FDA Rejects NeuroPace's Bid to Widen Epilepsy Device Use
Regulators asked NeuroPace for 24 months of additional clinical follow-up before reconsidering a broader epilepsy indication the company had expected to win by mid-2026.
NeuroPace (NPCE), maker of the RNS System brain-responsive neurostimulator for epilepsy, said the Food and Drug Administration determined that its supplement seeking approval for idiopathic generalized epilepsy was not approvable in its current form. The agency asked for additional clinical evidence, including 24-month data from the company's NAUTILUS trial, before it will revisit the application. NeuroPace said it will file a Submission Issue Request and amend the supplement with the supplemental data rather than proceed toward the approval it had targeted for mid-2026.
The rejection reverses a regulatory path that had looked on track. A mid-cycle review with the FDA in the first quarter of 2026 was "consistent with the expected regulatory timeline". The underlying supplement, filed in the fourth quarter of 2025, had been backed by 18-month NAUTILUS data showing a 77% median reduction in generalized tonic-clonic seizures.
The setback lands as NeuroPace's core growth was already cooling. Total revenue growth peaked at 30% in the third quarter of 2025, a record $27.4 million, before slowing to 24% in the fourth quarter and 20.1% in the first quarter of 2026, when non-GAAP revenue reached $22.0 million. Sales of the RNS System itself followed the same pattern, with growth decelerating from 31% to 26% to 19.5% over the same three quarters.
Profitability metrics moved in the other direction. NeuroPace narrowed its adjusted EBITDA loss to $3.3 million in the first quarter of 2026 from $4.1 million a year earlier, extending an improvement that included a full-year 2025 adjusted EBITDA loss of $5.0 million and a rare positive quarter, $0.9 million, in the fourth quarter of 2025. Gross margin also stepped up, to a non-GAAP 82.5% in the first quarter of 2026 from 77.4% on a GAAP basis in the fourth quarter, though the company began excluding its DIXI Medical distribution business and stock-based compensation from that figure for the first time, a presentation change that would affect comparability with its prior GAAP disclosures.
Full-year 2026 revenue guidance had been raised twice ahead of the FDA decision, moving from $94 million to $98 million in mid-2025 to $97 million to $98 million later that year, then to $99 million to $101 million with the first-quarter 2026 report. All of that guidance excludes any contribution from the epilepsy indication expansion, meaning the base outlook stands even as the additional upside investors had been tracking toward a mid-2026 approval falls away.
The distribution partnership with DIXI Medical, wound down earlier than originally planned after commercial activities ceased on December 31, 2025 rather than the previously agreed March 2026 date, contributed just $0.1 million of the company's $22.1 million in first-quarter GAAP revenue. Operating expenses continued to climb in dollar terms, driven by sales and marketing headcount and by research spending on a next-generation platform and the company's AI-enabled Seizure ID tool.
One tailwind remains independent of the regulatory timeline. Medicare reimbursement for RNS System procedures rose starting January 1, 2026, with average hospital payment for replacement procedures up 47% and physician fee schedule payments up roughly 43% to 45% under the 2026 Outpatient Prospective Payment System rule.