Image source: The Motley Fool.
Pulse Biosciences, Inc. (PLSE -2.48%)
Q3Â 2020 Earnings Call
Nov 9, 2020, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings and welcome to Pulse Biosciences' Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]
I would now like to turn the conference over to your host, Philip Taylor, Investor Relations. Thank you. You may begin.
Philip Trip Taylor -- Investor Relations
Thank you, operator. Before we begin, I'd like to inform you that comments and responses to your questions during today's call reflect management's views as of today, November 9th, 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 projections; products, including the uses, benefits and applications of such products; and our commercial and regulatory strategies; the impact of the COVID-19 pandemic 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 detail in our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August 10th, 2020. 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. 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 R. Uecker -- Chief Executive Officer, President & Director
Thank you all for joining us this afternoon for our third quarter 2020 earnings conference call. Across the world and in our organization, we all continued to adjust to the challenges presented by COVID-19. That said, we have not adjusted the mission of Pulse Biosciences, which remains to offer bioelectric medical solutions that make meaningful differences for the betterment of patients and clinicians. Throughout these difficult times, our team has shown unwavering dedication in their efforts to bring our technology to the market.
We are excited to announce the 510(k) application for the CellFX System has been submitted to the U.S. Food and Drug Administration. This accomplishment and additional developments have positioned Pulse Biosciences to potentially receive regulatory clearance for the CellFX System in three strategic geographies as early as the end of the first quarter of 2021.
On the call today, I will discuss the substantial clinical and regulatory progress and provide details on our commercial preparations and strategy. Ed will detail the planned controlled launch and summarize recent engagements with the scientific community. Sandy will discuss the third quarter financial results, then I will conclude and we will open up the call for Q&A.
There are two main business objectives we are focused on to position Pulse Biosciences for long-term success. The first is achieving regulatory clearance for our CellFX System in the U.S., the European Union and Canada. The second is preparing for the commercial launch of the CellFX System. In recent months, progress toward these objectives has been significant.
Before providing details on the recent progress, I will take a moment to explain what our technology does, its benefits, how it is administered to patients and why the system we have designed is ideally suited for the dermatology market?
The CellFX System is a multi-application platform that harnesses our proprietary Nano-Pulse Stimulation or NPS technology. NPS technology delivers nanosecond pulses of electrical energy to non-thermally clear cells while sparing adjacent non-cellular tissue. In the area of Dermatology, the cell specific mechanism of action is highly differentiated, because it provides the ability to address cellular lesions while preventing collateral damage to the surrounding healthy skin, thus enabling treatment of lesions that was not previously practical. This provides clinicians the ability to generate improved outcomes compared to older modalities were treated skin could appear worse than the original condition.
The CellFX System is a tunable, software-enabled, console-based platform that powers a handheld treatment applicator. It is designed to accommodate the clinical workflow preferred by dermatologists. Based on our extensive industry experience and a collaborative process with clinicians, we designed an integrated cloud software infrastructure, we call CellFX Cloud Connect. It is the backbone of our innovative utilization-based business model that aligns the interest of patients, practices and the Company. CellFX Cloud Connect makes possible the wireless connectivity between the customer CellFX System, our e-commerce customer portal, practice management tools to track utilization data and other metrics, and our internal customer relationship management and enterprise resource planning software system.
The CellFX marketplace is a customer portal, where medical practices purchase and wirelessly download cycle units directly through the CellFX System. Cycle units are purchased and then consumed on a per lesion basis. So the more lesions the patient once cleared, the more cycle units are required. This enables the preferred economic model as physicians have fixed costs per lesion and can charge the patient on a per lesion basis, which is aligned with the patients' preference. Our model contrast with the currently employed disposable and single-use based medical device models, removing the friction for the physician that can occur in those models.
One last note about CellFX Cloud Connect is that it facilitates direct connectivity for pulse to remotely perform software upgrades to the CellFX System, as well as provide several service and maintenance functions in real time. Because of this ability to streamline, be responsive and reduce disruption to the clinical workflow, CellFX Cloud Connect allows us to provide next level support and enable practice growth for our future customers.
