Pulse Biosciences, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2016. Financial statements are unaudited. Amounts below are in thousands of dollars except per-share data and where otherwise noted.
Business context
Pulse Biosciences was a development-stage medical-device company developing its Nano-Pulse Electro-Signaling (NPES) technology. It had not commercialized products or generated revenue. The company planned to use NPES for potential biomedical applications and expected to continue research, product development, and clinical and preclinical work.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $528 | $156 |
| Research and development expense | $990 | $421 |
| Total operating expenses | $1,684 | $743 |
| Net loss | $1,684 | |
| Prior-period net loss was $444; Q1 2015 included a $299 income tax benefit | ||
| Basic and diluted loss per share | $0.22 | $0.06 |
| Cash used in operating activities | $1,462 | $457 |
| Cash used in investing activities | $39 | $0 |
Operating expenses rose $941 year over year. Management attributed the increase primarily to higher compensation and headcount, professional and consulting services, sponsored research, and product-development supplies and equipment. The 2015 R&D period included $340 of grant funding recorded as an expense offset; no further grants had been received.
At March 31, 2016, cash was $2,105, total current assets were $2,645, current liabilities were $650, total assets were $12,824, and stockholders’ equity was $12,174. The balance sheet reported no interest-bearing debt. The filing provides no gross-margin measure, as the company had no revenue.
Liquidity, financing, and material developments
Cash declined from $3,606 at December 31, 2015 to $2,105 at March 31, 2016. The company reported no financing cash flows during either first quarter. Subsequent to quarter-end, it completed an IPO: 5,000,000 shares were sold at $4.00 per share, and underwriters later purchased 749,846 additional shares at the same price. The company reported approximately $20.2 million in net proceeds from the offering, including the overallotment. As of June 22, 2016, 13,315,297 common shares were outstanding.
Management stated that cash on hand plus IPO proceeds were expected to fund projected operating requirements for at least 12 months. The company planned to allocate $9–12 million to R&D and $5–8 million to general corporate purposes, among other uses. It expected R&D and G&A expenses to increase substantially in 2016 and did not expect product-sales revenue for the next few years.
Outlook, risks, and other notable items
- Funding and commercialization remain uncertain: the company may need additional financing, and financing may not be available on acceptable terms. It warned that inadequate funds could force it to scale back or discontinue development or operations.
- NPES and proposed products remained in development; technical, safety, clinical, regulatory, manufacturing, reimbursement, and market-acceptance challenges could delay or prevent commercialization.
- Goodwill and intangible assets were $2,791 and $7,042, respectively, at March 31. The company identified potential impairment as a risk.
- The company had a sponsored research agreement with Old Dominion University Research Foundation (ODURF). In April 2016, it agreed to sponsor an additional $1.0 million of research through March 2017. The filing also describes license obligations, including a requirement to begin pursuing FDA applications by December 15, 2018 to continue certain ODURF/EVMS license rights.
- Some technology development involved federal funding; the government may have “march-in” rights over certain patents. The filing also disclosed related-party services from MDB Capital Group, whose senior managing director was the company’s chairman.
- The company reported no off-balance-sheet arrangements and no known litigation matters expected to have a material adverse effect, while noting that claims and litigation are inherently unpredictable. Management concluded disclosure controls were effective at the reasonable-assurance level as of March 31, 2016.
Important facts for investors to verify
- Whether the reported $20.2 million of IPO net proceeds and management’s stated 12-month funding outlook remain consistent with actual cash use and updated operating plans.
- Progress, costs, and timelines for NPES development, preclinical and clinical work, and regulatory submissions; no product revenue or approvals had been achieved.
- Whether the ODURF research commitment, FDA-application milestone, and other license terms are being met and maintained.
- Potential dilution and the impact of future financing, equity awards, warrants, and shares becoming eligible for resale.
- Whether the carrying values of goodwill and intangible assets remain recoverable as development and commercialization prospects evolve.