Pulse Biosciences, Inc. (PLSE) Q2 2019 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Pulse Biosciences' Second Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Speaker Brian Dow, Pulse Biosciences Senior Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you very much, operator. Good afternoon, everyone, and welcome 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 Executive Vice President and General Manager of Dermatology. Our comments and responses to your questions during today’s call reflect management’s views as of today, August 8, 2019 only, and will include forward-looking statements. These include statements regarding our plans and expectations relating to regulatory clearance, including the process and expected outcomes; our commercial, operational, scientific, clinical and financial projections; products, including the uses and applications of such products; and other future events. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our Form 10-Q filed earlier today. Our SEC filings can be found through our website or at the SEC’s website. Investors are cautioned not to place undue reliance on forward-looking statements. Please note that this conference call will be available for audio replay on our website at pulsebiosciences.com on the News and Events section on our Investor Relations page. In addition, today’s press release has been posted and is available on our website. Today’s format will consist of providing you with highlights of our second quarter of 2019, as described in our press release announced earlier today, followed by a question-and-answer session. 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 call. Our driving focus at Pulse Biosciences is the near-term commercialization of our proprietary CellFX System in aesthetic dermatology in pursuit of our mission to build a viable company that makes a meaningful difference for the betterment of patients and clinicians. Today, I’ll start with some important recent updates, including an update on our regulatory process, before turning the call over to Ed to update on our preparations for commercialization of the CellFX System once we receive an FDA clearance. I will then provide additional updates on our clinical programs, and then Brian will provide a financial update. Necessary to our commercializing the CellFX System in the United States is obtaining clearance from the U.S. Food and Drug Administration. As we communicated previously during February of this year, we submitted a premarket notification 510(k) to the U.S. FDA for our CellFX System. On April 30, just prior to our Q1 investor call, we received an additional information, or AI letter, from FDA. This is a typical part of the 510(k) process in which FDA identifies specific questions and clarifications required by the company in order to proceed with the review process, and it allows the company 180 calendar days to submit responses. Importantly, after a thorough review of the AI letter and discussions with FDA, we are confident the 510(k) regulatory path is the appropriate path for the CellFX System. We remain in the standard 510(k) review process, and we are making good progress in preparing our response to the AI letter and route to a 510(k) clearance. We have been communicating with FDA on an almost weekly basis over the last couple months as we work through each question and requested clarification in the AI letter. Although we are still working through this process, we believe we are getting very close. FDA has requested some additional review and analysis of the clinical data that was provided as part of the initial 510(k) submission, and we are performing that now. We have not been required to perform any additional clinical studies during this process. We believe we will complete the additional review and analysis and submit our complete response to the FDA AI letter by the end of Q3, which would position us for an FDA clearance during Q4. Earlier this year, we estimated a quicker review process and projected a Q3 FDA clearance for the CellFX System. We believe the initial review time can be attributed to the time required by the agency to review a novel technology and product like Nano-Pulse Stimulation and the CellFX System in dermatology for the first time, given the amount of safety and efficacy data provided in our bench preclinical and clinical studies. We have experienced a productive collaboration with FDA throughout this process and expect that to continue. And we believe that the initial clearance will pave the way for future regulatory clearances for additional applications. We view this as a pivotal and foundational step for the CellFX System in dermatology. In other updates, we continue to receive validation of our NPS technology and the CellFX System from the clinical and scientific community in dermatology. As further evidence of this, we are pleased to report a manuscript detailing our initial histologic skin studies, which demonstrated the safety and unique mechanism of our CellFX System to impact cellular structures while sparing surrounding non-cellular structures was published earlier this week in the August 2019 edition of the prestigious peer-reviewed journal of the American Society for Laser Medicine & Surgery, or ASLMS. The acceptance of this manuscript titled A Dose Response Study of a Novel Method of Selective Tissue Modification of Cellular Structures in the Skin with Nanosecond Pulsed Electric Fields, with lead author and plastic surgeon Dr. David Kaufman, further validates the importance of this early foundational data to the understanding of the effects of NPS in skin and the potential it has in treating many difficult-to-treat skin lesions. Based on the histologic findings highlighted in this publication, and in consultation with our key opinion leaders, we successfully executed studies that demonstrated outstanding safety and efficacy in our first two targeted commercial applications: sebaceous hyperplasia, or SH, a small raised lesion caused by overactive sebaceous glands typically on the face; and seborrheic keratosis, or SK, a common benign pigmented lesion of the skin that resides in the epidermis. These represent difficult-to-treat benign skin lesions that largely go untreated due to the lack of acceptable treatment options for patients and highlights the unique capabilities of the CellFX System to target cellular lesions while sparing surrounding non-cellular structures. Our results in SH and SK provide empirical evidence that our tunable CellFX System is safe, and based on its unique mechanism, has the potential to treat a large number of high-value and difficult-to-treat skin conditions. Today, we are also pleased to report that a manuscript detailing our SH clinical data has been accepted for publication in the Journal of Dermatologic Surgery. The manuscript is titled Safety and Efficacy of Nanosecond Pulsed Electric Field Treatment of Sebaceous Gland Hyperplasia, and has lead author Dr. Gilly Munavalli of Laser & Vein Specialists in North Carolina. The publication of this manuscript in this important peer-reviewed journal validates the importance of treating sebaceous hyperplasia to dermatologists and provides important peer-reviewed clinical safety and efficacy data for physicians to better understand the important role that NPS technology and the CellFX System can play in clearing this difficult-to-treat lesion that affects as much as 1% of the adult population. We’re excited about these recent publications and expect additional publications from our growing body of clinical data in the coming quarters. Earlier this week, we announced another important validation of the continued acceptance of our NPS technology and the CellFX System within the field of dermatology. That our NPS technology will be highlighted in a podium session at the Controversies and Conversations in Lasers and Cosmetic Surgery Symposium starting tomorrow, August 9, in San Francisco, California and running through Sunday, August 11. This prestigious annual scientific symposium assembles the best and brightest specialists and innovators in the field of aesthetic procedures and features the most important advancements in the use of energy-based devices for dermatology. Three of the field’s top aesthetic procedure specialists, and also our clinical investigators, will be presenting clinical data from the podium during the session titled Hot Topics: Nano-Pulse Stimulation Technology, which will occur on Friday, August 9 from 11:30 AM to 11:45 AM. Drs. Thomas Rohrer, Gilly Munavalli and Brian Zelickson will be presenting data and observations from our SH, SK, wart, basal cell carcinoma and tattoo studies. As we have discussed previously, the CellFX System is a platform with a novel and well-differentiated mechanism, and we plan to deliver a growing array of valuable applications that patients desire and aesthetic dermatology clinics will be excited to provide for their patients. We have a growing pipeline of potential applications that take advantage of the mechanism of our CellFX System and builds on the success of our early clinical results. I’ll be updating on our clinical programs later on in this call. We continue to build out our commercial infrastructure in anticipation of an FDA clearance. To provide an update on our progress in bringing our CellFX System to the market post-FDA clearance, I will now turn the call over to Ed.

