Pulse Biosciences, Inc. (PLSE) Earnings Call Transcript & Summary

Greetings, and welcome to the second quarter 2023 financial results conference call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Philip Taylor of Investor Relations. Thank you. You may begin.

Thank you, operator. Before we begin, I would like to inform you that comments and responses to your questions during today's call reflect management's views as of today, August 12, 2024, only and will include forward-looking statements and opinion statements, including predictions, estimates, plans, expectations and other similar information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the U.S. Securities and Exchange Commission. Our SEC filings can be found on our website or on the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. We will also discuss certain non-GAAP financial measures. Disclosures regarding these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures can be found in the press release. Please note that this conference call will be available for audio replay on our website at pulsebiosciences.com in the News and Events section on our Investor Relations page. With that, I would now like to turn the call over to President and Chief Executive Officer, Burke T. Barrett.

Good afternoon, everyone, and thank you for joining us. I'm glad to be on my first Pulse Biosciences earnings call since being appointed President and CEO of Pulse in May of this year. Today, I'll provide updates on our continued business progress, and then Mike Koffler, Vice President of Finance, will review certain second quarter 2024 financial results. Then Bob Duggan, Co-Chair of the Board; Darrin Uecker, Chief Technology Officer and Director; and Kevin Danahy, our Chief Commercial Officer, will join me for a question-and-answer session. To begin, I want to briefly describe why I joined Pulse. I've been in the medical device space for more than 35 years, with the majority of that time spent pioneering medical devices and focusing my last 20 years on cardiology devices. I believe Pulse's pulsed field ablation approach called nano-PFA has the potential to be more transformative than any other innovation I've worked on throughout my career. When you consider all the currently available treatments that use heat, cold, radiation and other approaches to kill undesirable cells in the body and the fact that nano-PFA has the potential to compete with, and perhaps, even some day, supplant many of these currently available treatments, that translates to Pulse having the opportunity to significantly improve many patients' lives. This is possible because nano-PFA has the potential to kill cells in a better way than heat, cold, radiation and even currently available micro-PFA. It's the core of what Pulse does and, as we will describe in a moment, it is showing great promise in the 3 product lines currently being studied clinically. Beyond these 3 current products or product lines, I believe that nano-PFA energy has the potential to advance the standard of care for the treatment of multiple other disease states and disorders across the human body. The technology is solidly protected with intellectual property and know-how. The last reason I joined Pulse is because of the fantastic employees and stakeholders associated with Pulse. The culture of Pulse is patient-focused, results-oriented and transparent. It's a true privilege to work alongside and support the great Pulse team. Pulse team is rapidly advancing this next-generation nano-PFA technology. We have all the foundational elements in place to drive adoption of [ disruptive ] technology, including the scientific expertise, intellectual property and industry and product know-how. Pulse Biosciences is the pioneer organization focusing on bringing its novel nano-PFA technology to patients. Since commencing working at approximately 10 years ago, the pre-company scientific genesis of Pulse's nano-PFA dates back another decade for the founding of the company. To date, Pulse has generated massive amounts of preclinical and initial clinical data, demonstrating the effects of differentiated nano-PFA energy across different tissue types in the human body. This includes the approximately 6,000 human dermatological skin lesions treated using our CellFX system with a strong safety profile. To my knowledge, Pulse has the largest library of high-quality preclinical images during the effects of various nano-PFA energy delivery parameters on numerous types of tissue. Importantly, this solid scientific foundation could lead to accelerated product and clinical development time line. We are currently focused on developing the path to commercializing devices for soft tissue ablation, epicardial or surgical ablation and endocardial catheter ablation. In each of these 3 clinical categories, there are significant areas of unmet need where nano-PFA has the potential to improve upon currently available products in terms of overall user experiences and patient outcome. Our general approach to developing products using nano-PFA is to produce compelling clinical data to clearly demonstrate the performance of each product, investing in understanding and bringing wide awareness to the science of nano-PFA as well as demonstrating clinical performance in a compelling way will we believe ultimately lead to more streamlined