You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions, which are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled "Risk Factors," under Part II, Item 1A of this report and those discussed in our other disclosures and filings. Overview We are a commercial-stage medical device company focused on transforming the lives of people suffering from epilepsy by reducing or eliminating the occurrence of debilitating seizures. Our novel and differentiated RNS System is the first and only commercially available, brain-responsive neuromodulation system that delivers personalized, real-time treatment at the seizure source. By continuously monitoring the brain's electrical activity, recognizing patient-specific abnormal electrical patterns, and responding in real time with imperceptible electrical pulses to prevent seizures, our RNS System delivers the precise amount of therapy when and where it is needed and provides exceptional clinical outcomes with approximately three minutes of stimulation on average per day. Our RNS System is also the only commercially available device that records continuous brain activity data and allows clinicians to monitor patients not only in person, but also remotely, in order to make more informed treatment decisions, thus optimizing patient care. We believe the therapeutic advantages of our RNS System, combined with the insights obtained from our extensive brain data set, offer a significant leap forward in epilepsy treatment. Our RNS System is currently indicated in
the United Statesfor use in adult epilepsy patients, meaning patients whoare 18 years of age or older, with drug-resistant focal epilepsy. As of March 31, 2022, over 4,000 epilepsy 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 Stateswith drug-resistant focal epilepsy. We continue seeking indication expansion to, over time, more broadly reach the entire approximately 1.2 million drug-resistant epilepsy patients in the United Statesand may additionally seek to expand our operations to reach the approximately 16.5 million drug-resistant epilepsy patients globally. Our commercial efforts are focused on the comprehensive epilepsy centers, or Level 4 CECs, 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 Stateseach year. We estimate that this patient pool represents an annual core market opportunity of approximately $1.1 billionfor initial RNS System implants, and we expect that it will continue to grow as the number of Level 4 CECs and the number of epilepsy specialists increase, as more patients are referred to these CECs, and as more care for RNS-implanted patients can happen outside of the Level 4 CECs. In addition, the sale of replacement neuromodulation devices when the battery in our RNS neurostimulator approaches end of service provides a recurring revenue stream that is additive to our current $1.1 billionannual market opportunity for initial implants. We received Premarket Approval, or PMA, from the FDA for our RNS System in late 2013 and began the commercial rollout of our RNS System in early 2014. We market our RNS System in the United Statesthrough a direct sales organization primarily to the epileptologists and neurosurgeons whorespectively prescribe and implant neuromodulation devices in the approximately 200 Level 4 CECs in the United States. We have established a significant account base at these Level 4 CECs. Given the concentrated and underpenetrated nature of our target market, we believe that through accelerated salesforce expansion, there is a significant opportunity to efficiently grow our account base, drive higher utilization within these centers, and expand our referral channel to increase the number of drug-resistant patients referred to Level 4 CECs. 20 -------------------------------------------------------------------------------- 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. In addition, we believe that our RNS System is currently the only neuromodulation system for epilepsy with reimbursement available for periodic in-person or remote review of brain activity data. Given the relatively young average age of our patient population, our payor mix has historically been more heavily weighted towards commercial payors. As of March 31, 2022, commercial payors have written positive coverage policies that address over 200 million covered lives in the United States. Medicare and Medicaid also routinely provide coverage for implantation of our RNS System and follow-up care. Based on our experience, less than 1% of potential RNS System patients have been unable to undergo an implant procedure with our RNS System due to lack of payor coverage. We believe the established, differentiated, and favorable reimbursement paradigm for our RNS System will continue to support its broad commercial adoption. We currently manufacture our RNS System at and distribute all of our products from our approximately 53,000 square foot facility in Mountain View, California. This facility provides approximately 20,000 square feet of space for our production and distribution operations, including manufacturing, quality control and storage. We believe our existing facility will be sufficient to meet our current and near-term manufacturing needs. Since our inception, we have generated