Pulse Biosciences, Inc. — Q3 2020 Form 10-Q
Business context and period. This unaudited filing covers the three and nine months ended September 30, 2020. Pulse Biosciences is developing its CellFX System, which uses Nano-Pulse Stimulation technology. It had not begun product sales and reported no revenue.
Financial performance and liquidity
Amounts in $ millions, except per-share data.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | 0 | 0 | 0 | 0 |
| General and administrative expense | 5.771 | 5.606 | 16.691 | 15.153 |
| Research and development expense | 6.968 | 6.192 | 19.019 | 18.371 |
| Total operating expenses | 12.905 | 11.964 | 36.209 | 34.024 |
| Net loss | (12.896) | (11.746) | (36.101) | (33.183) |
| Basic and diluted net loss per share | (0.51) | (0.57) | (1.60) | (1.60) |
| Operating cash flow | — | — | (26.110) | (24.989) |
No revenue means gross margin is not meaningful. At September 30, cash and cash equivalents were $7.070 million and investments were $22.516 million, or $29.586 million combined. Current assets were $30.334 million and current liabilities $6.000 million. Total liabilities were $16.991 million, including $11.448 million of operating lease liabilities; the filing reports no conventional borrowings. Stockholders’ equity was $32.704 million.
For the first nine months, financing provided $30.449 million, mainly from the June rights offering, which generated approximately $29.4 million net proceeds. Cash increased by $0.171 million over the period. Shares outstanding rose from 20.825 million at year-end 2019 to 25.290 million at September 30, 2020. No operating cash-flow margin is applicable because the company has no revenue.
Changes versus comparable periods
- Q3 net loss widened by $1.150 million year over year; nine-month net loss widened by $2.918 million.
- Q3 operating expenses increased $0.941 million. R&D rose $0.776 million, principally reflecting personnel and consulting costs, partly offset by lower clinical-trial and prototype costs.
- Nine-month G&A increased $1.538 million and R&D increased $0.648 million. The company attributed higher costs mainly to headcount, facility expansion and insurance, partly offset by lower clinical-trial, travel and prototype expenses.
- Interest income fell to $0.009 million in Q3 and $0.108 million for the nine-month period, reflecting lower cash and investment balances and lower interest rates.
- Nine-month operating cash use increased to $26.110 million from $24.989 million. The rights offering substantially offset operating and investing cash use.
Outlook, risks and unusual items
- Going concern and funding: Management concluded substantial doubt exists about the company’s ability to continue as a going concern for at least twelve months after the financial statements were issued, absent additional capital. It plans to seek further financing, including equity, but cannot assure availability or acceptable terms. Management stated existing cash and investments were insufficient to support current operations for that period.
- Regulatory and clinical milestones: The company reported submitting a new FDA 510(k) application for a general dermatologic indication and said potential clearance remained on track for Q1 2021. An earlier 510(k) submission had received an FDA “not substantially equivalent” determination in February 2020. The company also reported completing enrollment of 60 patients in its pivotal sebaceous hyperplasia study and planned a related 510(k) submission in Q1 2021. EU CE marking and a Health Canada license were also targeted for Q1 2021.
- COVID-19: The company cited potential disruption to clinical sites, patient enrollment, suppliers, operations and capital markets; the ultimate impact was uncertain.
- Related-party D&O arrangement: The company did not renew its directors’ and officers’ liability insurance due to high premiums. Chairman Robert W. Duggan agreed to provide indemnity coverage for one year, secured by a personal $30 million cash deposit, in exchange for a $2.5 million fee payable in May 2021. $0.9 million was accrued at September 30. The arrangement is related-party and merits review.
- Ownership and dilution: Duggan participated in the rights offering and beneficially owned approximately 47% of outstanding common stock after it. The offering included warrants, and further equity financing could dilute existing holders.
- The company reported no material pending legal matters, no off-balance-sheet arrangements, and effective disclosure controls as of quarter-end. It reported no material changes to internal control over financial reporting during the quarter.
Key facts for investors to verify
- Available cash and investment runway, expected cash burn, and whether additional financing has been secured.
- FDA review progress and outcomes for the general dermatology and sebaceous hyperplasia submissions, plus EU and Canadian regulatory milestones.
- Final safety and efficacy results from the 60-patient pivotal study and any COVID-related trial or supply delays.
- Terms, cost and coverage implications of the chairman-funded D&O indemnity arrangement, and the company’s ongoing insurance position.
- Potential dilution from future capital raises, outstanding warrants and equity awards, alongside the effects of concentrated ownership.