Pulse Biosciences, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; filed November 8, 2017. Pulse is a clinical-stage medical technology company developing its Nano-Pulse Stimulation (NPS) platform. It had not begun revenue-generating operations.
Financial results and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $7.525m | $2.798m | $16.983m | $6.744m |
| Net loss | $7.486m | $2.767m | $16.864m | $6.709m |
| Basic and diluted loss per share | $0.52 | $0.21 | $1.19 | $0.66 |
| Operating cash used | — | — | $7.124m | $5.733m |
- At September 30, cash and cash equivalents were $32.423m and investments were $9.618m, totaling approximately $42.0m. Total current assets were $42.553m; current liabilities were $2.474m.
- Total liabilities were $4.189m, including deferred rent. The filing reports no borrowings or other debt balance.
- Total assets were $54.124m and stockholders’ equity was $49.935m. No meaningful revenue margin is available because revenue was zero.
- Cash from financing was $35.194m for the first nine months, chiefly from private placements. Investing activities provided $2.264m, including investment maturities, while property and equipment purchases used $2.407m.
Material changes versus comparable periods
- Q3 operating expenses rose $4.727m year over year; nine-month expenses rose $10.239m. General and administrative expense increased primarily from higher stock-based compensation, staffing, and public-company costs. Research and development expense rose with clinical trials, product development, personnel, and stock-based compensation.
- Net loss increased by $4.719m in Q3 and $10.155m for the nine-month period. Stock-based compensation was $6.403m for the first nine months of 2017, versus $0.627m in 2016.
- Cash and cash equivalents increased from $2.089m at December 31, 2016 to $32.423m at September 30, 2017, mainly reflecting equity financing. Investments declined from $14.306m to $9.618m.
- The company issued 819,673 shares in a February private placement for approximately $5.0m net and 2,000,000 shares to Robert W. Duggan in September for approximately $29.9m net. Shares outstanding were 16,341,256 as of October 31, 2017.
Outlook, risks, and unusual items
- Management expected existing cash, cash equivalents, and investments to fund projected operating requirements through the next 12 months, but said additional capital would be needed in the future. Financing may be unavailable or dilutive; management warned that insufficient funds could force delays, scaling back, or discontinuation of development.
- Management expected general and administrative and research and development expenses to increase substantially through 2017 and into 2018 as the company expanded infrastructure, clinical studies, product development, and regulatory work. It did not provide revenue or earnings guidance.
- In September 2017, the FDA requested additional data for the PulseTx System soft-tissue ablation clearance application. The company withdrew the application to collect further data, intending to submit a later application; timing and outcome were uncertain.
- The company was conducting an NPS clinical study for seborrheic keratosis and continued development of its PulseTx system. Its technology remained in development, with substantial regulatory, clinical, commercial, and financing risks.
- Disclosure controls were not effective because of a material weakness in financial reporting controls, involving insufficient access restrictions and segregation of accounting duties. Remediation was in progress and not complete; management reported no material misstatement identified from the weakness.
- Subsequent to quarter-end, four directors resigned and four new directors were elected on November 2, 2017. Duggan became board chair; following the September placement, he beneficially owned approximately 36% of outstanding shares.
- The company had operating lease commitments for its new Hayward facility and research sponsorship commitments. Ordinary-course legal matters were disclosed; management did not expect them to have a material adverse effect, while noting litigation outcomes are unpredictable.
Investor verification priorities
- Track the additional data, resubmission, and FDA decision for PulseTx, including any changes to the intended use or regulatory pathway.
- Assess clinical progress, costs, and evidence supporting safety and effectiveness of NPS; the filing describes much of the existing evidence as preclinical and human testing as early-stage.
- Monitor cash burn, financing needs, and the assumptions behind management’s stated 12-month runway; no product revenue had been generated.
- Check whether the material weakness is remediated and whether subsequent filings report effective controls or new deficiencies.
- Review dilution, resale registration of private-placement shares, and governance implications of Duggan’s ownership and the board changes.