Thanks, Darrin, and good afternoon, everyone. It is an exciting time here at Pulse Biosciences, and I’m excited to share our preparations for introducing the CellFX System to the aesthetic dermatology market. In just a few short years, we have successfully transformed the science of our patented NPS technology into the commercial CellFX System that we are targeting to launch into the large and growing aesthetic procedure market. Once we’ve received the FDA clearance, we will commence the commercial introduction of our CellFX System into the cash-paying aesthetic procedure market. According to recent industry estimates, Americans spend approximately $22 billion annually on aesthetic procedures, including the removal of the common lesions that we’ve studied. Furthermore, this market has an estimated annual growth rate exceeding 10%. Here in the United States, this market is driven by a 3,000 to 4,000 skin specialty physician number that has a history of utilizing energy-based devices to offer cash-paying procedures to improve the appearance of their patients. In recognition of this growing market for cash-paying procedures, the American Society of Dermatologic Surgeons conducts and annual survey of consumer interest in aesthetic procedures. The 2018 ASDS consumer research concluded that 70% of patients are currently considering an aesthetic procedure and would be willing to pay out of pocket for this procedure. This is up 30% from just five years ago. The same ASDS research confirmed that board certified dermatologists continue to be the number one influencer of patient decisions when it comes to these skin-enhancing procedures. This is precisely why we are focusing our initial commercial efforts for the CellFX Systems on this group of influential clinicians. For our planned commercial launch of the CellFX System in the United States, we are focused on this 3,000 to 4,000 group of aesthetic dermatologists that consistently adopt new technologies and energy-based devices in their practices and directly promote these to patients. We are already pursuing FDA clearance for the first two specific applications we plan to launch to these specialists. These procedures are for sebaceous hyperplasia and seborrheic keratosis. Turning first to sebaceous hyperplasia, or SH, this is a raised lesion which is caused by overactive oil-producing glands called sebaceous glands. SH lesions are significant cosmetic problems since these oily lesions almost always occur on the face and are difficult to conceal with makeup or clothing. Our marketing research indicates that these cosmetically bothersome lesions are often untreated because current modalities do not reliably clear these lesions and can leave behind damaged skin that looks worse than the original lesions. In contrast, our clinical studies of the CellFX SH procedure demonstrate greater than a 90% efficacy rate with the important additional benefit of restoring healthy looking skin in the area of the cleared lesion. Our marketing research with both physicians and patients indicate that the CellFX SH procedure can fill a major unmet need for this common and bothersome facial lesion, and that the CellFX procedure profile is perceived as superior to available choices For our target physician, we estimate an average of over 40 patients each week that present with sebaceous hyperplasia with an average of 6.2 lesions presenting in each patient. This is a significant opportunity for CellFX utilization, and our excellent clinical data have demonstrated the effectiveness of the CellFX System for treating SH lesions puts us in a great position to capitalize on this opportunity. Our second major skin application is seborrheic keratosis. These common, benign lesions usually present as dark, waxy or scaly growths on the skin generally associated with aging and are the single most common lesions seen in a dermatology practice. When presented with the CellFX procedure profile for clearing SKs, target clinicians surveyed believed the non-thermal CellFX procedure will both displace existing treatment modalities, primarily cryotherapy, and increase their desire to treat patients by over 50%. In addition, there is a special subset of SKs called macular, or flat SKs, that are particularly difficult to treat with existing modalities. In this macular SK subset, physicians indicated that having a CellFX System could double the lesions they would choose to treat because of its superior profile. Our patient-focused market research confirms that aesthetic dermatology patients with both SH and SK lesions are extremely motivated to treat these very common lesions if offered a better alternative as we have described in the CellFX procedure profile. This alignment of interest between aesthetic procedure specialists and their current patients who are candidates for the CellFX procedure provides further evidence of the significant potential of the CellFX System in both of these very common and difficult-to-treat lesions. SK and SH are compelling initial commercial targets for our CellFX System for which we are seeking FDA clearance. However, these represent just the beginning for potential for establishing and growing our utilization-based business model with additional high-volume cash-paying aesthetic applications. The next target on our list of priorities is the common wart and the very early clinical results are very promising. As we discussed just a few months ago, we have commenced a pivotal study evaluating the safety and efficacy of using our CellFX System for the treatment of common cutaneous warts based on outstanding results and investigator feedback from our earlier feasibility study. Dermatologists we work with frequently place warts at the top or near the top of their list of common but difficult-to-treat skin conditions. And our marketing research indicates that our target physicians see an average of over 30 patients per week presenting with warts that could be suitable for CellFX treatment, often with multiple warts on each patient. Beyond warts, we are actively evaluating