significant losses. To date, we have financed our operations primarily through the sale of equity securities, debt financing arrangements and sales of our products. As of March 31, 2022, we had an accumulated deficit of $435.2 million, cash, cash equivalents and short-term marketable debt securities of $103.2 million, and $50.1 millionof outstanding term loans, net of debt discount and issuance costs. On April 21, 2021, we completed our initial public offering of our common stock, or IPO, in which we issued and sold an aggregate of 6,900,000 shares of common stock (inclusive of 900,000 shares pursuant to the exercise by the underwriters of their option) at a price of $17.00per share for aggregate cash proceeds of approximately $105.5 million, net of underwriting discounts and commissions and offering costs. The sale and issuance of 6,900,000 shares in the IPO closed on April 26, 2021. Upon the closing of the IPO on April 26, 2021, all outstanding shares of redeemable convertible preferred stock automatically converted into 16,614,178 shares of common stock. Subsequent to the closing of the IPO, there were no shares of redeemable convertible preferred stock outstanding. We have invested heavily and expect to continue to invest in research and development and commercial activities. These research and development expenses include clinical studies to demonstrate the safety and efficacy of our RNS System and to obtain, as well as retain, FDA approval. We intend to continue making significant investments in research and development, clinical studies and regulatory affairs to support ongoing and future regulatory submissions for retaining and expanding indications of our RNS System, including to adolescent patients, ages 12-17, and drug-resistant generalized epilepsy patients, support continuous improvements to our RNS System, and develop future products that address neurological disorders. We have also made significant investments in building our field commercial team and intend to make significant investments in sales and marketing efforts in the future, including initiatives to drive awareness and expand our referral channel to increase the number of drug-resistant epilepsy patients referred to Level 4 CECs. Moreover, we expect to continue to incur additional expenses associated with operating as a public company. We may in the future seek to acquire or invest in additional businesses, products, or technologies that we believe could complement or enhance our products, enhance our technical capabilities or otherwise offer growth opportunities, although we currently have no agreements or understandings with respect to any such acquisitions or investments. Because of these and other factors, we expect to continue to incur net losses and negative cash flows for the next several years. We may require additional funding to support operations and pay our obligations or may opportunistically seek to raise additional capital, which may include future equity or debt financings.
We believe that our cash, cash equivalents and short-term investments will allow us to continue our operations for at least the next 12 months.
Impact of the COVID-19 pandemic
Since it was reported to have surfaced in
December 2019, the SARS-CoV-2 strain of coronavirus, or COVID-19, has spread across the world, being declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have been significant and governments around the world, including in the United States, have implemented severe travel restrictions, social distancing requirements, quarantines, stay-at-home orders and other significant restrictions. As a result, the current COVID-19 pandemic has presented a substantial public health and economic challenge and is affecting hospitals, physicians, patients, communities and business operations, as well as contributing to significant volatility and negative pressure on the U.S.and world economy and in financial markets. The COVID-19 pandemic has negatively impacted our business, financial condition and results of operations by decreasing and delaying procedures performed to implant our RNS System, delaying and decreasing epilepsy diagnostic evaluations at epilepsy monitoring units, or EMUs, as well as creating hospital staffing shortages and periodic increased vacation demand as a result of loosening travel restrictions, and we expect the pandemic will continue to negatively impact our business, financial condition and results of operations. Beginning in March 2020and through today, our net sales continue to be negatively impacted by the COVID-19 pandemic as hospitals delay or cancel elective procedures, including because of staffing shortages and patients fearing potential exposure. Many state and local governments in the U.S.have issued periodic orders that temporarily preclude elective procedures in order to conserve scarce health system resources in view of the pandemic and to protect patient health. The decreases in hospital admission rates and elective surgeries have reduced the demand for elective procedures, including implantation of our RNS System. In addition, hospitals delayed or cancelled admissions for epilepsy diagnostic evaluations which we believe has reduced and will continue to temporarily reduce our patient pipeline.
