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Pulse Biosciences, Inc Common Stock (NASDAQ:PLSE)
Q1 2020 Earnings Call
May 11, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to the Pulse Biosciences first-quarter 2020 earnings call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Philip Taylor, investor relations for Pulse Biosciences. Thank you.

You may begin.

Philip Taylor -- Investor Relations

Thank you, operator. I hope that you all are keeping well during this time. We are hosting our call from a number of different locations today, so please bear with us if there are any technical challenges or pauses. 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, May 11, 2020, only and will include forward-looking statements and opinion statements.

These include statements regarding our plans and expectations relating to regulatory clearance, including the process, time lines and expected outcomes; our commercial, operational, scientific, clinical and financial projection; products, including the uses and applications of such products; the impact of the COVID-19 pandemic on our business; our expectations regarding our rights offering, including our ability to raise capital 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 our filings with the SEC, including our most recent Form 10-K filed March 16, 2020. We undertake no obligation to update forward-looking statements.

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 & events section of our investor relations page. With that, I would now like to turn the call over to president and chief executive officer, Darrin Uecker.

Darrin Uecker -- Chief Executive Officer

Thank you all for joining us this afternoon amid these trying times. I'm going to start with thanking all of the healthcare frontliners, essential workers and first responders currently supporting all of us through the COVID-19 crisis. Our thoughts are with everyone who has been impacted by this. And while we have faced unprecedented circumstances in the last several months as we adapt to the challenges brought about by COVID-19, we remain optimistic about the near-term and long-term prospects for Pulse Biosciences and our Nano-Pulse Stimulation technology.

As with all companies during this unusual time, here at Pulse Biosciences, the No.1 priority is the safety of our employees. And we have been diligent in taking precautions to mitigate the risk of COVID-19 infection in our community. On March 16, we closed our office and, for the safety of our employees, instituted a work-from-home policy, consistent with the shelter-in-place order that was announced in the San Francisco Bay Area counties of Northern California, which includes Alameda County where our headquarters are located. We are still operating under these conditions as the current order is in effect until May 31.

The small number of employees who are not able to perform the required functions of their role from home have been able to visit our office, which is sanitized twice daily in staggered shifts to maintain proper social distance and ensure their safety. Members of the R&D, engineering and scientific teams have had restricted access to our laboratories at limited occupancy also to maintain social distance during this time. We are following the guidelines provided by the county, state and federal agencies, and we are grateful that, at this point, none of our employees have tested positive for COVID-19. Fortunately, these workplace adjustments have not caused considerable disruption to our operations up to this point.

Given the size of our company, the fact that we have a single location and that our current focus is largely on internal objectives, to a large extent, we have been able to manage and mitigate the impacts of COVID-19 on our organization, including the ability to maintain a full workforce. While we had to adapt and create new workflows and processes, fortunately, we are a company that has adopted the latest cloud-based collaboration platform technologies. And as a result, these changes have not created any material delays to our work and our key objectives. We believe that during this period of working from home, remote from our day-to-day interactions, it is more critical than ever that we have clear and concise objectives that can be communicated effectively across our workforce and shared with our stakeholders.

Our three key objectives over the last several months have been: first, regulatory clearance of our CellFX System, both in the U.S. and in key territories outside the U.S.; second, preparations for commercial launch of the CellFX System in these territories; and third, financing, specifically in pursuit of the rights offering we communicated on the last investor call. I am pleased to report that even in these challenging times, we have made very good progress on these three important objectives, and I will provide details momentarily. First, for those of you that are new to Pulse Biosciences, our mission is to offer bioelectric medical solutions that make a meaningful difference for the betterment of patients and clinicians.

Our device, the CellFX System, is a multi-application platform that administers our proprietary Nano-Pulse Stimulation technology. NPS technology delivers nanosecond pulses of electrical energy to nonthermally clear cells while sparing adjacent noncellular tissue. The differentiated capability of the NPS mechanism of action is its ability to effectively clear unwanted cells with minimal collateral damage. This allows clinicians to generate improved outcomes and address conditions that before were not practical because the resulting healing could be worse than the original condition.

The CellFX System is a tunable software-enabled platform that provides nanosecond pulses of energy through microneedle tips. The delivery system for NPS technology and its software are designed to accommodate the clinical workflow preferred by aesthetic dermatologists. Based off of our extensive industry experience and collaboration with clinicians, we designed our CellFX System and integrated CellFX cloud infrastructure to facilitate an innovative utilization-based business model. Our model aligns the interest of patients, practices and the company.

