Pulse Biosciences, Inc. (PLSE) Q2 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Pulse Biosciences Quarterly Investor and Analyst Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Brian Dow, Pulse Biosciences’ Senior Vice President and Chief Financial Officer. Sir, the podium is yours.

Thank you. Good afternoon and welcome, everyone, to Pulse Biosciences quarterly investor and analyst update call. On the call with me today are Darrin Uecker, our President and Chief Executive Officer, and Ed Ebbers, our Vice President and General Manager of Dermatology. Before we begin, I would like to remind you that on today’s call we will be making forward-looking statements. These include our plans and expectations relating to our operational, scientific, clinical and financial projections, products including the uses in applications of such products and other future events. You should not place undue reliance on such forward-looking statements which are subject to a number of assumptions, risks and uncertainties, and may differ materially from actual results. These risks and uncertainties are more fully described in our Securities and Exchange Commission filings including our annual report on Form 10-K and our most recently filed quarterly report on Form 10-Q. Pulse Biosciences undertakes no obligation to update forward-looking statements as a result of new information or future events. In addition, please note that today’s call is being recorded and will be available for audio replay on the investor section of our website at www.pulsebiosciences.com, shortly after the conclusion of this call. Investors electing to use the audio replay are cautioned that forward-looking statements made on today’s call may differ or change materially after the completion of the live call. I would now like to turn the call over to our President and Chief Executive Officer, Darrin Uecker.

Thanks, Brian. Good afternoon, everyone, and thank you for joining us on today’s quarterly investor call. We are excited to review with you our progress over the last quarter and our plans moving forward. We continue to make solid progress towards delivering our proprietary Nano-Pulse Stimulation technology to physicians and their patients. Our mission in Pulse Biosciences is to build a viable company that designs, produces and commercializes Nano-Pulse Stimulation technology to improve and extend the lives of patients. Our strategy to achieve this is to develop a therapeutic tissue treatment, NPS platform; demonstrate the unique benefits of the platform in a number of compelling treatment applications; and commercialize NPS systems to deliver the benefits of NPS to physicians and their patients. Within each application area or vertical market, we’re working with key opinion leading physicians to develop and execute pilot studies to determine where the technology has the highest value to clinicians and patients. From a patient outcome market need and time to market perspective, we’ll then determine the optimal path to deliver those applications to the market through our own distribution channel or through potential partners within each vertical market. With that, as our foundation, I would now like to provide an update on our recent highlights and our progress against previously reported milestones. First, as we discussed on previous calls, we submitted the company’s first 510k to FDA for the PulseTx System in March of this year. In May, we reported that we were in the substantive review process. Substantive review is, when the lead FDA reviewer conducts a comprehensive review of the 510k submission. It is common for the FDA to request additional information or further clarifications based on the substantive review. And as expected, we received an additional information request or AI letter from FDA. This letter is a typical part of the agency’s review process and included a number of questions and comments regarding our 510k submission. We have responded to the AI letter and our responses are being reviewed by FDA. As we have communicated previously, it is important to point out that this is Pulse Biosciences’ first submission to the FDA and the first step in our regulatory strategy. Our objective is to obtain a 510k clearance with an indication for soft tissue ablation, which we believe can serve as a foundation for future clearances for specific indications that we will pursue with the addition of clinical data. The 510k clearance for soft tissue ablation may also enable us to accelerate our pursuit of additional pilot studies. We do not anticipate that this clearance would lead to an immediate commercial launch of the PulseTx System. The current PulseTx System was developed to enable broad clinical studies, but not as a commercial-ready system. At this time, we are waiting for the next communication from FDA regarding the progress of this 510k submission. During our May call, we reported that we would soon be announcing the start of our first indication study in dermatology. In our June press release, we announced the first patient treatment in a multicenter study evaluating the safety and efficacy of the NPS technology for the treatment of Seborrheic Keratosis or SKs, one of the most common types of skin lesions. The press release provided a rationale for choosing SKs details of the study and again our first patient treatment. We are making good progress towards our stated milestone of finishing this study by the end of this year. At this point, I would like to turn the call over to Ed to provide further details on our dermatology program and this important study.