regulatory review pathways, more differentiated and competitive products and allow us to compete well in multiple markets from a reimbursement point of view. Clinical data is and will continue to be an important currency at Pulse. Consistent with our plan to invest heavily in compelling clinical data, we plan to pursue regulatory pathways that allow us to label our products with specific indications for you. In the U.S., these pathways may include 510(k)s with clinical data so-called de novo classification request or PMA application. And this will vary by indication. In general, seeking specific labeled indications as part of the regulatory approval process, while sometimes taking more time has the following benefits. First, the gathered clinical evidence gives clinicians, patients and other stakeholders increased confidence in the device's safety and effectiveness profile. Second, it will allow for marketing the device as a specific treatment option rather than as a tool that supports the general tissue type, and that's only a general indication statement. And third, it will generally permit more flexibility to market, sell and train users for a specific approved indication that can enable quicker clinician adoption and market penetration as well as the democratization of adoption and use when the device is in well-trained hands. This is a very exciting time for Pulse. We had an extremely productive second quarter. Some key highlights include: we have delivered major progress on our 3 devices, completing our first U.S. soft tissue ablation cases following FDA clearance, receiving Breakthrough Device Designation from the U.S. FDA, enrolling in FDA's TAP program and completing the first-in-human cases for the company's cardiac surgery system for atrial fibrillation or AF and presenting a live case with a 360 catheter in a patient with atrial fibrillation at the prestigious Heart Rhythm Society meeting in May. We also expanded our leadership team, moved our headquarters to Miami, Florida, while maintaining our Hayward office, and significantly strengthened the balance sheet through our successful rights offering, which transacted in early Q3. As you may know, the exercise of warrants issued in the rights offering could bring into the company up to an additional $66 million. Notably, the company has the ability to redeem half of these warrants with the potential to raise up to $33 million if our volume-weighted share price is at $16.50 or more for 20 consecutive trading days as well as the ability to redeem the second half of these warrants, with the potential to raise up to an additional $33 million if our volume-weighted share price trades at or above $22 for 20 consecutive days. I will now dive into more details on our significant progress, along with providing some near-term clinical and regulatory goals. Starting with our soft tissue ablation application. Physicians utilize soft tissue ablation in a broad array of procedures, such as those involving the thyroid, liver, breast as well as many other parts of the body. Nano-PFA has delivered very promising initial clinical results in the soft tissue ablation of benign thyroid nodules via our percutaneous needle electrode, which we call the CellFX percutaneous electrodes. The nano-PFA needle empowers clinicians to achieve nonthermal targeted ablation, while offering the potential for a streamlined, minimally invasive procedure compared to surgical resection. To date, we have placed our system at 5 sites in the United States, and these sites have performed initial patient treatments and evaluations of the system under a no-cost, 90-day evaluation agreement. Let me provide some additional background details on our soft tissue ablation product. In March, we received U.S. FDA 510(k) clearance for our novel nano-PFA system for use in the ablation of soft tissue in percutaneous and intraoperative surgical procedures. This was followed by the first U.S. procedures in May as part of our pilot commercialization program. In addition to the clinical experience being gained under this pilot program, we also plan to support investigator-sponsored research to gather additional clinical data and experience. We recently received FDA clearance for a second size of the ablation needle, which we believe will provide our customers with increased treatment options for their patients. Informed by this early clinical experience, we are designing a pivotal clinical study, present to the FDA in order to achieve a specific labeling indication for the treatment of benign thyroid nodules. As I mentioned earlier on this call, we are focused on investing in high-quality clinical and regulatory pathways, and we believe they will unlock further opportunities for our novel devices. We expect to be in a position to initiate a pivotal clinical trial in the first half of 2025 to support a specific labeling indication for the treatment of benign thyroid nodules. Looking ahead, we have additional plans for our proprietary soft tissue ablation device and look forward to sharing updates on our progress in the future. That leads us to our surgical epicardial ablation [ application ]. Ablation is an established standard of care used to treat irregular heartbeats such as atrial fibrillation or AF. PFA represents a breakthrough in ablation technologies and is being rapidly adopted for the