Q1 2022 Pulse Biosciences Inc Earnings Call
Greetings and welcome to pulse Biosciences first quarter 2022 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Once you require operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn this conference over to your host Mr. Philip Taylor Investor Relations. Thank you Sir 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 May 11, 2022, only and will include forward looking statements and opinion statements, including predictions estimates plans and expectations and other information.
<unk> actual results may differ materially from those expressed or implied as a result, 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 Securities and Exchange Commission or 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.
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Please note that this conference call will be available for audio replay on our website at pulse Biosciences Dot com on 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 Darrin Newkirk.
Hello, and thank you all for joining us on today's call I will discuss our first quarter and recent business progress, including our commercial priorities and updates on our clinical and regulatory initiatives.
We will then be joined by Chief Commercial Officer, Kevin Danahy, who will outline our recent commercial activity there.
Sandy will detail the financial results before I conclude and open the call for Q&A.
Recently, we pivoted, our commercial focus towards driving utilization of the cell tech system to ensure a comprehensive integration within dermatology clinics.
We made changes to the commercial team, including new leadership and implemented organizational changes to better position the company to execute on this near term focus.
At the same time, we executed operating expense reduction initiatives reflective of our new focus and to reduce cash usage.
In total we reduced our head count by approximately 20% and reduced overall operating expenses by approximately 20% from the first quarter 2022 run rate.
Our priorities in 2022 are straightforward drive meaningful cell effects system utilization and expand the system's indications for use in dermatology.
Last year, we initiated a controlled launch program with 70, dermatology clinics that agreed to share data and observations about patients in their own experiences with treatments.
In exchange for this valuable data they earn credits towards the purchase of their system as.
As we shared on our last call at the end of the first quarter 39 clinics have converted to commercial use in 'twenty remain in the program. After 11 clinics have opted out.
With the controlled launch conversions to date and the three clinics that have purchased a cell effects system outside of the controlled launch program. We ended Q1 with 42 commercial cell effects clinics.
These commercial clinics performed a total of 700 patient sessions during the quarter.
A number of important learnings have come out of the controlled launch program in terms of patient lesion selection treatment protocols and an understanding of the task of integrating the cell effects system into the clinic workflow across the continuum of clinic types from cosmetically focused a medically focused.
Perhaps most importantly, the controlled launch has confirmed our belief that patients are motivated to have their benign lesions cleared and that these patients are already visiting dermatology clinics on a daily basis, either seeking to receive treatment for these lesions or for other reasons, but are excited to learn about the potential benefits of the cell effects treatments.
So we view these learnings as positive indicators for the potential of the cell effects business for both clinics and pulse Biosciences. We have also learned that the integration of the cell of X procedure into the busy dermatology clinic workflow requires a much higher touch model to generate the system utilization we expect.
While we generated increasing average commercial connect utilization throughout Q1 as shown in the graph included in today's press release, and our 10-Q, we are not satisfied with the rate that the utilization increase or the inconsistent trajectory and this has led to our change in commercial leadership and strategy. It.
It is now our priority to address this and to drive more consistent and accelerating commercial utilization of cell effects systems.
We are doing this by initially partnering with nine of our commercial clinics across the U S EU and Canada to collaborate on developing commercial best practices that will demonstrate the clinical and economic value of a cell effects system completely integrated in a dermatology practice.
During the month of April Kevin and his team visit many of our commercial clinics to discuss this program.
Selected the nine participants and are launching the program at the clinics throughout the month of May.
In Q1, these nine clinics averaged 14 commercial sessions per month.
Our goal for the program is to get them to 40 sessions per month on a consistent basis.
We expect once this initial group of clinics has achieved this level of utilization, we will have a blueprint for the necessary training education, and marketing required and will be in a position to scale and apply this blueprint to clinics going forward.
Coming up Kevin will discuss our framework for this program and what this means tactically.
Until we develop these commercial best practices and achieve our utilization goals, we will reduce the emphasis on cell effect system capital sales into new clinics, we will continue to develop and build our capital sales pipeline and believe that as we reach our utilization goals, we will be well positioned to focus on capital sales.
Now on to our clinical and regulatory pipeline.
Our stepwise regulatory approach with the FDA to expand the cell effects systems indications for use with specific lesions will provide the ability for us to assist clinics with marketing and promoting the cell effects for treatment of any clear specific lesions. In addition to our current capability to do so or for general benign lesions.
The treatment of Sebaceous hyperplasia is approved under our CE, Mark and Health, Canada approval. We are currently seeking to achieve FDA clearance for this specific lesion.