Thank you, Darrin, and good afternoon, everyone. As Darrin indicated, we have commenced important clinical work in our dermatology program, starting with Seborrheic Keratosis. By a way of background, Seborrheic Keratosis or SK are common non-cancerous skin lesion that are often associated with aging. These unsightly lesions typically appear as raised bumps on the skin with a waxy, scaly texture that can vary in color from light tan to dark brown or even black, and affect more than 80 million people in the U.S. alone. Public studies report that 61% of patients afflicted with SKs take action to hide, disguise, or distract attention from SK lesions. And that 86% of these lesions – 86 kind of patients with these lesions are interested in and motivated to pay a reasonable out-of-pocket fee for removal procedure in a dermatologist’s office. Since the primary patient concern about these lesions is the unsightly cosmetic appearance. The nine lesion removal procedures are typically not covered by insurance, but do represent a large and growing cash paying market. We selected SKs for our first skin lesion target for Nano-Pulse Stimulation based on our previous dose response clinical study in which we demonstrated NPS has potential to target the outermost layer of the skin, the epidermis, where SKs typically resides. While sparing the structure of the underlying dermal structures and restoring the appearance of normal skin. These results support the potential of NPS to non-dermally eliminate undesired skin lesions in the epidermis, while maintaining healthy structures of the treated tissue and a minimal inflammatory response, which is predictive of a favorable tissue healing profile and good cosmetic outcomes. Current treatments for our Seborrheic Keratosis are often invasive, painful and carry a significant risk of undesired cosmetic results, such as visible scars and significant changes in skin color. Published reports suggest that the majority of patients with SK lesions choose no treatment over current choices for removing SK lesions even when currently available choices are offered by a dermatologist. Available choices include cryosurgery, which uses the extreme cold of liquid nitrogen to destroy lesions and other less frequently used methods, such as high energy lasers or radio frequency energy to burn off SK lesions, or even the scraping and shaving of SK lesions using a surgical tool called curette. Sometimes multiple methods or treatment sessions are required to remove thicker SK lesions. Based on our continuing discussions with skin specialist, we believe our NPS technology may offer more favorable patient experiences in skin appearance outcomes compared to existing thermal, pharmaceutical, or surgery based options used to remove skin lesions. And we’re planning to study NPS and the PulseTx System for treating other types of benign skin lesions and advancing to non-benign skin lesions in the future. Our development plan in dermatology reflects this broad potential to progressively build the clinical evidence needed for regulatory clearances and commercial success. We expect to complete the SK indication study during 2017. And pending positive results from our study, we intend to submit study data to the FDA in support of a 510k submission sometime in 2018. Thanks to the efforts of our internal team and our network of clinical investigators. We are on schedule to achieve this important milestone en route to commercialization. Our clinical study and regulatory clearance strategy parallels a product development program to refine a dermatologist specific commercial system in readiness for a planned 2018 launch. I look forward to discussing additional progress and milestones with you moving forward. I would now like to turn the call back to Darrin.

