Pulse Biosciences, Inc.
Q4 2020 Earnings Call Transcript

Published: 22 Feb 2021

[Operator:]

Greeting and welcome to the Pulse Biosciences' fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. a question-and-answer session will follow the formal presentation. . As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Philip Taylor, Investor Relations. Please go ahead. 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, February 22, 2021 only and will include forward-looking statements and opinion statements. These include statements regarding our plans and expectations relating to regulatory clearance, including the process, timelines and expected outcomes, our commercial, operational, scientific, clinical and financial projection, products including the uses, benefits and applications of such products, our commercial and regulatory strategies, the impact of the COVID-19 pandemic and other future events.

[Darrin Uecker:]

Thank you all for joining us this afternoon. As an organization, Pulse Biosciences has recently achieved major milestones that significantly advance our mission to offer bioelectric medical solutions that make meaningful differences for the betterment of patients and clinicians. Just weeks ago, Pulse Biosciences received FDA clearance and CE Mark approval for the CellFX system. As a result, the company has transitioned from a clinical organization focused on observation and evaluation of a broad range of medicinal therapeutic potential opportunities as well as regulatory validation across a number of geographies to a commercial organization driving adoption of our novel CellFX system with CloudConnect services. 2020 was truly a transformational year for Pulse Biosciences and has laid a strong foundation for commercial growth and expansion of our CellFX technology platform. Our CellFX system and its embedded hardware, software and cloud technology represent a new era of energy-based medicinal therapy platforms. On the call today, we are excited to provide a detailed update on our fourth quarter and more recent accomplishments. I will start by describing how the CellFX system regulatory approvals shape our corporate focus and priorities in 2021. Ed will outline the start and direction of a controlled launch program, including continued scientific community engagement. And then Sandy will detail the financial results before I provide color on significant therapeutic opportunities beyond dermatology and open the call for Q&A. In 2020, we set three main business objectives and were successful on all three fronts. The first objective was to achieve regulatory clearance for our CellFX system in the U.S., the European Union and Canada. The second objective was to prepare for the commercial launch of the CellFX system with CloudConnect services. And our third objective was to further explore, evaluate and prioritize meaningful therapeutic opportunities outside of dermatology.

[Ed Ebbers:]

Thanks Darrin. I would like to start up by congratulating the entire Pulse organization and thanking our clinical research partners in dermatology for their collaborative achievements represented by recent regulatory clearances and the continued clinical and scientific progress that will be the foundation for our controlled launch process going forward. This is a very exciting time for Pulse Biosciences and I am thrilled about the commercial opportunity and the team that we are building. Today, I am going to review the mechanics of the previously discussed controlled launch and how this approach is indeed building the foundation for the short, intermediate and long term acceptance and growth of the CellFX system and CloudConnect services among leading dermatologists around the globe. In the aesthetic dermatology market, the acceptance and adoption of an innovative technology platform like the CellFX system begins with the top tier of respected key opinion leaders or KOLs in aesthetic dermatology. This elite group of physicians have a long track record for both clinical expertise as well as commercial acumen for introducing new technologies into a market. In anticipation of recently secured FDA clearance and CE Mark approval, we plan well in advance to implement a carefully controlled and limited commercial launch to secure an established teaching resource among KOLs that will be crucial for both clinical acceptance and the commercial success of the CellFX system when we launch to the next wave of early adopters. These early adopters will look to the guidance of our controlled launch KOLs on best practices for the integration of the CellFX into their high-end aesthetic practices and with the demanding cash paying patients that our marketing research has identified as highly likely to prefer new CellFX procedure over older methods. This controlled commercial launch plan is a detailed, comprehensive and disciplined approach to ensuring that this high level group of advocates and advisors who are trusted by their peers will have the best possible initial experience with the CellFX system. The positive experiences and pearls of clinical wisdom and commercial experiences of these initial KOL participants will then be shared with their peers in a much more powerful way than any direct company promotion and will serve as professional validation and clarification of the full potential of the CellFX system with CloudConnect and how it can benefit their patients and high-end practices.