and conducting early feasibility work in a number of additional applications that we believe the CellFX System is well suited for with its non-thermal cell-centric mechanism of action. Darrin will be providing further updates on a number of these future applications shortly. These future applications add even greater utilization potential to our plans for the long-term growth of our utilization-based revenue model. We specifically designed the CellFX System to support a utilization-based business model that builds upon our collective team experience, launching new technologies in the aesthetic procedure market. Our business model outlines – aligns our outstanding patient outcomes with the economic interest of patients, clinicians and Pulse Biosciences. Patients pay for the treatment of lesions and clinicians receive payment and incur costs when the treatment of those lesions are provided, allowing for informed pricing decision and alignment with the operational aspects of their cash-paying business. Pulse Biosciences participates in the economics of each lesion treated through its novel, network-connected design, and makes it easy for physicians to understand their cost structure. The CellFX System is comprised of a compact cart-based console, which powers a reusable hand piece that accommodates a variety of single patient but multi-lesion use consumable treatment tips. The CellFX System connects to our proprietary CellFX cloud, which is an internet-based cloud portal that connects all of our CellFX Systems in the field to our corporate enterprise system. Through the CellFX cloud infrastructure, clinics can purchase and download CellFX cycle units, which is the currency of the CellFX System. These load directly onto the CellFX System through the internet. It is these cycle units that are consumed each time a patient receives a CellFX treatment. Each CellFX cycle or treatment has a predetermined cost to the clinic and a revenue to Pulse ranging from $40 to $80 per cycle, or per lesion, which will be marked up by the clinic and charged to the patient, again, aligning the economics of the patient, the physician and Pulse Biosciences. Once cleared by the FDA, we plan to offer different tip sizes for SH and SK lesions that can also be used across an array of additional benign skin lesions. We plan to launch the CellFX System with an initial ASP of $45,000, a price that we believe will encourage rapid adoption. We estimate that by just treating 3 SH or SK patients per week, which is a very modest number, the clinician can recoup their initial investment in as little as four months. To put that number in perspective, market research indicates that on average, our target clinicians are seeing 10 times that number of patients per week with these conditions, suggesting that an ROI of four months is quite conservative, given these numbers. When combining the number of patients presenting conditions suited for CellFX each week, and the expected patient treatment rate suggested by our market research, the CellFX becomes a highly valued treatment franchise within the clinic, and in turn, a powerful value driver for Pulse Biosciences. To deliver on this value proposition of a utilization-based CellFX System, we are already building a sales organization steeped in experience working in the field of aesthetic procedures with a proven track record of success in the utilization-based business model. As you may recall from our earlier discussions this year, Mr. Bob Tyson has joined Pulse Biosciences as our Vice President of Sales. He is the foundation of our sales team that is being built to leverage our CellFX System and help turn it into a franchise in the clinic with a large installed base of physicians who are committed to providing CellFX procedures that meet a high and uniform standard of clinical and aesthetic outcomes. Fostering these physician relationships and adhering to these high standards is key to making our vision of a collaborative partnership with clinicians and customers a reality. Bobby and I go back to the early days of commercialization at Zeltiq and Thermage, both pioneers of utilization-based business models that yielded high enterprise values. Bobby knows the aesthetic procedure space, he knows the opinion leaders, and brings with him the ability to recruit, hire, train and inspire a high caliber network of sales team professionals that will make our vision a reality. Bobby has already hired and trained three outstanding regional directors dispersed across our initial regions in the United States. These initial regional directors will facilitate and lead the early days of our controlled launch and recruit future sales team candidates in anticipation of expanded commercial launch activities during the early months of launch. Once FDA clearance is received, it is this core group that will lead our controlled launch of the CellFX Systems in their respective geographies. As I mentioned earlier, the initial placement of the CellFX System is truly the beginning of the Pulse Biosciences-clinician relationship. As I also discussed a few months ago, we are a treatment application business with a business model built upon a recurring revenue model that aligns the economic benefits of clinicians in Pulse Biosciences. It’s much more than just placing systems in the clinic. It’s built on establishing a long-term relationship with the clinic and their staff and establishing the CellFX System as a franchise within each of these aesthetic dermatology clinics. It has been Bobby and my own experience from Zeltiq that the best way to generate a steady and growing pipeline of new system sales is to ensure that the current installed base of clinicians is realizing excellent results and providing positive references to their colleagues about their experience. As demonstrated by Bobby and my track record, a satisfied first wave of early adopters is a faster and more certain road to new system sales than focusing just on new system sales. To facilitate this vision of establishing the CellFX System as a