Following the submission of the 500 10-K to the FDA in the fourth quarter. We received an additional information request letter also known as the AI letter from the F D. A.
And the AI letter the FDA stated do not believe the company had provided sufficient clinical evidence at this time to support the expanded indication for use and that the company had not met the primary endpoints of the Sage <unk> study.
<unk>, we had our initial meeting with FDA to clarify issues raised in the AI letter.
Shortly following the meeting and at Fda's request, we provided additional analysis of our S. H comparative clinical data.
A follow on discussions being scheduled with the FDA to review the additional datasets.
We expect to continue our collaboration with FDA. During this five 10-K review process and to formally respond to the AI letter.
Again, I would like to remind you that this current five 10-K submission is meant to add a specific indication for sebaceous hyperplasia to our current general indication and has no impact on the existing five 10-K clearance for the cell effects system.
In the third quarter 2021, we completed enrollment of over 150 patient F. D. A I D approved pivotal comparison study for the clearance of non genital warts.
Data will support the second specific indication we are planning to submit.
We are currently finalizing the five 10-K submission and remain on track to file during the second quarter.
Regarding our basal cell carcinoma or BCC feasibility study, we have completed follow up an analysis of the data.
We are pleased with the results we achieved and are excited to take the next steps to advance the regulatory process with F. D. A.
This will include a meeting with FDA to discuss potential pivotal study for a specific indication to treat BCC lesions with the cell effects system.
We expect to have this meeting by the end of the third quarter.
We are also looking forward to presenting this data at an upcoming scientific meeting.
Expanding the cell effects systems application portfolio, where it makes the most sense for dermatologists is the priority of our development programs.
Before handing it over to Kevin I want to highlight our extensive engagement with the scientific community investigators generating clinical evidence and promoting the latest discoveries with NPS technology is a crucial component of physician adoption.
I had the privilege of attending the recent annual meeting of the American Society for laser medicine, and surgery and I'm happy to report the cell type system was well represented in the scientific program with an oral presentations and poster.
In the oral presentation, Dr. Suzanne Kilmer discuss long term NPS data on the clearance of sebaceous hyperplasia plays yet showing high levels of lesions maintained or improved clearance and good cosmesis 12 months after treatment.
Our poster presentation by Dr. Mary Oh, Gosh demonstrated the first case of each P V related dermatosis on the lips completely cleared by NPS.
Both presentations drew strong engagement with clinicians who are eager to learn about the cell effects system and NPS technology.
This week at the annual symposium for cosmetic advances and laser education, Dr. George Roosa past President of the American Academy of Dermatology will present, an overview of NPS technology on the main stage and in June we are excited to have strong scientific and commercial presence at the World Congress of the International Master course.
On aging science also known as <unk>, which will take place in Paris.
Now I will turn the call over to Kevin.
Thank you Darren.
I'm excited to share my initial experience with clinicians in APAC.
I've spent the past four weeks in the field visiting clinics.
Early experience.
And a large and exciting opportunities that lie ahead, as only validated and transient some reasons why I joined the pulse biosciences.
And share our vision around celebrex procedures and its potential.
Takeaways.
Benign lesion market is a priority for clinicians.
Can you just patient need every day.
Second both clinics AMCOL had committed to.
Taking a deep dive to determine and implement the changes required optimum integration of itself expertise into their clinics.
I am confident that given the circumstances.
After an investment we can capitalize on clinical and commercial success.
Early observations around potential obstacles to the integration of the cell effects system into the clinics can be bucket. It into four categories. One is patient selection and patient share.
Credit process integration.
Three procedural techniques and for patient flow.
If a clinic is experiencing friction any of these categories it becomes hard for them to achieve routine utilization.
Each of our target clinics, we are analyzing each of these components to a framework that determines what is working identify as obstacles to program them back up.
And identified controlled needed to overcome the obstacles.
Clinic is slightly different but as a company we have the benefit of the entire dataset from the clinics.
We will identify what works best for each clinic, and then we will help determine the necessary changes observed impact everybody to optimize.
With a set of best practices for each category.
This suggests more customized best practices at scale.
Based on the shared conviction and the cell effects.
Clinical and economic value propositions, we are partnering with nine clinics to optimize integration in the clinic and drive utilization.
We can now work closely with these clinics on the pulse is always set out to do.
<unk> developed a formula for success that can be passed on to the next wave of cell effects customers.
Our focus in the near term.
Go deeper into these key accounts in clinics.
While we continue to improve the quality of our capital pipeline, our focus will remain on driving utilization within this subset of clinics to reach our goals.
I am confident that we can drive meaningful improvements in utilization.
