Pulse Biosciences, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Financial statements are unaudited. Pulse is a development-stage medical technology company developing its Nano-Pulse Electro-Signaling (NPES) platform; it had not commercialized products or generated revenue.
Key financial metrics
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $2.261m | $0.956m | $3.945m | $1.699m |
| Net loss | $2.258m | $0.599m | $3.942m | $1.043m |
| Net loss per share | $0.23 | $0.08 | $0.45 | $0.14 |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $3.751m | $1.039m |
- At June 30, cash and cash equivalents were $20.214m and investments were $0.495m; total cash and investments were approximately $20.7m. Current liabilities were $0.590m and total liabilities were $0.590m. The filing reports no debt.
- Six-month investing cash outflow was $0.556m, principally purchases of investments and equipment. Financing provided $20.915m, primarily from the IPO. Cash rose by $16.608m from year-end 2015.
- Gross profit and margins are not applicable because the company had no revenue. Six-month loss per share and net loss worsened year over year; the 2015 comparison included a $0.656m income tax benefit, versus none in 2016.
Material changes and management commentary
- Operating expenses increased substantially year over year: first-half general and administrative expense rose $0.771m and R&D rose $1.475m. Management attributed increases to higher staffing and stock compensation, public-company costs, product development, prototype work, outside services and sponsored research.
- The May 2016 IPO and June overallotment covered 5,749,846 shares at $4 per share and generated approximately $20.4m net proceeds. The company said proceeds and existing resources should fund projected requirements for at least 12 months.
- Management expects R&D and general and administrative expenses to increase in 2016, anticipates no product-sale revenue for the next few years, and expects to need additional capital longer term. No numerical revenue or earnings guidance was provided.
- In April 2016, Pulse agreed to sponsor an additional $1.0m of research at Old Dominion University Research Foundation for April 2016–March 2017. The facility lease was extended in July 2016 through March 31, 2017, at approximately $19,000 per month.
Outlook, risks and unusual items
- Commercialization depends on further technical development, clinical evidence, regulatory approvals, manufacturing capability, market acceptance and reimbursement. The company had not sought regulatory approval for its proposed products.
- Funding beyond the stated 12-month runway is uncertain. If financing is unavailable or technology development fails, Pulse may need to reduce or discontinue programs, license or relinquish technology rights, or suspend operations. Equity financing could dilute shareholders.
- Licensed intellectual property carries obligations, including commencing pursuit of one or more FDA applications by December 15, 2018 under the ODURF/EVMS license; failure to comply could put license rights at risk. Federal research funding may also create government march-in rights for certain patents.
- Goodwill and intangible assets totaled $9.667m and may be subject to impairment. Ordinary-course legal matters were disclosed; the company did not expect them to have a material adverse effect, while noting litigation outcomes are unpredictable.
- IPO-related items included $1.8m in underwriting discounts, $0.160m in expense reimbursement and underwriter warrants valued at $1.443m. Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal control during the quarter.
Important facts for investors to verify
- Cash burn against the stated minimum 12-month runway, and the timing and terms of any future financing.
- Progress toward clinical and regulatory milestones, including the FDA-application deadline tied to the ODURF/EVMS license.
- R&D spending, prototype and clinical-development progress, and whether NPES can produce commercially viable products.
- Potential dilution, including outstanding options and warrants, future share sales, and the IPO-related shareholder rights-offering provision.
- Impairment exposure for goodwill and intangible assets, and any developments in legal, regulatory, reimbursement or intellectual-property matters.