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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Pulse Biosciences, Inc.    PLSE

PULSE BIOSCIENCES, INC.

(PLSE)
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PULSE BIOSCIENCES : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/09/2020 | 04:51pm EST

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q (the "Quarterly Report") and those in our Annual Report on Form 10-K.

This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements relate to expectations concerning matters that are not historical facts. Words such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "might," "plans," "projects," "will," "would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements related to our expected business, new product introductions, results of clinical studies, expectations regarding regulatory clearance and the timing of FDA or non-US filings or approvals including meetings with FDA or non-US regulatory bodies, procedures and procedure adoption, future results of operations, future financial position, our ability to generate revenues, the anticipated mix of our revenues between procedure and system revenues, our financing plans and future capital requirements, anticipated costs of revenue, anticipated expenses, the effect of recent accounting pronouncements, our investments, anticipated cash flows, our ability to finance operations from cash flows and similar matters, the impact of the recent COVID-19 coronavirus pandemic and related public health measures on our business, and statements based on current expectations, estimates, forecasts and projections about the economies and markets in which we intend to operate and our beliefs and assumptions regarding these economies and markets. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. You should read the "Risk Factors" section of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We do not assume any obligation to update any forward-looking statements.

Pulse Biosciences, CellFX, Nano-Pulse Stimulation, and NPS and the stylized logos are trademarks or registered trademarks of the Company in the United States and other countries.

Overview

We are a novel bioelectric medicine company committed to health innovation that has the potential to improve and extend the lives of patients. We are initially pursuing regulatory clearances in the United States, the European Union, and Canada to market our first product, our proprietary CellFX System. The CellFX System utilizes its patented Nano-Pulse Stimulation (NPS) technology to treat a variety of applications for which an optimal solution remains unfulfilled. NPS technology delivers nano-second pulses of electrical energy to non-thermally clear cells while sparing adjacent non-cellular tissue. The cell-specific effects of NPS technology have been validated in a series of completed and ongoing clinical studies.

We have submitted a 510(k) Premarket Notification application to the US Food and Drug Administration (FDA) for our CellFX System to obtain an initial clearance for a general dermatologic indication following the completion of our preclinical studies conducted under Good Laboratory Practices (GLP) as discussed with the FDA during a Pre-Submission meeting in May 2020. With this submission, potential FDA clearance remains on track to be received in the first quarter of 2021.

Following the general dermatologic indication submission, we plan to pursue specific indications for the CellFX System, starting with an indication for the treatment of sebaceous hyperplasia (SH) lesions. This will require an additional 510(k) submission for each indication based on comparative clinical data. A formal Pre-Submission meeting with the FDA was held in early August 2020 to discuss the proposed study design for the treatment of SH lesions using the CellFX System versus those performed by electrodessication, and in September 2020, we received FDA Investigational Device Exemption (IDE) approval for this pivotal comparison study. We have completed the enrollment of 60 patients across five study sites. All subjects will have up to two procedures and will be evaluated through the primary safety and efficacy endpoints 60 days following their last procedure. We intend to submit a 510(k) Premarket Notification application for the treatment of SH in the first quarter of 2021.

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We have submitted the technical file for the CellFX System to our European notified body and will continue to work with the notified body in pursuit of the CE mark, a requirement to commercialize the CellFX System in the European Union. Our notified body has progressed in the technical file review process tracking for the potential controlled launch of CellFX in the European Union in the first quarter of 2021. We have also submitted a Medical Device License application to Health Canada for the distribution of our CellFX System after receiving the Medical Device Single Audit Program certification. With this submission, we are on track for a potential Health Canada license in the first quarter of 2021.

We have incurred substantial operating losses and have used cash in our operating activities since inception. Based on our current operating plan, we believe we do not have sufficient cash and cash equivalents on hand to support current operations for at least twelve months from the date that our unaudited consolidated financial statements included elsewhere in this Quarterly Report were issued. To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured. We have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern for at least twelve months from the date that our unaudited consolidated financial statements included elsewhere in this Quarterly Report were issued. As such, we plan to seek to raise capital from time to time through future issuance and sale of equity securities to fund our future operations and remain as a going concern.

Plan of Operation

We plan to establish ourselves as a medical therapy company with a local, non-thermal, and drug-free treatment platform that initiates cell death in targeted tissue by a process of cell signaling and also induces an adaptive immune response to the targeted tissue. In order to accomplish this, we plan to:

?Improve our technology by continuing our research and product development efforts. We expect to develop interchangeable tissue applicators to target different tissue types that will leverage the novel characteristics of our technology platform.