[Sandra Gardiner:]

Thank you Ed. For the fourth quarter of 2020, operating expenses were $13.8 million compared to $13.9 million for the prior year period. Decreases in general and administrative costs, offset by increases in research and development costs drove the slight decline in overall operating expenses. Operating expenses for the three months ended December 31, 2020, included $2.4 million of non-cash stock-based compensation versus $3.5 million in the prior year period. For 2020, operating expenses were $50 million compared to $48 million in 2019. Stock-based compensation for the 12 months ended December 31, 2020 was $10.1 million compared to $11.3 million in the prior year period. The increase in operating expenses was primarily driven by the expansion of operational infrastructure and increased headcount to support commercial preparations. General and administrative expenses consist of salaries and related employee expenses for executives, sales and marketing, 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. General and administrative expenses decreased by approximately $1 million to $6.2 million for the three months period ended December 31 2020 from $7.2 million during the same period in 2019, primarily related to a $1.3 million reduction in stock-based compensation and $0.4 million in travel, training and other employee related expenses as a result of COVID-19. These decreases were partially offset by an increase in employee compensation expenses driven by increased headcount from a year ago. For the year ended December 31, 2020, general and administrative expenses increased by approximately $500,000 to $22.9 million from $22.3 million for the year ended December 31, 2019, primarily due to increases in personnel, business insurance and the facility expansion costs related to our headquarters in Hayward, California, offset by $1.4 million reduction in stock-based compensation and $0.9 million in travel, training and other employee related expenses as a result of COVID-19. 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. Research and development expenses increased by approximately $800,000 to $7.4 million for the three month period ended December 31, 2020, from $6.6 million during the same period in 2019, primarily due to increases in personnel, facility -related costs and consulting and outside services in support of our 510(k) and IDE submission, all partially offset by reductions in clinical trial expenses, sponsored research, prototype material and devices and travel expenses from a year ago. For the year ended December 31, 2020, research and development expenses increased by approximately $1.5 million to $26.4 million from $25 million for the year ended December 31, 2019, primarily due to increases in personnel, facility related costs and consulting and outside services related to our GLP preclinical studies in support of our 510(k) submission for a general dermatologic indication. These increases were partially offset by reductions in clinical trial expenses, prototype material and devices related to our initial CellFX builds and travel expenses as a result of COVID-19. Net loss for the fourth quarter ended December 31, 2020 was $13.8 million, in line with the same net loss of $13.8 million for the fourth quarter ended December 31, 2019. Cash, cash equivalents and investments totaled $20.5 million as of December 31, 2020, compared to $29.6 million as of September 30, 2020. Cash used for the three months ended December 31, 2020 was $9.1 million. Cash used for the full year 2020 totaled $34.6 million compared to $34.2 million for the full year 2019. On December 31, 2020, we delivered a notice of redemption to redeem all outstanding warrants to purchase shares of our common stock issued in connection with our June 2020 rights offering. Prior to the redemption date at February 5, 2021, 636,432 warrants were exercised generating approximately $4.5 million in gross proceeds. These respective gross proceeds are not included in the year-end cash balance of $20.5 million. Looking forward to 2021, cash usage will 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. To strengthen our balance sheet, in early February, we announced an at the market equity offering program having an aggregate offering price of up to $60 million. We believe this is a financing mechanism that will allow us to respond to investor interest and diversify the shareholder base capitalizing on our recent accomplishments in a minimally dilutive and shareholder friendly way. We will continue to use our best discretion in authorizing distribution of shares. Usage of this program has been nominal to-date and we will provide an update next quarter. On the topline, revenue generation will begin as each controlled launch clinic completes their 40 patient commitment and opts 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. In the second half of the year, we expect to begin direct CellFX system sales. This cadence is reflective of the intention of our controlled launch strategy, calculated initial investments to enable and drive long term adoption and growth. For these reasons, revenue in 2021 will be minimal for the first three quarters. Now I will turn the call back to Darrin.