treatment of AF as a catheter-based or endocardial therapy. However, compared to currently available micro-PFA, which typically operates in the tens to hundreds microseconds, our nano-PFA, which operates much faster, delivers pulses of electrical energy that are each less than 1 millionth of a second long, hence the name nanosecond or nano-PFA. In my opinion, nano-PFA is the next-generation PFA technology and has the potential to provide best-in-class ease of use, speed and clinical performance in the treatment of AF. Since the company's last earnings call, we have received approval from an Ethics Committee in the Netherlands to conduct a first-in-human feasibility study. And excitingly, now we have successfully treated the first 2 patients. Our initial procedures went well. We are using this study to provide information on first-in-human effectiveness and safety of our device. This multicenter feasibility study is designed to enroll up to 30 patients and includes an endocardial or catheter-based mapping to confirm efficacy by evaluating chronic isolation at approximately 3 months post treatment, in addition to the more traditional clinical study follow-up. In the U.S., we are pleased to have received Breakthrough Device Designation from the FDA for this device. The Breakthrough Device Designation granted by the FDA is an exciting milestone for Pulse and emphasizes the unique potential benefits of nano-PFA. The designation will provide prioritized review of a future premarket approval application with the FDA. Since receiving the Breakthrough Device Designation, we have also successfully enrolled in the FDA's TAP program, which should provide additional opportunities to expedite our U.S. clinical and regulatory development pathway. The FDA's TAP program was created to expedite patient access to innovative medical devices by providing early, frequent and strategic communications with the FDA and facilitating engagement with other key parties for developers of devices like Pulse of public health importance. As announced in early July, we now plan to pursue the PMA application pathway for FDA approval to market as opposed to the 510(k) route. Once FDA PMA approved, we intend to commercialize our nano-PFA cardiac surgical system in the United States as a treatment for atrial fibrillation. To support the PMA application pathway, we expect to commence a pivotal clinical trial in early 2025. We plan to present our clinical study design to the FDA for our IDE pivotal study in the near future. Discussions with the FDA will ultimately determine further details of the study and the time line. Now moving on to our catheter-based endocardial AF applications. Our third product currently under development is focused on delivering next-generation nano-PFA technology to endocardial applications through our 360 Cardiac Catheter and is also a treatment for AF. Our first in-human feasibility study is underway in Prague, where we are investigating safety and efficacy of the catheter's clinical performance. We are pleased to have approval for expanded enrollment of this study from 30 to 60 patients. The catheter's ease of use, ability to acutely isolate the pulmonary veins, and case times were all very encouraging in the first 30 treated patients. We have already commenced treatments in this additional 30-patient cohort. In addition to the expanded first-in-human feasibility study in Prague, we intend to add 2 other prestigious and well-known clinical sites in the EU to gather additional user experiences and clinical outcomes. With our expanded clinical experience and the results of these feasibility studies, we will design a pivotal clinical study to propose to the FDA. On receiving their feedback and aligning on the final pivotal study protocol, it is our intention to begin a U.S. IDE pivotal clinical study for this indication sometime next year. Once successfully completed, the pivotal clinical study would provide the foundation for a PMA submission. Altogether, we are excited by the progress made across our 3 devices, and we are encouraged by the future potential each device holds in providing safe and effective treatments for significant disease states across the body. To support further product and clinical development, future regulatory submissions and commercial readiness of our 3 novel devices, we completed a rights offering fundraising in July. We're encouraged that the offering was oversubscribed and provided gross proceeds of $60 million less expenses related to the rights offering of approximately $250,000. Upon exercise of all the warrants, the company could receive additional proceeds of up to $66 million. To cap off what has been a very exciting quarter and past few weeks for Pulse, we are thrilled to announce that Paul LaViolette has been appointed Co-Chairman of the Pulse Biosciences' Board of Director. He will serve alongside our other Co-Chairman, Bob Duggan. I've known Paul for over a decade, and I'm highly confident he will be extremely additive to our team. He has successfully scaled some of the largest global cardiology medtech franchises through driving innovative technology adoption. We're excited to work with him, and I know we will benefit greatly from his invaluable insights. Now I'll pass the call over to Mike Koffler to provide some financial results for the second quarter of 2024.