Thanks, Ed. I would now like to provide an update on our immuno-oncology program. As we have reported in previous calls, we continue to make investments in preclinical oncology research, veterinary medicine oncology research that we believe has human translational benefit and the development of an initial human pilot study in in-transit melanoma. These efforts are all aimed at further demonstrating the benefits of NPS in the treatment of cancer and are specifically focused on showing two key attributes. First, the ability to treat a local tumor; and second, to induce a systemic immune response in humans. We believe, NPS has the potential to offer patients and clinicians treatment alternatives, both as a standalone therapy and in combination with other immunotherapeutic agents. On our May call, we reported on the first canine patients treated in our veterinary medicine pilot study. As a reminder, we believe this pilot study will enable us to gain important experience with NPS in the treatment of solid tumors that may have translational relevance to human malignancies and could lead to commercial applications in veterinary oncology. Again, this pilot study is in canine oral melanoma and the objectives of the study are to demonstrate that NPS can safely reduce the volume of the treated primary tumor and to gather data on systemic immune system changes in response to the NPS treatment. The pilot study treatment consists of applying NPS directly to the oral melanoma tumor, using our PulseTx System and applicators designed specifically for this application. The canine patients in this study will be followed over the course of 112 days. We continue to recruit and enroll patients in this pilot study and are planning to treat five canine patients by the end of the year. Upon completion, we’ll assess the data and determine next steps, which may include additional studies in veterinary medicine for further translational benefit or possibly to pursue an opportunity in veterinary medicine. In parallel, we continue to move forward with our plans for a human pilot study in transit melanoma. We have previously described why we believe this is the right choice for our first human indication in oncology, specifically it’s a multi-focal disease considered to be a highly immunogenic cancer, a skin cancer and easily accessible to follow-up compatible with our PulseTx System and applicators and should provide data that is translatable to other forms of melanoma in cancer types. We are currently working through the FDA regulatory process for this pilot study and expect this process to take several months. Finally, we continue to generate interest in our NPS technology for general tissue treatment. We previously reported on work being done in cardiac ablation with our partners at Old Dominion University and that work continues to make progress and we believe it has the potential to enter the clinic in the future. NPS is a true platform technology. And though, we have a strong focus in dermatology and immuno-oncology at the present time, we continue to drive interest for other applications. Many of these are early stage applications, but represent a pipeline of future potential opportunities. At Pulse Biosciences, we continue to build a team of experts in the deployment of Nano-Pulse Stimulation crossing number of exciting clinical opportunities. I would now like to turn the call over to Brian to discuss our financial results for the second quarter of 2017.

Thanks, Darrin. Our financial results for the quarter ended June 30, 2017, reflect the ongoing investment being made in our development in clinical programs, along with the requisite operations of a public company. The balance sheet at the end of the second quarter remains strong, with cash and investments totaling $15.4 million, compared to $18.9 million at the end of the first quarter of this year and $16.4 million at the end of the fourth quarter of 2016. Net cash used during the second quarter and year-to-date totaled $3.5 million and $6 million, respectively, when taking into account the $5 million raised during our February financing. Net loss on a GAAP basis increased to $6.2 million for the second quarter of 2017, compared to $3.2 million for the first quarter of 2017. Second quarter net loss includes $2.8 million of non-cash stock-based compensation compared to approximately $260,000 for the first quarter. Excluding share-based compensation charges from both quarters, adjusted net loss totaled $3.4 million for the second quarter compared to $3 million for the first quarter. The $400,000 quarter-over-quarter increase is driven primarily by G&A expenses that increased by that same amount, stemming from increases in legal and SEC-related fees relating to our registration statement preparation; increases in administrative expense, including corporate insurance; and increases in compensation and consulting services. With respect to research and development expenses, although, the quarter-over-quarter net change was minimal, compensation costs increased 50% as headcount was added to staff new and ongoing development projects. And clinical study expenses increased substantially due to our ongoing Seborrheic Keratosis clinical study. The increases noted were mitigated by the timing of costs incurred in research and development, project costs and prototyping costs. We expect R&D expenses will increase for the remainder of 2017, as we commence additional clinical studies and commence second-half 2017 clinical system bills. These increased expenses reflect the ongoing growth in operations and progress in our development and clinical programs. With respect to the increase in non-cash stock-based compensation for a moment, the increase in stock-based compensation recognized during the second quarter is attributable to two primary factors. The increase in our stock price and the timing of equity grants. The increase in our stock price from approximately $6 per share at the end of last year to over $30 per share June 30, resulted in significantly higher valuations of individual grants made during two 2017 and the related expense recognition. Further, certain equity grants were delayed pending shareholder approval of our 2017 equity incentive plan that occurred during May. We expect non-cash stock-based compensation remain a significant part of our net loss going forward, as grants generally invest in our expense to over one to four years, and we plan to continue making grants on an ongoing basis. Returning to the balance sheet. During June 2017, we moved into our new corporate headquarters in Hayward, California. We now occupy nearly 16,000 square feet of office, lab, manufacturing, and warehouse space. The move is complete and was conducted with minimal impact of ongoing operations. With respect to the impact of the new lease on our financial statements and according – in accordance with accounting guidance, we have recorded $2.1 million of fixed assets related to landlord funded tenant improvements, as well as $300,000 of Pulse Biosciences purchased tenant improvements, furniture, pictures, and equipment relating to our new headquarters. Over the course of our five-year lease, total payments on our new facility will total approximately $2.7 million plus common area maintenance charges and will have an annual impact to operating results of approximately $600,000. Finally, during June 2017, we filed two registration statements on Form S-3. The first reflects a resale shelf registration statement and related prospectus filed in connection with our February 2017 private placement. During that financing, we committed to registering the private placement shares of this year. We have now satisfied that commitment. For clarity, the registration of these shares is simply that the registration of the shares into – and does not represent or reflect stock transactions. In addition, we filed the universal shelf registration statement on Form S-3 to facilitate future fund raising activities. Prior to utilizing this registration statement, we will be filing one or more prospectus supplements describing any securities in the related amounts associated with such a financing. Although, we do not have definitive plans to utilize the S-3 at this time, we do expect to commence fundraising activities later this year. Looking to the second-half of 2017, we continued to anticipate operational growth across the company, including expansion of our clinical and regulatory capabilities and build-out of our administrative support infrastructure. With this planned growth, we continue to have the resources necessary to fund our operations into mid-2018. Cash used for 2017 is anticipated to be $13.5 million, or $7.5 million for the remainder of this year. That concludes my remarks on the financials. I will now turn the call back to Darrin.

