Pulse Biosciences, Inc. (PLSE) Q3 2020 Earnings Call Transcript

Greeting and welcome to the Pulse Biosciences' Third Quarter 2020 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Philip Taylor, Investor Relations. Thank you. You may begin.

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 9, 2020 only and will include forward-looking statements and opinion statements. These include statements regarding our plans and expectations relating to regulatory clearance, including process timelines and expected outcomes, 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 Form 10-Q filed with the Securities and Exchange Commission on August 10, 2020. Our SEC filings can be found on 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 and 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.

Thank you all for joining us this afternoon for a third quarter of 2020 earnings conference call. Across the world and in our organization, we all continue 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 US 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 plan 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 US, the European Union and Canada. The second is preparing for the commercial launch of the CellFX System. In recent months, progress towards 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, this 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 where 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 interests 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 to the CellFX System. Cycle units are purchased and then consumed on a per lesion basis. So the more lesions the patient wants cleared, the more cycle units are required. This enables a preferred economic model, as physicians have a fixed cost per lesion and can charge the patient on a 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. 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 future customers. To bring this innovative technology to market, we are initially pursuing regulatory clearances in three key geographies, the US, the European Union, and Canada. These markets represent our top commercial priority. In the US, 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 general dermatological indication for the CellFX System, followed by subsequent applications for specific treatment indications. The application for the general dermatological indication required preclinical data, evaluating the treatment of animal skin at multiple follow-up time points. 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 the FDA confirming the data required to support the general dermatological indication will make FDA review straightforward. A decision on potential clearance is on track for 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 the 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 up to 60 days post final procedure. We were very encouraged by how quickly the study enrolled; that demonstrates the broader patient need and underlying market opportunity for SH and dermatologist excitement about using our technology. 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 the 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 wart. As we have discussed previously, findings from our previous investigational studies have shown great promise for our NPS technology's ability to clear warts. We're 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 EU 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 responded 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 publications, 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's clinical data, the high quality of the clinical investigators, and the peer-reviewed publication. This also means that when a CE Mark is granted, we will be able to promote the use of the CellFX System for those clinical indications: 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 expectations, 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 a previously received ISO 1345 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 a regulatory submission is clearance and approval to market the CellFX System to aesthetic dermatologists in the US, EU, and Canada. Following potential respective clearances, we are prepared to commence controlled CellFX System launches in all territories. Our controlled launch strategy is intended to place systems in thought-leading key opinion leaders' practices, 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 technology. 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 markets. They have shown great excitement and commitment to becoming early adopters of the CellFX System. As success grows with 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 workload. To support this strategy, we have hired an experienced commercial team, including sales, marketing, and customer service professionals.

Thanks, Darrin. I will be discussing overall commercial readiness and market priming 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 systemic procedure market. Finally, I will highlight the continuing scientific publications of NPS clinical evidence presented to the professional dermatology community that feature 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 team's focused, strategic approach to launch with key opinion leaders or KOLs will lead to 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 the practices were carefully selected based on a combination of their reputations among their peers for clinical excellence, as well as their known influence on acceptance of new technologies with patients, with the media, and with the next wave of physician 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 from 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 aspect 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 physician and the patient. We believe this is one key to achieving high utilization rates for each installation as we scale up, which is a key success metric as we will directly monitor through the CellFX System Cloud Connect infrastructure that Darrin discussed 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 team's 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 care wells that we have selected for our controlled launch participation.

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 30, 2019. Cash and cash equivalents and investments totaled $29.6 million as of September 30, 2020, compared to $37.8 million as of June 30, 2020. Cash utilized in the three months ended September 30, 2020 was $8.2 million. This compares with $7.9 million of cash utilized in the three months ended June 30, 2020, excluding net proceeds received in the rights offering.

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 the 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 the 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 questions.

[Operator Instructions] Our first question comes from Sean Kang with H.C. Wainwright.

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 EU. So would you take a similar approach or like step-wise regulatory strategy in both regions as well?

Yes. 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 EU?

Yes. So basically you're going for general indications first and then add specific indications later as soon as to what you're doing in the U.S.

Yes. Sure. I understand. Yes, I understand your question. Thank you. So as I mentioned in the prepared remarks, with regard to the CE Mark in the EU, part of our technical file, we included a 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 EU 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.

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 EU, we are in the process of recruiting and hiring an EU-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 EU opinion leaders that match our higher standards. And then we will be looking 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.

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.

All right. Thank you, operator, and thank you everybody for joining us on the call today. And at last, thank you to 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.

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