I will now turn the call over to Sandy for the financial results.
Thank you, Kevin and Hello, everyone.
On March 31, 2022, we announced and implemented a restructuring plan to reduce our operating expenses.
Our financial resources, and focused sales and marketing efforts on increasing utilization of the cell affects systems are.
Our board of directors approved changes to commercial leadership.
Structuring of the controlled commercial field organization and reductions in other personnel and expenses across the company.
Reductions in force affected approximately 20% of our workforce.
We have recorded a charge of approximately $750000 related to this restructuring in our financial statements as of March 31 2022.
For the first quarter of 2022 revenue was $444000 system revenue was $367000 in revenue related to cycle units for $77000.
Approximately $300000 in total revenue was recognized on a noncash basis driven by the conversion of 10 controlled launch participants opting to purchase their cell effects system. Following completion of the program.
Revenue in North America, with $312000, representing 70% of total revenue.
Moving down the income statement I'll focus my comments on our adjusted or non-GAAP results to provide insights into the underlying trends in our business.
Please refer to today's press release for a detailed reconciliation of non-GAAP measures with the most comparable GAAP measures.
For the first quarter of 2022, non-GAAP costs and expenses, representing cost of revenues research and development sales and marketing and general administrative expenses were $14 $7 million compared to $11 $3 million for the prior year period.
Year over year increase in cost and expenses was primarily driven by the expansion of commercial and operational infrastructure, including increased head count to support commercialization activity.
non-GAAP cost of revenue was approximately $795000 for the three month period ended March 31, 2000, 2010, there were no cost of revenues in the prior year period until such time that we became a commercial organization in the third quarter of 2021 all on capital.
<unk> manufacturing operation costs were recorded in research and development expense.
non-GAAP research and development expenses increased by approximately $270000 from a year ago to $6 $1 million for the three months period ended March 31, 2020, you can't.
Research and development expenses in the first quarter of 2020 to include approximately $125000 and restructuring related charges.
non-GAAP sales and marketing expenses increased by approximately $2 $1 million from a year ago to $4 $5 million for the three months period ended March 31, 2022, primarily due to increased personnel and promotional activities to support commercialization.
Sales and marketing expenses in the first quarter of 2022 include approximately $550000 every structuring related charges and $300000 of noncash expenses related to our controlled launch program.
non-GAAP general and administrative expenses increased by approximately $164000 to $3 $2 million for the three months period ended March 31 2022.
General and administrative expenses in the first quarter of 2022 include approximately $50000 of restructuring related charges.
non-GAAP net loss for the first quarter of 2020 to $14 $2 million compared to a non-GAAP net loss of $11 $4 million for the first quarter of 2021.
That's our restructuring plan was announced in effect. It on March 31, 2022, head count and expense reductions are not yet reflected in the activity for the first quarter of 2022 operating expense reduction programs are expected to lower our expenses by approximately 20% from the first quarter run.
Rate, resulting in full year 2022 operating expenses similar to 2021 level.
As a result of our commercial teams near term focus to increase utilization at our commercial clinic, we do not expect new system sales to be a significant contributor to revenue until we achieve our utilization goals.
Cash cash equivalents and investments totaled $12 $7 million as of March 31, 2022, compared to $59 9 million as of March 31, 2021, and $28 6 million as of December 31, 2021.
Cash used in the first quarter of 2022 totaled $15 $9 million compared to $10 7 million used in the same period in the prior year and $13 4 million used in the fourth quarter of 2021.
We expect reductions in cash usage to begin in the second quarter of 2022 until utilization rates increase.
We remain committed to investing in research and development activities, including additional clinical studies to support indication expansion with the F. D. A.
On April 14th 2022, we announced that our board of directors approved a rights offering to purchase up to $15 million of units and on May four 2022, we announced the commencement of this offering.
Each unit consisted of one share of common stock and a warrant to purchase one share of common stock.
Stockholders of record as of the close of market on April 25th 2022 have until five P. M. Eastern time on May 23rd 2022 to exercise their subscription rights.
Subscription price per unit will be equal to the lesser of $3 72 cell the closing price of our common stock on April 13th 2022, or the volume weighted average price of our common stock for the five trading day period through and including the subscription exploration date.
May 23 2022.
Holders, who fully exercise their basic subscription rights will be entitled to subscribe for additional units that are not purchased by other stockholders on a pro rata basis and subject to availability.
If fully subscribed we expect net proceeds from the offering to be approximately $14 $5 million. This excludes additional proceeds of up to $14 $5 million from the exercise of warrants issued in the rights offering now.
