and are working on to lay track today and create capacity In advance of of that

Mike Gracchi, Analyst — Lear Inc.

Yeah, very helpful and you know Maybe just one last one on the commercial side But in terms of how you think about the therapeutics landscape and how sensitive your commercial opportunity will be to some of these developments on the drug side um you know how would you characterize that dynamic well we're

Joel Becker, CEO

we're pleased to see and are happy to work closely with drugs and biotherapeutics in the space our mission is to help patients that are suffering from debilitating seizures and our indication for use is for the rns system and neuromodulation to be used in conjunction with drug therapy And so we want to see as much advancement as possible across all fronts. And unfortunately, if you look back at the history of epilepsy and pharmaceuticals and other therapeutics, over the past hundred years or so, there have been three generations of drugs and about 40 different medications approved. And over that period of time, there have been about a third of patients that remain drug-resistant. And so improvements in quality of life, improvements in efficacy rates within that group, improvements in the length of time that patients can benefit. But in the end, it looks like there's a group of patients that are pharmacoreactive and a group of patients that are pharmacoresistant. and our hope and our focus and what we've seen is that, back to your question about differentiation, the unique differentiation of the RNS system that allows us to record and then analyze what's going on with these patients. Out there, every day, we're providing physicians a window to the brain that allows them to both manage patients better with regard to medicines, diet, lifestyle, as well as neuromodulation. And so that's the role we want to play.

Mike Gracchi, Analyst — Lear Inc.

said, we're unfortunately already up on time, but Joel, Patrick, really appreciate the attendance and thank you both for coming.

Joel Becker, CEO

Thank you, Mike. Appreciate it.