valuable franchise, we are creating a role in our sales organization called the clinical application specialist. The role of the clinical application specialist is to enable, train, support and inspire our clinical customers to maximize the utility and value to their patients, their clinic and to Pulse Biosciences of this important CellFX franchise. To date, Bobby has already recruited and hired our first three clinical application specialists, again, geographically distributed across the United States to partner with our regional directors and facilitate the effective implementation and adoption of the CellFX System into a clinical practice. Over the next 24 months, as our installed base of satisfied CellFX users and systems expand, we will be expanding the ranks of our regional directors and clinical application specialists to meet the demands of the growing number of clinic relationships and to facilitate the introduction of new applications for the CellFX within the base of already delivered CellFX Systems. We expect that the recurring revenue nature of our business model will enable significant leverage, allowing regional directors and clinical application specialists to solicit, support and service multiple accounts at production levels in excess of what we would typically expect in this space. The first order of business, however, for Bobby and his sales organization is a successful rollout of our controlled launch program. Let me take a moment to explain what we are doing with our controlled launch program. We have identified 30 of the marquis key opinion leaders in the aesthetic dermatology space, geographically distributed in key media markets across the United States, as the initial set of target launch clinics for our CellFX System. These key markets include the likes of Los Angeles, Miami, Manhattan, San Francisco, Dallas, Boston, Chicago and others with these handpicked KOLs which were selected for their reputation and expertise in aesthetic dermatology and the willingness to champion new technologies in the clinics and successful track records contributing to the introduction of new technologies. Not just to their own clinics, but to the broader aesthetic dermatology market in which they are considered key opinion leaders. Once we receive clearance from the FDA, we will commence shipments to these elite controlled launch customers, giving them the earliest access to the commercial use of our CellFX System. In exchange for this early access to our technology, they will be working with us closely to integrate the CellFX System into their clinic, and it’s from their success of these controlled launch units, these participants will build the beachhead from which we will further expand into the market. Building upon the successful track record of integration and commercial implementation of these controlled launch sites, we plan to extend our installed base into the next group of early adopters of new technology in aesthetic dermatology across the United States. Again, focusing on additional markets of high patient population and clinic density in order to efficiently leverage our sales organization and to afford the opportunity for CellFX procedures to the greatest number of patients in the high density markets for dermatology procedures. Over time, we will expand on the success of our controlled launch and early adopter clinics moving into additional geographies and more broadly across the United States. Again, effective utilization and satisfied patient outcomes with our early installed base is a key focus of our sales and marketing organization. New applications for the CellFX System will continue to increase our utilization rates. Our ambitions are not limited within the borders of the United States. We have already commenced analysis and assessment of international opportunities and expect to pursue a CE mark in Europe and expand into European markets, as well as subsequent launches into South America and the Asia Pacific region. That’s in our near future, and we are keenly aware of the potential this application and the potential of these international markets for which a strong United States KOL efficacy is considered an important leverage point. I hope you take away from my comments today the bullish sentiment percolating internally here at Pulse Biosciences about our commercial prospect. This optimism is driven in large part by our ongoing interactions with scientific and clinical advisors, partners and investigators. From the clinic to the podium, we have been fortunate to garner support for our CellFX System, our NPS technology and our treatment applications. It has been rewarding to see the caliber of clinical key opinion leaders that we’ve been able to attract to our clinical programs, demonstrating unique treatment options offered by our CellFX System. To date, we have enlisted over 20 of the top key opinion leaders in aesthetic dermatology across the United States. Not just for one study, but many of the clinicians in our early studies have enthusiastically enlisted to be investigators in subsequent studies of new applications. This reflects a true validation of the clinical value of our CellFX System. Key opinion leaders who have an opportunity to use our system to treat their valued patients are willing to participate in additional studies with additional applications to treat even more of their existing patients using our unique CellFX platform. Further, many of our investigators have been afforded top podium slots at major conferences to present the novel attributes of our treatments, the success of our clinical programs and our progress towards future applications for the CellFX technology. This is exemplified by the podium presentations during the upcoming Controversies and Conversations in Lasers and Cosmetic Surgery Symposium, which Darrin referred to earlier in the call. All this adds up to tremendous confidence in the clinical utility and viability of our CellFX System and the applications we are bringing to market. I will now turn the call back to Darrin.

