Pulse Biosciences, Inc.
Q1 2021 Earnings Call Transcript

Published: 10 May 2021

[Operator:]

Greeting and welcome to the Pulse Biosciences' First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure, to introduce your host, Mr. Philip Taylor. Thank you, sir. You may begin.

[Philip Taylor:]

Thank you, operator. Before we begin, I would like to inform you that comments and responses to your questions during today's call reflect management's views as of today, May 10, 2021 only and will include forward-looking statements and opinion statements, including predictions, estimates, plans, expectations and other information.

[Darrin Uecker:]

Thank you, everyone for joining us this afternoon at this exciting juncture for Pulse Biosciences. On today's call, I'm pleased to discuss our recent accomplishments and business updates, including the commercial, regulatory and clinical progress we have made so far in 2021. And we'll provide details from the field on our initial commercial experience with the sell CellFX system, then Sandy will share the first quarter of 2021 financial results. I will then conclude and we will open up the call for a question-and-answer session. From the beginning, at Pulse Biosciences our mission has been to offer bioelectric medical solutions that make meaningful differences for the betterment of patients and clinicians. This is now a reality. In February, we received FDA clearance to market our product with CellFX system with CloudConnect services for use in dermatology. Just 10 days prior we had received CE Mark regulatory approval to market the system in Europe. These achievements have advanced the company into our next chapter of growth. In 2021, we have two priorities that inform our current corporate strategy. Our focus on the top priorities are executing a controlled large program to drive adoption of CellFX system utilization, among key opinion leading aesthetic dermatologists, to set the foundation for a full commercial launch in late 2021 into 2022 and expanding the CellFX systems commercial potential, by continuing to develop new applications that address the needs of patients. We are confident that disciplined focus and resource allocation to these objectives will maximize the value of the CellFX system in the market over the long term.

[Ed Ebbers:]

