Pulse Biosciences, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Pulse is an early-stage bioelectric medicine company commercializing its CellFX dermatology system, based on its Nano-Pulse Stimulation technology. Revenue-generating operations began in 2021; the company reported one operating segment.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0.265m | $0 | $0.709m | $0 |
| Cost of revenue | $1.344m | $0 | $2.253m | $0 |
| Operating loss | $14.014m | $14.806m | $31.287m | $33.331m |
| Net loss | $13.996m | $15.323m | $31.269m | $33.962m |
| Basic and diluted loss per share | $0.44 | $0.58 | $1.02 | $1.29 |
| Operating cash used | Not separately stated | Not separately stated | $28.416m | $28.053m |
- At June 30, cash and cash equivalents were $14.798m, down from $28.614m at December 31, 2021. Current assets were $23.739m and current liabilities $7.564m.
- Total liabilities were $17.182m, primarily lease liabilities of $10.445m; no note payable remained outstanding. Stockholders’ equity was $23.415m.
- The June rights offering generated $15m gross proceeds from 7.317m shares sold at $2.05 each, with warrants for up to 7.317m additional shares at the same exercise price. Approximately 7.311m warrants remained outstanding at quarter-end.
Changes and operating performance
- Revenue began after sales agreements commenced in August 2021. Q2 revenue included about $0.1m from noncash Controlled Launch credits and about $0.2m from cash purchases. For the six months, about $0.4m was noncash credits and about $0.3m cash purchases. Revenue included three commercial consoles sold in the six-month period.
- Losses narrowed year over year, but revenue remained very small relative to operating costs. Cost of revenue includes manufacturing overhead that had previously been recorded in R&D; substantially all inventory sold in the period had previously been reserved.
- Six-month R&D fell $4.3m to $12.2m, while sales and marketing rose $1.9m to $9.2m, mainly reflecting commercial staffing and promotional activity. G&A fell $1.2m to $8.3m, primarily due to lower stock-based compensation.
- Cash used in operations was broadly similar to the prior-year period. Financing cash flow was $14.9m, mainly from the rights offering; prior-year financing included a $41m related-party loan, ATM proceeds and warrant and option exercises.
Outlook, risks and unusual items
- Going concern: Management stated current resources were expected to support operations only into Q4 2022 and that additional financing was needed. The filing concludes substantial doubt exists about the company’s ability to continue as a going concern within the required period. Equity, debt, ATM sales or collaborations are possible funding sources, with no assurance of availability or acceptable terms.
- Commercial execution: Management said clinic adoption and workflow integration require a higher-touch approach. It selected nine clinics to develop best practices, targeting 40 commercial sessions per month per clinic. It planned to reduce emphasis on new system sales until utilization improves. Of 70 Controlled Launch participants, 43 had opted to purchase and 16 had opted out by June 30; clinics were taking longer than initially expected to complete the program.
- Regulatory: The FDA’s February 2022 additional-information letter said evidence did not support the requested U.S. sebaceous hyperplasia indication and noted the study missed primary endpoints. Further data were submitted in July, with FDA feedback pending. Separately, the company disclosed an August 2022 FDA clearance for expanded dermatology energy settings.
- Restructuring: A March 31 plan included commercial leadership and field-organization changes and an approximately 20% workforce reduction. The company recorded a $0.7m charge; $0.2m remained accrued at June 30.
- Legal and related-party matters: A securities class action relating to the FDA letter seeks unspecified damages; the company considers the claims without merit, but cannot estimate a possible loss. The company also agreed to pay Board Chairman Robert W. Duggan $1m for one year of personal indemnity coverage in place of renewing D&O insurance; $0.1m was accrued at June 30.
- Other principal risks include dependence on CellFX/NPS, limited commercial history, clinical and regulatory uncertainty, need for further financing and potential dilution, product adoption and reimbursement, competition, supply constraints, and COVID-19 and broader market conditions. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Investor verification points
- Confirm the company’s post-quarter financing, cash runway and any subsequent changes to its going-concern assessment.
- Track cash versus noncash revenue, console sales, Controlled Launch conversions and actual utilization against management’s clinic targets.
- Verify FDA feedback and any further evidence or regulatory steps for the sebaceous hyperplasia indication; distinguish that pending request from the August energy-settings clearance.
- Review the rights-offering warrants, potential dilution, and any subsequent warrant exercises or ATM issuance.
- Monitor the securities lawsuit, restructuring savings and costs, and the terms and funding security of the Chairman’s indemnity arrangement.