Brian Dow - Senior Vice President and Chief Financial Officer Darrin Uecker - President and Chief Executive Officer

Good day, ladies and gentlemen and welcome to the Pulse Biosciences Investor Update Call. At this time all participants are in listen-only. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder today's program is being recorded. I would now like to introduce your host for today's program. Brian Dow, Pulse Biosciences Senior Vice President and Chief Financial Officer. Please go ahead.

Great. Thank you and good afternoon, everyone. And welcome to Pulse Biosciences second quarter 2018 investor update call. On the call with me today is Darrin Uecker, our President and Chief Executive Officer. Before we begin, I would like to remind you that on today's call, we will be making forward-looking statements. These include statements regarding our plans and expectations relating to our operational, scientific, clinical and financial projections, products including the uses and 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 quarterly report on Form 10-Q. Investors are encouraged to reference these risks and uncertainties and other disclosures in those reports. 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 Investors 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. With that, 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 taking time to join us on today's investors call. On today's call, we will be recapping the progress made since our last call in May, along with a brief discussion of our second quarter operating results and financial matters. As background for those of you new to Pulse Biosciences and a reminder for those of you who have joined our previous calls, at Pulse Biosciences, we are developing a proprietary Nano-Pulse Stimulation, that stimulates cellular effects that can lead to positive therapeutic outcomes utilizing ultrafast electrical pulses with nanosecond pulse durations from a billionth to under a millionth of a second. A nanosecond pulse is an incredibly fast pulse to give a sense of the scale light travels roughly 1 foot in a nanosecond and 186,000 miles in a second. When these incredibly fast pulses are applied to cells, they have demonstrated a unique ability to enter the cell and disrupt the functions of the intracellular organelles, small operational structures within a cell, such as the mitochondria endoplasmic reticulum and the Golgi complex. The disruption of the function of one or more of these cellular organelles can result in dysfunction of the cell as a whole and initiate programmed cell death. We believe it is this ability to initiate programmed cell death through the temporary formation of pores and permanent disruption of the intracellular organelles that clearly differentiates Nano-Pulse Stimulation from other energy-based therapies such as radiofrequency ablation or irreversible electroporation can cause immediate damage to the outer cell membrane. NPS induced transient nanometer sized pores allow ions to pass through them, resulting in the release of calcium ions from the endoplasmic reticulum to termination of the mitochondrial membrane potential and disruption of the Golgi apparatus, all of which in-turn results…

Thanks Darrin. During the second quarter of 2018, the ongoing development and progress made in our clinical programs, the development of the next generation NPS system and the continued growth in our business drove our ongoing investments as cash used for the quarter totaled $5.9 million resulting in an ending cash and investments balance of $27.5 million. This reflects a 25% increase over the first quarter cash used of $4.7 million. Although a portion of the increase is readily attributable to increased activity in our clinical studies, technology development and general growth of our business. during the second quarter we also incurred $1 million cash used relating to the renewal of our corporate insurance policies for the 2018, 2019 policy year. the expense is associated with the renewed policies will be recognized over the next several quarters. excluding the timing associated with our insurance renewals, cash used increased approximately 4% quarter-over-quarter. Turning to operating results, net loss for the second quarter of 2018 totaled $9.2 million reflecting a $3 million or 50% increase compared to the net loss of $6.2 million for the second quarter of 2017. Net loss for the period include non-cash stock based compensation of $3.2 million and $2.8 million for 2018 and 2017 respectively. Similarly, year-to-date to net loss for the six-month periods ended June 30, 2018 and 2017 reflect similar operational growth with net loss increasing to $17.8 million in 2018 from $9.4 million during 2017. Again stock-based compensation charges reflect a significant component of the expenses incurred contributing $6.6 million and $3.1 million to the results of 2018 and 2017 respectively. The year-over-year increase and net loss reflects the progress of building our company over the intervening period. Headcount has increased to 44 at June 30, 2018 from 27 a year earlier. To put…