Practices purchase and download cycle units directly to the CellFX System wirelessly via the CellFX Cloud and then use those cycle units to remove the patient's unwanted lesions. The more lesions removed, the more cycle units consumed. This enables the physician to have fixed costs per lesion and to charge the patient based on a cost per lesion basis, which is aligned with the patient's preference. Our model contrasts with the currently employed disposable and single-use-based medical device models, removing the friction for the physician that can occur in those models.

The CellFX Cloud will also act as a practice management tool. Practices have access to an online portal that tracks utilization data and other metrics uploaded from the CellFX System to the CellFX Cloud. We will be able to remotely upgrade service and monitor the CellFX System on a daily basis. Now to our three key objectives.

Our top priority at Pulse Biosciences is regulatory clearance and commercialization of the CellFX System. And as discussed in our previous conference call, our near-term objective was to have a formal presubmission, known as Q-Sub, meeting with FDA to discuss the requirements for a general dermatology indication for the CellFX System. We are pleased to report the meeting was held last week as originally scheduled, and we appreciate FDA's efforts to keep the meeting as scheduled during these challenging times. The purpose of this meeting was to gain FDA feedback and confirm three key items: the regulatory path for a 510k general dermatologic indication for the CellFX System, the adequacy of the selected predicate device and that our proposed preclinical studies would be sufficient for the indication and support of a 510k clearance.

We are pleased to report that the presubmission meeting went very well, and we confirmed all three items. FDA made it clear that they are comfortable with the general dermatologic indication for the CellFX System and with a predicate to which we will demonstrate substantial equivalents. We also believe we gained agreement on the preclinical data required and the preclinical study designed to be included in our 510k submission, which is similar to what we proposed when we requested the Q-Sub meeting. The confirmation of these items gives us confidence that we can produce the necessary data and complete our submission in line with FDA expectations.

To be clear, at this point, we do not believe we will be required to perform any additional human clinical studies for this initial general dermatologic indication, only preclinical studies. Our preclinical studies will be conducted at a good laboratory practices, or GLP, animal facility. At this time, due to COVID-19, many of these labs are operating at limited capacity. However, the labs are expected to increase capacity as we exit the shelter-in-place order in the beginning of June.

We are in close communication with the facility we have partnered with and have started some initial pilot activities and are scheduling our future work. Today, we believe we will be able to complete the preclinical work and submit the 510k to FDA in the third quarter. This timeline is subject to further impacts from COVID-19 and for now assumes conditions continue to track in line with local guidance and our ability to work in the labs without considerable constraints starting in June. To remind you, one of the benefits of this simplified approach for a general indication is that the submission should be relatively straightforward for FDA to review, potentially leading to a clearance by the end of the year.

This is our goal as a company. Going forward, we plan to meet with FDA to discuss in more detail specific indication clearances and the comparative study data that will be required for the separate submission. We anticipate starting with sebaceous hyperplasia and expect to meet with FDA to discuss this study in Q3 and plan to start the study late in Q3 or early Q4. Importantly, in the recent presubmission meeting, we briefly discussed this with FDA, and they agreed with this approach.

Once we meet with the FDA regarding sebaceous hyperplasia, we believe we will also be able to move quickly toward SK and warts comparative studies in pursuit of specific indications for these dermatologic indications. Turning to our plans for regulatory clearance and commercialization outside the U.S. As we mentioned on the last call, we have successfully completed the ISO-13485:2016 Quality System Management Certification. The ISO certification specifies requirements for a quality management system where an organization needs to demonstrate its ability to provide medical devices and related services that consistently meet customer and applicable regulatory requirements.

This is the first step in obtaining the CE Mark and subsequent commercialization of the CellFX System in the European Union. Our next objective is to prepare a technical file on the safety and efficacy of the system to submit to our notified body, which is the company authorized to review the technical file to ensure the product complies to all applicable essential requirements in the directive and issue the CE Mark, which is required to begin commercializing in the EU markets. Until recently, the regulation surrounding the CE Mark for medical devices were going to undergo significant changes starting this month, specifically May 26, 2020. These changes were projected to add considerable time to the CE Mark process.

