Pulse Biosciences, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Unaudited financial figures are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context and reporting period
Pulse Biosciences is a clinical-stage medical technology company developing Nano-Pulse Stimulation (NPS), an electrical-energy-based platform for potential oncology, dermatology, aesthetic and other applications. The company had no commercialized products or revenue and continued research, product development and clinical work. It reincorporated from Nevada to Delaware on June 18, 2018.
Financial performance and liquidity
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $5.173 | $10.555 |
| Research and development expense | $3.960 | $7.136 |
| Total operating expenses | $9.300 | $18.024 |
| Interest income | $0.137 | $0.193 |
| Net loss | $9.163 | $17.831 |
| Basic and diluted loss per share | $0.54 | $1.06 |
For the six months, operating cash use was $10.738 million, compared with $3.707 million in the 2017 period. Investing activities provided $13.909 million, largely reflecting investment sales and maturities; financing activities provided $0.237 million. Cash and cash equivalents were $6.794 million at June 30, and investments were $20.705 million, for combined liquidity of approximately $27.5 million, down from $38.1 million at December 31, 2017.
Total assets were $39.529 million and total liabilities were $4.482 million at June 30. The filing reports no debt. Current assets were $28.660 million and current liabilities were $3.072 million. Future minimum operating lease payments totaled $2.319 million. Stock-based compensation was $6.595 million for the first half, a noncash expense.
Material changes versus the prior comparable period
- Q2 net loss increased to $9.163 million from $6.180 million in Q2 2017; first-half net loss rose to $17.831 million from $9.378 million.
- First-half operating expenses increased $8.566 million year over year. G&A rose $5.287 million, including higher stock-based compensation, professional and consulting costs, and compensation; R&D rose $3.279 million, primarily due to compensation, stock-based compensation, prototype work and depreciation.
- Cash used in operations increased by $7.031 million year over year. First-half weighted-average shares increased to 16.861 million from 14.019 million.
Outlook, risks, contingencies and unusual items
- Management expected existing cash, cash equivalents and investments to fund projected operating requirements for at least 12 months from the filing date, while stating that additional capital would be needed in the future. The company warned that financing may be unavailable or dilutive and that operations could be curtailed if funds are inadequate.
- Management expected G&A and R&D expenses to increase substantially during 2018 as the company expands infrastructure, clinical studies, product development and regulatory work. The filing gives no numerical earnings or revenue guidance.
- The FDA had requested additional data for the PulseTx System soft-tissue-ablation clearance application in September 2017. The company withdrew the application to collect more data and intended to submit a subsequent application; timing and approval were uncertain.
- The SEC had subpoenaed the company and certain directors in an investigation into trading ahead of the September 2017 private-placement announcement. The company said it was cooperating and could not estimate any potential loss. The SEC described the matter as a non-public fact-finding inquiry, not a conclusion that anyone violated the law.
- On July 30, 2018, the company received a Nasdaq notice that it did not meet the audit-committee requirement for at least three members. Nasdaq granted a cure period through the earlier of the next annual meeting or July 27, 2019.
- Key risks include no product revenue, continued losses and financing needs; clinical, regulatory and commercial uncertainty; competition; intellectual-property and supplier risks; and potential dilution. Management reported disclosure controls were effective at June 30, 2018 and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash runway assumptions, operating cash burn and timing or terms of any future financing.
- Progress and data requirements for clinical studies and the next FDA submission for PulseTx.
- Updates on the SEC investigation, including whether any outcome or potential liability becomes estimable.
- Whether the company cured the Nasdaq audit-committee deficiency within the permitted period.
- Expected spending growth, the role of noncash stock compensation and potential equity dilution.