Pulse Biosciences, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 31, 2023. This is an annual report, not a standalone fourth-quarter earnings report. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Business context and strategy
Pulse develops Nano-Pulse Stimulation (NPS), also called nanosecond pulsed-field ablation (nsPFA), technology delivered through its CellFX platform. In 2022, the company redirected its focus from dermatology to atrial fibrillation (AF), ending its CellFX dermatology sales and marketing operations and its Controlled Launch program. Its cardiac ablation clamp and catheter remained in preclinical development at year-end. The company has not yet established significant revenue-producing operations.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $0.7 | $1.4 |
| Cost of revenue | $11.9 | $2.0 |
| Research and development | $20.8 | $28.6 |
| Sales and marketing | $12.0 | $14.8 |
| General and administrative | $14.0 | $19.1 |
| Operating loss | $(58.1) | $(63.0) |
| Net loss | $(58.5) | $(63.7) |
| Basic and diluted loss per share | $(1.72) | $(2.28) |
| Cash used in operating activities | $(47.0) | $(54.1) |
- Revenue declined about 51%, primarily following the dermatology strategic shift. FY2022 revenue included $0.4 million of noncash Controlled Launch credits; systems contributed $0.6 million and cycle units $0.1 million.
- Cost of revenue included an $8.5 million write-off of excessive and obsolete inventory. Inventory was reduced to zero at year-end. Reported cost of revenue exceeded revenue, producing a gross loss of approximately $11.2 million before operating expenses.
- Operating expenses declined, including lower R&D, sales and marketing, and G&A costs, mainly reflecting reduced headcount and lower stock-based compensation. Net loss narrowed by about 8%.
- Cash and cash equivalents were $61.1 million at December 31, 2022, versus $28.6 million a year earlier. Current assets were $62.1 million and current liabilities $6.0 million. Management stated existing cash was expected to fund its then-current operating plan for at least 12 months from the filing date, while also stating that additional capital would be needed.
- Financing cash flow was $79.9 million, including $65.0 million from a loan by Executive Chairman and majority stockholder Robert W. Duggan and $14.9 million net proceeds from the 2022 rights offering. Investing cash flow was $(0.4) million.
- The Duggan loan bears 5% annual interest. The original principal maturity of March 20, 2024 was amended on March 17, 2023 to September 30, 2024. The balance sheet reported $65.0 million of related-party principal as long-term and $0.9 million of related-party accrued interest as current.
- Total liabilities were $80.1 million, exceeding total assets of $77.9 million; stockholders’ equity was a deficit of $2.2 million. Lease liabilities totaled $10.0 million, with $13.97 million of undiscounted operating lease payments remaining.
Material changes and outlook
- The company reduced headcount by approximately 20% in March 2022 and approximately 40% in September 2022; it eliminated seven additional positions in February 2023. It reported no full-time sales and marketing employees as of March 1, 2023.
- Management planned additional clamp testing in 2023 and expected a first FDA Q-submission meeting regarding the clamp in Q2 2023. The catheter was undergoing preclinical safety and performance testing, with a first-in-human feasibility study contemplated after further testing. The filing describes a likely PMA pathway for the catheter, but no approval timetable or financial guidance is provided.
- The CellFX System had FDA 510(k) clearance for specified dermatologic procedures and European CE marking. Those clearances do not establish approval for cardiac use; cardiac development, clinical testing, and regulatory authorization remain uncertain.
- Management cited significant risks to financing and execution, including ongoing losses, dependence on future capital or partnerships, uncertain clinical and regulatory outcomes, competition from larger device companies, and the possibility that NPS may not gain adoption. Failure to secure funding could require further cuts, delays, licensing, or cessation of operations.
- In May 2022, the company did not renew its D&O insurance because of high premiums. Duggan agreed to provide personal indemnity coverage for one year for a $1.0 million fee; $0.6 million was accrued at year-end.
- A former CFO filed an arbitration demand in March 2023 seeking severance and other remedies. The company disputes the claims and said it did not expect the final resolution to adversely affect its financial position, results, or cash flows.
- The independent auditor issued an unqualified opinion on the financial statements and reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022; the auditor did not provide an opinion on internal-control effectiveness.
Important facts for investors to verify
- Cash runway assumptions, expected operating burn, financing plans, and ability to repay the $65 million related-party loan by its amended maturity.
- Progress and results of preclinical cardiac testing, FDA feedback, clinical-study plans, and the regulatory pathway for each cardiac device.
- Whether NPS can demonstrate safety and efficacy in cardiac applications and whether physicians, hospitals, and payors will adopt and reimburse the procedures.
- Potential dilution from the 7.3 million outstanding rights-offering warrants, exercisable at $2.05 per share, and any future equity financing.
- Related-party governance and conflicts: Duggan owns approximately 56% of the company and is also its lender and provider of indemnity coverage.
- Effects of further restructuring, the ongoing CFO arbitration, and the company’s ability to retain key staff and maintain adequate insurance.