Pulse Biosciences, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unless otherwise noted, financial amounts below are in U.S. dollars.
Business context
Pulse is a pre-revenue bioelectric medicine company developing its CellFX System, which uses Nano-Pulse Stimulation (NPS) technology. The company was pursuing FDA 510(k) clearance for dermatologic uses including seborrheic keratosis and sebaceous hyperplasia. It had not begun revenue-generating operations.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $11.649 million | $9.300 million | $22.059 million | $18.024 million |
| Net loss | $11.359 million | $9.163 million | $21.437 million | $17.831 million |
| Net loss per share | $0.55 | $0.54 | $1.04 | $1.06 |
| Operating cash used | Not provided for quarter | Not provided for quarter | $17.024 million | $10.738 million |
There was no product revenue, so gross margin is not applicable. At June 30, cash and cash equivalents were $10.780 million and investments were $31.862 million, totaling $42.642 million in cash, cash equivalents and investments. Current assets were $44.550 million versus current liabilities of $3.448 million. Total liabilities were $7.172 million, including $3.892 million in operating lease liabilities; the filing reports no borrowings or other debt.
Stockholders’ equity was $49.861 million, down from $66.334 million at December 31, 2018. Cash and cash equivalents declined by $40.323 million during the first half. Investing cash outflow was $23.180 million, largely reflecting investment purchases net of maturities; financing cash outflow was $0.119 million.
Changes versus comparable periods
- Q2 operating expenses increased $2.349 million year over year, principally because R&D rose $2.377 million to $6.337 million. The company cited higher compensation, clinical-trial activity, facilities costs and system production.
- First-half operating expenses increased $4.035 million. R&D rose $5.043 million to $12.179 million, while G&A fell $1.008 million to $9.547 million.
- First-half net loss increased $3.606 million. Higher interest income partly offset the higher operating loss.
- First-half operating cash use increased $6.286 million year over year. The 2018 comparison included net cash provided by investing activities, while 2019 investing activities used cash.
Outlook, commentary and risks
- On April 30, 2019, the FDA sent an additional-information letter on the CellFX 510(k), requesting more information about the predicate device and clinical data. The company said it expected to respond in Q3 2019 and anticipated an FDA decision in Q3 or Q4; the delay could require further testing, including clinical trials.
- Pending clearance, management planned a U.S. commercial introduction by year-end 2019. This was a target, not a guarantee.
- Management expected R&D and G&A spending to increase in 2019 as clinical studies, product development and commercial infrastructure expanded. It believed existing cash, cash equivalents and investments would fund projected needs for at least 12 months from the filing date, but also planned to raise additional capital.
- The company warned that further financing might not be available on acceptable terms or at all. Equity financing could dilute shareholders; inadequate funding could force it to delay or curtail development or operations.
- A May 2019 lease amendment expanded and extended the company’s Hayward facility lease. It increased lease liabilities by approximately $2.4 million and ROU assets by $1.1 million; reported lease liabilities totaled $3.892 million at June 30. The minimum lease term for the expanded premises was ten years from commencement, with two seven-year extension options.
- The filing describes clinical, regulatory, commercialization, manufacturing, reimbursement, intellectual-property and financing risks. The company reported no currently pending legal matters it believed would have a material adverse effect. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Whether the company submitted its FDA response on the expected timeline and obtained clearance, and whether the expected launch timing changed.
- Subsequent cash burn, available financing, and whether management’s stated liquidity runway remains achievable.
- Clinical-trial progress, safety and efficacy results, and any additional studies or regulatory requirements.
- Actual spending and commercial readiness compared with the expected 2019 increases in R&D and G&A.
- Lease commencement, facility-expansion costs and resulting cash commitments.
- Share dilution and governance implications: Robert W. Duggan beneficially owned approximately 44% of outstanding common stock as of the report date.