Pulse Biosciences, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Pulse Biosciences is developing and commercializing its Nano-Pulse Stimulation technology; its first commercial product is the CellFX System for dermatologic procedures. The company remains early in commercialization and operates as a single reportable segment.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $0.444 million | None |
| Cost of revenue | $0.909 million | None |
| Operating loss | $17.273 million | $18.525 million |
| Net loss | $17.273 million | $18.639 million |
| Net loss per share, basic and diluted | $0.58 | $0.71 |
| Cash used in operating activities | $15.594 million | $11.687 million |
| Cash and cash equivalents, March 31 | $12.676 million | $28.614 million at Dec. 31, 2021 |
| Total assets / total liabilities | $39.534 million / $18.738 million | $54.249 million / $18.559 million at Dec. 31, 2021 |
Revenue comprised $367,000 from systems and $77,000 from cycle units. About $300,000 was recognized when Controlled Launch participants used earned credits to purchase systems, so most revenue was non-cash; the balance came from cash purchases. Cost of revenue exceeded revenue, resulting in a gross loss of approximately $465,000.
Cash declined by $15.938 million during the quarter. Inventory rose to $7.487 million from $5.824 million. Current liabilities were $8.905 million; lease liabilities totaled $10.632 million. The company reported no current note payable at quarter-end; its prior related-party loan had been settled in 2021. The filing states that cash and its current operating plan would fund operations only through Q2 2022, and that substantial doubt about the company’s ability to continue as a going concern exists.
Changes versus the prior comparable period
- Revenue began in 2021 after sales agreements with Controlled Launch participants commenced; Q1 2022 revenue was $444,000 versus none in Q1 2021.
- Net loss narrowed by $1.366 million, while operating cash use increased by $3.907 million.
- Research and development expense fell by $2.294 million, principally due to lower stock-based compensation. Sales and marketing expense rose by $1.395 million, reflecting commercial staffing and activities, restructuring charges, and launch-related costs, partly offset by lower stock-based compensation. General and administrative expense decreased by $818,000.
- Q1 2021 financing cash flow included a $41.0 million related-party loan and equity-related proceeds; these were not repeated in Q1 2022. Q1 2021 investing cash flow included $8.0 million of investment maturities.
Business, outlook, risks, and unusual items
- Commercial adoption: At March 31, 42 clinics were commercial CellFX customers and reported 700 patient sessions in Q1. Nine partner clinics averaged 14 commercial sessions per month in Q1; management’s stated target for this group is 40 per month. Management said utilization was below expectations, shifted priority toward increasing utilization, and reduced emphasis on new system sales until utilization improves. Of 70 initial Controlled Launch participants, 39 had converted to purchases and 11 had opted out by quarter-end.
- Regulatory: The FDA issued an Additional Information letter in February concerning the application to add sebaceous hyperplasia treatment to U.S. labeling, citing insufficient clinical evidence and unmet primary endpoints in the IDE study. After an April meeting, the company supplied additional data analysis at the FDA’s request and anticipated further discussion. Timing and outcome remain uncertain.
- Restructuring: On March 31, the company initiated an operating expense reduction plan, including commercial leadership changes, field-organization restructuring, and a workforce reduction. The filing describes an approximately 20% headcount reduction and records a $0.7 million restructuring charge, expected to be paid during 2022. Anticipated savings were not yet reflected in Q1 results.
- Financing: A rights offering commenced May 4, 2022, seeking up to $15 million through units consisting of shares and warrants. The company said that even full subscription would not, by itself, support going-concern operations for the following 12 months; additional capital or other financing is needed, with no assurance it will be available on acceptable terms. Participation by chairman and majority stockholder Robert W. Duggan was indicated as intended for his basic rights but was not binding.
- Litigation: A securities class action filed in February names the company and certain executives, seeks unspecified damages, and relates to the FDA letter and subsequent share-price decline. The company disputes the allegations; it could not estimate a possible loss or range.
- Other risks: The business depends on one product family and platform, has limited commercial history, and faces adoption, reimbursement, clinical, regulatory, manufacturing, financing, and competitive risks. COVID-19 and broader economic and capital-market conditions may also affect operations and fundraising. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash runway, actual cash burn, and whether the company secured additional financing after the filing; also verify the rights offering’s final proceeds and dilution.
- CellFX clinic utilization, customer conversions and opt-outs, and progress toward management’s utilization target.
- FDA feedback and next steps on the sebaceous hyperplasia indication, including whether further clinical evidence or a new submission is required.
- Actual savings and execution costs from the restructuring, and any effects on commercial support, manufacturing, or development.
- Developments in the securities lawsuit and any later estimate or disclosure of potential loss.