In response to the COVID-19 pandemic, we have made investments to implement various measures to help us manage its impact while maintaining business continuity to support our customers and patients. These measures include:
• Establish safety protocols, facility upgrades and work-from-home strategies to protect our employees;
• Ensure that our manufacturing and supply chain operations remain intact and operational;
• Keep our workforce intact, including our experienced and specialized employees
sales and clinical support team;
•Develop new methods of remote support for doctors in their use of our RNS system;
•Implement virtual physician training programs to support opening new accounts with minimal in-person interaction;
• Continue our physician education programs and direct patient marketing efforts through social media and other virtual forums; and
•Increased our capital resources through the issuance of our Series B convertible preferred shares in
While our hospital customers began to gradually perform elective epilepsy procedures again during the second half of 2020, we saw another reduction in these procedures in late 2020, during parts of 2021, and in the beginning of 2022. Our business was negatively impacted in the third quarter of 2021 due to the rise in
COVID-19 Deltavariant cases, increased vacation demand and hospital staffing shortages and in the fourth quarter of 2021 due to the rise in COVID-19 Omicron variant cases and ongoing hospital staffing shortages. A surge in Omicron variant cases early in the first quarter of 2022 had a significant negative impact on our business due to limits on elective 22 --------------------------------------------------------------------------------
procedures and hospital staffing shortages until later in the quarter when COVID patient infections and hospital restrictions began to ease.
We believe the challenges resulting from COVID-19 will likely continue for the duration of the pandemic, which is uncertain, and will continue to impact our revenue and negatively impact our business, financial condition and results of operations. While our business grew in 2021, we continue to experience variability in RNS procedures, largely coinciding with periodic spikes in COVID-19 cases. Given the dramatic increase in COVID-19 infections in the beginning of 2022, we cannot provide assurance that we will not experience additional negative impacts associated with COVID-19, which could be significant. We believe that we may see fluctuations in RNS System procedures as the impact of COVID-19 continues. In addition, due to the pandemic, our patient pipeline may continue to be reduced temporarily due to a delay in the diagnostic evaluations that are used to identify appropriate patients for our RNS System. Further, once the pandemic subsides, there may be a substantial backlog of EMU admissions and of procedures to be performed at hospitals for a variety of medical conditions. As a result, patients seeking treatment with our RNS System may have to navigate limited provider capacity. We believe this limited EMU and hospital capacity could have a significant adverse effect on our business, financial condition and results of operations throughout the remainder of and following the end of the pandemic. We experienced unusual seasonality in the third quarter of 2021 and may experience seasonality in the future as certain pandemic restrictions are relaxed and physicians and patients take vacations, resulting in a reduction in RNS procedures. Additionally, hospitals continue to experience staffing shortages and may experience them in future, also resulting in a reduction in RNS procedures. The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity and spread of COVID-19 and its variants and the actions to contain the spread of COVID-19 and its variants or treat its impact, among others.
Our financial statements reflect judgments and estimates that may change in the future due to the COVID-19 pandemic.
Factors affecting our performance
We believe there are several important factors that have impacted and that we expect will continue to impact our business and results of operations. These factors include:
Awareness of clinicians, hospitals and patients and acceptance of our RNS system
Our goal is to establish our RNS System as a standard of care for drug-resistant epilepsy. We intend to continue to promote awareness of our RNS System within existing and new accounts through additional investments in training and education of clinicians, epilepsy centers, hospitals and patients on the clinical benefits of our RNS System for the treatment of drug-resistant epilepsy. In addition, we intend to publish additional clinical data in scientific journals and to continue presenting at medical conferences. We plan to continue building patient awareness through increasing direct-to-patient marketing initiatives, which include advertising, social media and online education. We also intend to continue supporting patient and referring clinician outreach efforts to help increase the number of appropriate patients with drug-resistant epilepsy being treated at Level 4 CECs. These efforts require significant investment by our marketing and sales organization.
