Pulse Biosciences, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The company develops Nano-pulse Stimulation (NPS) technology and has shifted its strategic focus from dermatology to cardiac ablation for atrial fibrillation (AF). Financial amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $0 | $444,000 |
| Operating expenses | $9.6 million | $17.7 million |
| Operating loss | $9.6 million | $17.3 million |
| Net loss | $9.8 million; $0.26 per share | $17.3 million; $0.58 per share |
| Cash used in operating activities | $6.6 million | $15.6 million |
| Cash and cash equivalents | $54.1 million at March 31 | $61.1 million at December 31, 2022 |
| Total liabilities | $80.9 million | $80.1 million at December 31, 2022 |
Gross margin is not meaningful for Q1 2023 because the company reported no revenue or cost of revenue. Working capital was approximately $48.0 million, based on reported current assets of $54.9 million and current liabilities of $7.0 million. Cash declined by $7.0 million during the quarter. The company reported a $65.0 million related-party note payable to Executive Chairman Robert W. Duggan at quarter-end, bearing 5% interest; the balance was classified as noncurrent. Operating lease liabilities totaled $9.8 million.
Changes versus the prior comparable period
- Revenue fell to zero from $444,000 after the company ended its CellFX dermatology launch and discontinued further console sales.
- Operating expenses fell by $8.2 million, mainly reflecting no sales and marketing expense, lower R&D and G&A costs, and reduced headcount. The company also recorded a $0.1 million restructuring charge in February 2023.
- Net loss narrowed by $7.5 million. Q1 2023 included net interest expense of $239,000; interest expense on the Duggan loan was partly offset by interest income on cash balances.
- Operating cash use decreased by $9.0 million year over year. The filing attributes differences between operating cash use and net loss to noncash items and working-capital movements, including accrued interest.
Outlook, risks and notable items
- Development outlook: Management said it expected to test the cardiac ablation clamp in 2023, including further preclinical work, and expected an initial FDA Q-submission meeting in Q2 2023. Further preclinical safety and performance testing of the catheter was expected during 2023; a first-in-human feasibility study was contemplated after testing. The company said the catheter would likely require the FDA’s PMA pathway.
- Runway and financing: Management believed existing cash would fund planned operations for at least 12 months from the filing date, but said additional capital would be needed over time and might not be available on acceptable terms. Failure to secure funding could require cuts to development, staffing or operations.
- Subsequent debt conversion and dilution: On May 9, 2023, the company completed a private placement to Mr. Duggan of 10,022,937 shares at $6.51 per share. The shares satisfied the $65.0 million note and accrued, unpaid interest; the note terminated. This post-quarter transaction materially increased shares outstanding.
- Warrants: The company reported that redemption conditions for its 2022 rights-offering warrants were met on May 9. Holders could exercise for cash before the anticipated June 16, 2023 redemption date. There were 7,208,193 warrants outstanding at March 31.
- Key business risks: No current revenue, dependence on successful AF product development, limited cardiac preclinical experience, clinical and regulatory uncertainty, competition, and a need for future financing. The dermatology product had clearances, but the company had discontinued sales and said it could not market products outside dermatology without appropriate authorization.
- Contingencies and related parties: A former CFO filed an arbitration demand seeking severance and other remedies. The company said it considers the claims without merit and cannot predict the outcome, while believing resolution would not adversely affect its financial position, results or cash flows. It also accrued $0.8 million due to Mr. Duggan under a separate indemnity arrangement.
- Controls: Management concluded disclosure controls were effective as of March 31, 2023, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash runway assumptions and the timing, amount and terms of any additional financing.
- Post-placement share count, Mr. Duggan’s ownership and voting control, and the final treatment of accrued interest on the converted note.
- Warrant exercises, redemption and resulting proceeds or dilution.
- Progress against the stated 2023 preclinical and FDA engagement plans for the clamp and catheter.
- Whether the former CFO arbitration, indemnity arrangement or other contingencies result in material costs.