Thanks Brian. This is an exciting time for Pulse Biosciences. As Brian mentioned in his comments, we've grown Pulse Biosciences from 13 employees at the end of 2016 to 44 employees at the end of June 2018 that's more than triple the number of employees in 18 months. This team has focused on our millions of delivering NPS for the betterment of patients to improve and extend their lives. We're accelerating our progress and delivering a next generation NPS system to the clinic and to clinical applications that take advantage of the unique mechanism of action of NPS. With the release of data from our first skin application earlier this year in seborrheic keratosis. We're moving rapidly to develop portfolio skin based applications that take advantage of what we believe are the unique benefits of NPS and dermatology. Today we detailed the recently started SH study, an application with a clear patient need that we believe NPS can fill. Enrollment in the SH study is moving rapidly which we believe is a sign of a confidence of the investigators and how common these skin lesions this is within their practices. Over the coming months, we'll be announcing a pipeline of additional applications that will take advantage of the unique benefits of NPS and dermatology. Again we expect commercialization based on this pipeline converting to a portfolio of applications in the second half of 2019. We also communicated an important step in our immuno-oncology program. the start of our initial NPS BCC study, an NPS and resect study that will provide data on BCC cellular destruction as well as NPS initiated immune response changes. This is the first human study that will provide data on immune response changes initiated by NPS and we're thrilled with the physicians and scientist we brought together to execute this study. We expect enrollment to complete in this study by the end of the year with results available in early 2019. In conjunction with our ongoing pre-clinical work and our work in veterinary medicine, we expect to have a steady flow of data over the coming quarters. we're excited about our progress and our prospects of Pulse Biosciences and appreciate you're taking the time to listen in our investor update. That concludes our prepared remarks. Operator, we would now like to open the call to questions.

[Operator Instructions] our first question comes from the line of Jim Hollingsworth, Private Investor. Your question please.

Before I have my questions, I wanted to let you know that Tony Tidden [ph] fell and broke his leg and has multiple fractures below the knee. Tony and I've been around since the first annual meeting of Pharmacyclics. So there's many people out there who might know Tony and I just wanted to wish him well and a speedy recovery. The stock price today didn't do very well. it recovered at the end and I suppose some true believers were still there. But it was confusing, it was confusing because we didn't know whether it was good or bad news that the BCC study requires the removal of the cells before its analyzed, so not just saying like it was adding another step before there was [indiscernible] study and was just prolonging the update approval process. So I'd like to ask Darrin I guess for the third time to clarify then, our pathway, our roadmap to commercialization and repeat what you said about when we will be making the application for FDA approval.

Jim thanks Rob [ph] for calling in and I'm really sorry to hear about Tony as well and thanks for passing along that information. Yes so let me talk about your first comment on the BCC study. So I think what we have said previously is that, from an immuno-oncology perspective our strategy has always been to enter into an initial study which is going to give us information on the ability of NPS to induce an immune response to really do two things, to one provide local control which means to locally destroy those cells but also secondarily to induce an immune response and so the BCC study is that study that we're executing now. And the way that we think is, most expeditious and the best way to demonstrate that is to do is a study like this, which we call NPS and resect study which we believe in a short period of time will allow us to understand the effect on those cells both in terms of cellular destruction but also in terms of the immune response. We followed a similar path in our dermatologic applications where we did some excised skin studies to show basically the mechanism of action of NPS in that skin. So you'll remember we did some dose ranging studies in dermatology that really showed us what that initial mechanism was in skin and how it changed with different doses. So that was very important to then leading us to the SK study and now the SH study which take full advantage of that mechanism. So likewise in immune-oncology we're following a similar path where we believe an NPS and resect study makes a lot of sense because in a very short period of time it's going to allow us to understand the effect of NPS in that disease state while allowing those patients to maintain the standard of care, but also allows us to have that tissue assessed by experts in the field which we described in our remarks, so this will be the first step in immune-oncology and dermatology. We're well on our way we believe towards commercializing NPS and dermatology as we mentioned, we had very successful SK study where almost halfway into the SH study which just started over about a month ago I think. We expect to complete that in this quarter and have data in the fourth quarter and then again, we have a pipeline of other applications coming behind it. So I think our general strategy will be in these different areas like dermatology as that will deliver on a portfolio of applications will generate clinical data in those applications and those will drive specific indications and regulatory clearances. So first, that will happen in dermatology and then that will be followed on the immuno-oncology side as we develop that pipeline as well.

Can you hear me, Darrin?

Yes I can hear you.

Okay, so it sounds to me like it was just a reverse of what I was thinking, is that by doing it by removing the tissue and examining it outside the body after the NPS. It's actually going to be a faster process than if you did in the [indiscernible].

Yes so it's going to be faster to understand the effect of NPS on those cells from a destruction perspective and also from our ability to induce an immune response. So it's going to give us a lot more insight into what's happening in that tissue and I believe a shorter period of time and so that's why we chose that. we think it's a very exciting study for the company. it remains to be seen, I mean this is a study and we'll assess and see what we see, but we're excited to be in it. The company is full bore behind it.

