Pulse Biosciences, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited consolidated financial statements; amounts below are in U.S. dollars unless noted.
Business context and reporting period
Pulse is developing its Nano-pulse Stimulation (NPS/nsPFA) technology, with efforts focused on atrial fibrillation (AF). It has discontinued CellFX system sales in dermatology, its only market with existing regulatory clearance, and is directing resources toward cardiac product development. The company reports no current product revenue and is dependent on external financing.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $0.265 million | $0 | $0.709 million |
| Operating expenses | $10.227 million | $14.279 million | $19.789 million | $31.996 million |
| Operating loss | $10.227 million | $14.014 million | $19.789 million | $31.287 million |
| Net loss | $9.910 million | $13.996 million | $19.711 million | $31.269 million |
| Basic and diluted loss per share | $0.22 | $0.44 | $0.48 | $1.02 |
Q2 2023 research and development expense was $6.697 million, up from $5.458 million. General and administrative expense was $3.530 million, down from $3.787 million. Sales and marketing and cost of revenues were both zero, compared with $3.690 million and $1.344 million, respectively, in Q2 2022. With no revenue, gross margin is not meaningful.
At June 30, 2023, cash and cash equivalents were $58.747 million, total current assets $59.958 million, total current liabilities $5.613 million, and total liabilities $14.257 million. Stockholders’ equity was $60.500 million, versus a $2.248 million deficit at December 31, 2022. The company had no related-party note payable after converting the Duggan loan to equity; lease liabilities totaled $9.619 million.
For the first six months, operating cash use was $15.772 million, investing cash use $0.055 million, and financing cash provided $13.435 million. Cash declined $2.392 million from year-end. Management stated that available cash should fund projected operations for at least 12 months from the filing date, while also saying it expects to seek additional capital.
Material changes versus prior comparable periods
- Revenue ceased following the 2022 strategic shift away from dermatology; first-half revenue fell from $0.709 million to zero.
- First-half net loss narrowed by $11.558 million, largely alongside lower total operating expenses, including the elimination of sales and marketing and cost of revenues.
- In May 2023, the company issued 10.023 million shares to Executive Chairman and majority stockholder Robert W. Duggan at $6.51 per share to extinguish $65 million principal and accrued interest on his loan. The transaction materially increased shares outstanding and eliminated the debt.
- Warrant exercises generated approximately $14.9 million gross proceeds; all 2022 Rights Offering warrants were redeemed or exercised by June 30.
- Going forward, costs previously classified as sales and marketing may be classified as general and administrative because the company has no sales activities, limiting comparability of expense categories.
Outlook, commentary, risks, contingencies and unusual items
- Development outlook: The company expected to continue preclinical testing of its cardiac ablation clamp during 2023 and potentially into 2024, and said it believed it was on track to submit an FDA 510(k) application in the first half of 2024. It expected further preclinical testing of its catheter through 2023, followed—if results support it—by a first-in-human feasibility study. The company expects the catheter to require the FDA PMA pathway.
- Early thyroid study: The company reported that 10 subjects in a first-in-human thyroid-nodule study tolerated treatment without reported pain or serious side effects; 30-day imaging showed treated portions mostly or completely resorbed. It planned to expand enrollment and optimize treatment parameters. These are preliminary findings, not proof of future efficacy or regulatory success.
- Funding and execution: The company has substantial operating losses, no current revenue, and states it will need additional capital. Financing may be unavailable or dilutive; failure to obtain funding could force reductions or suspension of development, clinical work, or operations. Management’s 12-month cash estimate depends on current plans and assumptions.
- Related-party governance: Duggan beneficially owned approximately 67% of outstanding common stock as of the report date. His loan conversion and prior financing participation, controlling ownership, and influence over stockholder votes create potential conflicts and concentration-of-control risks.
- Legal contingency: A former CFO is pursuing arbitration seeking severance and other remedies. The company disputes the claims, said a loss was not probable, and could not estimate a possible loss range.
- Other items: The company recorded a $0.1 million restructuring charge in February 2023 after eliminating seven positions. It paid Duggan a $1.0 million fee in May 2023 for a one-year director-and-officer indemnity arrangement. No goodwill impairment was identified at June 30.
- Controls: Management concluded disclosure controls were effective as of June 30, 2023; no material changes to internal control over financial reporting were reported during the quarter.
Most important facts for investors to verify
- Cash burn and actual cash runway against management’s estimate, including timing and terms of any future financing.
- Progress, study results, regulatory pathway, and timing for the cardiac clamp and catheter; distinguish plans and preliminary results from achieved milestones.
- Share dilution and ownership implications of the Duggan debt-to-equity exchange, warrant exercises, and any future equity issuance; verify Duggan’s current beneficial ownership.
- Whether the company can sustain development without revenue, and whether expense reductions or reclassification obscure underlying spending trends.
- Developments and potential exposure in the former CFO arbitration, and any other material contingencies.