Thanks, Darrin. First of all, I want to say it is just great for the growing commercial team of 15, nine in North America and six in Europe to be in the field in the US and Europe helping our first customers onboard the CellFX Controlled Launch experience. Our team is continuously gaining practical experience with both physicians and patients. The anticipated warm reception for our unique itself specific technology among these KOLs has exceeded our expectations in the early going, as intended are controlled once participants are contributing to our knowledge base on uses for the CellFX system. Our scientific advisors have done a great job setting a high bar and a clinical profile for NPS technology. And our first Controlled Launch participants are thrilled to now have an advanced technology solution in-hand that addresses unmet needs in aesthetic medicine, offering this unique non-thermal CellFX procedure to patients with lesions that are difficult to clear with older technologies that use heat or cold. While our plan Controlled Launch experience is still in its very early stages with an initial group of KOLs, we are pleased and excited to report on our Controlled Launch progress, as well as a continued engagement with the scientific community with our clinical research projects in support of new applications for the CellFX platform. As we have noted, our experience, and marketing research in the aesthetic procedure specialty market has shown that the acceptance and adoption of new energy modalities, like the CellFX system is heavily impacted by the influence of key opinion leaders or KOLs in anesthetic medicine. For that reason, we designed our Controlled Launch program to partner with these clinics and ensure very early positive clinician and patient experiences, as we optimize the commercial learnings that are required for new CellFX system users. In the future, as we transition from a Controlled Launch to prospecting the next wave of commercial early adopters, we expect that the trusted advice in influence of these Controlled Launch KOLs and their best practices guidance will be instrumental in laying the clinical and commercial foundation for the adoption and commercial success needed to grow our CellFX franchise in these high-end aesthetic practices. Controlled Launch success begins with discipline physician selection. In the months preceding the controlled launch, we carefully selected and qualified likely candidates for the control launch participation based on established criteria, including past experience with new energy technologies that have made the jump from clinical trials to commercial use. Our goal was to narrow down our prices to 75 positions to roll out the CellFX system. Our final selection of the first wave of early Controlled Launch participants was completed soon after regulatory clearances. We continue to qualify and move new Controlled Launch participants into our pipeline of planned onboarding, being implemented by our growing direct sales team. The actual onboarding process for each Controlled Launch center begins with a comprehensive overview of the CellFX procedure and NPS technology for the entire staff. This is as a tactic session, which includes learning module, covering mechanism of action, clinical applications, patient expectation management, local anesthetic administration techniques, as well as operation of a CellFX system, with a special emphasis on our e-commerce customer portal, enabled by the CellFX CloudConnect system that Darrin spoke about. This onboarding process can take a whole day for the physicians and their staff, which represents a significant investment for both Pulse and the practice to ensure that the user and patient experience is carefully managed. Since there are no comparable technologies to NPS or to our non-thermal mechanism of action, we strive to have our commercial team present for the initial patient procedures and be present for diligent patient follow up that is conducted after each CellFX procedure, so that the physician can directly observe skin tissue changes that are inherent to the leading clearance process, including observing the time it takes for the lesions to clear and how the healing process progresses over time. This direct observation of the lesion clearance and healing process helps the physician and their staff better describe the subtle effects experienced to future patients, so that clear expectations can be set. Since initiating our Controlled Launch in February, we have onboarded 15 clinics by the end of the first quarter. We continue to expect or take clinics approximately three months to complete their initial 40 patient procedure commitment, as establishing the Controlled Launch protocol. Imperative to this planned Controlled Launch process is taking feedback from early Controlled Launch sites and the patience and applying this experience to newly onboard Controlled Launch sites. Our expectations excel program provides formal patients and physician feedback data gathered during the Controlled Launch phase, and uses that feedback to refine our educational content for future sessions with our Controlled Launch sites. The major benefits of introducing a new paradigm changing platform like CellFX, with this carefully controlled and managed process in this early stage is that the early feedback and fine tuning of the procedure experiences from these KOL experts greatly enhances our ability to deliver a consistent and predictable clinical and commercial outcome as we scale up our launch to the next wave of early adopters. Unlike the structure of a controlled clinical trial, a controlled commercial launch of new technology empowers expert, physicians and staff to optimize all aspects of managing the patient's experience. In parallel with our Controlled Launch, our impressive and growing collection of peer-reviewed publications and major meeting podium presentations will continue to be critical in garnering the attention and potential purchasing interest of the next wave of early adopters. Discussion of NPS technology delivered by the CellFX system continue to have significant presence at major meetings of aesthetic procedure specialists. This enforces the broad applicability of our cell specific -on thermal energy modalities. Notably, at the 2021 Annual Meeting of the American Society for Lasers and Medicine and Surgery or ASLMS, four different podium presentations on NPS will be delivered by these notable key opinion leaders. First, Dr. Bruce Katz of New York City well present interim results on our multicenter feasibility study for the treatment of moderate to severe back pain Next, Dr. Joel Cohen of Denver, Colorado will discuss our feasibility study for common Nevi, generally known as moles, and Dr. Suzanne Kilmer of Sacramento will report on optimize energy settings in maintaining high efficacy and excellent skin recovery for sebaceous hyperplasia. And finally, Dr. Ted Lain of Austin, Texas will present on the efficacy of clearing cutaneous, non-genital warts with a single CellFX procedure. Most recently, at the 2021 virtual meeting of the American Academy of Dermatology, Dr. Tom Rohrer,, the current president of the ASLMS presented consumer research with positive implications for the CellFX procedure. The research highlights that aesthetic dermatology patients are highly motivated to seek a better and more durable solution for clearing common skin lesions, and would place a higher value overall on a new procedure and clearer lesions over other mainstream aesthetic procedures, such as Botox, or dermal fillers. With our Controlled Launch being faithfully executed by our growing and highly trained aesthetic specialty sales team, and our parallel pursuit of new clinical data and applications, we will deliver the promise of the CellFX system as a multiple application platform that will be embraced around the world as we continue to advance our commercial launch plans, as well as the new clinical applications that will feed our future commercial growth. Thank you now and I will turn the call over to Sandy.