To bring this innovative technology to market, we are initially pursuing regulatory clearances in three key geographies; the U.S., the European Union and Canada. These markets represent our top commercial priorities. In the U.S., we are pursuing a stepwise regulatory strategy to achieve FDA clearance. This was determined to be the best fit for our technology following discussions with the FDA. This approach entails an initial 510(k) application for a general dermatologic indication for the CellFX System followed by subsequent applications for specific treatment indication.
The application for the general dermatologic indication required preclinical data evaluating the treatment of animals skin at multiple follow-up time point. Results demonstrated strong performance in skin treatment and healing as we expected, giving us confidence in the quality of our 510(k) submission. We believe the time we spent with FDA confirming the data required to support the general dermatologic indication will make FDA's review straightforward. A decision on potential clearance is on track as early as the first quarter of 2021.
Another benefit of this stepwise strategy is that it provides us the opportunity to conduct studies for CellFX System indication expansion in parallel. This summer, we completed an additional pre-submission meeting with FDA to agree on the requirements for a subsequent 510(k) submission for the treatment of patients with sebaceous hyperplasia or SH. Following the guidance from this meeting, we submitted and received approval for an IDE for investigational device exemption study, allowing us to commence a comparative pivotal study. In just over five weeks, we were able to fully enroll the study, treating 60 patients with facial SH lesions at five study sites. CellFX System procedures and comparative group procedures will be evaluated at follow-up intervals out to [Phonetic] 60 days, post final procedure.
We were very encouraged by how quickly the study enrolled. It demonstrates the broader patient need and underlying market opportunity for SH and dermatologists excitement about using our technology. Given where we are -- given where we are with the study timeline, it is likely we will accelerate the submission of this 510(k) for the treatment of SH to the first quarter of 2021 versus the second quarter of 2021 as we had previously communicated, because of the versatile clinical utility of CellFX System. To maximize its value, we will continue to seek additional indication expanding clearances with the FDA.
Next in our pipeline is common non-genital warts. As we have discussed previously, findings from our previous investigational studies have shown great promise for our NPS technologies' ability to clear warts. We are finalizing the IDE protocol for a comparative study to support an additional 510(k) application for this specific indication. Following IDE approval, we will start the study, which we anticipate will be similar in scope and duration to the SH study. To commercialize the CellFX System in the European Union, we are required to obtain CE Mark approval.
These efforts are focused on working with our E.U. notified body. As we mentioned on the last call, our notified body has accepted our technical file submission and all required supporting documents. In line with our prior expectations, we have progressed through the interactive review phase, where we have actively responding to questions and requests. One important milestone in the technical file review process is the review and acceptance of the clinical evaluation report. The clinical evaluation report is a supporting document provided by Pulse in support of the CellFX System for the proposed indications for use and is reviewed by a physician subject matter expert.
We are pleased to share that the clinical evaluation report for the CellFX System, which included CellFX clinical data for the treatment of sebaceous hyperplasia, seborrheic keratosis and warts, including our recent peer-reviewed publication was recently accepted by the notified body. The acceptance of this report means the notified body agrees that the CellFX System is safe and performs as expected for these clinical indications for use, and we believe is a testament to the quality of the CellFX clinical data, the high quality of the clinical investigators and the peer-reviewed publication.
This also means that when the CE Mark is granted, we will be able to promote the use of the CellFX System for those clinical indication; sebaceous hyperplasia, seborrheic keratosis and warts, as we commercialize in the European Union. Given the acceptance of the clinical evaluation report, we believe we are very close to having the technical file review finished and anticipate receiving the CE Mark and initiating our controlled launch in the European Union as early as Q1 2021.
Lastly on the regulatory front, our Health Canada Medical Device License application for the CellFX System has been submitted. As we were able to submit this application ahead of our expectation, it is now possible we could also receive Health Canada approval as early as the first quarter of 2021. In order to complete this application, our design controls, manufacturing and quality systems are required to be evaluated and certified by the Medical Device Single Audit Program also known as MDSAP. This Certification along with the previously received ISO 13485 Certification represent our ongoing commitment to the highest level of quality assurance standards for the production of our system and components.