[Darrin Uecker:]

Thank you Sandy. To conclude, we have begun the next chapter at Pulse Biosciences. Our product and technology have been validated by both the FDA and our notified body in Europe. We have generated clinical data that demonstrates the ability of our CellFX system to treat common dermatologic conditions with improved outcomes. Our work to-date has generated significant demand for our technology. We have been able to partner and collaborate with a large group of top aesthetic dermatology KOLs to build a foundation of real-world best practices for developing new business lines in their practices while providing patients a best-in-class outcome and experience with CellFX procedures. We are confident we will continue to execute our controlled launch strategy with the same detailed precision demonstrated by launching just days after the receipt of clearance and approval and we look forward to providing updates on this progress in the coming quarters. The future is bright for Pulse Biosciences and the commercial launch of the CellFX system with CloudConnect services in dermatology is just the beginning. Our mission at Pulse Biosciences is to build a viable business. We strategically chose dermatology as the initial market to achieve this and our focus on this mission remains clear and unwavering. What is also clear, now more than ever, is that the CellFX system and NPS technology represent a new era in energy-based therapies with the potential for broad applicability in medicine. From the start of our development of the CellFX system, our goal has been to design a tunable, software-controlled, cloud-enabled platform capable of safely delivering NPS not only in dermatology but across a broad set of potential applications and in various healthcare settings. We believe we have accomplished this goal. Over the last several years, we have made significant investments in scientific and clinical programs in dermatology and this has given its unique insights and a deeper understanding of this novel and proprietary CellFX platform technology that will inform and accelerate the use of NPS in other application areas. So today we are poised to leverage our broadly applicable CellFX platform, our deep understanding of the novel non-thermal, cellular mechanism of NPS, our experienced team of energy-based medical technology development and commercial veterans and our broad and growing intellectual property portfolio to pursue a number of compelling application areas within and outside of dermatology. We are constantly examining, expanding the range of therapeutic applications relevant to the CellFX system and CloudConnect platform, potentially spanning field such as gastroenterology, cardiology, pulmonology and ear, nose and throat, to name a few. We believe a number of these opportunities are comparable to dermatology in terms of patient needs and potential market opportunity. It needs to be said that we take on considerable risks as we engage in expansion opportunities. There is no assurance we will be successful. Having said that, not pursuing these activities incurs the risk of not living up to our potential, our vision, our obligation to one another and our commitment to making a significant impact for the betterment in the field of human healthcare. It's early discuss specifics. Suffice it to say, we are enthusiastic to be moving forward in this manner and we will continue to keep our eyes wide open, all the while being focused on what matters most. This is consistent with the broader mission we have had at Pulse Biosciences from day one, that is to utilize NPS technology for the betterment of patients and physicians across medicine while continuing to drive meaningful shareholder value. Joining me now for Q&A are Ed Ebbers, Executive Vice President and General Manager of Dermatology and Sandy Gardiner, Executive Vice President and Chief Financial Officer. Operator, please open the call for questions.

[Operator:]

. Our first question comes from the line of RK with HC Wainwright. You may proceed with your question.

[Swayampakula Ramakanth:]

Thank you. Good afternoon, Darrin and Ed and Sandy.

[Darrin Uecker:]

Hi RK.

[Swayampakula Ramakanth:]

Congratulations on getting the early launches done and also reporting on the first treatment utilizing the CellFX system. Certainly, all good news. Just to get a little bit more color on the 75 clinics that you are looking at for your initial launch. You said you are trying to do this in an orderly fashion, calendar-wise. So, at what point do you think you would have initiated with the 75th clinic? And I will follow-up with a couple more after that.