[Sandra Gardiner:]

Thank you, Ed. For the first quarter of 2021 operating expenses were $18.5 million, compared to $12 million for the prior year period, and approximately $6.5 million increase year-over-year. Operating expenses to the three months ended March 31, 2021 included $7 million of non-cash stock based compensation versus $2.6 million in the prior year period, representing $4.3 million, or 66% of the year-over-year increase in operating expenses. The additional year-over-year increase in operating expenses was primarily driven by the expansion of commercial and operational infrastructure, including increased headcount to support commercialization activities. As I move into the discussion of our operating expenses, I'll focus my comments on our adjusted or non-GAAP results to provide insights into the underlying trends in our business. Please refer to today's press release for a detailed reconciliation of non-GAAP measures with the most comparable GAAP measures. Research and development expenses consists of salaries and related expenses for manufacturing, research and development personnel, as well as clinical trials and consulting costs related to the design, development and enhancement of our potential future products. Non-GAAP research and development expenses increased by approximately $600,000 to $5.9 million for the three month period ended March 31, 2021, from $5.3 million during the same period in 2020, primarily due to increases in personnel, facility related costs and consulting and outside services in support of our SBA submissions and new application development. All partially offset by reductions in clinical trial expenses, sponsored research, prototype material and devices and travel expenses from a year ago. We expect to incrementally elevated research and development expenses compared to the prior year period to remain at approximately these levels for the year, as we continue to invest in the CellFX system application expansion initiatives, Darrin previously discussed. Sales and marketing expenses consists of salaries and related employee expenses for commercial personnel, including marketing and commercial operations, as well as professional fees, trade shows, sponsorships, and other promotional activities. Prior to receiving FDA clearance and CE Mark approval for the CellFX system, sales and marketing expenses were included in general and administrative operating expenses. Non-GAAP sales and marketing expenses increased by approximately $1 million and $2.4 million for the three month period ended March 31, 2021, from $1.4 million during the same period in 2020, primarily related to increase personnel, consulting and outside services to support commercialization activities not conducted in 2020. Sales and marketing expenses for the three month period March 31, 2021, also included $135,000 of non-cash expenses related to the Controlled Launch of the CellFX system. We expect sales and marketing expenses will continue to incrementally increase throughout the year, as we invest in activities to support broad commercial operations, including the Controlled Launch of the CellFX system. General and administrative expenses consist of salaries and related employee expenses for executives, finance, legal, human resources, information technology and administrative personnel, as well as professional fees, patent fees and costs, insurance costs and other general corporate expenses. Non-GAAP general, administrative expenses increased by approximately $600,000 to $3 million for the three month period ended March, 31 2021 from $2.4 million during the same period in 2020, primarily related to increases in personnel, facility related costs, legal, accounting, other public company expenses and director and officers insurance. Non-GAAP net loss for the first quarter of 2021 was $11.4 million, compared to a net loss of $9 million for the first quarter ended March 31, 2020. Cash, cash equivalents and investments totaled $59.9 million as of March 31, 2021, compared to $20.5 million as of December 31, 2020. Cash used in the first quarter of 2021 was $10.7 million, excluding net proceeds received under the aftermarket or ATM equity offering program, term loan and the exercise of warrants. On March 11, 2021, we strengthened our balance sheet through a $41 million term loan payable in June 2022. We will continue to use our best discretion in authorizing distribution of shares under the ATM program. During the three month period ended March 31, 2021, we issued and sold 157,742 shares of common stock under the ATM. The shares were sold at an average price at $34.29 per share for aggregate net proceeds of approximately $5 million after deducting sales commissions and offering cost payable. Cash usage will continue to increase incrementally as we invest in activities to support broad commercial operations, including building a commercial team in Europe, increasing inventory levels and conducting additional studies to support indication expansion with the FDA. Inventories were $1.1 million at March 31, 2021. On the top line, revenue generation will begin as each Controlled Launch clinic completes their 40 patient commitment and elects to take ownership of the CellFX system. As such, incremental revenue generating systems will come online throughout the year, as systems are implemented at practices and they complete initial procedures. We remain focused on our Controlled Launch strategy and its implementation through calculated investments to drive long-term adoption and growth. Now I'll turn the call back to Darrin.

