2023-06-23 13:41:41 ET
Summary
- Pulse Biosciences' Nano-Pulse Stimulation technology is showing promise in various treatments.
- The company is also exploring the use of its nsPFA technology in treating atrial fibrillation, potentially expanding its addressable market.
- Despite the promising developments, the lack of clear guidance on sales growth and operating earnings makes it difficult to advocate a buy.
- Net-net, initiate coverage as a hold.
Investment Summary
The world of healthcare and medtech continues to benefit from the inner workings of capitalism. Innovators who take on risk are rewarded with capital funding from investors who realize a return on their investment when the company begins performing. Brilliant. A case in point is for Pulse Biosciences, Inc. ( PLSE ) with its Nano-Pulse Stimulation technology, a potentially disruptive device that is seeing good results in a variety of treatments.
There are crosscurrents forming at the moment for PLSE and these must be factored in, however, there are still critical facts missing in the debate here. Chiefly, clear guidance on sales growth, and a lack of operating earnings to go by. Net-net, considering my own investment criteria, I am watching this name very closely from the sidelines, paying very close attention to all updates regarding its core offerings. Rate hold.
Figure 1. PLSE long-term price change
PLSE Nano-Pulse Stimulation Deep Dive
PLSE's Nano-Pulse Stimulation ("NPS") technology is the flagship asset that investors would be concerned with the company. It is a novel bioelectric device that has already held up well in clinical trials.
The technology itself involves delivering nanosecond pulses of electrical energy to targeted soft tissues, such as the skin and sub-dermal layers. These ultrafast electrical energy pulses - with durations ranging from billionths up to a millionth of a second - interact with the cellular matrix and initiate a cascade of intracellular disruptions, ultimately leading to regulated cell death ("RCD"). It is thought this stimulates the body's natural healing response, a kind of 'rejuvenation' of the sorts. Critically, PLSE's NPS offering uses a non-thermal route, differentiating it from competing brands.
Specifically, the mechanism uses PLSE's proprietary Nanosecond Pulsed Field Ablation ("nsPFA") technology to deliver the pulses. For reference, when nanosecond pulses of electrical energy are applied to targeted tissue, they enter the cells, impacting the function of internal cellular organelles, such as mitochondria and endoplasmic reticulum (these produce cellular energy and protein synthesis, respectively). This disruption triggers the RCD, because the impacted cells are unable to restore cellular homeostasis under the stress of the conditions.
Additional facts for consideration:
- NPS has shown indications in conditions like sebaceous hyperplasia ("SH"), a condition characterized by the proliferation of the body's sebaceous glands. Clinical studies have demonstrated durable efficacy in clearing SH lesions, with 73% of lesions maintaining or improving clearance while achieving good cosmesis.
- PLSE has been heavily active in this domain and has shown that its NPS procedure is equally effective in the treatment of cutaneous warts, and common nevi, or moles.
- Application is made through the "CellFX" device that delivers the pulses onto the contact surface. This plays into the economics of the offering as the unit needs to be purchased along with ancillary products, creating a tail of asset returns after each completed purchase.
Image 1. CellFX device in usage
Data: Pulse Biosciences
PLSE Latest Developments
There have been three major catalysts in the company's story over the last 3 months. Each of these has contributed to the market's revised expectations on the company. In my view, they are also bullish points. Why?
One, the company appointed a new chief medical officer ("CMO") last month, Gansevoort Dunnington M.D., effective immediately. Dr. Dunnington is a cardiothoracic surgeon and is also the director of cardiothoracic surgery at St. Helena Hospital in the Napa Valley. The fact it has attracted such a high-esteemed CMO is something to consider as a bullish point in my view.
Two, the company entered into a $65mm stock placement with one of its directors, where it sold ~10.02mm shares at an average price of $6.51, otherwise 1% premium over the market price at the time. This is a good move in my view, and shows how much skin directors have in the game. The $65mm injection wipes the balance sheet clean of debt and therefore opens the funding window for PLSE to begin investing heavily into its core business.
