Pulse Biosciences, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone Q4 financial report. The company is an early-stage bioelectric medicine business developing and commercializing its CellFX System, based on Nano-Pulse Stimulation (NPS) technology.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1.418 million | $0 |
| Cost of revenue | $1.968 million | $0 |
| Research and development | $28.640 million | $26.444 million |
| Sales and marketing | $14.751 million | $7.256 million |
| General and administrative | $19.073 million | $16.265 million |
| Operating loss | $(63.014) million | $(49.965) million |
| Net loss | $(63.660) million | $(49.851) million |
| Basic and diluted loss per share | $(2.28) | $(2.14) |
| Cash used in operating activities | $(54.097) million | $(35.365) million |
- Revenue began in 2021 after the company started converting Controlled Launch participants to sales agreements. Approximately $1.1 million of revenue came from non-cash program credits applied to system purchases; about $0.3 million came from cash sales of cycle units and the first two commercial consoles.
- Revenue comprised $1.189 million from systems and $0.229 million from cycle units. Cost of revenue exceeded revenue by $0.550 million.
- At year-end, cash and cash equivalents were $28.614 million; inventory was $5.824 million and accounts receivable was $0.061 million. Total assets were $54.249 million, total liabilities $18.559 million, and stockholders’ equity $35.690 million. The company reported no investments at year-end.
- Current liabilities included a $0.436 million note payable, associated with insurance financing. The $41 million loan from Chairman and major stockholder Robert W. Duggan, plus accrued interest, was converted into equity in June 2021. Lease liabilities totaled $10.814 million.
- Financing activities provided $62.685 million in cash, including proceeds associated with the Duggan transaction, $7.4 million net from the at-the-market offering, and proceeds from warrant and option exercises. Shares outstanding increased to 29.716 million at year-end from 25.550 million.
Material changes and operating developments
- Revenue rose from zero as commercialization began, while net loss increased by $13.809 million year over year. Sales and marketing expense rose $7.495 million, reflecting commercial launch, staffing, stock compensation, and $1.8 million of non-cash Controlled Launch costs.
- The company received FDA 510(k) clearance for general dermatologic procedures requiring ablation and resurfacing in February 2021, and received CE marking, Health Canada, and Australia/New Zealand approvals during 2021. Singapore approval was received in December 2021.
- Seventy clinics enrolled in the Controlled Launch program. By year-end, 29 had opted to purchase their systems and six had opted out. Program completion took an average of seven months, longer than the initial three-to-five-month expectation.
- Commercial clinics averaged about 10 patient treatment sessions per month. Management set a goal of 40 sessions per month at current commercial clinics by the end of 2022 and shifted near-term commercial focus toward utilization, training, and marketing rather than new system sales.
Outlook, risks, and unusual items
- Going concern: Management and the auditor identified substantial doubt about the company’s ability to continue as a going concern. The company said its existing resources were expected to fund operations only into the second quarter of 2022 and that it needed additional financing or a revenue-generating collaboration. Availability and terms were uncertain.
- FDA indication setback: The company’s December 2021 submission sought to add sebaceous hyperplasia (SH) treatment to U.S. labeling. In February 2022, the FDA stated the clinical evidence was insufficient and the study’s primary endpoints had not been met. Further discussions, additional data, and possibly a new submission may be required. The system’s broader U.S. clearance does not itself establish this specific indication.
- Clinical and commercial uncertainty: The company reported positive results in some studies, but future trial outcomes, regulatory clearances, physician adoption, procedure utilization, reimbursement, and profitability remain uncertain. Other planned work included studies in warts, basal cell carcinoma, and additional dermatologic indications.
- Financing and related-party matters: The company has historically relied on equity and financing from Mr. Duggan, who beneficially owned approximately 51% of shares, according to the filing. The 2021 $41 million loan conversion and related $8.4 million cash investment were a material related-party transaction and a critical audit matter. Further financing could dilute shareholders or impose restrictive terms.
- Legal contingency: A securities class-action lawsuit was filed in February 2022 following the FDA update and share-price decline. The company was evaluating the allegations; the filing said a possible loss or range could not be estimated.
- Other disclosed risks include limited operating history and revenue, dependence on CellFX/NPS, competition, supplier and manufacturing constraints, COVID-19 impacts, product liability, data security and regulatory compliance. Management reported effective disclosure controls and internal control over financial reporting as of year-end; the auditor did not provide an internal-control opinion.
Key facts for investors to verify
- Current cash runway, subsequent financing, and whether the going-concern uncertainty was resolved after the filing.
- Commercial conversion and utilization trends, including whether clinics approached management’s 40-session monthly target.
- FDA follow-up and any additional clinical or regulatory steps for the SH indication; distinguish U.S. labeling from indications approved in other markets.
- Cash versus non-cash components of reported revenue, repeat cycle-unit purchases, and gross economics as sales scale.
- Terms and potential dilution from future financings, including any participation by Mr. Duggan, and developments in the securities lawsuit.