[Darrin Uecker:]

Yes. Hi RK. This is Darrin. Thanks for joining the call and thanks a lot for your support, Yes, you know, I think the way to think about or the way we think about the controlled launch is we think that 75 clinics across the U.S. and Europe is the right number based on sort of size of these territories. And as we announced, we have already started rolling them out into clinics and really begun the process of this controlled launch which, as you know and we described before and Ed described on this call, is really comprehensive and detailed program whereby we work with these KOLs to really understand how best to introduce the CellFX system and the CloudConnect services into their practice. I think at this point, it would be premature to talk about exactly when we think the 75th would be installed. I think as we mentioned, we started these installations already. We expect the bulk of them to happen in the second quarter and then probably some early in the third quarter. So that's kind of how we see it. But I think you know, we also appreciate that we are going to learn as we go. We are relying on these KOLs to really help us understand these best practices for introduction of this very unique CellFX technology. And so I think we will take it as it comes and accelerate as we are able.

[Swayampakula Ramakanth:]

Thank you for that. And then these 75 clinics that you have chosen on both sides of the Atlantic, so are these majorly like teaching hospitals or the clinics that have physicians that actually can influence additional dermatologists in terms of trying to get them to adopt when you are ready to broaden the launch? That's question A. And then question B, you said you could potentially get Canada since you said 45 days from your reply to their questioning. Let's say by the end of second quarter you are all done with it. Does that 75 clinics include Canada? Or will that be in addition to what you are currently looking to launch at?

[Darrin Uecker:]

Yes. Thanks RK. So I am going to ask Ed to respond to part A of that question on who those KOLs are and their influence in the community and then I will jump in and talk about the second piece.

[Swayampakula Ramakanth:]

Thank you.

[Ed Ebbers:]

Yes. RK, thanks for the question. The world of aesthetic dermatology is very different than traditional hospital-based procedures. It's dominated by physicians who understand that this is a significant cash paying business and typically have established their own center or actually centers and treat these patients in their own facility. So it's not really like a traditional technology in that respect. Having said that, they are very closely associated with each other in that they belong to trade groups that discuss the scientific findings associated with energy-based devices on a regular basis. So when we talk about the American Society of Lasers in Surgery and Medicine, these are their peers really worldwide that they look to when it comes to new technologies that they themselves should be adopting. So something like the ASL contains both our KOLs, but also the next generation of early adopters that would be listening to them for what should be coming next in the terms of new energy-based devices. So in that regard, this is a very, very different model than what is traditional in medical devices and among the reasons why our program is global in nature and geared towards this network of physicians as opposed to a particular hospital or particular center.

[Swayampakula Ramakanth:]

Okay. Thank you.

[Darrin Uecker:]

Yes. And to part B with regard to Canada, I think to some extent it has been a little bit on the timing that given what we know and what I communicated, I think we expect that we would likely add a handful of controlled launch sites in Canada probably in the areas that you can imagine the major metropolitan areas.

[Swayampakula Ramakanth:]

I don't know if this could be considered technical, but I am just trying to understand. In the cell cloud system since you are launching on both sides of the Atlantic, are there any differences in terms of technology itself, whether it is how secure the data would be or anything in terms of communication between the mothership which is your offices to the different clinics out there? Is there any differential? Or what I am trying to get at is, like how much would this be learning for management as much as it is for the clinics?

[Darrin Uecker:]

Yes. That is a good question. So our CellFX CloudConnect infrastructure, it is something that we have developed right along with the CellFX system. We contemplated from the get go that we would be a global company and have products shipped globally and the CellFX shipped globally, in particular. So we have spent a lot of time really developing that infrastructure and making sure that it is just as seamless in Europe as it is in the U.S. as it is in Canada and will be in other parts of the globe. So I think one of the things to realize is that these cloud-based technologies and everything sort of moving to the cloud and residing largely in the cloud is not something we have to spend a lot of time developing from a technology perspective. So I think you can appreciate that we leverage a lot of the technology that are developed in that space by companies that are significantly larger than us and across a lot of different verticals. And so we take advantage of those technologies and certainly other companies are utilizing technologies that are useful globally. What we do from a proprietary perspective is really the connection of our CellFX systems inside each one of these clinics and up to the cloud and then the integration of that data into our backend infrastructure so that we can both provide analytics and data to clinics but also we have access to that as well. And it's all around trying to create a better experience for the clinics, for patients and allow us to serve them better. So I think again, we built it from the beginning to be globally available. We work in each locality to make sure that at the clinic level they are able to connect the CellFX to the cloud. And so far so good as it relates to that.