Three, it's important to know that PLSE is innovating around its nsPFA and NPS offerings, looking to expand into adjacent markets. What's interesting, the firm has indicated a new spate of preclinical research showing early results in nsPFA's use in treating atrial fibrillation ("AF"). How would this work, you might ask?
I've been informed the nsPFA clamp will be used by cardiac surgeons in open or minimally-invasive heart surgeries. The catheter will navigate its way through the heart anatomy via the large blood vessels using standard minimally-invasive catheter techniques that are performed by electrophysiologists. As mentioned earlier, the firm developed the CellFX System (seen in Image 1) as a platform to deliver nsPFA across multiple domains, including cardiac ablation in this instance. This is quite attractive in my view. For one, it opens up the addressable market by offering treatment to adjacent conditions. Two, it allows surgeons to employ the device across a number of specific conditions within their domain.
Furthermore, the company recently advised of several other differentiating factors of the nsPFA system. For example:
- PLSE's offering distinguishes itself from standard pulsed-field ablation ("PFA") treatments by using significantly shorter pulse durations - often 10 to 10,000x shorter.
- This feature ensures precise energy exposure and fosters an energy-efficient ablation mechanism, something surgeons cry out for given the complexities of the procedure, and all of the potential risk events.
- By reducing the energy per-pulse ("EPP"), PLSE can develop a larger footprint of electrodes capable of treating more tissue with each single usage. Critically, this would potentially occur whilst mitigating the risks associated with thermal damage, that we often see with conventional PFA therapies.
The firm is working with the FDA as we speak to push towards approval. Management said the preliminary dialogues within the FDA's "standard Q-submission process" have been positive to date.
The next step for the company's main asset is to obtain 510(k) clearance for the nsPFA clamp and begin studying its potential benefits in AF, and other cardiac ablations. Per the chief technology officer on the call:
[These discussions] will include agreeing on the requirements for a preclinical study known as a Good Laboratory Practices or GLP preclinical study in support of a 510(k) clearance. Once this is agreed upon with the FDA, we would expect to be able to quickly execute the GLP study and any other testing required and submit a 510(k) to FDA during Q1 2024. We continue to be encouraged by the preclinical testing we are doing."
Hence, I would strongly urge investors to stay on top of the updates in this segment, as the market seems to be reacting very positively to each new catalyst along the way.
Valuation and Conclusion
There are no earnings to go by, and investors are paying psychotic multiples of 929x the company's trailing sales at present. I don't think investors are valuing the company on this metric, therefore. Instead, I'm looking to what actual investors are doing with their positioning in the options market here. Whilst this doesn't prescribe an intrinsic value, it does tell me of the market's expectations. You can see below that calls are stacked t $2.50 and then $12.50 on the strike ladder, with put activity around the $5 mark.
This is telling. Investors are betting on PLSE catching a bid to the $12.50 mark, which is bullish. However, the breadth also suggests expectations of below $5 on the downside. I would suggest this is neutral as there's a lack of confidence around a certain figure, thus supporting the view.
Further, the point and figure studies shown below throw off targets to $6, with targets as high as $7 to be met. Again, this is not an enormous amount of upside potential, thereby supporting the hold rating as well. In the absence of earnings data, these studies are invaluable as an objective source of price analysis.
Figure 2.
Data: Updata
In short, there are multiple crosscurrents forming for PLSE in its core NPS segment. The firm is advancing the product with the FDA and looks to expand its label indication to a broader range of conditions. That, and the strong bid the company has caught in recent weeks. These are all bullish points in the investment debate, that is for sure.
However, more needs to be factored in here as well. It is still early days, and within my own investment mantra, the cards don't stack up here. My investment cortex needs more data to feed its neuronal pathways and axons. In the absence of this, objective price studies and options market data indicate investors aren't confident on a high price either. There is speculative activity betting to $12.50 per share, but this lacks fundamental basis at this stage in my view. Net-net, I am watching this name very closely, but rating it hold at the minute.
For further details see:
Pulse Biosciences: Building Momentum Around Nano-Pulse Segment