Pulse Biosciences, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
Business context
Pulse Biosciences is a clinical-stage medical technology company developing Nano-Pulse Stimulation (NPS), a non-thermal tissue-treatment technology. It had no commercialized products or revenue and continued research, product development and clinical work. The filing describes preclinical evidence of local tumor control and an adaptive immune response; it does not establish clinical efficacy.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / prior balance date |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $3.237 million | $1.684 million |
| Net loss | $3.198 million | $1.684 million |
| Net loss per share, basic and diluted | $0.23 | $0.22 |
| Cash used in operating activities | $2.499 million | $1.462 million |
| Cash and cash equivalents | $2.751 million | $2.089 million at Dec. 31, 2016 |
| Investments | $16.109 million | $14.306 million at Dec. 31, 2016 |
| Current assets / current liabilities | $19.113 million / $1.242 million | $16.663 million / $1.016 million at Dec. 31, 2016 |
| Total assets / stockholders’ equity | $28.574 million / $27.332 million | $26.314 million / $25.298 million at Dec. 31, 2016 |
Gross and operating margins are not meaningful because the company had no revenue. The filing reports no debt; liabilities consisted primarily of accounts payable and accrued expenses. Q1 investing cash outflow was $1.810 million, principally net investment purchases. Financing provided $4.971 million, mainly from a February private placement. Cash increased $0.662 million during the quarter. Management reported cash, cash equivalents and investments of $18.9 million at March 31.
Changes versus the prior comparable period
- Operating expenses rose $1.553 million, or about 92%, and net loss increased $1.514 million year over year.
- General and administrative expense increased $692,000, primarily from higher professional and consulting, compensation, insurance and stock-based compensation costs. Management expected these costs to rise substantially in 2017.
- Research and development expense increased $861,000, reflecting higher consulting and outside services, prototype and development supplies, compensation and sponsored research. Management expected R&D spending to rise substantially in 2017 as clinical studies and PulseTx development expand.
- Operating cash use increased from $1.462 million to $2.499 million. The company also began holding a larger investment portfolio.
Outlook, risks and notable items
- Management believed available funds, including proceeds from the 2016 IPO and February 2017 private placement, would fund projected operating requirements for at least the next 12 months. It nevertheless planned to raise additional capital; financing may be unavailable or dilutive, and no assurance of future revenue or profitability was given.
- The February private placement sold 819,673 shares at $6.10 per share for approximately $5.0 million gross proceeds ($4.965 million net). Investors received registration rights; the company was required to file a resale registration statement by July 31, 2017.
- The company entered a 62-month lease for a larger Hayward facility. Base rent starts at $42,400 per month after a two-month abatement, with increases to approximately $50,300 monthly near the end of the term. The filing estimated lease obligations of $2.8 million in total across the stated maturity bands, assuming delivery by December 1, 2017.
- Disclosure controls were not effective because of a material weakness in access restrictions and segregation of accounting duties. Management said it found no resulting material misstatement, but remediation was ongoing and not assured.
- Key risks include development and regulatory uncertainty, clinical safety and efficacy, inability to commercialize or secure reimbursement, dependence on additional financing, competition, intellectual-property protection and possible impairment of goodwill and intangible assets. Ordinary-course legal matters were disclosed; management did not believe they were probable or reasonably estimable or expected to have a material adverse effect.
Important facts for investors to verify
- Actual cash burn and whether the reported funds continue to support operations for at least 12 months.
- Progress, enrollment, outcomes and regulatory status of human studies and PulseTx development; no clear quantitative clinical milestones or guidance are provided here.
- Whether G&A and R&D spending increases as management anticipated, and the timing and terms of future financing.
- Remediation of the material weakness and subsequent effectiveness of financial reporting controls.
- Delivery and build-out of the Hayward facility, resulting lease costs, and potential costs above the landlord’s improvement allowance.
- Potential dilution from equity financing and the company’s ability to meet its license, regulatory and intellectual-property obligations.