However, due to the COVID-19 public health and economic impact, the EU authorities have delayed the introduction of these new regulations until May 2021, which means that the CellFX System will be reviewed under the current regulations. Since we were already in the process of preparing our technical file for a CE Mark submission and filing by August of 2020, we are now in a position to potentially take advantage of this announced delay in the implementation of new regulations and hope to obtain the CE Mark for the CellFX System sooner than originally thought, potentially as early as Q1 of 2021. Like many things these days, these changes occurred rapidly and very recently, and the impacts on timing are not fully understood. Once we have better certainty on the timing of the CE Mark, we will provide that information and the details regarding our commercialization plans in the EU.

Suffice it to say, we are pleased to find ourselves in a position with the potential to have a U.S. clearance by the end of the year and an EU clearance in Q1 of next year for the CellFX System. In addition to the U.S. and the EU, we believe Canada will be an important opportunity for the CellFX System, and we will provide timing of a clearance in Canada in the coming quarters as well.

With regard to our second key objective, preparation for commercialization of the CellFX System, in a moment, I will turn the call over to Ed to discuss our continued progress in working with the dermatology community to continue to advance the scientific understanding of NPS, our expanding clinical data and the role this technology can play in the aesthetic dermatology practice. Before I do that, I wanted to provide an example of how we are taking advantage of the unique circumstance of the shelter in place to further prepare ourselves for commercialization. We recently sent a number of CellFX Systems home with members of our team across various departments to engage in simulated field use exercises. All of the technologies that make up the CellFX System, CellFX Cloud and our enterprise software infrastructure are cloud-based, enabling system utilization and performance to be monitored by all of our teams from customer service to engineering, to finance and operations in real time while working remotely and, in this case, from home.

This exercise would not have been contemplated prior to the shelter in place, but it's been extremely productive in terms of testing and refining all aspects of our CellFX System, our CellFX cloud-based infrastructure and how we plan to teach and train our physician customers. As we move into an environment where social distancing will likely remain the norm for some time, our wireless, cloud-based CellFX System will provide us a unique ability to continuously support physicians and their practices without the need for physical presence. Regarding our clinical programs and studies under way to continue to expand the CellFX System application pipeline, we have experienced impacts from COVID-19 in that clinicians' offices have been closed or drastically reduced in terms of their operations, and they have been unable to schedule follow-up appointments with patients. The treatment follow-up sessions will be scheduled as soon as doctors and patients are comfortable.

And at this point, we do not believe they will materially impact the results. Ed will speak more to the state of dermatology clinics based on information we have recently gathered. We are completing follow-up on our multicenter wart study in the coming months. And we will be looking for the appropriate venue to publish the complete results.

Though, as Ed will mention, an update on the wart study will be released in an upcoming program by the American Society for Laser Medicine and Surgery. We continue to believe that the treatment of warts has a significant potential for the CellFX System and its unique capabilities. We have completed enrollment in our nevi feasibility study and are continuing with follow-up of those patients and expect to complete our acne feasibility study soon. Both have been delayed by COVID-19.

Finally, our third and critical priority is financing, and we are well on our way to completing our rights offering. Again, we have been able to progress this offering during these unique times with little to no disruption. Sandy will provide details on the offering later in the call. I will now turn the call over to Ed to provide more details on our continued engagement with the scientific dermatology community.

Ed?

Ed Ebbers -- Vice President and General Manager

Thank you, Darrin. I will start by sharing our customer observations and recent primary market research on the impacts of COVID-19 precautions on physicians' practices and aesthetic dermatology procedure volumes. We all understand that electric procedure volumes decreased considerably from mid-March to April as medical facilities followed various state and local regulations for electric procedures. Impact on electric procedure volumes have varied based on the specific regional guidelines.

And in general, the deferred procedures are being rescheduled. To better understand dermatology elective procedure prospects, we recently conducted a nationwide online survey just last week with 37 aesthetic dermatologists, seeking their impressions on the current impact of COVID-19 precautions and their future outlook as restrictions on elective procedures are lifted in the coming weeks and months. Not surprisingly, 92% of the physicians reported current aesthetic procedure volumes have either reduced by at least 50% or up to a complete reduction of all aesthetic procedures. However, when asked about when they anticipate on resuming aesthetic procedures once restrictions are lifted, the majority of dermatology practices expect to begin elective aesthetic procedures again within a few weeks to two months.