Our ability to retain our experienced sales team and increase their productivity
We have made significant investments in, and will continue to invest in, recruiting, training and retaining our experienced and specialized direct sales team, which includes
Therapy Consultantsand Field Clinical Engineers. Significant education and training is required for our team to achieve the level of technical competency with our products that is expected by clinicians and to gain experience building demand for our RNS System. Upon completion of initial training, our personnel typically require time in the field to grow their network of accounts, build relationships with clinicians and increase their productivity to the levels we expect. We believe successfully training, developing and retaining our Therapy Consultantsand Field Clinical Engineers will be required to achieve growth. In addition, the loss of any productive sales personnel would have a negative impact on our ability to grow our business. 23 --------------------------------------------------------------------------------
Our industry is highly competitive and subject to rapid change from the introduction of new products and technologies and the marketing activities of industry participants. There are two primary treatment alternatives for adults with drug-resistant epilepsy: (i) an ablative or resective surgery; and (ii) implantation of a neuromodulation device. Within neuromodulation, we currently compete with two manufacturers of neuromodulation devices. These companies have longer operating histories, significantly greater resources and name recognition, and established relationships with physicians and hospitals that treat patients with epilepsy. In addition to competing for market share, we also compete against these companies for personnel, including qualified sales and other personnel that are necessary to grow our business.
Leverage our manufacturing capacity to further improve our gross margin
With our current operating model and infrastructure, we believe that we have the capacity to significantly increase our manufacturing production. If we grow our revenue and sell more RNS Systems, our fixed manufacturing costs will be spread over more units, which we believe will reduce our manufacturing costs on a per-unit basis and in turn improve our gross margin. In addition, we intend to continue investing in manufacturing efficiencies in order to reduce our overall manufacturing costs. However, other factors will continue to impact our gross margin such as the cost of materials, components and subassemblies, pricing, procedure mix, and geographic sales mix to the extent that we commercialize our RNS System outside of
the United States.
Invest in research and development, including clinical studies, to expand our addressable market
We intend to continue investing in clinical studies and existing and next generation technologies to further improve our RNS System and clinical outcomes, enhance the patient and provider experience and broaden the patient population that can be treated with our RNS System. In addition, we are continuing to leverage our extensive database of intracranial electroencephalogram, or iEEG, data and our advanced data analysis capabilities to equip clinicians with the data they need to establish optimal program settings for each patient. While research and development and clinical studies are time consuming and costly, we believe that a pipeline of product enhancements and new products that improve efficacy, safety and ease of use is important for supporting increased adoption of our RNS System.
Change of procedure
We derive revenue from sales of our RNS System to hospital facilities both for initial RNS System implant procedures and for replacement procedures when our implanted devices reach end of service. We launched our current neurostimulator model in 2018. The FDA recently approved labeling changes indicating that this device has an average battery life of nearly eleven years, an increase from the previous assumption of eight years. We expect that our revenue from replacement procedures will decrease over the next few years as a result of the extended replacement cycle of the newer device. In addition, a change in procedure mix between initial and replacement procedures may have a negative impact on our gross margin.
