Pulse Biosciences(PLSE) - 2022 Q4 - Annual Report

Part I Business Pulse Biosciences, a bioelectric medicine company, shifted its 2022 focus from dermatology to developing Nano-Pulse Stimulation (NPS) technology for atrial fibrillation treatment - In 2022, the company pivoted its strategic focus from dermatology to the treatment of atrial fibrillation (AF), leveraging its Nanosecond Pulsed-Field Ablation (nsPFA) technology and CellFX platform for cardiac applications[17] - The company is developing two primary cardiac devices: a surgical cardiac ablation clamp for use in procedures like the Cox-Maze, and a cardiac ablation catheter for electrophysiology. Both are in preclinical testing, with plans to meet the FDA in Q2 2023 regarding the clamp's regulatory pathway[18][19][22] - Pulse Biosciences believes its nsPFA technology offers significant advantages over standard thermal ablation methods, including faster ablations, no char formation, and the ability to spare acellular tissue like collagen and nerves from permanent damage[20] - The CellFX System, which forms the basis of its technology platform, received FDA 510(k) clearance and CE marking in 2021 for dermatologic procedures. However, the company has since ceased all commercial sales and marketing operations in dermatology to focus on cardiology[26] - The company holds a strong intellectual property position with 165 owned issued patents and pending applications, and an exclusive license to 72 additional patents and applications, with most granted patents expiring between 2035 and 2041[28][29] - Key competitors in the cardiac ablation market include established medical device companies such as Abbott Laboratories, AtriCure, Inc., Boston Scientific Corporation, Johnson & Johnson (Biosense Webster), and Medtronic plc, many of whom are also developing PFA products[37] Risk Factors The company faces significant risks from limited operating history, reliance on external funding, intense competition, and concentrated ownership - The company has a limited operating history, has not generated significant revenue, and may never become profitable. It has incurred significant operating losses each year since inception[66][67] - Operations are dependent on securing additional funding. In September 2022, the company borrowed $65 million from its majority stockholder and Executive Chairman, Robert W. Duggan, which matures in September 2024[69][72] - Recent corporate restructurings in 2022 and 2023 involved significant headcount reductions (approx. 20% in March 2022, 40% in September 2022) to align with the new strategic focus on cardiology, which could disrupt operations and talent retention[77] - The business is entirely dependent on the success of one product family, the CellFX System, and one platform technology, Nano-Pulse Stimulation (NPS)[80] - Clinical development for atrial fibrillation treatment is lengthy, expensive, and uncertain, with very limited preclinical experience in cardiac animal models. Past success in dermatology may not translate to cardiology[99] - The company faces an inherent risk of product liability exposure and maintains insurance that may not be adequate. Due to high premiums, the company did not renew its D&O insurance in May 2022, instead entering an indemnification agreement with its Executive Chairman[93][95][173] - Executive Chairman Robert W. Duggan beneficially owns approximately 56% of the company's common stock, giving him control over corporate actions and classifying the company as a "controlled" company under Nasdaq rules[163][166] Unresolved Staff Comments None - The company reports no unresolved staff comments[188] Properties The company leases its 50,300 sq ft Hayward, California headquarters and principal operating facility through October 2029 - The company's corporate headquarters and principal operating facility is a leased space of approximately 50,300 square feet in Hayward, California[189] - The current lease was extended and is set to run through October 2029[189] Legal Proceedings The company is in arbitration with its former CFO, Sandra Gardiner, over severance and alleged unlawful termination, which it disputes - In March 2023, former CFO Sandra Gardiner filed an arbitration demand seeking severance benefits and alleging unlawful termination following her departure in November 2022[192] - The company believes the claims are without merit and does not expect the final resolution to have a material adverse effect on its financial position or operations[192] Mine Safety Disclosures Not applicable - This item is not applicable to the company[193] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, has few stockholders of record, and does not plan to pay cash dividends - The company's common stock trades on Nasdaq under the symbol "PLSE"[195] - As of March 27, 2023, there were approximately 11 stockholders of record[196] - The company has never declared or paid a cash dividend and has no present plans to do so[197] Selected Financial Data As a smaller reporting company, Pulse Biosciences is not required to provide selected financial data - The company is a smaller reporting company and is not required to provide the information under this item[202] Management's Discussion and Analysis of Financial Condition and Results of Operations This section details the company's strategic shift, reporting decreased 2022 revenues, a $58.5 million net loss, and liquidity supported by a $65 million loan Results of Operations 2022 revenues decreased to $0.7 million due to strategic shift; net loss improved to $58.5 million despite an $8.5 million inventory write-off Consolidated Statement of Operations (2022 vs 2021) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total revenues | $700 | $1,418 | | Cost of revenues | $11,944 | $1,968 | | Research and development | $20,839 | $28,640 | | Sales and marketing | $12,019 | $14,751 | | General and administrative | $13,955 | $19,073 | | Loss from operations | $(58,057) | $(63,014) | | Net loss | $(58,505) | $(63,660) | - Revenues decreased by $0.7 million in 2022 due to the discontinuation of sales in the dermatology market following the company's strategic shift[219] - Cost of revenues increased by $10.0 million, primarily driven by an $8.5 million write-off for excessive and obsolete inventory related to the dermatology business[220] - Research and development expenses decreased by $7.8 million in 2022, mainly from reductions in stock-based compensation ($3.6 million), employee-related expenses ($2.0 million), and clinical trial costs ($2.0 million)[221] - General and administrative expenses decreased by $5.1 million, primarily due to a $3.8 million reduction in stock-based compensation and lower D&O insurance costs[223] Liquidity and Capital Resources As of December 31, 2022, cash was $61.1 million, supported by a $65 million loan and $15 million rights offering, with future capital raises anticipated Consolidated Statement of Cash Flows Summary | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(47,013) | $(54,097) | | Net cash provided by (used in) investing activities | $(401) | $7,563 | | Net cash provided by financing activities | $79,939 | $62,685 | | Net increase in cash and cash equivalents | $32,525 | $16,151 | - As of December 31, 2022, the company had $61.1 million in cash and cash equivalents, which is believed to be sufficient to fund operations for at least the next 12 months[234] - In September 2022, the company entered into a $65.0 million loan agreement with Executive Chairman Robert W. Duggan, with the principal now due September 30, 2024[233] - In June 2022, the company completed a rights offering that raised aggregate gross proceeds of $15 million[231][232] - The company plans to raise additional capital through various means, including equity offerings, debt financings, or collaborations, to fund future operations[208][235] Quantitative and Qualitative Disclosures About Market Risk The company's market risk is primarily interest rate risk on cash, with limited foreign exchange exposure that may increase with international expansion - The company's market risk is mainly confined to its cash, cash equivalents, and investments, which are subject to minimal interest rate risk due to their short-term maturities[254] - Foreign exchange risk is currently limited as most transactions are in U.S. dollars, but this may change with further international commercialization[255] Financial Statements and Supplementary Data This section presents audited financial statements, highlighting 2022 revenues of $0.7 million, a $58.5 million net loss, and a $2.2 million stockholders' deficit Consolidated Balance Sheet Highlights (as of Dec 31, 2022) | (in thousands) | Amount | | :--- | :--- | | Cash and cash equivalents | $61,139 | | Total current assets | $62,147 | | Total assets | $77,877 | | Total current liabilities | $5,981 | | Related party note payable, less current | $65,000 | | Total liabilities | $80,125 | | Total stockholders' (deficit) equity | $(2,248) | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2022) | (in thousands) | Amount | | :--- | :--- | | Total revenues | $700 | | Total cost and expenses | $58,757 | | Loss from operations | $(58,057) | | Net loss | $(58,505) | | Net loss per share | $(1.72) | - The inventory balance was fully written off to zero as of December 31, 2022, due to being deemed excessive and obsolete following the strategic shift away from dermatology[289][318] - In June 2022, the company completed a rights offering, selling 7,317,072 units at $2.05 per unit, resulting in gross proceeds of $15 million[329] - The company has federal and state net operating loss (NOL) carryforwards of $199.9 million and $204.6 million, respectively, which begin to expire in 2034[386] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None - The company reports no changes in or disagreements with its accountants on accounting and financial disclosure[413] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[414] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[415] Other Information None - The company reports no other information[418] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not Applicable - This item is not applicable to the company[419] Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's 2023 definitive proxy statement - Information is incorporated by reference from the 2023 proxy statement[420] Executive Compensation Information for this item is incorporated by reference from the company's 2023 definitive proxy statement - Information is incorporated by reference from the 2023 proxy statement[421] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's 2023 definitive proxy statement - Information is incorporated by reference from the 2023 proxy statement[422] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's 2023 definitive proxy statement - Information is incorporated by reference from the 2023 proxy statement[423] Principal Accounting Fees and Services Information for this item is incorporated by reference from the company's 2023 definitive proxy statement - Information is incorporated by reference from the 2023 proxy statement[424] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules and exhibits filed with or incorporated by reference into the Annual Report - This item lists all financial statements, schedules, and exhibits filed with or incorporated by reference into the Annual Report[427][428] Form 10-K Summary The company provides no summary for its Form 10-K - The company provides no summary for its Form 10-K[431]