And they predict the resumption of normal volumes of aesthetic procedures as soon as several weeks to as long as six months in some cases, with the majority of practices predicting recovery to normal aesthetic procedure volumes in two months or less. This optimism for rapid recovery was further reflected in advanced procedure bookings. 75% of aesthetic dermatologists said that they are actively scheduling future procedures or have never stopped scheduling future procedures for available calendar dates in the future. Finally, once aesthetic procedures open up again, most dermatologists expect to resume in-person discussions with industry representatives, such as our sales team, within a few weeks to a few months.

These findings mirror other reports of likely rapid recovery of the cash-paying aesthetic procedure market with proper precautions, of course, taken to protect the patients and medical staff. Going forward, we will continue to monitor the recovery process in order to anticipate and accommodate the future needs of our potential customers when we enter the market. We will remain flexible as we learn more on this dynamic situation to react and adjust accordingly. We are continuing our extensive collaboration with the key opinion leader community via electronic media in these past two months.

We have been very pleased to learn how various leading dermatology societies are adapting to the current situation in the way that they are providing their members access to scientific and clinical content. Particularly, the American Society for Laser Surgery and Medicine has launched a new online learning center on their website. Through this learning center, ASLMS is making available the electronic posters and clinical abstract presentations originally slated for their live podium talks at their 2020 annual conference. These CME presentations will be recordings of presenter-narrated slides, which will be available for future distribution.

Among these slides and audio presentations are updates of three of our NPS clinical studies. Dr. Victor Ross will be presenting updated data on our wart study, Dr. Gilly Munavalli will cover the latest on NPS dose-ranging for sebaceous hyperplasia and Dr.

Thomas Rohrer will provide results on our first human feasibility study of NPS to clear biopsy-confirmed nodular basal cell carcinoma. Dr. Rohrer, by the way, is the incoming president of the ASLMS organization and is a member of our scientific advisory board and an investigator in several of our clinical trials. We look forward to when these continuing medical education presentations go live on the ASLMS Online Learning Center, which is scheduled to be in the next month or two.

Despite all of the obstacles, it has been inspiring to witness the resilience of the scientific and clinical community in forging ahead. And we'll provide more updates as we press forward in our collaboration with top physicians. We are also making great progress in the publication of peer-reviewed research in leading medical journals. We were pleased to learn that our clinical study publication titled A Dose-response Study of a Novel Method of Selectively Tissue Modification of Cellular Structures in the Skin with Nanosecond Pulse Electrical Fields, which appears in Lasers in Surgery and Medicine journal, have received two notable acknowledgments within last month.

As a reminder, this was our first published study of NPS technology on human skin, which demonstrated the following key aspects of our platform technology: it establishes safe range of MPS energy doses on healthy skin, it confirmed our unique nonthermal mechanism of action and cell selective effect and it demonstrated rapid recovery of the epidermis leading to initial skin resurfacing with minimal inflammation. This study article was recognized as Editor's Choice in the printed issues of Lasers in Surgery and Medicine released this past April. And we most recently learned that since it was published online in August of last year, that this research is among the top 10% of most downloaded papers among all research published in this respected medical journal between January 2018 and December 2019. We are honored to have this type of recognition from the scientific community as it reinforces the awareness and advocacy of our differentiated technology, continuing to grow in the specialized audience of physicians who purchase and utilize medical devices for dermatology application.

Now I'll turn the call to Sandy for the financial results.

Sandy Gardiner -- Chief Financial Officer

Thank you, Ed. Operating expenses for the three months ended March 31, 2020, were $12 million compared to $10.4 million for the prior year period. The increase in operating expenses was driven by the expansion of operational infrastructure, including the marketing and sales functions, as well as the expansion of the research and development team and clinical trial costs. Included in the three months ended March 31, 2020, operating expenses was $2.6 million of stock-based compensation versus $2.4 million in the year ago period.

General and administrative expenses consist of salaries and related employee expenses for executives, sales and marketing, finance, legal, human resources, information technology and administrative personnel as well as professional fees, patent fees and costs, insurance costs and other general corporate expenses. General and administrative expenses increased by $1.2 million to $5.6 million for the three-month period ended March 31, 2020, from $4.4 million during the same period in 2019, primarily related to increased personnel from a year ago. General and administrative expenses are expected to continue at approximately the current rate for the remainder of 2020. Research and development expenses consist of salaries and related expenses for manufacturing, research and development personnel as well as clinical trials and consulting costs related to the design, development and enhancement of our potential future products.