Thanks, Ed. I will now provide an update on our growing clinical application pipeline. First, I would like to discuss our ongoing warts program. As we reported in a Q1 investor update call, we are pleased with the results of our warts feasibility study. A partial set of the data was presented earlier this year at the ASLMS meeting, and Dr. Gilly Munavalli is presenting updated data at the Controversies and Conversations Meeting tomorrow in San Francisco. Based on the learnings from this feasibility study, we are pleased to report that we have initiated a multicenter wart study and have begun treating patients. This study is intended to include up to 60 patients at six centers across the U.S. To date, we have treated seven patients and expect to complete enrollment in the fourth quarter and complete patient follow up in quarter 1 of 2020. Warts represent a very difficult lesion for dermatologists to treat, and we are optimistic about the commercial opportunity for CellFX System in treating the many patients physician see with warts. We believe this data will be the basis for a next commercial application. We also recently started a new study investigating the treatment of macular SK lesions. As Ed mentioned in his remarks, the macular or flat SK lesion represents a very difficult-to-treat subset of SK lesions that we think our CellFX System may be particularly well suited for and we are optimistic about the commercial opportunity, given the lack of acceptable treatments available. We plan to treat up to 50 patients at several centers to generate data in support of the treatment of these specific lesions and expect to complete enrollment in the fourth quarter and follow up in early quarter 1 2020. As we’ve discussed previously, we plan to have ongoing feasibility studies as part of an expanding pipeline of applications for the CellFX System. We previously discussed our back acne feasibility study and our basal cell carcinoma feasibility study, and we continue to make progress in both studies. We recently expanded the number of investigators in our back acne study in an effort to increase the pace of enrollment. Our goal is to complete follow up on an initial set of up to 10 patients by the end of the year. We will provide details on future acne studies as the feasibility data becomes available. As we mentioned on the Q1 investor call, we are also proceeding with a follow-on feasibility study in basal cell carcinoma where we intend to include the use of an adjuvant in order to evaluate the immune response effects of NPS in the BCC lesion. Like the initial study, this will be an NPS and resect study and will provide important biology data for the design of a future therapeutic endpoint study. This study is already approved, and we expect to enroll our first patient soon. We continue to be optimistic about BCC as an application for our CellFX System, and that NPS may provide a unique advantage over other modalities in terms of BCC lesion elimination and cosmetic result. As one might expect, our feasibility studies are intended to provide data and insights to guide follow-on studies, and if appropriate, to drive multicenter studies that when successful, lead to commercial applications. An example of this is our warts program that started with a small feasibility study and has now expanded to a multicenter study. When we undertake feasibility studies, we set out to explore different treatment levels of our tunable CellFX System, treatment timing strategies and in some cases different forms of the lesions being treated. We expect to have several ongoing feasibility studies at any particular time to keep a robust funnel of applications for our CellFX System in development. Additional examples of potential near-term feasibility studies include tattoo removal, syringoma and non-neoplastic nevi treatment. NPS is a very unique energy modality, and exploring its capabilities across a wide variety of applications will be an ongoing priority for Pulse Biosciences. I will now turn the call over to Brian to discuss our financial results from the second quarter.

