2023-11-21 18:05:40 ET
Summary
- Pulse Biosciences is seeking FDA clearance for its electromedical devices.
- The company's nanosecond pulsed field ablation technology is seen as superior to existing cardiac surgical tools on the market.
- While the product potential is encouraging, we highlight a recurring negative cash flow that may keep shares under pressure.
Pulse Biosciences Inc. ( PLSE ) specializes in technology for the treatment of atrial fibrillation ((AF)), a cardiovascular disorder defined by irregular heartbeats often associated with high blood pressure and heart valve disease.
The idea here is the potential for the company's nanosecond pulsed field ablation ((nsPFA)) devices to revolutionize cardiology through clinical advantages compared to current surgical standards.
The good news is that Pulse is moving forward with an FDA submission for an expected clearance of its nsPFA cardiac surgical clamp by Q1 2024. The company also expects to commence clinical trials of its nsPFA catheter application by the end of the next year.
While we're intrigued by the opportunity, the challenge here for the company's strained financial situation. Pulse does not currently generate any revenue and its cash flow bleed is expected to continue for the foreseeable future. Ultimately, a capital raise or other form of financing may be necessary that will likely keep shares volatile.
PLSE Financials Recap
PLSE recently reported its Q3 results with a headline EPS of -$0.19, representing a net loss of -$10.6 million, compared to a loss of -$18.0 million in Q3 2022.
Despite zero revenues over the past year, the difference from the wider loss in 2022, is that the company was still pivoting away from its legacy commercialization for the dermatology industry which added to costs during that comparable period.
Fast forward, the focus now is completely on cardiac cellular/tissue ablation. Notably, research and development along with general and administrative expenses have climbed given various clinical and feasibility studies as the main operating activities during this last quarter.
We mentioned some financial strain here. Pulse ended the quarter with $50.4 million in cash and cash equivalents, down from $69.2 million in the period last year. This balance was pressured by -$8.7 million in cash flow from operations, effectively a -$34 million cash bleed over the past year.
At the same time, we note that the outstanding diluted share count has climbed, indicating the company has used share issuances to fund operations. This includes a $65 million share purchase agreement by Pulse's CEO announced back in May, effectively adding to his 69% controlling stake in the company while providing some liquidity to the operation.
Nevertheless, the question here is how many more quarters the current cash balance supports. With guidance for approximately $8 million in Q4 cash usage, the pace suggests that additional funding would be required by the end of 2024, although nothing has been announced.
What's Next For PLSE?
From our outside perspective, the outlook for Pulse is encouraging. We know the product is real and the apparent effectiveness of the nsPFA means that specialists in the field will want to at least familiarize themselves with the application potential.
Pulse notes that the mechanism of action with nano pulses 500 times shorter than existing microsecond devices on the market is able to penetrate the cell membrane leading to precision-regulated cell death while sparing noncellular healthy tissue.
Atrial fibrillation is seen as an $8 billion global market climbing between 10-15% per year given high-level themes of an aging population. Within this figure, Pulse sees the immediate potential to disrupt the $250 million market through its cardiac clamp which has a faster market entry point compared to the catheter.
A key development from this last earnings report is that Pulse has pulled forward the timeline for the 510(k) submission to the FDA by the end of the first quarter of 2024, compared to previous comments suggesting the "first half" of the year. This is the critical step before a pilot launch.
While this is encouraging, caution is warranted when looking at PLSE as an investment and there are several reasons to remain skeptical that the company will capture any significant sales or booked revenues for the foreseeable future.
First, even assuming the necessary approvals go through smoothly, there are plenty of risks here to consider. When we think about medical devices, our experience covering this industry is that commercialization and adoption by active surgeons in the field is often a long process over many years.
The company could "launch" tomorrow, but this doesn't begin to address what remains the concern of a tight balance sheet and the even more difficult long-term path to profitability.
The way we see it playing out is that higher costs and expenses to support sales and marketing, along with the production of the devices would further add to cash flow pressures. While it's unclear what the funding requirements would be looking out towards 2025 and 2026, the company's current $350 million equity value would be at risk for further dilution.
Final Thoughts
There are simply too many uncertainties for us to consider PLSE as an investment candidate. Outside of a speculative momentum-based bounce on the stock, the baseline here is for continued volatility with several financial risks to consider for as long as the company remains cash flow negative.
On the upside, we'd like to see some concrete financial targets or at least signs of orders to confirm the market opportunity. Monitoring points here over the next several quarters include the balance sheet position and any updates on the clinical program milestones.
For further details see:
Pulse Biosciences: Cash Flow Bleed Remains A Concern Ahead Of 2024 Catalysts