Thank you, Burke. Today, I will highlight our key financial metrics, focusing on our cash position and details on our cost and expenses for the second quarter. Cash and cash equivalents totaled $26.2 million as of June 30, 2024, compared to $58.7 million as of June 30, 2023. Note the cash balance as of June 30, 2024, does not include the $60 million in gross proceeds received from the rights offering that closed in July of 2024. On a pro forma basis, including the cash received from the rights offering, we began the third quarter with approximately $86 million. Cash used in the second quarter of 2024 totaled $8.7 million compared to $10 million used in the same period in the prior year, and $9.5 million used in the first quarter of 2024. In the second quarter of 2024, total GAAP costs and expenses increased by $1.5 million to $11.7 million compared to $10.2 million in the prior year period. The increase in GAAP cost and expenses was primarily driven by an increase in noncash stock-based compensation expense, which was $2.1 million in the second quarter of 2024, compared to $1.1 million in the prior year period. To remind everyone, non-GAAP cost and expenses exclude stock-based compensation, depreciation and amortization. Total non-GAAP cost and expenses in the second quarter of 2024 increased by $0.6 million to $9.4 million compared to $8.8 million in the prior year period. The increase in non-GAAP costs and expenses was primarily driven by an increase in head count to support the advancement of our nano-PFA technology. I will now turn the call back over to Burke.