Thanks, Darrin. Shortly before today’s call, we announced our financial results for the second quarter ended June 30, 2019. Our financial results for the quarter reflect the progress achieved in our development and clinical programs, accompanied by the requisite support infrastructure for those endeavors. Cash and investments at the end of the second quarter totaled $42.6 million compared to $52.8 million at the end of the first quarter, reflecting second quarter cash use of $10.2 million, which is approximately 50% higher than our first quarter cash use of $6.8 million. Although a portion of this increase is due to increased activity in our clinical studies, technology development and general growth of our business, during the second quarter we also incurred $2 million of cash use relating to the annual renewal of our corporate insurance policies for the 2019/2020 policy year. The expenses associated with the renewed policies will be recognized over the next several quarters. Excluding the timing associated with our insurance renewals, cash use increased approximately 20% quarter over quarter. Net loss for the quarter totaled $11.4 million, reflecting a $2.2 million or 24% increase compared to the net loss of $9.2 million for the second quarter of 2018. Net losses for the quarter included charges for non-cash stock-based compensation totaling $2.7 million and $3.2 million for the second quarters of 2019 and 2018, respectively. The increase in net loss represents continued growth of our company and the progress towards the commercial introduction of our CellFX System planned for later this year. This includes the cost associated with growth in our sales, marketing and manufacturing operations, accompanied by the continued expansion of our clinical study programs, including early work leading to the commencement of our warts pivotal study announced today. This is exemplified by the growth in our headcount, which is increased to 77 at June 30, 2019 from 44 a year earlier. Research and development expenses increased to $6.3 million for the second quarter of 2019, an increase of $2.4 million or 60% compared to $4 million for the second quarter of 2018. A significant portion of the increase reported reflects the increase in R&D personnel and development work related to our CellFX System. R&D headcount increased to 50 as of June 30, 2019 from 31 at June 30, 2018. Also contributing to increased R&D expenses are: increases in engineering and prototyping expenses, reflecting the design, development and manufacture and deployment of our CellFX Systems to our clinical study sites; late-stage prototypes and acquisition of initial inventory components in preparation for commercial launch; ongoing clinical studies; and support expenses relating to the increase in breadth of R&D. We expect that R&D expenses will continue to increase going forward, reflecting ongoing engineering and development work, focused on refinements to our CellFX System in preparation for commercial introduction; our current and planned clinical studies; and ongoing feasibility work on our future applications. Turning now to general and administrative expenses. G&A expense remained consistent year over year totaling $5.1 million for the second quarter of 2019 compared to $5.2 million reported for the same quarter last year. Reflected in the numbers for the current quarter G&A expenses are compensation increases from increased headcount, primarily in our sales and marketing organization that has increased to 11 in the current period compared to two in the prior period. The increase in compensation expenses were mitigated on a year-over-year basis by decreases in stock-based compensation, accompanied by reduced legal costs associated with prior year corporate matters, including our reincorporation in Delaware. As we continue to build out our sales, marketing and support operations on the path to commercialization of our CellFX System and continue to maintain and expand the depth and breadth of our IT estate, we expect that G&A expenses will continue to increase during the remainder of 2019. With that, I would like to turn the call back to Darrin for closing comments.

