Pulse Biosciences, Inc. — FY 2017 Form 10-K
Business and period: Annual report for the year ended December 31, 2017, filed March 16, 2018. Pulse Biosciences is a clinical-stage medical technology company developing its Nano-Pulse Stimulation (NPS) platform and PulseTx device for potential oncology, dermatology and other applications. It had no commercial products or revenue.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $15.5 million | $3.4 million |
| Research and development expense | $9.6 million | $5.5 million |
| Total operating expenses | $25.8 million | $9.6 million |
| Net loss | $25.6 million | $9.5 million |
| Basic and diluted loss per share | $1.73 | $0.86 |
| Net cash used in operating activities | $11.1 million | $8.1 million |
- At year-end, cash and cash equivalents were $3.4 million and investments were $34.7 million, totaling $38.1 million. Working capital was $36.3 million.
- Total liabilities were $3.8 million; the filing does not disclose interest-bearing debt. No profitability or meaningful operating margin was reported.
- Cash provided by financing was $35.4 million, mainly from 2017 private placements. Investing activities used $23.0 million, primarily for securities purchases and facility improvements.
- Fourth-quarter 2017 net loss was $8.7 million; operating expenses were $8.8 million.
Material changes and developments
- Net loss increased by $16.0 million year over year. General and administrative expense rose substantially, including higher stock-based compensation; R&D expense increased with expanded development and clinical activity.
- Stock-based compensation expense was $10.9 million in 2017, versus $0.9 million in 2016, including expense associated with director departures and equity awards.
- The company raised approximately $34.8 million net through private placements: about $5.0 million in February and $29.9 million in September. Chairman Robert W. Duggan purchased the September shares and held approximately 35% of common stock at year-end.
- Pulse withdrew its FDA 510(k) submission for general soft-tissue ablation in Q3 2017 after the FDA requested additional data. Management shifted toward pursuing specific clinical indications.
- Clinical reports included no adverse events in human dermatology studies described in the filing. In a five-dog advanced oral melanoma feasibility study, all treatments reduced tumor volume acutely; three animals had progressive disease and were euthanized during follow-up. The small study did not establish clinical efficacy or a definitive immune response.
Outlook, risks and contingencies
- Management said existing cash, cash equivalents and investments were expected to fund projected operating requirements for at least 12 months from the filing date. The company nevertheless expects to seek additional capital and does not anticipate product revenue in the near term.
- Management expected R&D and G&A expenses to increase substantially in 2018 as clinical programs, product development and public-company activities expand.
- Planned work included a follow-on canine study and preparation for a first human oncology study; the company anticipated a possible investigational device exemption filing in the second half of 2018. These were plans, not assured milestones.
- Key risks include clinical and regulatory failure or delay, need for further financing and resulting dilution, uncertain reimbursement and market adoption, competition, and dependence on intellectual-property protection and third-party suppliers.
- The SEC and certain directors received subpoenas in an investigation into trading before the September 2017 Duggan stock-purchase announcement. The company was cooperating and could not estimate the outcome or any potential loss.
- A material weakness in controls over access and segregation of duties identified in 2016 was reported as remediated by December 31, 2017. Management concluded internal control over financial reporting was effective; the auditor did not provide an opinion on internal controls.
- The independent auditor issued an unqualified opinion on the financial statements. A $2.1 million landlord improvement allowance funded leasehold improvements; future rent commitments totaled approximately $2.6 million.
Important facts for investors to verify
- Cash burn, investment maturities and the timing and terms of any additional financing.
- Progress and results of planned human oncology and dermatology studies, including safety, efficacy and regulatory pathways.
- Outcome and potential consequences of the SEC trading investigation.
- Whether the reported remediation of the material weakness remains effective as the company grows.
- Magnitude of future stock-based compensation, dilution and the effects of Duggan’s substantial ownership.