?Further explore and understand the benefits of NPS technology platform with the objectives of broadening the currently planned cosmetic and therapeutic applications and identifying new applications. We anticipate that results of our clinical studies will enable us to recognize certain unmet medical needs that may be addressed by our technology.

?Continue to protect and expand our intellectual property portfolio with respect to NPS technology, which we expect will increase our ability to deter competitors and position our company for favorable licensing and partnering opportunities.

?Partner with medical or biomedical device companies for certain applications which we anticipate may accelerate product development and acceptance into target market areas and allow us to gain the sales and marketing advantages of the distribution infrastructure.

COVID-19 Pandemic

In accordance with local and state guidelines regarding the COVID-19 pandemic, we are requiring all of our employees to work remotely unless they cannot perform their essential functions remotely, and have also suspended all non-essential travel for our employees. While many of our employees are accustomed to working remotely, much of our workforce has not historically been remote. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance becomes available, temporarily suspending travel and restricting the ability to do business in person may create operational or other challenges, any of which could harm our business, financial condition and results of operations.

In addition, our clinical trials may be affected by the COVID-19 pandemic. Site initiation and patient enrollment may be delayed, for example, due to prioritization of hospital resources toward the COVID-19 pandemic, travel restrictions imposed by governments, and the inability to access sites for initiation and monitoring. Also, some of our suppliers of certain materials used in the production of our product candidates are located in areas impacted by COVID-19 which could limit our ability to obtain sufficient materials for our product candidates. COVID-19 has and will continue to adversely affect global economies and financial markets, resulting in an economic downturn that could affect demand for our product candidates, if approved, and impact our operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of the continued global economic impact of the pandemic. We cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. See the Risk Factors section for further discussion of the possible impact of the COVID-19 pandemic on our business.

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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to the critical accounting policies and estimates discussed in our Annual Report on Form 10-K as of and for the year ended December 31, 2019 filed with the SEC on March 16, 2020.

Recent Accounting Pronouncements

Refer to "Recent Accounting Pronouncements" in Note 2 of Notes to Condensed Consolidated Financial Statements of this Quarterly Report.

Segment and Geographical Information

We operate and manage our business as one reportable and operating segment. Our Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. All of our long-lived assets are based in the United States.

Results of Operations

Comparison of the three-month periods ended September 30, 2020 and 2019


Our condensed consolidated statements of operations as discussed herein are
presented below:



                                       Three-Month Periods Ended
                                             September 30,
(in thousands)                          2020                  2019     $ Change
Revenue                            $             -         $        -  $       -
Operating expenses:
General and administrative                   5,771              5,606        165
Research and development                     6,968              6,192        776
Amortization of intangible assets              166                166          -
Total operating expenses                    12,905             11,964        941
Other income:
Interest income                                  9                218      (209)
Total other income                               9                218      (209)
Net loss                           $      (12,896)$ (11,746)$ (1,150)


General and Administrative

General and administrative expenses consist of compensation and other related employee expenses for executives, finance, legal, human resources, information technology and administrative personnel, professional fees, patent fees and costs, insurance costs and other general corporate expenses. General and administrative expenses increased by $0.2 million to $5.8 million for the three-month period ended September 30, 2020, from $5.6 million during the same period in 2019 primarily due to $0.4 million of increased compensation costs related to headcount growth, $0.1 million of increased facility related expenses and $0.2 million of increased business insurance costs. These increases were partially offset by $0.3 million of reduced stock-based compensation and $0.3 million of reduced employee-related costs including recruitment and travel related expenses. Facility related expenses increased due to the facility expansions in November 2019 and May 2020, while travel related expenses decreased due primarily to the COVID-19 pandemic.

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Research and Development

Research and development expenses consist of compensation and other related employee expenses for research and development personnel, clinical trials and consulting costs related to the design, development and enhancement of our potential future products, prototype material and devices. Research and development expenses increased by $0.8 million to $7.0 million for the three-month period ended September 30, 2020, from $6.2 million during the same period in 2019 primarily due to $0.7 million of increased compensation and other employee related expenses, $0.4 million of increased consulting and outside services and $0.2 million of increased stock-based compensation. These increases were partially offset by decreases of $0.5 million in clinical trial and other outside research costs due to the timing and stage of active studies, and $0.2 million in prototype material and devices related to the initial CellFX builds in the prior year. Compensation costs increased primarily due to headcount growth, while consulting and outside services increased primarily due to our GLP preclinical studies in support of our initial CellFX System 510(k) submission for a general dermatologic indication.