Research and development expenses increased $5.3 million to $6.2 million for the three-month period ended March 31, 2020, from $5.8 million during the same period in 2019 primarily due to related increased personnel from a year ago. Research and development expenses are expected to continue at approximately the current rate for the remainder of 2020. Net loss for the first quarter ended March 31, 2020, was $11.9 million compared to $10.1 million for the first quarter ended March 31, 2019. Cash used in the first quarter totaled $9.5 million.

Cash and cash equivalents and investments totaled $15.9 million as of March 31, 2020, compared to $25.4 million as of December 31, 2019. In April, we filed a registration statement with the SEC to raise additional capital through a rights offering. Under the terms of the rights offering, stockholders of record as of 5 p.m. Eastern Time on Thursday, May 14, 2020, the record date, will be issued subscription rights to purchase up to $30 million of units.

We expect net proceeds of approximately $29.5 million from this offering. This excludes additional proceeds of up to $4.5 million from the exercise of warrants issued in the rights offering. Based on our current shares outstanding, we anticipate that each stockholder will receive one subscription right to purchase approximately one-fifth of a unit for each share of common stock owned on the record date. Each unit will consist of one share of common stock and 0.15 warrant to purchase shares of common stock.

For example, if you own 100 shares of common stock as of 5 p.m. Eastern Time on May 14, 2020, you will have the right to purchase up to 20 units, which consists of 20 shares of common stock and three warrants. Each warrant will be exercisable for one share of common stock at an exercise price equal to the subscription price for the unit. The subscription price per unit will be equal to the lesser of $7.01 or the volume weighted average price of the common stock for the five-day trading period through and including the expiration date of June 8.

The subscription right will expire if not exercised prior to 5 p.m. Eastern Time on June 8. Stockholders who choose to exercise their basic subscription right in full will not experience dilution from the rights offering. Our chairman of the board of directors, Robert Duggan, has indicated that he intends to exercise all of his basic subscription rights and any oversubscription rights to purchase additional shares of common stock that will remain unsubscribed at the expiration of the rights offering but has made no written binding commitment to do so.

Any other stockholder who fully exercises their subscription right will also be entitled to oversubscription rights to purchase additional shares of common stock that remain unsubscribed at the expiration of the rights offering, subject to proration. We will mail copies of the prospectus and other documents related to the rights offering shortly on record date on May 14. Now I will turn the call back over to Darrin for closing remarks.

Darrin Uecker -- Chief Executive Officer

Thanks, Sandy. Before I hand the call back to the operator for Q&A, I would like to thank everyone on the call for your continued interest in Pulse Biosciences. I would also like you to know that we at Pulse Biosciences remain optimistic, in particular, about the progress we are making on our three key objectives: regulatory clearance of our CellFX System, both in the U.S. and in the EU; preparations for commercial launch of the CellFX System in those territories; and our upcoming rights offering during and in spite of the challenges of the COVID-19 pandemic.

As a company, we have and will continue to persevere, keeping ourselves focused on the vital few key objectives in front of us. I am extremely grateful for the entire Pulse Biosciences team, our employees, our board of directors are consultants, contractors, suppliers and many other partners. Without all of them, we would not be making the progress we are in this challenging time. Looking ahead, we will continue to monitor the potential impacts of COVID-19.

We look forward to returning to our office and are ready with the accommodations necessary to keep our employees safe when the local government gives us the go ahead. Until then, we will continue to work from home and overcome the challenges we are confronted with in pursuit of our key objectives. Joining me for Q&A is Ed Ebbers, executive vice president and general manager, Dermatology; and Sandy Gardiner, executive vice president and chief financial officer. Operator, let's open the call for questions.

Thank you.

Questions & Answers:


Operator

[Operator instructions] Thank you. It seems we have no questions at this time. I'll turn the floor back to Mr. Uecker for any final comments.

Darrin Uecker -- Chief Executive Officer

Thank you, operator, and thank you, everybody, for dialing in. We appreciate your support. Stay safe and healthy during these challenging times.

Operator

[Operator signoff]

Duration: 33 minutes

Call participants:

Philip Taylor -- Investor Relations

Darrin Uecker -- Chief Executive Officer

Ed Ebbers -- Vice President and General Manager

Sandy Gardiner -- Chief Financial Officer

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