Now I would like to transition and provide a high level overview of our commercial launch strategy. The intended result of our regulatory submissions is clearance and approval to market the CellFX System to aesthetic dermatologists in the U.S., E.U. and Canada. Following potential respective clearances, we are prepared to commence controlled CellFX launches in all territories. Our controlled launch strategy is intended to place systems in thought-leading key opinion leaders practices, first anticipating that they will highlight the treatment potential of NPS technology and the CellFX System to a broader group of peers. The controlled launch physicians and their practices have been carefully selected based on their reputations among their peers for Clinical Excellence, as well as their known influence on acceptance of new technologies.
The first wave of early adopters will look to our controlled launch participants for guidance on their own CellFX purchase decisions and advice on integrating CellFX into a successful aesthetic dermatology practice. Notably, these controlled launch dermatologists will be strategically located across the territories in the most attractive aesthetic dermatology market. They have shown great excitement and commitment to becoming early adopters of the CellFX System. As success grows with the controlled launch group, we will then expand to target a larger number of dermatologists.
Our team will be focused on providing the highest level of service to these accounts while implementing efficient work streams into existing practice workflow. To support this strategy, we have hired an experienced commercial team, including sales, marketing and customer service professionals.
Now I will turn the call over to Ed to provide more details on this strategy and our continued engagement with the scientific community.
Ed Ebbers -- Executive Vice President and General Manager, Dermatology
Thanks, Darrin. I will be discussing overall commercial readiness and market pricing for the first launch of the CellFX System in aesthetic dermatology. I'll begin by providing more details on the strategic approach to our global commercial launch, which focuses on the important role of worldwide key opinion leaders in aesthetic medicine and includes continued marketing research insights from our target aesthetic procedure market. Finally, I will highlight the continuing scientific publications of NPS clinical evidence presented to the professional dermatology community that features our unique non-thermal mechanism and how that cell specific mechanism addresses common problems in dermatology that are difficult to treat with older thermal technologies.
First I want to summarize our launch readiness and how our commercial teams focused strategic approach to launch with key opinion leaders or KOLs, will lead to a long-term and sustainable commercial success. This top-down strategy begins with the impressive clinical evidence and mechanism of action research that has been conducted with some of the most respected scientists and institutions in the world of aesthetic dermatology and energy-based devices.
The impressive CellFX body of evidence backed by associated centers of opinion leader advocacy will be highly leveraged in our next phase of KOL foundation building that follows our anticipated regulatory clearance that Darrin just talked about. This foundation building, which we have described to you as a controlled launch of the CellFX System is focused on select aesthetic device opinion leaders in North America and Europe. During the last several months, our commercial team has selected 45 centers in North America and 11 centers in the European Union to be the first physicians to launch the CellFX System, and the associated CellFX commercial procedures into the respective markets and geographies. This will take place soon after commercial clearance.
These controlled launch physicians and their practices were carefully selected based on the combination of their reputations among their peers for Clinical Excellence, as well as they're known influence on acceptance of new technologies with patients, with the media and with the next wave of position with early adopters. The first wave of early adopters will look to our controlled launch participants for guidance on their own CellFX purchase decisions and for their advice on integrating CellFX into a successful aesthetic dermatology practice.
We know for our extensive clinical research and marketing research with our targeted customers that the CellFX System offers dermatologists and other skin specialists an entirely new way to address a broad range of cash paying aesthetic procedures that their patients will demand. As we transition to this commercial phase of the CellFX System, our controlled launch aims to accomplish two main objectives.
First, it will lay the proper foundation of success for seamless practice integration, which includes comprehensive training, education support and setting the proper expectations to create a best-in-class experience for both the physicians and the patients. We believe this is one key to achieving high utilization rates for each installation as we scale up, which is a key success metric we will directly monitor through the CellFX Cloud Connect infrastructure that Darrin described earlier.