Interest Income

Interest income decreased by $0.2 million to $9,000 for the three-month period ended September 30, 2020, from $0.2 million during the same period in 2019 due to lower cash, cash equivalents and investment balances.

Comparison of the nine-month periods ended September 30, 2020 and 2019


Our condensed consolidated statements of operations as discussed herein are
presented below:

                                       Nine-Month Periods Ended
                                            September 30,
(in thousands)                          2020                2019      $ Change
Revenue                            $            -        $        -  $        -
Operating expenses:
General and administrative                 16,691            15,153       1,538
Research and development                   19,019            18,371         648
Amortization of intangible assets             499               500         (1)
Total operating expenses                   36,209            34,024       2,185
Other income:
Interest income                               108               841       (733)
Total other income                            108               841       (733)
Net loss                           $     (36,101)$ (33,183)$    2,918


General and Administrative

General and administrative expenses consist of compensation and other related employee expenses for executives, finance, legal, human resources, information technology and administrative personnel, professional services, patent fees and costs, insurance costs and other general corporate expenses. General and administrative expenses increased by $1.5 million to $16.7 million for the nine-month period ended September 30, 2020, from $15.2 million during the same period in 2019. This increase was primarily due to $1.9 million of increased compensation costs related to headcount growth, $0.2 million of increased facility related expenses and $0.6 million of increased business insurance costs. These increases were partially offset by a $0.4 million decrease in consulting and outside services, a $0.5 million decrease in travel and other employee related costs, and a $0.2 million decrease in stock-based compensation. Facility related expenses increased primarily due to the facility expansions in November 2019 and May 2020, while travel and other employee related costs decreased primarily due to the COVID-19 pandemic. Consulting and outside services decreased primarily due to reduced marketing-related expenses compared to the same period in 2019.

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Research and Development

Research and development expenses consist of compensation and other related employee expenses for research and development personnel, clinical trials and consulting costs related to the design, development and enhancement of our potential future products, prototypes material and devices. Research and development expenses increased by $0.6 million to $19.0 million for the nine-month period ended September 30, 2020, compared to $18.4 million during the same period in 2019. This increase was primarily due to $1.1 million of increased compensation costs related to headcount growth, $0.9 million of increased consulting and outside services in support of our 510(k) submission to the FDA for a general dermatologic indication and $0.8 million of increased facility related expenses primarily as a result of our facility expansion. These increases were partially offset by a decrease of $1.4 million in clinical trial costs due to the timing and stage of active studies, as well as a decrease of $0.5 million in prototype material and devices related to the initial CellFX builds in the prior year.

Interest Income

Interest income decreased by $0.7 million to $0.1 million for the nine-month period ended September 30, 2020, from $0.8 million during the same period in 2019 due to lower cash, cash equivalents and investment balances.

Liquidity and Capital Resources

To date, we have not generated any revenues from product sales. Since inception, we have funded our business primarily through the issuance of equity securities. Over the next few years, we intend to invest in research and development to develop commercially viable products and to assess the feasibility of potential future products.

During June 2020, we completed a rights offering pursuant to which we sold an aggregate of 4,279,600 shares of our common stock, par value $0.001 per share, and 641,571 warrants, for net proceeds of $29.4 million.


Our condensed consolidated statements of cash flows as discussed herein are
presented below:

                                               Nine-Month Periods Ended
                                                    September 30,
(in thousands)                                  2020                2019

Net cash used in operating activities $ (26,110)$ (24,989) Net cash used in investing activities

             (4,168)          (16,626)
Net cash provided by financing activities          30,449                82
Net increase (decrease) in cash                       171          (41,533)


At September 30, 2020, we had cash, cash equivalents and investments of $29.6 million. We have determined that there is substantial doubt concerning our ability to continue as an ongoing business for the next twelve months from the date that our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report were issued unless we obtain additional capital. To date, we have not generated any revenue. As a result, we have incurred significant operating losses in each year since our inception and we may continue to incur additional losses for the next several years.

We plan to raise additional capital to fund our operations. There is no assurance that additional financing will be available when needed or that our management will be able to obtain financing on terms acceptable to us.

These expectations are based on our current operating and financing plans which are subject to change. Until we are able to generate sustainable product revenues at profitable levels, we expect to finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. Such additional funds may not be available on terms acceptable to us or at all. The ongoing COVID-19 pandemic and resulting negative impact on the global macroeconomic environment and capital markets may make it more difficult for us to raise additional funds. If we raise funds by issuing equity or equity-linked securities, the ownership of some or all of our stockholders will be diluted and the holders of new equity securities may have priority rights over our existing stockholders. If adequate funds are not available, we may be required to curtail operations significantly or to obtain funds by entering into agreements on unattractive terms. Our inability to raise capital could have a material adverse effect on our business, financial condition and results of operations.

