Pulse Biosciences, Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; filed March 20, 2017. The company is a clinical-stage medical technology developer and reported no product revenue. Quarterly figures are unaudited.
Business context
Pulse is developing its proprietary Nano-Pulse Stimulation (NPS) platform and PulseTx system for tissue treatment, with planned applications in oncology, dermatology, minimally invasive procedures and veterinary medicine. The company had not commercialized its technology by year-end. Claims of therapeutic potential, including immune response effects, are based principally on preclinical work and early human skin-study findings.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $2.933 million | $1.224 million |
| Research and development expense | $5.988 million | $2.578 million |
| Total operating expenses | $9.586 million | $4.468 million |
| Net loss | $9.518 million | $2.811 million |
| Basic and diluted loss per share | $0.86 | $0.37 |
| Cash used in operating activities | $8.051 million | $3.317 million |
For Q4 2016, net loss was $2.809 million and operating expenses were $2.843 million. Gross margin and operating margin are not meaningful because the company had no revenue.
At December 31, 2016, cash and cash equivalents were $2.089 million and marketable investments were $14.306 million, totaling $16.395 million. Working capital was $15.647 million; total assets were $26.314 million and total liabilities were $1.016 million. The filing reports no debt balance. Cash provided by financing was $20.915 million, primarily from the 2016 IPO; investing activities used $14.381 million, largely reflecting purchases of marketable investments.
Changes versus prior period and financing
- Net loss increased from $2.811 million to $9.518 million as operating expenses more than doubled, reflecting expanded development, prototype, staffing and public-company costs. R&D increased by $3.410 million; G&A increased by $1.709 million.
- The May 2016 IPO, including the underwriters’ overallotment, generated approximately $20.3 million in net proceeds. Common shares outstanding at year-end were 13.315 million, compared with 7.565 million a year earlier.
- After year-end, the company agreed to a February 2017 private placement of 819,673 shares for approximately $5 million gross proceeds. Management stated that year-end funds plus this placement were expected to cover projected operating needs for at least 12 months, while also anticipating future capital needs.
Outlook, risks and notable items
- Management expected R&D and G&A expenses to rise substantially in 2017 as clinical programs, PulseTx development and regulatory work expanded. The filing provides no revenue or earnings guidance.
- The company submitted an FDA 510(k) application for soft-tissue ablation in Q1 2017. It planned dermatology studies and an open-label clinical study in unresectable in-transit melanoma during 2017; clearance, study timing and outcomes were uncertain.
- Key risks include no commercial products or revenue, continuing losses, dependence on additional financing, clinical and regulatory uncertainty, reimbursement and adoption challenges, competition, and reliance on key personnel and suppliers. Management cautioned that insufficient funding could force delays, cutbacks, licensing or suspension of programs.
- Disclosure controls were deemed ineffective because of a material weakness in financial reporting controls: inadequate access restrictions and segregation of accounting duties. The company said additional procedures found no material financial-statement misstatement and described remediation steps, but did not assure remediation would succeed.
- The company entered a 62-month Hayward facility lease in January 2017, with monthly base rent beginning at $42,400 after an initial rent-abatement period. It also disclosed related-party dealings with MDB Capital, including IPO compensation and continuing rights under financing arrangements.
- The independent auditor issued an unqualified opinion on the financial statements. The auditor was not engaged to audit internal control effectiveness.
Important facts for investors to verify
- Progress and results of the FDA 510(k) review and planned human clinical studies, including evidence of safety and efficacy beyond preclinical findings.
- Actual cash burn, investment liquidity and runway relative to management’s estimate, and the timing and terms of any further financing.
- Whether the accounting-control material weakness is remediated and whether subsequent filings report effective controls.
- Potential dilution from the 2017 private placement, outstanding options and warrants, and any additional equity financing.
- Lease commencement, total occupancy costs and buildout expenses, as well as the company’s capacity to scale operations and manufacture devices.