Secondly, a successful controlled launch with these global KOLs creates the optimal blueprint for broader and stronger long-term adoption of the CellFX System, with high utilization rates over time. It is our commercial teams experience that this next wave of early technology adopters in dermatology will base their purchase decision on the efficacy, success and media presence of the first wave of KOLs that we have selected for our controlled launch participation. Our commercial team has deep experience in the aesthetic market with utilization-based business models, with a track record that is proven that this type of top-down approach leads to the steady adoption of new technologies and high utilization rates over time, especially as we had future applications to the CellFX System based on our ongoing clinical research investment.
Darrin, has already discussed our anticipated regulatory clearances and timelines. As part of our launch planning process, we have been regularly conducting marketing research on aesthetic dermatology practices and how their practices are adapting to patient related COVID-19 protections. We have tracked aesthetic procedure trends over the last three quarters with nationwide online surveys conducted with aesthetic dermatologists beginning back in May, at the beginning of the pandemic.
Since that time, we have seen a consistent upward trend of procedure volumes among the majority of respondents based on the latest survey results and the results from October show that's the majority of U.S. aesthetic procedure specialists are optimistic that procedure volumes will return to normal levels in less than six months from now, compared to the server we took just in August, when the majority of physicians believe it would take six months or longer. This cautiously optimistic outlook of future aesthetic procedure demand is also supported by our ongoing monitoring of physician virtual meeting discussions and then published formal guidelines on reopening aesthetic dermatology practices safely, while adjusting to changes in patient workflow, PPG usage and social distancing.
The practice safety recommendation stem from a joint taskforce between the American Society for Dermatologic Surgery and the American Society for Lasers and Medicine and Surgery. This physician-led safety guidance demonstrates the motivation of aesthetic practices to maintain a safe and low-risk environment while responding to the pent-up demand from their aesthetic patients, who have been postponing procedures as they work at home. This healthy demand is also evidenced by dermatologists seeing more emphasis from their patients for patient procedures due to the importance of looking professional while being on camera for work at home video meetings. As practices continue to schedule future appointments, aesthetic dermatologists are also seeing a trend toward patients making the most of each visit by scheduling multiple procedures in the same visit.
As a final note on dermatology practice activity, we are encouraged by physicians reporting an upswing in the trend to resume in-person interactions with industry representatives, such as our field sales team, of course, taking place within proper safety guidelines. This ongoing trend of access to physicians and their practice is an important assumption as we prepare for our sales teams role in managing the controlled launch in KOL practices with our dedicated clinical applications specialty sales team, that works with physicians and their staff as part of our ongoing educational best practices CellFX System launch programs.
While we continue to monitor trends in the aesthetic procedure market and they add up patient to these everchanging conditions, these recent insights and testimony represent a distinct sign that dermatologists are in recovery mode and maintain an enthusiasm to stay on top of the latest technologies. Bridging this optimism about the future and receptiveness to emerging technologies, we continue to see a growing acceptance among the broader signs of the community of the NPS system, as an important new technology in peer-reviewed meetings. The Pulse team remains highly engaged in supporting our clinical investigators and key opinion leaders who continued to be invited to present our clinical research findings, results at scientific meetings, which are now being held online and being very well attended.
Our NPS clinical and scientific data continues to be published in leading peer-reviewed dermatology journals. Most recently, the American Society for Dermatologic Surgery or ASDS posted their annual conference earlier this month as a virtual meeting. We were pleased that NPS technology was highlighted in three different sessions and two e-posters. Of particular note, NPS technology was featured in a session course entitled, What's Next?, the procedures that will change the way we treat our patients, which was moderated by Dr. Mathew Avram, the current President of the ASDS. Dr. Avram was joined by Dr. Victor Ross, the President in American Society for Laser Surgery and Medicine and a current Pulse Scientific Advisory Board member, and -- with Pulse Clinical Investigator, Dr. [Indecipherable].