Components of our operating results
We derive substantially all our revenue from sales of our RNS System to hospital facilities (typically Level 4 CECs) that implant our RNS System. We currently deliver our RNS System to a hospital on the date of the scheduled procedure. There is no commitment to purchase our RNS System until the delivery of the product, as the procedure may be canceled at any time. Our revenue fluctuates primarily based on the volume of procedures performed and the procedure mix between initial and replacement implants. Our revenue also fluctuates and in the future will continue to fluctuate from quarter-to-quarter due to a variety of factors, including the success of our sales force in expanding adoption of our RNS System in new accounts and the number of physicians
whoare aware of and prescribe our RNS System. 24 --------------------------------------------------------------------------------
Cost of Goods Sold and Gross Margin
Cost of goods sold consists primarily of costs related to materials, components and subassemblies, personnel-related expenses for our manufacturing and quality assurance employees, including expenses related to stock-based compensation, manufacturing overhead, charges for excess, obsolete and non-sellable inventories, and royalties. Overhead costs include the cost of quality assurance, testing, material procurement, inventory control, operations supervision and management personnel, an allocation of facilities and information technology expenses, including rent and utilities, and equipment depreciation. Cost of goods sold also includes certain direct costs such as those incurred for shipping our RNS System. We record adjustments to our inventory valuation for estimated excess, obsolete and non-sellable inventories based on assumptions about future demand, past usage, changes to manufacturing processes and overall market conditions. We expect cost of goods sold to increase in absolute dollars as more of our RNS Systems are sold. We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, primarily by our manufacturing costs and pricing. Our gross margin may increase over the long term to the extent our production volume increases as our fixed manufacturing costs would be spread over a larger number of units, thereby reducing our per-unit manufacturing costs. We expect our gross margin to fluctuate from period to period, however, based upon the factors described above.
Our operating expenses consist of research and development expenses and selling, general and administrative expenses.
Research and development costs
Our research and development activities primarily consist of engineering and research programs associated with our products under development and clinical studies. Research and development expenses include personnel-related costs for our research and development employees, including expenses related to stock-based compensation, consulting services, clinical trial expenses, regulatory expenses, prototyping, testing, materials and supplies, and allocated overhead including facilities and information technology expenses. Our clinical trial expenses include costs associated with clinical trial design, clinical trial site development and study costs, data management costs, related travel expenses, the cost of products used for clinical activities, and costs associated with our regulatory compliance. We expense research and development costs as they are incurred. We expect our research and development expenses to increase in absolute dollars as we hire additional personnel to develop new product offerings and product enhancements and conduct studies for expanded indications for use.
Selling, general and administrative expenses
Our selling, general and administrative expenses consist primarily of personnel-related costs for our sales and marketing employees, including stock-based compensation and sales-based variable compensation, travel expenses, consulting, public relations costs, direct marketing, customer training, trade show and promotional expenses and allocated facility and information technology expenses, and for administrative personnel that support our general operations such as executive management, information technology, finance, accounting, customer services, human resources and legal personnel. We expense sales variable compensation when revenue related to the underlying sale is recognized. Selling, general and administrative expenses also include costs attributable to professional fees for legal, accounting and tax services, insurance and recruiting fees. We intend to continue to increase our sales and marketing spending to support increased adoption of our RNS System. We expect our sales and marketing expenses to increase in absolute dollars as we hire additional personnel and add programs in order to more fully penetrate the market opportunity. We expect our administrative expenses, including stock-based compensation expense, to increase as we increase our headcount and expand our systems to support our operations as a public company. Additionally, we anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with being a public company, compliance with exchange listing and
Securities and Exchange Commission, or SEC, requirements, director and officer insurance premiums and investor relations costs. Our selling, general and administrative expenses may fluctuate from period to period as we continue to grow. 25 --------------------------------------------------------------------------------
Expenses and interest income
Interest expense consists primarily of interest expense related to our term loan facility, including amortization of debt discount and issuance costs. Interest income is predominantly derived from investing surplus cash in money market funds and short-term marketable debt securities.
Other income (expenses), net
Other income (expense), net, consists primarily of changes in the fair value of our liability for redeemable convertible preferred stock warrants.