[Darrin Uecker:]

Thank you, Sandy. Over the past months, we have gained exciting momentum as a commercial organization. We're executing our strategy to achieve regulatory approvals, onboard KOLs as the initial Controlled Lunch participants, all while growing a library of positive clinical data to support current and future CellFX system applications. The significant project progress made by the Pulse Biosciences team is establishing a foundation from which we can drive widespread adoption and utilization of the CellFX system and NPS technology. Joining me now for Q&A are Ed Ebbers, Executive Vice President and General Manager Dermatology, and Sandy Gardiner, Executive Vice President and Chief Financial Officer. Operator, please open the call for questions.

[Operator:]

Thank you. Ladies and gentlemen, we will now have our question-and-answer session. And our first question comes from Anthony Vendetti with Maxim Group. Please proceed with your question.

[Anthony Vendetti:]

Thanks. I was just wondering on the 15 KOLs that are on board now. Have you had any feedback in terms of the protocol or how the patients that are being treated by the 15 KOLs? Any update on that at this point? Or is it too early?

[Darrin Uecker:]

Hey, Anthony. Its Darrin. Yeah, thanks for the question, for listening in. So yeah, we had 15 by the end of the first quarter. So that was, you know, sort of roughly mid February, until the end of March. And then we've continued in this quarter. And I think overall, like you heard from Ed and I'll let Ed jump in here, in just a second. The feedback has been very positive, in terms of the whole program, implementation of the training, getting physicians and their staff up to speed, initial treatments of patients. And, you know, I don't know if we mentioned in the script, but certainly all of the installations have treated patients at this point and are moving forward. So it's been very positive. We're really pleased from an execution perspective. Our ability to get systems out to the clinics, get them trained up and get them rolling. So I think thus far it's been great. Ed, if you want to jump in and provide a little additional color there.

[Ed Ebbers:]

I’ll add to that, it really is a collaborative process between us and the physicians that we asked to participate. And that was our understanding right from beginning. While we certainly had very successful clinical trials, those are far different clinical conditions than what one might encounter in everyday clinical practice, in terms of a diversity of lesions, a diversity of patients. So we really continue to learn from them on a daily basis. And in some ways, they've added to our understanding of the wide range of potential lesions that we believe are treatable, and they are treating in ways that we weren't able to evaluate from clinical trials because of the diversity of patients and lesions that they've allowed us to observe and get even steeper in our learning curve in terms of new lesions that we hadn't treated before.

[Anthony Vendetti:]

Okay, great. And then and then Ed, did you say, another 30 or 40 by the end of the second quarter, so that you'll be at 45 to 55 in total by the end of the second quarter?

[Ed Ebbers:]

Yeah, that's right. Anthony so added 15. And then, as I mentioned, we'll probably be somewhere between 45 and 55 at the end of this second quarter, and then we'll finish it up in the third quarter in the US and Europe.

[Anthony Vendetti:]

Okay. That's helpful. And so sebaceous hyperplasia, hyperplasia by end of second quarter should be submitted to the FDA. And did you say non-genital warts by the end of the year, by the end of 4Q ’21?

[Ed Ebbers:]

Yeah. So that's right, sebaceous hyperplasia here in the next several weeks, we're just finishing up that 510(k). And then with cutaneous non-genital warts, we expect enrollment to be completed, kind of late this quarter, early next. And then that puts us in we think good position to get to 510(k) by the end of the year.

[Anthony Vendetti:]

And then just an overall general question on revenues. I know these are out to the KOLs. So there's not a lot of, you know, near term revenues, because there's some - they're going to be earning some of the ability to have the system by providing detailed feedback. But some revenue generation by the third quarter is still - is that still feasible, reasonable at this point?

[Sandra Gardiner:]

Hey, Anthony. This is Sandy. So you know, they'll come online after they have finished the course their 40 patient commitment. But we continue to feel that revenue will be minimal in the first three quarters. It won't be until the fourth quarter that we would actually see - after we complete the Controlled Launch systems and the process here, that's when we would expect additional commercial revenues.

[Anthony Vendetti:]

Okay. And then in terms of commercialization, just to stay on that, before I turn it back over. If commercialization could happen in the fourth quarter where you roll it out beyond the KOLs, if all the KOLs are onboarded by the end of the third quarter, correct?

[Sandra Gardiner:]

That is correct.