In this session, both Dr. Ross and Dr. [Indecipherable] highlighted our cell-specific non-thermal NPS technology that has one innovation that will define the field of dermatology in the near future, acknowledging the unmet need and addressing a wide variety of cellular basic skin problems and highlighting successful clinical study results in sebaceous hyperplasia, cutaneous non-genital warts and seborrheic keratosis, as well as our early findings with nodular basal cell carcinoma or BCC, as we had reported on our last call in August.
With the international cachet of the ASDS Annual Meeting, dissemination of NPS clinical research provides global visibility and will help boost our international outreach efforts, as we can confidently expect that any positive clinical research will be viewed in good favored by the international market.
In the area of peer-reviewed research on NPS technology published in prominent dermatology channels, we were pleased to learn that our study evaluating the safety of NPS energy levels on facial skin was published in the journal of cosmetic and laser therapy by lead author, Dr. James Newman, and titled, A Dose-Response Study of Nanosecond Electrical Pulses On Facial Skin. The results of this study demonstrate that NPS technology applied to facial skin is safe and effective, but we're moving lesions residing in the epidermis of facial skin, such as sebaceous hyperplasia.
The study also further demonstrated the cell specific effect of NPS technology in clearing the solar-based structures in a targeted area, while sparing damage to the non-cellular dermis. Looking forward, we plan on increased international presence, and we'll continue to work with our esteemed clinical investigators on abstract and publication submissions at key international conferences and in their journals.
Has the energy and enthusiasm for NPS technology continues to mount among aesthetic dermatologists, our optimism grows about the positive reception for the future commercial adoption of the CellFX System by the specialized audiences of physicians, who purchased and utilized medical devices for dermatology applications.
Now I'll turn the call over to Sandy for the financial results.
Sandra A. Gardiner -- Executive Vice President and Chief Financial Officer
Thank you, Ed. For the third quarter of 2020, operating expenses were $12.9 million compared to $12 million for the prior-year period. Increases in research and development costs and, to a lesser extent, increases in general and administrative costs drove the increase in operating costs. Operating expenses for the three months ended September 30, 2020 included $2.6 million of non-cash stock-based compensation, versus $2.7 million in the prior-year 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 approximately $165,000 to $5.8 million for the three-month period ended September 30, 2020 from $5.6 million during the same period in 2019, primarily related to increases in personnel, business insurance and facility expansion costs, offset by a reduction in recruitment-related costs from a year ago, as well as the reduction in travel expenses, primarily related to COVID-19.
Research and development expenses consist of salaries and related expenses for manufacturing and 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 by approximately $800,000 to $7 million for the three-month period ended September 30, 2020 from $6.2 million during the same period in 2019, primarily due to increases in personnel and an increase in consulting and outside services related to our GLP preclinical studies in support of our 510(k) submission, offset by a reduction in clinical trial expenses from a year ago.
Net loss for the first quarter ended September 30, 2020 was $12.9 million compared to $11.7 million for the third quarter ended September 30th, 2019. Cash and cash equivalents and investments totaled $29.6 million as of September 30th, 2020, compared to $37.8 million as of June 30th, 2020. Cash utilized in the three months ended September 30th, 2020 was $8.2 million. This compares with $7.9 million of cash utilized in the three months ended June 30th, 2020, excluding net proceeds received in the rights offering.
Now I will turn the call back to Darrin.
Darrin R. Uecker -- Chief Executive Officer, President & Director
Thank you, Sandy. To conclude, we have maintained a focus on our core objectives throughout these challenging times and taking huge strides toward bringing Nano-Pulse Stimulation technology delivered by the CellFX System to clinicians and patients. Regulatory submissions to achieve FDA clearance, CE Mark approval and a Health Canada Medical Device License could potentially all occur as early as the first quarter of 2021. We completed enrollment of 60 patients in our first FDA IDE-approved pivotal study comparing to CellFX System to electrodessication in just over five weeks and ahead of schedule.
Our continued engagement with the scientific community and a strategic commercial launch plan position Pulse Biosciences for success. We are very excited about this pivotal time in the Company's history and the momentum we are building toward commercial launch of the CellFX System. We look forward to providing you updates in the future.