Now I'll turn the call back to Darren for final remarks.
Thank you Sandy our commercial strategy is now focused on going deeper with a subset of commercial accounts to establish a blueprint for building viable benign lesion franchises within their practice and then scaling to our other commercial accounts. We believe we have the right team and strategy in place for this program and look forward to updating you on our.
Our progress in the coming quarters.
And with that joining me for Q&A are Kevin Danny Chief Commercial Officer, and Sandy Gardiner Executive Vice President and Chief Financial Officer.
Operator, please open the call for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove your question from the queue for participants using speaker equipment. It may be necessary for you.
To pick up your handset before pressing the star keys, one moment, while we poll for questions. Our first question comes from the line of Chris Cooley with Stephens. You May proceed with your question.
Good afternoon, and thank you for taking my questions I just have two.
Darren maybe maybe if a person darin and Kevin and I realize that.
<unk> was clearly transitional pan and it seems like we have a good number of moving parts as we go into the second quarter as well both operationally.
At the company, but also in terms of kind of the go to market strategy, there with those existing accounts.
That having been said can you plants some goalposts for US just in terms of when we should tentatively assume that you can garner the learnings that you need.
From these core nine accounts.
Accounts, hopefully scaling them from 14 to 40, which it looks like a pretty material ramp.
And then start to.
Transition that more broadly is my first question I've got a follow up after that.
Yeah, sure Hey, Chris Thanks for the question and for joining the call.
Yeah I think.
We are I think the key here is that.
As we came out of the first quarter.
As we mentioned in the prepared remarks.
Just didn't see the acceleration of utilization that we had hoped to see.
And so we made the decision to change commercial leadership change our strategy and we certainly believe strongly that.
Focusing on a small number of accounts.
Working with those accounts to get their utilization to the place that we all think it should be and is there is the right approach and then expanding out from those accounts.
In terms of timing I think.
We don't have guidance on exactly when we think we'll we'll get those clinics up to there.
40 sessions per months months, which is the goal that we've established with those clinics.
But I will say that these are clinics that you.
In our view kind of hit the ground running.
And are really excited.
To be working with us really closely to establish these best practices for how to integrate the cell effects system into the clinic and really drive utilization. So.
I think on our last quarter's call. We said certainly by the end of the year. Our goal was to to have this subset of clinics at that level.
But again, that's you know that's our goal.
And it's one that we will be striving hard for that in terms of guiding to exactly when those clinics will get there I don't think we're in a position to do that.
I'll, let Kevin add a little bit more color to that he as he said he has been out in the field is team has been working closely with these clinics and he can add some color in terms of how we selected these clinics.
Thank you Darren and Chris. Thank you for the question I think most important thing is what we wanted to figure out is what is reproducible and teachable and what we found from the clinics that we picked is that they were giving us clues to success. So what we want to do is just integrate into their practice learned from them find out when these four quadrants that I talk.
About on patient selection and patient journey clinic process integration and the procedure technique and then the patient flow and follow up what are those closed and are they reproducible and teach bow and then how do we.
Push that out to scale and that's what we're really doing right now so we're just forming this unique.
Teammate team.
Philosophy with these clinics and I really just capturing this information over the next several months so that we can push it out to the masses.
I appreciate the additional color and then maybe if I may a sandy just for you appreciate.
The details on the upcoming rights offering in the the expectations for the reduction in the burn from approximately 16 million there in the first quarter, but.
I guess just looking at the math here, if you have approximately $13 million in cash.
A 20% reduction in.
Opex coming coming forward here in the <unk> versus the <unk> levels.
And what I'm, assuming there's going to be a at least a moderation from where we were previously on the topline.
Do you then subsequently need to either have a.
An additional reduction in opex to extend when we think about the cash balances or.
Is that really reflected just in terms of maybe oh.
A more focused sales and marketing activity I guess, you know candidly I'm, just struggling a little bit here as to how.
You push forward on both the regulatory front end in terms of.
Commercial success with.
With that without cash balance just trying to get some clarity there if I can make thank you.
Sure Chris So we don't expect them in additional restructuring at this point in time, we do believe that the cash balance that we have and I think he really hits the nail on the head. It is the focused sales.
Sales and marketing effort as we are focusing with these nine clinics. It really is a you know a focused effort here as we go forward and everything.
Across the company with the exception of the indication expansion is really about the utilization. So you know as Ive mentioned on previous calls our cash balance.
Balance was to.
Basically get us through the end of the second quarter and the rights offering will conclude at the end of May. So the subscription period ends may 23rd then we'll continue from there and as I mentioned, we do expect net proceeds to be in 2014 approximately $14 five.