[Swayampakula Ramakanth:]

Thank you. Thanks for taking all my questions.

[Darrin Uecker:]

You are welcome.

[Ed Ebbers:]

Thanks RK.

[Operator:]

Our next question comes from the line of Michael Fox with Park City Capital. You may proceed with your questions.

[Michael Fox:]

Hi guys. Congratulations on another the recent regulatory approvals and the exciting news about commercializing the CellFX system. With regard to the dermatology rollout, I would imagine the timing could be pretty good, given that the countries are potentially opening up after the pandemic. Are you guys hearing that from the dermatologists that you speak to about pent-up demand that people who may have missed appointments over the last year and now there are pent-up demand for appointments with dermatologists?

[Darrin Uecker:]

Yes. Hi Mike. Thanks a lot for the question and for joining the call. It's good to hear from you. So I will just make one quick comment and then I will hand it over to Ed. Ed can comment. He has been traveling, both in the U.S. and in Europe as we get this controlled launch going. So he has some in the field experience. But I think the one thing we have heard, just generally, from a lot of clinics, is they are definitely back up and running. They have done a very good job at understanding how to open safely for patients and provide procedures. I think one of our earlier experiences which you may recall from the fall was that we ran a clinical study here in the U.S. for sebaceous hyperplasia and we were able to enroll that study in just about five weeks, enrolling 60 patients across five centers. So it's a small sample size, but I think it's an indication that these clinics are up and running, patients are interested in procedures like ours that we have to offer to treat their benign lesions and clinics have figured out how to make that happen. So let me hand it over to Ed. Ed, maybe you can comment on your in the field experience.

[Ed Ebbers:]

Yes. So I will echo what Darrin just said. We have a very optimistic customer concerning this sort of pent-up demand which I think is a term that you used. It's not like pent-up demand as people are especially in this, what I think of as a luxury goods market, that haven't had much to spend their money on. And certainly self-improvement is right up on the list of things that they are thinking about in a post-COVID world when they are more likely to see people in person again, which we are all looking forward to. So I see that the underlying fundamentals of demand are healthy from both a supply standpoint in that there is physicians who are used to having very lucrative practices who have had to operate at reduced levels who are ready increase their throughput going forward. So I expect that to be the case. Currently bookings are quite a few months ahead of time. And I imagine more patients will be coming out of the woodworks once we start getting through the same days that we are all talking about in terms of society being much more active than it's been recently. That's true in Europe as well on really both fronts, that is pent-up demand but also sort of pent-up supply because of the lack of ability to use the capacity that these positions have and they very much want to get back to business as usual.

[Michael Fox:]

Okay. Great. And then also just one other comment, I think you guys made a smart move with the ATM as opposed to a more traditional financing. And I think I just want to commend you on that. So thanks a lot and I look forward to the rollout of the CellFX system. Thanks.

[Darrin Uecker:]

Thanks Mike. I appreciate your support.

[Operator:]

Our next question comes from the line of Brian . You may proceed with your questions.

[Unidentified Analyst:]

Hi guys. Congratulations on all the accomplishments that you had over the past quarter. I had a few questions for you. The first one, considering that you got approval in the U.S. and Europe, were you surprised by the additional questions from Canada?

[Darrin Uecker:]

No, not at all, Brian. Thanks for the question. I think it every country has their own regulatory system and requirements. It's the first time that Health Canada has seen any information on the CellFX system. And similarly in the EU as well as FDA, it's pretty common to get clarifying questions along the review process. So it's not out of the ordinary. The questions frankly are all good and good clarifications. And so you we are pleased with where we are in the process.