Joining me now for Q&A are Ed Ebbers, Executive Vice President and General Manager, Dermatology; and Sandy Gardiner, Executive Vice President and Chief Financial Officer. Operator, please open the call for question.
Questions and Answers:
Operator
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Sean Kang with H.C. Wainwright. Please proceed with your question.
Sean Kang -- H.C. Wainwright -- Analyst
Hi. Thank you for taking my question. So I have a question about the regulatory pathway strategy in ex-U.S. divisions, basically Canada and E.U. So would you take a similar approach or like fixed-step [Phonetic] value that is a strategy in both region as well?
Darrin R. Uecker -- Chief Executive Officer, President & Director
Yeah. Hi, Sean. It's Darren. Thanks for the question. So, if I understood your question right, your question is about the regulatory strategy in Canada and E.U.?
Sean Kang -- H.C. Wainwright -- Analyst
Yeah. So basically you're going for general indications first and then add specific indication later as soon as to what you're doing in the U.S.
Darrin R. Uecker -- Chief Executive Officer, President & Director
Yeah. Sure. I understand. Yeah, I understand your question. Thank you. So as I mentioned in the prepared remarks, with regard to the CE Mark in the E.U., part of our technical file, we included clinical evaluation report. The clinical evaluation report included clinical data in support of sebaceous hyperplasia, seborrheic keratosis and warts. And so, it's actually well beyond the sort of general indication that is more of a -- sort of a general indication plus indications including those three lesions that I just mentioned sebaceous, seborrheic keratosis and warts.
So like I said, we're very hopeful that we're getting down to kind of the final Q&A on our CE Mark with our notified body. And when that comes in, we have confidence that at that time we will be able to ship and commercialize in the E.U. and promote the CellFX System for those specific indications. So unlike the U.S., I think we're in a position to be able to market to those indications immediately as we receive the CE Mark. As it relates to Health Canada and the Medical Device License in Canada, our submission also included those three indications. So it's a bit early in that process to be able to comment at all on what might come out of that approval through Health Canada, but certainly our submission included those three indications.
Sean Kang -- H.C. Wainwright -- Analyst
I see. Just a quick follow-up question to that is, would do seek commercial partners in Canada and E.U. or would you just take the [Phonetic] market that your product over there?
Ed Ebbers -- Executive Vice President and General Manager, Dermatology
Yes. This is Ed answering that question. I would describe our models as a hybrid direct and distributor model, and it varies by market in country. In the instance of Canada, we will be hiring our own direct sales force to cover Canada and expand as the installed base justifies that expansion with direct employees. In the instance of the E.U., we are in the process of recruiting and hiring E.U.-based sales and operations team to directly launch in the largest and most influential markets and specifically, to provide the level of support for the controlled launch for E.U. opinion leaders that matches our higher standards. And then we will be looking at for other smaller markets, closely managing distributors in those countries where it makes sense again with our own people directly involved with distributors to make sure the standards of training and education meet that of our direct sales team. So that's our distribution plan going forward.
Sean Kang -- H.C. Wainwright -- Analyst
That's very helpful. Thank you.
Operator
[Operator Instructions] There are no further questions at this time. At this point, I'd like to turn the call back over to Darrin Uecker for closing comments.
Darrin R. Uecker -- Chief Executive Officer, President & Director
Alright. Thank you, operator, and thank you everybody for joining us on the call today. And at last, thank you for the Pulse Biosciences team and all of our partners who have really helped us make tremendous progress over the last several quarters during these challenging times. Thank you very much. We look forward to updating you very soon.
Operator
[Operator Closing Remarks]
Duration: 36 minutes
Call participants:
Philip Trip Taylor -- Investor Relations
Darrin R. Uecker -- Chief Executive Officer, President & Director
Ed Ebbers -- Executive Vice President and General Manager, Dermatology
Sandra A. Gardiner -- Executive Vice President and Chief Financial Officer
Sean Kang -- H.C. Wainwright -- Analyst