Comparison of the three months ended
The following table summarizes our results of operations for the periods indicated (in thousands): Three Months Ended March 31, 2022 2021 Change % Change Revenue $ 11,374
$ 11,217 $ 1571 % Cost of goods sold 3,115 2,724 391 14 % Gross profit 8,259 8,493 (234) (3) % Operating expenses Research and development 5,577 4,100 1,477 36 % Selling, general and administrative 12,444 8,267 4,177 51 % Total operating expenses 18,021 12,367 5,654 46 % Loss from operations (9,762) (3,874) (5,888) 152 % Interest income 134 26 108 415 % Interest expense (1,830) (1,849) 19 (1) % Other income (expense), net (3) (3,113) 3,110 NM Net loss $ (11,461) $ (8,810) $ (2,651)30 % NM = Not meaningful Revenue Revenue increased by $0.2 million, or 1%, to $11.4 millionduring the three months ended March 31, 2022, compared to $11.2 millionduring the three months ended March 31, 2021. The increase in revenue was primarily due to an increase in the number of units sold for initial implant procedures in the three months ended March 31, 2022as compared to the three months ended March 31, 2021. Revenue from sales of our RNS System for replacement procedures represented approximately 23% of our total revenue for the three months ended March 31, 2022as compared to approximately 28% for the three months ended March 31, 2021. All of our revenue was generated from sales in the United States.
Cost of Goods Sold and Gross Margin
Cost of goods sold increased by
$0.4 million, or 14%, to $3.1 millionduring the three months ended March 31, 2022, compared to $2.7 millionduring the three months ended March 31, 2021. The increase was primarily due to an increase in indirect labor costs including stock-based compensation and reduced production volume as a result of the increased volatility resulting from the COVID-19 pandemic, particularly the Omicron variant, in the three months ended March 31, 2022. Our gross margin decreased from 75.7% for the three months ended March 31, 2021to 72.6% for the three months ended March 31, 2022primarily due to higher fixed costs per unit as a result of the reduced production volume. 26 --------------------------------------------------------------------------------
Research and development costs
Research and development expenses increased by
$1.5 million, or 36%, to $5.6 millionduring the three months ended March 31, 2022, compared to $4.1 millionduring the three months ended March 31, 2021. The increase in research and development expenses was primarily due to an increase of $1.1 millionin personnel-related expenses primarily due to hiring additional personnel to support product development efforts and clinical studies, an increase of $0.2 millionin product development costs, and an increase of $0.2 millionin costs associated with our clinical studies.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by
$4.2 million, or 51%, to $12.4 millionduring the three months ended March 31, 2022, compared to $8.3 millionduring the three months ended March 31, 2021. The increase in selling, general and administrative expenses was primarily due to an increase of $1.8 millionin personnel-related expenses primarily due to hiring additional personnel and to stock-based compensation, an increase of $1.3 millionin general and administrative costs related to operating as a public company, and an increase of $0.8 millionin sales, field support and marketing costs including travel, contractors, and digital advertising due to an increased focus on marketing activities to support commercial growth and returning operations to pre-pandemic levels. Interest Expense and Income Interest expense was $1.8 millionfor both the three months ended March 31, 2022and 2021 due to the approximately same average balances of our term loans during the three months ended March 31, 2022compared to the three months ended March 31, 2021. Interest income increased by $0.1 millionfor the three months ended March 31, 2022compared to the three months ended March 31, 2021, primarily due to an increase in average balances of our money market funds and short-term marketable debt securities.
Other income (expenses), net
Other income (expense), net decreased by
$3.1 millionto less than $0.1 millionduring the three months ended March 31, 2022, compared to ($3.1) millionduring the three months ended March 31, 2021, primarily due to an increase in the fair value of redeemable convertible preferred stock warrant liability by $3.1 milliondue to an increase in the fair value of our redeemable convertible preferred stock prior to our IPO in the three months ended March 31, 2021.