Well I'm glad you clarified that. that's good news. I also wanted to comment that you mentioned that you're going to develop a pipeline. I just wanted to say that I think that will be very positive, that will give investors confidence. They could see what your road map is and what the timeline, so I really encourage you to do that and then finally, I think Brian talked about raising money without dilution and I'm not very - I'm not a financial officer but the only way I could figure to do that is to borrow money and round it in sell equity, so is that part of the options you're looking at.

No let me clarify what I was referring to in that. we're looking at financing vehicles that will allow existing shareholders to maintain their proportion and share of the company in this next round of financing, so it would not be our intention to flat out dilute existing shareholders, they will have the opportunity to maintain their proportion at ownership. So in the next round current investors will have the opportunity to participate is the current thinking.

Thank you very much.

Thanks Jim. And one last comment Jim on the pipeline, we will be communicating that over the next several months as we sort of enter into those studies as well and I think everybody will see very clearly what that pipeline looks like and how encouraging it is.

Good. Thank you.

Thank you. Our next question comes from Mike Rapids [ph] Private Investor. Your question please.

I'm wondering Bob Duggan isn't on this call, that was lacked any his involvement in the company going down. How should investors look at that?

Thanks Mike and thanks for calling in, appreciated. You should not read into that at all. So Bob was on the last couple of calls as he became the Chairman of the company and participating in those calls, so he could kind of reflect his engagement in the company at that time, but him not being on this call you should not take any way at all, Bob is very involved as the Chairman of the Board and very involved with the company. we interact on a very regular basis. He's extremely supportive, so don't read into that whatsoever.

Got it. Thank you.

[Operator Instructions] our next question comes from the line of Richard Gant [ph] Private Investor. Your question please.

It was reported last fall that Pulse had announced a grand of stock options to five new employees and to be exercised one fifth each anniversary on a [indiscernible] basis. Shortly before that, Old Dominion University announced that Mr. Duggan had given them $41 million to research the - it's wind energy program that the government grant had been withdrawn for that research. And then sometimes later, Old Dominion announced that they received $42 million from Pulse Biosciences and for that Pulse got all of its intellectual property and all of the results of its end patents and all of its intellectual property regarding Nano-Pulse research. And assuming we're talking about the same $40 million. Were any or all of the five new employees who received stock options research scientist at Old Dominion?

Richard, its Brian. Thank you for calling in and thanks for your questions. I'm going to parse that down into a couple of pieces for a moment. First answer your last question, no we were not the option grants that were disclosed as part of our inducement grant program that we issue press releases on at the time of making the grant. Those were not ODU researchers that were being hired. This was for building out the team here at Pulse Biosciences. Stepping back to some of the disclosures in some of the news coverage about the various numbers from $30 million to $40 million relative to Old Dominion University and Pulse Biosciences. Old Dominion University one of the sources of intellectual property upon the foundation of the company back in 2014. And from that, for their contribution of intellectual property to Pulse Biosciences they were afforded shares of common stock in an ownership percentage in exchange for royalty-free paid up licenses to their technology and opportunities to retain a relationship with them to maintain future rights to intellectual property being developed. That stock that they held until middle of last year, was in exchange for the patents to found Pulse Biosciences. It turns out that, this was the most successful technical transfer that Old Dominion University has had and they tend to look very favorable on that, and the relationship we have with them is outstanding and we do plan on continuing that relationship. With respect to any other investments being made at Old Dominion University and some of the things you're referring to, that's not something that we're familiar with, so it's not something we'd be able to comment on.

What did you give to Old Dominion University to get their data and their right to their research?

They received an ownership stake upon the formation of the company back in 2014. So you'll recall that Pulse Biosciences was formed through the amalgamation of intellectual property estates of Old Dominion University, AMI - The University of Southern California and a local company here in the Bay Area, Bioelectromed [ph] and it was in that amalgamation of intellectual property estates that they were issued an ownership stake at that time.

So Old Dominion didn't get $40 million, is that right?

They received a substantial ownership stake in Pulse Biosciences that with the development of the business and the increase in stock price, they were able to obtain return of roughly $40 million. We did not pay them $40 million. Thank you for your question.

Pardon me?

Thank you very much for your questions and calling in.

Thank you. I'd now like to turn the program back to Darrin Uecker for any further remarks.

Thanks operator and thanks again to everyone for joining us on today's call and allowing us to share our continued progress. As I said, we're very excited about the progress that we're making and we very much look for to continuing to share that progress as we go forward. Thank you.

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. you may now disconnect. Good day.