Business context and reporting period
Pulse Biosciences, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company develops bioelectric medical technology and was beginning a controlled launch of its CellFX System following U.S. FDA 510(k) clearance in February, CE marking in January, and Health Canada approval in June 2021. It reported no product revenue and had not begun revenue-generating operations.
Financial and operating performance
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $7.5 million | $16.5 million |
| Sales and marketing | $3.1 million | $7.3 million |
| General and administrative | $4.2 million | $9.5 million |
| Total operating expenses | $14.8 million | $33.3 million |
| Net loss | $15.3 million | $34.0 million |
| Basic and diluted loss per share | $0.58 | $1.29 |
| Net cash used in operating activities | Not provided for quarter | $28.1 million |
Gross margin is not meaningful because the company reported no revenue. At June 30, cash and cash equivalents were $47.4 million, with an additional $8.4 million related-party receivable from the June private placement; the company said it received that cash in July. Current assets were $61.8 million, current liabilities $9.8 million, and total liabilities $20.3 million. Stockholders’ equity was $59.8 million. The company had $1.7 million outstanding under an insurance-premium loan and $11.2 million in operating lease liabilities.
Material changes versus prior comparable periods
Second-quarter net loss rose $4.0 million from $11.3 million in 2020; operating expenses increased $3.5 million. For the first six months, net loss increased $10.8 million from $23.2 million, while operating expenses rose $10.0 million. Management attributed expense growth primarily to higher headcount and stock-based compensation, clinical and outside research, and commercialization preparation and controlled-launch costs. Six-month operating cash use increased from $17.6 million to $28.1 million.
Cash and cash equivalents increased from $12.5 million at year-end 2020 to $47.4 million at June 30, 2021, supported by financing proceeds. The company issued 3.05 million shares to Chairman and largest stockholder Robert W. Duggan for an aggregate $50.0 million: $41.0 million principal plus accrued interest converted from his loan, and approximately $8.4 million cash. The loan was terminated. Additional six-month financing included $7.4 million net proceeds from the at-the-market offering and proceeds from warrant and option exercises. Shares outstanding increased from 25.6 million at year-end to 29.6 million at June 30.
Outlook, commentary, risks and unusual items
Management stated that existing cash and cash equivalents were expected to fund projected operating requirements for at least 12 months from the filing date, while also saying the company expects to raise additional capital. No revenue or earnings guidance was provided. Management plans continued R&D and commercialization investment and expects sales and marketing and general and administrative expenses to increase.
Key uncertainties include whether CellFX gains physician and patient adoption, whether the company can obtain clearances for specific indications (starting with sebaceous hyperplasia), and whether reimbursement and pricing support commercial use. The company depends on future financing and warned that financing may be unavailable or dilutive; failure to raise funds could require scaled-back or discontinued development. COVID-19 could affect trials, suppliers, demand, and access to capital. Other disclosed risks include competition, regulatory compliance, product safety and liability, supplier/manufacturing execution, and intellectual-property protection.
An unusual expense item was $4.2 million of additional stock-based compensation in the six-month period after modification of certain executive and key-employee performance-option vesting conditions. The controlled launch involved approximately 80 physician key opinion leaders; related sales and marketing expense was $0.6 million for the six months. Duggan beneficially owned approximately 51% of shares after the private placement, creating significant voting control. The company reported no material pending legal matter and said disclosure controls were effective as of June 30, 2021.
Important facts for investors to verify
- Whether the July receipt of the approximately $8.4 million private-placement cash proceeds is reflected in subsequent-period cash balances.
- Actual CellFX system placements, procedure volumes, commercial revenue, and conversion of controlled-launch participants into paying customers.
- Cash burn and financing needs relative to management’s stated 12-month runway, including any additional ATM or other capital issuance and resulting dilution.
- Progress and clinical/regulatory requirements for additional indications, particularly sebaceous hyperplasia, and the timetable for any submissions.
- Commercial reimbursement, physician adoption, and supplier/manufacturing capacity as the launch expands.
- Effects of Duggan’s approximately 51% ownership on governance, voting outcomes, and potential future share sales.