[Unidentified Analyst:]

Okay. Thank you. You spoke broadly about non-dermatology area. And that's the first that I have heard of after being on most your conference calls. Can you lend any insight into what you saw that made you give such a broad list?

[Darrin Uecker:]

Sure. So I think where this stems from is and I would say early on in the company's history, I am not sure how long you have been following us on these call, but certainly in the early days we spoke a lot about and I think we continue to speak about how we believe that NPS and our CellFX system is really a platform technology and energy modality that has highly differentiated mechanism of action that could be useful across a broad range of tissue types. Now we have gone into dermatology first for a lot of, what we think, are very good reasons in terms of the applicability of the technology in skin as well as the dermatology market. But the more we learn about the impact or the mechanism of our technology in tissue, in particular in cellular tissue and how it does not affect acellular structures, I think the more and more excited we become about the potential in other application areas. And just like older energy modalities, for example, thermal-based modalities like radiofrequency or microwave, they are broadly used throughout the body. So that are used to some extent in skin but as I am sure you are aware, they are used broadly in other applications. And so we think NPS and our CellFX system has exactly that same potential, which is to be utilized across many applications throughout the body. And some, we think, are going to fit right into this exciting mechanism of action that we have, again being non-thermal cell-focused and not impacting the acellular structures. So we are very excited about it. I think as we are executing on our controlled launch, we thought it appropriate to start to mention that we have been doing some clinical work in this area and we will continue to do so. And as I mentioned in the scripted part of the call, these do not go without risks. So like anything, we are approaching first preclinically so that we can learn more and then we will continue to move forward as we see the good date that comes out of it. So that's kind of how that has come about and where we are at with it.

[Unidentified Analyst:]

All right. Thank you. And my last question, Darrin is for you. So you see any similarities between your time at Computer Motion and your time at Pulse? Kind of lessons that you have learned from Computer Motion that are applicable to Pulse or this broad new technologies being adopted?

[Darrin Uecker:]

Yes. That's a really good question. I know that with a lot of investors and analysts that we have spoken to, I have often drawn parallels between both Computer Motion and Intuitive Surgical, specifically surgical robotics and Pulse Biosciences and this new nano-pulse stimulation technology. I think in both cases, you have these very powerful and broad platform technologies. And I think what you saw in surgical robotics was, there were a good number of years where they looked for what is the appropriate application for robotics to make its place. And ultimately, that ended up being urology and then it expanded from there. I think what I learned from that experience was exactly that, which is when you have a platform technology, it's critically important that you identify that initial application area, that initial market that you focus on that but then begin to build a pipeline so that you can apply that platform to other things as you move on and are successful in that initial application area. And so I think that's what we have done here. And I would also mention that our chairman, Bob Duggan, as you may well know, was the CEO at Computer Motion when it was acquired by Intuitive Surgical. So he has lived through that experience as well. And together, I think we both see many parallels and have tried to take the learnings from that experience and really apply it to what we are doing here at Pulse Biosciences.

[Unidentified Analyst:]

Do you see a parallel in revenue potential?

[Darrin Uecker:]

I think we have a huge opportunity in front of us at Pulse Biosciences. There are a lot of applications. And I think we are very optimistic. But we have got to start where we are starting which is dermatology. We are very excited about that opportunity. We think it's big. And then there are a number that I think could come behind it that could be equally as exciting, but carry risks just like anything else. So I think our job today is to really focus on our dermatology application area, drive this controlled launch and then the full launch into dermatology and at the same time continue to explore these other application areas and like we say, keep our eyes open and make sure we are making good decisions along the way.

[Unidentified Analyst:]

Okay. Congratulations on a great quarter.

[Darrin Uecker:]

Thanks a lot Brian. I appreciate it.

[Operator:]

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Darrin Uecker for closing remarks.

[Darrin Uecker:]

Thanks operator and thank you everybody for your support and for joining us on the call today. We look forward to next quarter's call. Thank you.

[Operator:]

This concludes today's conference. You may disconnect your lines at the time. Thank you for your participation and enjoy the rest of your evening.