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Operating Activities

Our primary uses of cash in operating activities are for ongoing product development.

During the nine-month period ended September 30, 2020, we used cash of $26.1 million in operating activities. The difference between cash used in operating activities and net loss consisted primarily of stock-based compensation, depreciation and amortization, and decreases in prepaid expenses and accrued liabilities.

During the nine-month period ended September 30, 2019, we used cash of $25.0 million in operating activities. The difference between cash used in operating activities and net loss consisted primarily of stock-based compensation, depreciation and amortization, and increases in accounts payable, accrued and other liabilities, partially offset by increased prepaid expenses and other current assets.

Investing Activities

Our investing activities consist primarily of investment purchases, sales and maturities and capital expenditures.

During the nine-month period ended September 30, 2020, $4.2 million of cash used in investing activities was primarily from the purchase of investments of $25.5 million offset by the cash proceeds from the maturities and sale of investments of $21.5 million.

During the nine-month period ended September 30, 2019, $16.6 million of cash used in investing activities was from the purchase of investments of $73.0 million and purchase of property and equipment of $0.6 million offset by $57.0 million of cash proceeds from the maturities of investments.

Financing Activities

During the nine-month period ended September 30, 2020, cash provided from financing activities was $30.4 million, primarily due to $29.5 million net cash received from our rights offering, $0.4 million from stock option and warrant exercises, and $0.5 million from the sale of stock under our employee stock purchase plan.

During the nine-month period ended September 30, 2019, cash provided from financing activities was $0.1 million primarily due to $0.7 million of cash received from stock option exercises and the sale of stock under our employee stock purchase plan, offset by $0.6 million tax payments related to shares withheld for vested restricted stock units.

Contractual Obligations

There have been no material changes outside the ordinary course of our business to the contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Off-Balance Sheet Arrangements

At September 30, 2020, we did not have any transactions, obligations or relationships that constitute off-balance sheet arrangements.

In the ordinary course of business, we enter into standard indemnification arrangements. Pursuant to these arrangements, we indemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology, or from claims relating to our performance or non-performance under a contract. The maximum potential amount of future payments we could be required to make under these agreements is not determinable because it involves claims that may be made against us in future periods, but have not yet been made. To date, we have not incurred costs to defend lawsuits or settle claims related to these indemnification agreements.

We also enter and have entered into indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law. In addition, we may have obligations to hold harmless and indemnify third parties involved with our fundraising efforts and their respective affiliates, directors, officers, employees, agents or other representatives against any and all losses, claims, damages and liabilities related to claims arising against such parties pursuant to the terms of agreements entered into between us and such third parties in connection with such fundraising efforts. No liability associated with such indemnification agreements has been recorded as of September 30, 2020.

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JOBS Act Accounting Election

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Trends, Events and Uncertainties

Research and development of new technologies are, by their nature, unpredictable. Although we undertake development efforts with commercially reasonable diligence, there can be no assurance that the net proceeds from our financings will be sufficient to enable us to develop our technology to the extent needed to generate future sales to sustain our operations. If we do not continue to have enough funds to sustain our operations, we will consider other options to continue our path to commercialization of our CellFX System, including, but not limited to, additional financing through follow-on stock offerings, debt financings, or co-development agreements and /or other alternatives.

We cannot assure investors that our technology will be adopted or that we will ever achieve sustainable revenues sufficient to support our operations. Even if we are able to generate revenues, there can be no assurances that we will be able to achieve profitability or positive operating cash flows. There can be no assurances that we will be able to secure additional financing in the future on acceptable terms or at all. If cash resources are insufficient to satisfy our ongoing cash needs, we would be required to scale back or discontinue our technology and product development programs, or obtain funds, if available, although there can be no assurances, through the sale, licensing or strategic alliances that could require us to relinquish rights to our technology and intellectual property, or to curtail, suspend or discontinue our operations entirely.

See the section entitled "COVID-19 Pandemic" above and elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the current and potential future impact of COVID-19 on our business, financial condition and results of operation.

Other than as discussed above and elsewhere in this Quarterly Report, we are not currently aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition in the near term, although it is possible that new trends or events may develop in the future that could have a material effect on our financial condition.

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