Thank you, Mike. We believe the future of nano-PFA energy should be invested in through rigorous clinical and regulatory pathways that ultimately can unlock the full value of the devices we develop as we move product by product from clinical studies, ultimately into commercialization. Joining us now for the question-and-answer session today are Bob Duggan, Co-Chairman of the Board; Darrin Uecker, CTO and Director; and Kevin Danahy, CCO. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from the line of Anthony Petrone with Mizuho Group.

Congratulations on the progress in the second quarter here to the team. Maybe first to start with on the cardiac surgical claims out of the equation. The company went through the TAP program initially and you received Breakthrough Designation, you have a couple of cases that are done here already. So maybe one just on the case side of the equation, 2 of the benefits on the clam side using CellFX as a backdrop or speed of the surgery, but also nerve sparing. Just wondering if you can go over some of the feedback from these initial cases. How fast was the surgery done? How safe was it? What was the side effect profile, if any, of these patients? And then secondly, commencing the trial in 2025. It's a 510(k) clearance. Maybe just a little bit as we look ahead to what is going to be needed to secure 510(k)? What will the next phases of this study look like? And then I'll have a follow-up.

Anthony, it's Burke. Thanks for your questions. So based on the extensive preclinical data, there are many advantages of nano-PFA in cardiac surgical ablation compared to the standard of care today, which is RF. One of them you mentioned is speed, but others are the ability to make consistent transmural or full thickness through the thickness of the heart lesions because of the way the energy is transferred. And the form factor of the clamp, the use of it in the surgeon's hands is very similar to what they're familiar with from an RF point of view. So the energy itself is nonthermal. And as you said, it's expected to be not nerve sparing or safe with collateral tissue. I'm not going to comment on a lot of the specific details of the 2 procedures because 2 is a small number, and we're just starting. But the device performed as expected. It performed well. The procedures were very efficient. And certainly, the clinicians involved in the procedure were excited by the performance of the device. When it comes to the pathway, the regulatory pathway for approval in the U.S. While the company did initially submit and had discussions with the FDA on a 510(k) submission for cardiac surgery, we made the decision to pursue a specific indication, not just for cardiac surgery, but for the treatment of atrial fibrillation. And that is the primary reason why we will be discussing with FDA shortly a pivotal clinical study design. For this kind of device, the pathway to market for a specific indication of treatment of AF is a so-called PMA pathway. Again, both of those pathways would require some sort of pivotal clinical study, which we'll conduct. But the actual application that will go into the FDA after the study is complete will not be a 510(k), it will be a PMA. We believe there are significant benefits. Once we have a successful pivotal clinical study and a PMA approval to be able to sell and market and, importantly, train specifically as a treatment for atrial fibrillation, what should happen when we have that approval, and we have the specific indication? We should see quicker adoption in the marketplace because we can sell, market and train specifically for the use of the device in the treatment of atrial fibrillation.

That's helpful as a backdrop. And maybe on the soft tissue ablation front, the percutaneous electrode system, announcing pivotal [ clinical ] trials expected in 2025, but you're targeting benign thyroid nodules. Maybe just a little bit about that market opportunity and why the decision on that specific initiative, soft tissue ablation with percutaneous electrode [ insertion ] to go more narrow in terms of that indication, again, specific to benign thyroid nodule.

Sure. So the company went through a process over the last 3 years, very thoughtfully and carefully analyzing the possible indications, applications, markets, if you will, to deliver nano-PFA, which included not only market size, but the relative clinical performance of the current standard of care devices, ease of utilization of nano-PFA and so on. And the benign thyroid nodule opportunity is within the soft tissue ablation opportunity, became one of the very exciting markets. There is a significant number of people that have benign thyroid nodules. It's estimated to be as many as 1.3 million people worldwide. And the 2 main options to treat these benign thyroids, which are, they become large, and so there's a cosmesis effect. Obviously, you can see them. But also as they grow, they put pressure on the surrounding structures in nerves, and they become painful. And the 2 main options are to have a surgical resection, which not only leaves a scar, but may leave the patient needing to have lifetime hormone replacement therapy or to do nothing. Those are the 2 primary approaches. And we believe that providing a tool that can shrink benign thyroid nodules without the risk of thermal spread to the surrounding structures, like various cranial nerves, the trachea, the vocal cords and other things that are in proximity to the thyroid represents a great opportunity for nano-PFA.

That's helpful. And last 1 for me, I'll hop back in, is just when you think about 2025 here now and the capitalization efforts, you have the 510(k) for benign -- for [ BTN ], we could call it, and then you have obviously surgical ablation on the clamp side and also pursuing catheter ablation, specifically nano-PFA 360 Catheter Ablation. So it's 3 studies being pursued concurrently in 2025. Maybe just an update on looking at the pro forma cash balance, assuming $60 million in proceeds from the rights offering, how well capitalized the company is to handle the 3 concurrent studies?

So historically, in recent quarters, the average cash burn has been about $9 million per quarter. Obviously, cash burn will go up as we enter the active phases of these 3 different studies. We haven't provided information yet about the anticipated cash burn in the future because much of the spend will depend on the actual study design, the number of sites and number of patients and the timing of the start of the study. But we do anticipate that the burn will go up. We have said that we believe that the cash on hand today will take us into 2026, and that's without any exercise of the warrants from the rights offering.

Thank you. It looks that there are no further questions at this time. I would like to turn the floor back over to Burke Barrett for closing remarks.

I want to thank the Pulse team for a fantastic quarter. I want to thank you all for calling in and listening to the update, and we look forward to providing more updates and talking to you all again next quarter. Thank you.

And this concludes today's conference. We thank you for your participation. You may disconnect your lines at this time.