Thanks, Brian. We made great progress in Q2 towards our goal of commercializing our CellFX System in aesthetic dermatology. We’ve had very productive and collaborative conversations with the FDA as we work through the questions and clarification in the AI letter. We are confident the 510(k) path is the appropriate path. We believe we are close to being able to provide our responses to the AI letter and expect to do that by the end of Q3. And finally, we look forward to working with FDA to obtain an FDA clearance for the CellFX System in quarter four. In Q2, we continued to build out our commercial team in preparation for our controlled launch post-FDA clearance. We added experienced and successful regional sales directors, as well as clinical application specialists that will be responsible for implementing and driving a utilization-based business model enabled by our networked, tunable and multi-application CellFX System. We continue to make progress in developing our pipeline of applications. We’ve initiated our warts multicenter pivotal study and a multicenter study in macular SKs, and look forward to completing enrollment for both studies in the fourth quarter and follow up in Q1 2020. We believe our CellFX System will offer unique treatment capabilities to our aesthetic dermatology partners through the delivery of needed and wanted applications that enable physicians to provide safe and effective treatments to patients. In doing this, we believe we will achieve our mission of building a viable company. That concludes our prepared remarks. We would now like to open the call for questions.

[Operator Instructions] Your first question comes from the line of Swayampakula Ramakanth of H.C. Wainwright.

