Pulse Biosciences, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Pulse Biosciences is developing bioelectric medical technology; its CellFX System uses Nano-Pulse Stimulation technology. It had not generated product revenue.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $9.1 million | $6.2 million |
| Sales and marketing | $4.1 million | $1.7 million |
| General and administrative | $5.3 million | $4.1 million |
| Total operating expenses | $18.5 million | $12.0 million |
| Net loss | $18.6 million | $11.9 million |
| Net loss per share, basic and diluted | $0.71 | $0.57 |
| Cash used in operating activities | $11.7 million | $9.6 million |
There was no revenue, so a revenue margin is not meaningful. Operating expenses rose $6.6 million year over year, and net loss widened $6.8 million. Stock-based compensation was $7.0 million, including $4.2 million recognized after changes to performance-option vesting conditions.
Financial position and liquidity
- Cash and cash equivalents were $59.9 million at March 31, 2021, compared with $12.5 million at December 31, 2020. The company also reported $1.1 million of inventory and no investments at quarter-end.
- Total liabilities were $60.2 million, including a $41.0 million related-party loan from Chairman Robert W. Duggan and $11.3 million of operating lease liabilities. Stockholders’ equity was $20.4 million.
- Financing activities provided $51.2 million, principally from the $41.0 million loan, $4.9 million net ATM offering proceeds, and proceeds from warrant and option exercises. Cash increased $47.4 million during the quarter.
- Management stated existing cash was expected to fund projected operating requirements for at least 12 months from the filing date, while also stating the company expects to raise additional capital. No operating cash flow or product-sales revenue was reported.
Material developments, outlook, and risks
- The company received U.S. FDA 510(k) clearance in February 2021 for an initial general dermatologic indication and CE marking in January for EU marketing. It began a controlled launch in February, selecting 75 dermatology key opinion leaders across the U.S. and EU. No launch revenue was reported.
- Management planned to pursue a specific indication for sebaceous hyperplasia, which would require an additional 510(k) submission. A Health Canada device license application was under review; the company anticipated completion by the end of Q2 2021.
- The Duggan loan bears 5% annual interest, payable quarterly starting July 1, 2021, and matures June 11, 2022. The rate may increase to 7% upon specified default or material-adverse-effect events. It includes covenants and events of default. The lender and chairman beneficially owned approximately 47% of shares at quarter-end.
- The company may sell up to $60 million of stock under its ATM agreement; it sold approximately $5.0 million net in Q1. Further equity financing could dilute shareholders, and additional financing is not assured.
- Management cited commercialization, physician adoption, reimbursement, regulatory clearance for future indications, clinical development, manufacturing and supplier dependence, and COVID-19 impacts as risks. The company also disclosed that it did not renew its D&O insurance due to high premiums; Chairman Duggan agreed to provide indemnity coverage for one year for a $2.5 million fee, of which $2.2 million was accrued at quarter-end.
- No quantitative revenue, earnings, or cash-flow guidance was provided. Management reported disclosure controls and procedures were effective as of March 31, 2021.
Important facts for investors to verify
- CellFX launch progress, physician and patient participation, conversions to paid system purchases, and whether the controlled launch produces commercial revenue.
- Cash burn relative to the stated 12-month liquidity expectation, and the company’s need and ability to obtain additional financing.
- Loan terms, covenant compliance, repayment resources, and the related-party nature of the $41.0 million borrowing.
- Regulatory progress for the sebaceous hyperplasia indication and the status of the Health Canada application.
- Potential dilution from the remaining ATM capacity, equity awards, and other securities, alongside the chairman’s approximately 47% ownership.