Pulse Biosciences, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing was signed March 16, 2020. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise.
Business context
Pulse Biosciences is a pre-revenue medical technology company developing its CellFX System, which uses Nano-Pulse Stimulation (NPS) technology to target cells with brief electrical pulses. Its initial intended market is dermatology. The company had not commercialized a product or generated product revenue by year-end.
Clinical results reported by the company included 221 of 222 sebaceous hyperplasia lesions rated clear or mostly clear at 60 days, and 143 of 174 seborrheic keratosis lesions rated clear or mostly clear at 106 days. These are company-reported study results, not evidence of FDA clearance.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $47.954 million | $37.963 million |
| Net loss | $46.971 million | $37.545 million |
| Net loss per share, basic and diluted | $2.26 | $2.20 |
| Cash used in operating activities | Approximately $34.2 million | $23.9 million |
| Cash, cash equivalents and investments at year-end | $25.398 million | $59.583 million |
| Working capital at year-end | $21.944 million | $57.254 million |
Research and development expense rose $7.7 million to $25.0 million; general and administrative expense rose $2.3 million to $22.3 million. Management attributed the increases principally to staffing, clinical studies, system development, manufacturing preparation, and expanded infrastructure. Interest income was $1.0 million, versus $0.4 million in 2018. With no revenue, gross margin and revenue-based margins are not meaningful.
Total assets were $41.915 million and total liabilities were $11.178 million at year-end. Liabilities included a $6.719 million operating lease liability; the filing reports no borrowings or conventional debt. The company reported $10.988 million of undiscounted future operating lease payments. Stock-based compensation was $11.287 million in 2019.
Fourth-quarter 2019 net loss was $13.788 million, or $0.66 per share, compared with a $8.953 million loss, or $0.51 per share, in fourth-quarter 2018.
Material changes and notable events
- Annual operating expenses increased 26% and net loss increased $9.4 million year over year; operating cash use also increased.
- Cash and investments fell by $34.2 million during 2019. The company received only $0.1 million of net financing cash during the year, compared with $45.5 million in 2018, which included proceeds from a rights offering.
- In February 2020, after the 2019 year-end, the FDA issued a Not Substantially Equivalent letter on the company’s CellFX 510(k) submission. The review concluded without clearance; the company said it would pursue a new 510(k) submission. This delayed commercialization and revenue prospects.
- The company adopted lease accounting standard ASC 842 in 2019, recognizing right-of-use assets and lease liabilities. The expanded Hayward facility lease runs to 2029, with additional space planned to be occupied in phases.
Outlook, risks and contingencies
The independent auditor and management disclosed substantial doubt about the company’s ability to continue as a going concern for at least twelve months after issuance of the financial statements without additional capital. Management planned to seek financing, including a board-approved rights offering intended to raise approximately $30 million net if fully subscribed; success and availability of acceptable financing were not assured. The company said it expected continued losses and increasing operating expenses, including costs to develop the product and prepare for commercialization. No revenue or profitability guidance was provided.
- Regulatory clearance is uncertain, and a new 510(k), de novo submission, or other pathway could require additional time, clinical evidence, and expense.
- Other material risks include clinical and technical uncertainty, competition, reliance on suppliers and potential manufacturing partners, reimbursement and adoption uncertainty, and dependence on further financing. Any equity financing could dilute shareholders.
- The filing discusses potential COVID-19 effects on employees, clinical trials, suppliers, and markets; the ultimate impact was uncertain at filing.
- The company reported no material pending legal proceeding and no off-balance-sheet arrangements. It stated disclosure controls and internal control over financial reporting were effective at December 31, 2019.
Important facts for investors to verify
- Whether the proposed rights offering or other financing was completed, on what terms, and whether proceeds addressed the disclosed going-concern uncertainty.
- The FDA’s feedback and status of any subsequent CellFX submission, including the evidence and regulatory pathway required for clearance.
- Clinical study final results, safety findings, and whether reported outcomes translate into broader clinical use and commercial demand.
- Actual cash burn, remaining liquidity, and spending needs relative to the company’s commercialization timeline.
- Potential dilution, including the effects of future equity issuance and the company’s stock-based compensation and outstanding awards.