Thank you, Darrin and team for the exhaustive comments on how the company is progressing. Regarding the submission of response in Q3 and expectation for a Q4 approval, just trying to understand what’s the – is there a normal, quote-unquote normal time that FDA takes to make a decision based on such a submission of a response? And also, how confident are you that by – even if you submit by the end of Q3, you could get a decision by end of Q4.

Yes. Hi, RK. Thanks for dialing in and thanks for the question. Yes, there is a – I would say there’s a normal process to the 510(k) as opposed to kind of a normal time. The process is such that once you get the AI letter, the company, as I mentioned on the prepared remarks, the company has 180 days to respond to that letter. And so what we’ve been doing over the last couple months is we’ve been engaged with FDA, and essentially working serially through the questions that they asked on the AI letter. It’s not really possible to do it in parallel with the reviewer. It ends up for the most part being kind of a serial process. So for example, there are a set of questions, or maybe a set of questions about the technology or about some of the bench testing. So we would address those questions with FDA, potentially get on a conference call with FDA, and once we’re comfortable that our responses will address their questions, then we would move on to next questions. And so over the last couple months, we’ve been working our way through all the questions that are in that letter. We think we’re very close to, as I mentioned, to being at the end of that, and then we’ll be able to kind of formally send in the responses to all those questions. So we expect that to happen as I said by the end of quarter three, and we’ll work closely with FDA to make that happen. Once we do that, then FDA is back on their review clock. FDA strives – their goal is to get through the review from beginning to end within 90 days. And right now they’ve used approximately 65 days of their review time. And then once they send the AI letter, they basically put the review on hold until we do the full response or the formal response. So they still have roughly 30 days. They can always go over 90 days. But their objective will be to try to review our responses to the letter within that period of time. Typically that’s what’s called interactive review, so there’ll be a lot of email back and forth with the agency as you try to work through any lingering questions. So, I think that is the typical process. I think that’s what gives us comfort that we should expect something in the fourth quarter, assuming that we can get everything to FDA at the end of the third quarter.

Okay. Thank you. And then regarding follow-on indications, I know you spoke a little bit about warts and your expectation regarding the data. I’m not sure you spoke about acne, and if you did, I apologize. But I’m just trying to understand what’s the situation with acne.

Yes. So with acne, we just mentioned that we’ve expanded the investigators and we did that to increase enrollment. And our objective is to enroll up to 10 patients and follow those patients by the end of the year. So we’re currently ongoing with the acne feasibility. We will – we’ll look to get data out potentially in an upcoming conference, an upcoming derm conference. But right now, we’re enrolling patients and we’ll continue to do that over the next several months and follow those patients out to the end of the year. And then I think at that time, we’ll be in a good position to describe or to communicate more fully what our next steps are in terms of the acne application.

And then the last question from me is let’s say we get approval in Q4. So in terms of getting ready to launch the product, how immediate would it be for you to roll out CellFX devices from your facility?

Yes. So we’re preparing for that now in terms of having systems ready in inventory and being ready to roll out to our customers. When that happens, when and if that happens, I think we’ll be prepared to talk about timing for that controlled launch. We expect it to be very quick post an FDA clearance because we’re in full preparation for that. What can happen at the end of an FDA clearance is FDA can make certain requests about labeling and other things, which once you get the clearance, you have some work to do before you can actually commercially distribute product based on those requirements. But it’s – that’s typically on the order of weeks to a month as opposed to anything longer than that. So, we are preparing ourselves for that eventuality, and shortly after a clearance, we’ll be ready to go.

Okay. Thank you. Thanks for taking all my questions.

Yes. Thanks, RK. Appreciate it very much.

I’m showing no further questions at this time. I would now like to turn the conference back to Darrin.

All right. Thank you, operator. Thank you, everybody, for joining our Q2 conference call. We very much appreciate everybody dialing in and listening and if you’re on your computer for connecting and listening. We’re very excited about all the progress we’re making, and we look forward to the third quarter conference call and updating you again and providing updates as they happen and we release them. Thank you very much. Have a great day.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.