[Anthony Vendetti:]

Okay, great. All right. I'll hop back in the queue. Thank you.

[Darrin Uecker:]

Thanks, Anthony.

[Operator:]

Thank you. Our next question comes from Sean Kang with H.C. Wainwright. Please proceed with your question.

[Sean Kang:]

Hi. Thank you for taking my question. So my first question is regarding Canadian market. So first of all, how large is the - how big is the Canadian market? And also, if you obtain the Canadian approval on time, would you expand your current Controlled Lunch program to include Canada?

[Darrin Uecker:]

Yeah. Let me touch on the first part. So yeah, as I mentioned, in the prepared remarks, we've been in this process with Health Canada, to gain approval for the CellFX system. We think that at this point, based on guidance documents from Health Canada that we have answered the final question. And we're in sort of the final stage of the review. So given that we take the review we’ll complete before the end of the quarter, just again, based on timing that isn't sort of their standard guidance. So if we get an approval at that time, then yes, we would expect to expand our Controlled Lunch program into Canada, it would be in a relatively small with regard to the additional number of clinics. And I don't think we've settled on an exact number yet, but I think it would be relatively, incrementally relatively small when compared to the US and Europe. And in terms of sort of overall market, Ed, do you want to make any comments on that in terms of Canada?

[Ed Ebbers:]

Yeah. The rule of thumb is, it's somewhere between one fifth and one seventh the US total in the aesthetic market. Now, having said that, there are some very fine top key opinion leaders in Canada, with whom we've already begun talking about their interest in participating and we also hired a regional director based in Canada to manage those Controlled Launch sites with the same kind of high quality that we've come to expect in Europe and the US. So we're definitely locked and loaded and ready to roll with proven training programs, a well trained person, and physicians who are very enthusiastic about governance. We're very optimistic about our future in Canada.

[Sean Kang:]

Actually, that's helpful. So one more question regarding the basal cell carcinoma study. So would you say - would you share any data from the study before you go for the pivotal study?

[Darrin Uecker:]

Yeah. Thanks, Sean. Well, we'll see when we get there, I mean, I think our intention is always to be very open and transparent with our clinical data. It wouldn't I'd surprise anybody who's followed us to see that we would have exposure to that data in scientific meetings, if applicable. And so we would certainly look for opportunities to do that. Now, this is, you know, this is an FDA IDE Approved study. So we have to be respectful of how we use that data, both with FDA, you know, for that pivotal study and the public release of it. But I think, you know, we've always tried to get our clinical data out in scientific meetings, as we're able, as that data gets finalized, and as those meetings come around, and our investigators desire to publish some of that information. So I think you can expect for us to, you know, to get that data out just as soon as we're able to do that. And I think, you know, I didn't talk about it much during the prepared remarks. But we're very pleased now its our third IDE Approved study with FDA. So I think, you know, it's a demonstration that we have a good collaboration with FDA. And these studies, I think, as we sequence them, you know, through FDA, and to get their good collaboration and sort of agreement on these studies, we'd be able to go from a couple of benign lesions, as you know, with sebaceous hyperplasia, and cutaneous non-genital warts, and now to something that is non-benign and to get FDAs approval for that study, we think is, you know, a real feather in our cap and speaks very highly of our team of the CellFX system and our technology, and our ability to work with FDA on advancing this technology further into the clinic. So we're very pleased to be moving forward in this particular indication.

[Sean Kang:]

That's helpful. Thank you.

[Darrin Uecker:]

All right, Sean. Thank you very much for your questions.

[Operator:]

Thank you. There are no further questions. At this time, I'd like to turn the floor back over to management for any closing remark.

[Darrin Uecker:]

Yeah, thank you very much, operator. And thank you, everybody, for joining us on this very important update call. We're excited about where we are today with our Controlled Launch, and getting the CellFX system out into aesthetic dermatologists hands. And we very much appreciate all of the support that we've received from all of our stakeholders. And we continue to move forward on our strategy and get the CellFX system out into more and more applications. So thank you very much. Look forward to talking to you all soon.

[Operator:]

Ladies and gentlemen, this concludes today's web conference. You may now disconnect your lines at this time. Thank you for your participation and have a great day.