Pulse Biosciences, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statements are unaudited. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where applicable.
Business context
Pulse Biosciences is a pre-revenue medical technology company developing its CellFX System, which uses Nano-Pulse Stimulation (NPS) technology. The company was pursuing FDA clearance and conducting research and clinical development; it reported no product revenue in either Q1 2020 or Q1 2019 and said it did not expect product sales revenue in 2020.
Financial performance and liquidity
| Metric | Q1 2020 / March 31, 2020 | Q1 2019 / December 31, 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $11.95 million | $10.41 million |
| Net loss | $11.87 million | $10.08 million |
| Net loss per share, basic and diluted | $0.57 | $0.49 |
| Cash and cash equivalents | $7.86 million | $6.90 million |
| Investments | $8.02 million | $18.50 million |
| Cash, cash equivalents and investments | $15.89 million | $25.40 million |
| Current assets / current liabilities | $16.43 million / $3.38 million | $26.40 million / $4.46 million |
| Total liabilities | $10.07 million | $11.18 million |
| Stockholders’ equity | $21.77 million | $30.74 million |
There was no product revenue, so a gross margin is not applicable. The filing reports no conventional borrowings; liabilities primarily include lease obligations. Operating lease liabilities totaled $6.79 million, including $0.10 million current and $6.69 million non-current.
Net cash used in operating activities was $9.62 million, versus $7.33 million in Q1 2019. Investing activities provided $10.32 million, principally from $13.50 million of investment maturities, partly offset by $3.01 million of investment purchases and $0.17 million of property and equipment purchases. Financing activities provided $0.26 million, mainly from employee stock purchases and option exercises. Stock-based compensation was $2.63 million.
Material changes versus the prior comparable period
- Net loss widened by $1.79 million; operating expenses rose by $1.54 million.
- General and administrative expense increased $1.20 million to $5.60 million, primarily reflecting higher employee compensation and stock-based compensation. Research and development expense rose $0.34 million to $6.18 million, primarily due to compensation costs.
- Interest income declined to $0.08 million from $0.33 million, primarily because cash and investment balances were lower.
- Operating cash use increased by $2.29 million year over year. Cash and investments together fell by approximately $9.51 million from December 31, 2019.
Outlook, risks and unusual items
- Going concern and financing: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing operating losses, cash needs and uncertainty that planned financing can be completed. The company proposed a rights offering targeting approximately $30 million in gross proceeds if fully subscribed, excluding potential warrant exercises. Success and acceptable additional financing are not assured; failure to raise capital could require significant operating reductions.
- FDA clearance setback: In February 2020, the FDA issued a “not substantially equivalent” letter on the company’s February 2019 510(k) submission for CellFX, ending that review without clearance. The company planned a new 510(k) submission; a de novo pathway could require additional studies, time and resources.
- COVID-19: The company required remote work where feasible and suspended non-essential travel. It warned that the pandemic could disrupt clinical site initiation and enrollment, supplier access, operations and capital-raising efforts. The ultimate impact was described as uncertain.
- Development and commercialization risks: CellFX was not cleared or approved for commercial sale. The company cited clinical, regulatory, manufacturing, reimbursement, adoption, supplier, competition and intellectual-property risks, as well as the possibility of continued losses and no eventual profitability.
- Other items: Management reported no material change in contractual obligations outside the ordinary course, no off-balance-sheet arrangements, and no pending legal matters it believed would materially adversely affect the business. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the proposed rights offering or other financing was completed, on what terms, and whether it provided sufficient liquidity.
- Subsequent cash burn and available cash and investments relative to operating needs and lease commitments.
- Progress and timing of a new FDA submission, and whether additional clinical evidence or a different regulatory pathway is required.
- COVID-19’s actual effects on clinical trials, suppliers, operations and financing access.
- Changes in operating expenses, share-based compensation, dilution and the company’s ability to advance CellFX without product revenue.