Cash and capital resources
Prior to our IPO, we financed our operations primarily through private placements of equity securities, debt financing arrangements and sales of our RNS System. As of
March 31, 2022, we had cash, cash equivalents and short-term marketable debt securities of $103.2 million, compared to $115.6 millionat December 31, 2021, and $50.1 millionoutstanding under the Term Loan, net of debt discount and issuance costs, compared to $49.8 millionat December 31, 2021. In September 2020, we entered into the Term Loan for total borrowings of up to $60 millionand borrowed $50 million. In April 2021, we completed our IPO and received $105.5 millionin net proceeds after deducting underwriting discounts and commissions and offering costs, of which $4.1 millionwas used to repay the PPP loan. 2020 Term Loan In September 2020, we entered into the Term Loan with CRG Partners IV L.P.and its affiliates for total borrowings of up to $60 millionand borrowed $50 million. The remaining $10.0 millionwas available to us for borrowing until March 31, 2022if we achieved a revenue-based milestone in 2021. The revenue-based milestone was not met, and the remaining $10.0 millionof the Term Loan expired without being drawn. The borrowings under the Term Loan are secured by substantially all of our properties, rights and assets, including intellectual property. The loan bears interest at a rate of 12.5% per year. Payments under the loan are made quarterly with payment dates fixed at the end of each calendar quarter. The loan was interest-only through September 30, 2023, which could 27 -------------------------------------------------------------------------------- be extended through September 30, 2025at our option if we completed our IPO on or prior September 30, 2023. In connection with closing the IPO, we extended the interest-only period to September 30, 2025. Following the interest-only period, principal payment is due in one installment on September 30, 2025. The Term Loan includes a fee upon repayment of the loan equal to 10% of the aggregate principal amount being prepaid or repaid. We paid $1.0 millionin fees to the lender and third parties which is reflected as a discount on the loan and is being accreted over the life of the loan using the effective interest method.
Paycheck Protection Program
April 2020, we received $4.0 millionfrom a federal Small Business Administrationloan under the Paycheck Protection Program. The note bore interest at 1.0% per year on the outstanding principal amount and had a maturity date 24 months from the date of the note. Payments of principal and interest were due from September 2021through April 2022. In April 2021, we repaid our entire obligation under the PPP Loan amounting to $4.1 million, including principal of $4.0 millionand interest of less than $0.1 million, using the proceeds from our IPO.
Future funding needs
We expect to incur continued expenditures in the future in support of our commercialization efforts in
the United States. In addition, we intend to continue to make investments in clinical studies, development of new products, and other ongoing research and development programs. We also expect to incur additional expenses to expand our commercial organization and efforts and additional costs associated with continuing to re-establish operations to pre-pandemic levels and to plan for continued growth. We may incur additional expenses to further enhance our research and development efforts and pursue commercial opportunities outside of the United States. We lease our office and manufacturing facilities in Mountain View, Californiaunder a non-cancelable operating lease which expires in June 2024. Future minimum lease payments under non-cancelable operating leases were $7.3 millionas of March 31, 2022. See "Facility Lease" in Note 5 to our condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information. As of March 31, 2022, we had cash, cash equivalents and short-term marketable debt securities of $103.2 million. Based on our current planned operations, we expect that our cash, cash equivalents and short-term marketable debt securities will enable us to fund our operating expenses for at least 12 months from the issuance of our condensed financial statements as of and for the three months ended March 31, 2022. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
Due to the many risks and uncertainties associated with the research, development and commercialization of medical devices, we are unable to estimate the exact amount of our working capital requirements. Our future financing needs will depend on many factors, including:
• the costs of activities related to the commercialization and commercialization of our RNS system in
•research and development activities that we intend to undertake, including product improvements and clinical studies for extension of indications that we intend to pursue;
•the impact of the COVID-19 pandemic on our business;
•the cost of obtaining, maintaining, defending, applying and protecting any patents and other intellectual property rights;
• whether or not we pursue acquisitions or investments in businesses, products or technologies complementary to our current activities;
• the degree and rate of increased market acceptance of our RNS system in
•our need to set up additional internal infrastructure and systems;
• our ability to hire additional personnel to support our operations as a public company; and
•the emergence of competing technologies or other adverse market developments.
If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise capital when needed, we will need to delay, limit, reduce or terminate planned commercialization or product development activities in order to reduce costs. In addition, COVID-19 has negatively impacted our business by decreasing and delaying procedures performed to implant our RNS System, and we expect the pandemic will continue to negatively impact our business, which may negatively impact our future liquidity.
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