Pulse Biosciences, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2018; year-to-date comparisons are for the nine months ended September 30. The financial statements are unaudited.
Business context
Pulse Biosciences is a clinical-stage medical technology company developing its Nano-Pulse Stimulation (NPS) platform, a non-thermal treatment technology. Dermatology is its first planned commercial application; the company also describes potential immune-oncology applications. It had no commercialized products and generated no revenue in the periods presented.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $10.9 million | $7.5 million | $28.9 million | $17.0 million |
| Net loss | $10.8 million | $7.5 million | $28.6 million | $16.9 million |
| Basic and diluted loss per share | $0.64 | $0.52 | $1.69 | $1.19 |
| Operating cash used | Not separately stated | Not separately stated | $17.6 million | $7.1 million |
At September 30, 2018, cash and cash equivalents were $6.3 million and investments were $14.7 million, totaling $21.0 million, versus $38.1 million at December 31, 2017. Current assets were $22.1 million and current liabilities $3.3 million. Total liabilities were $4.7 million, including deferred rent; the filing reports no borrowings or other debt balance. The company had an accumulated deficit of $66.8 million. Gross margin is not meaningful because there was no revenue.
For the first nine months, investing activities provided $19.9 million, primarily reflecting investment sales and maturities net of purchases; financing activities provided $0.6 million, mainly from employee stock plan and option exercises. Cash and cash equivalents rose by $2.9 million to $6.3 million, while the combined cash-and-investment balance fell by $17.1 million.
Changes versus prior comparable periods
- Year-to-date operating expenses increased $11.9 million, with general and administrative expense up $6.5 million and research and development expense up $5.4 million. Management attributed increases to staffing and compensation, stock-based compensation, professional services, clinical studies, and product and prototype development.
- Year-to-date net loss widened by $11.7 million; quarterly net loss widened by $3.3 million.
- Year-to-date operating cash use increased $10.5 million. The 2017 comparison included substantial private-placement proceeds; no common-stock issuance proceeds were reported in 2018 for the period.
- Stock-based compensation was $10.0 million for the first nine months of 2018, versus $6.4 million in 2017.
Outlook, risks and unusual items
- Management expected general and administrative and R&D expenses to increase substantially during 2018 as it expanded infrastructure, clinical studies, product development and regulatory-clearance efforts. The company did not expect product-sale revenue in the next year.
- On October 26, 2018, Chairman Robert W. Duggan, who beneficially owned approximately 35% of shares, made an irrevocable commitment to provide up to $15 million in support through November 15, 2019, potentially through equity purchases, loans or advances. Management said existing funds plus this support were expected to fund operations for at least 12 months from the filing date. This is a support commitment, not reported cash received; future capital needs and access to financing remain risks.
- The company is conducting clinical and development work, but its technology is not approved for treating any disease or condition. It withdrew a 2017 FDA clearance application for soft-tissue ablation after the FDA requested additional data, intending to gather further data before a future submission.
- The SEC issued subpoenas to the company and certain directors concerning trading ahead of the September 2017 financing announcement. The company said it was cooperating and could not estimate any possible loss.
- Nasdaq notified the company in July 2018 that it did not meet the audit-committee requirement for at least three members. The stated cure period ran to the earlier of the next annual meeting or July 27, 2019; failure to regain compliance could risk delisting.
- Management reported disclosure controls were effective at September 30, 2018 and no material change in internal control over financial reporting during the quarter. A prior material weakness identified in 2016 was reported as remediated in 2017.
- The company anticipated that adoption of the new lease standard in 2019 would materially increase reported assets and liabilities. It also highlighted development, clinical, regulatory, commercialization, financing, intellectual-property and reimbursement risks.
Important facts for investors to verify
- Terms, availability and actual drawdown of Duggan’s up-to-$15 million commitment, and whether financing beyond it will be needed.
- Cash burn, investment balances and runway relative to planned clinical, development and regulatory spending.
- Progress and results of clinical studies, the timing and requirements for any new FDA submission, and the pathway to commercialization.
- Status and outcome of the SEC trading investigation, including any estimated financial exposure if one becomes available.
- Remediation of Nasdaq audit-committee noncompliance and the company’s continued listing status.
- Potential dilution from future equity financing and the effect of stock-based compensation; outstanding options, warrants and restricted stock units were excluded from diluted loss per share as anti-dilutive.