Pulse Biosciences, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019; filed November 7, 2019. Amounts below are in U.S. dollars, generally millions, unless stated otherwise.
Business context
Pulse Biosciences is a pre-revenue medical technology company developing its CellFX System, which uses its Nano-Pulse Stimulation technology. The company was pursuing FDA 510(k) clearance for benign dermatologic lesions and reported conducting clinical studies across several potential indications. It had not begun revenue-generating operations.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $11.96 | $10.88 | $34.02 | $28.90 |
| Net loss | $11.75 | $10.76 | $33.18 | $28.59 |
| Net loss per share, basic and diluted | $0.57 | $0.64 | $1.60 | $1.69 |
| Operating cash used | — | — | $24.99 | $17.59 |
Gross margin and operating margin are not meaningful because the company had no revenue. Q3 research and development expense rose $1.15 million year over year to $6.19 million, while general and administrative expense decreased $0.07 million to $5.61 million. For the nine months, R&D increased $6.20 million to $18.37 million, while G&A declined $1.08 million to $15.15 million. Higher clinical, personnel, information technology, engineering and prototype costs contributed to increased R&D spending. Nine-month interest income increased to $0.84 million from $0.31 million.
At September 30, 2019, cash and cash equivalents were $9.57 million and investments were $24.93 million, totaling approximately $34.50 million, versus $59.58 million at December 31, 2018. Current assets were $35.94 million and current liabilities $4.05 million. Total liabilities were $7.72 million, including $3.85 million of operating lease liabilities; the filing reports no borrowings or other financial debt. Stockholders’ equity was $40.98 million. Accumulated deficit was $108.90 million.
Cash used in operations was $24.99 million for the first nine months, compared with $17.59 million a year earlier. Investing activities used $16.63 million, principally reflecting investment purchases net of maturities, and financing activities provided $0.08 million. Cash and cash equivalents declined $41.53 million during the period, while investments increased from year-end.
Material changes and outlook
- Nine-month net loss increased $4.59 million year over year, primarily reflecting higher operating expenses; reported loss per share narrowed because weighted-average shares increased.
- Management expected G&A and R&D expenses to continue at approximately their Q3 rates for the remainder of 2019 and did not expect product revenue in 2019.
- Management stated existing cash, cash equivalents and investments were expected to fund projected operating requirements for at least 12 months from the filing date, while also stating it planned to raise additional capital in the future. Financing availability and terms were not assured.
- The company submitted its 510(k) application in February 2019, received an FDA request for additional information in April, and submitted its response during Q3. Management anticipated an FDA decision in Q4 2019; further testing or delay remained possible. This was a forward-looking expectation, not an approval.
Risks, commitments and unusual items
- Key risks include continued losses and cash burn, the need for additional capital, uncertain FDA clearance and clinical outcomes, and uncertainty that the technology will be adopted or achieve profitability.
- The company amended its facility lease to expand its Hayward premises to approximately 50,298 rentable square feet and extend the lease term. At September 30, lease liabilities were $3.85 million; undiscounted future lease payments totaled $6.21 million. The filing recorded a $2.4 million increase in lease liabilities from the modification.
- The company agreed to sponsor approximately $0.8 million of research over the subsequent 12 months; approximately $0.8 million remained payable under the agreement at quarter-end.
- Management reported no material pending legal matters and no off-balance-sheet arrangements. It said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
- The filing identifies potential dilution from future equity financing and notes that Chairman Robert W. Duggan beneficially owned approximately 44% of shares as of the report date.
Important facts for investors to verify
- Subsequent FDA status, including whether the 510(k) received clearance, required further information, or faced delay.
- Actual cash burn and investment balances after September 30, 2019, relative to the stated 12-month runway and anticipated financing needs.
- Progress, cost and results of clinical studies, and whether the CellFX System can demonstrate safety, efficacy and commercial demand.
- Lease expansion timing, occupancy costs and the company’s ability to fund its expanded facility and ongoing development.
- Potential dilution and financing terms, alongside the effects of concentrated ownership on shareholder influence.