Thanks, Brian. 2017 continues to be a year of clinical data development. To that end, we are on track to complete our SK study, our initial indication study in dermatology by the end of the year. We are making progress in our initial pilot study in veterinary medicine, where we are studying the use of NPS in canine oral melanoma and also expect to complete this pilot study by the end of the year. And we continue to make progress in our immuno-oncology program and plans for a pilot study in in-transit melanoma. That concludes our prepared remarks. Operator, we would now like to open the call to questions.

Thank you. [Operator Instructions] Our first question comes from the line of Warren Cassell from Abella Group. Sir, your line is now open.

Good afternoon, Warren.

Hi, good afternoon. I had a question regarding the potential financing going forward. What are you guys thinking – well, I know the plans aren’t yet confirmed right now. But would you guys thinking of doing something similar to the February round of financing through the selling of shares directly to investor or through a secondary offering?

Hey, Warren, this is Brian, thank you for the question. At this point in time, we haven’t established definitive plans in that regard. And one of the things that we will remain is opportunistic in the opportunities that we identify for fundraising. So at this time, it would be premature to go too deep into what the structure or possibilities of that would be. But we will remain opportunistic going forward similar to what we were in February.

Okay, sure. And then one quick question regarding the same round that you guys did early in February. Did you guys just receive financing, or I’m not sure if they’re like strategic advisory roles that were given to Bob Duggan and the other investor?

No, that’s fund raising. It was a placement with two investors, Bob Duggan and Maky Zanganeh. And Maky has joined our Board of Directors. But with that from a strategic advisory role or anything like that, was Maky joining our Board was the only thing that came from that, but that was somewhat independent of the financing itself.

Okay then – okay, thank you. I appreciate the response.

You bet.

[Operator Instructions] And I’m showing no further questions. And I would like to turn the call back to Darrin Uecker for any further remarks.

Thank you, operator, and thank you, everybody, for calling in on today’s call. We really appreciate all of our shareholders and thank you very much for calling in. We look forward to talking to you in the future.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.