And then that doesn't include an additional $14 $5 million that could.
Could come if fully subscribed from the warrants are later in the summer early fall.
Understood. Thank you for the additional color Sandy.
I'll get back in queue.
Chris.
Our next question comes from the line of Slumber cooler Rama Khan with H C. Wainwright you May proceed with your question.
Thank you this is RK.
Good afternoon, Sandy and Jonathan.
Okay.
Hum.
Can you tell us like permanent units are now.
I mean are there any units left within that the initial launch period.
All of them.
Sure.
Aspect of onto their.
Oh goodness of the launch.
Yeah. Thanks, RK. So there as we talked about there are 42 commercial clinics today and there are 20 clinics that are still in the controlled launch program.
Okay.
You know Ken.
Kevin was saying something about how she wants to kind of progress using this fourth quadrant.
I'm just trying to understand.
You know how much time do you really need to.
To kind of do all of those analytics.
Hum and make it work.
<unk>.
Because it.
It looks like Communist Adsense for you guys right now.
How are you how are you thinking through this process.
You can try to Ram.
Ramp as quickly as you can.
40.
Hmm.
The equalization getting up to the reported clicks.
Yeah.
Good question RK, what I can tell you is it's.
It's an all hands on deck effort at the company. So we're highly focused on driving this program and driving that utilization I think we realized that we were.
Too wide and not deep enough and so now we're really focusing as we mentioned on this subset of today nine clinics.
So what I can tell you is we're.
Has extremely high focus and attention on those clinics, we're working closely with them.
Across those four quadrants that Kevin talked about what I cant tell you exactly when we'll be able to get them all up to the goal of 40 sessions per month, but I can assure you that.
We're working diligently to get that done and.
And we will continue to provide updates on our progress in and Kevin and his team are in the field every day working on it so.
I think without providing.
Timelines on when that will happen, we will continue to provide updates as we make progress.
So.
When you say.
There is some utilization data 14 at this point is that among these nine clinics, we're talking about or is this a CRO yeah. That's correct yes.
And commercially.
No that's that those nine clinics and that is sort of average monthly utilization in the first quarter. So.
If you average the three quarters.
They were at 14 sessions per month, and our goal again is to get them to afford them.
Okay.
Alright.
Thank you thanks for taking my questions you bet. Thanks RK.
Our next question comes from the line of Anthony Vendetti with Maxim Group You May proceed with your question.
Hi, Good afternoon. This is actually Jeremy on the line for Anthony How're you doing.
Jeremy.
So just just I wonder if the numbers that you provided for the number of clinics that have opted to switch to commercial and and how many are remaining is that you said that's out of as on the press release that as of quarter end, but is that does that also has stayed the same to date or you know theres been this we're almost halfway through the second quarter have those numbers changed a little bit at all.
Well, we're actually Oh and providing the information is as of the end of the quarter. So we're working through this quarter and we'll have that update and in August for any additional clinics that have converted <unk> purchased during the second quarter.
Okay Alright. Thank you and then so just because you also I know I think you've talked about you might have touched on the on the prior call you remind us some of the reasons why the 11 clinics have opted not to adopt the cell effects system and then just as a tag along once you have your blueprint, which is this is there an opportunity to go back to those clinics, who have not opted out and trying to do.
Presented again showing that this would be the best practices.
Yeah, that's a good question Jeremy so.
At 11, I think its a variety of reasons.
First and foremost the controlled launch program was a program that required.
A lot of work and a commitment from the clinic and so.
In order to basically.
<unk> the cell effects.
System, a lot of learnings that were required we ask them for a lot of data and I think some of the clinics.
We initially targeted and enrolled in the controlled launch program as they got involved with it just realize that the workload that was required.
To work with us to integrate this new technology was just something that they weren't prepared for them whether it was timing.
Or just their staffing requirements and so a number of clinics opted out simply because they just were not ready to take on the task of the controlled launch program and what's required to kind of integrate a new technology like this into the clinic and I, certainly think that a number of those clinics as well.
So we work through this process and we really streamline what it's going to take to integrate the system into the clinic I think many of those clinics will come back I would say you know the other bucket.
Of clinics that opted out.
Does that perhaps had a mix of maybe higher cosmetic patients and what we have found as we've worked through the controlled launch program is that you know the optimal clinics are really fall into the bucket of having a mix a kind of a good mix of both cosmetic.
And medical patients.
So I think in some situations clinics just didn't feel like.
Given the indications that we have today that it was going to be a good fit for their clinic.
Okay, Let's now that information is really helpful. I'll hop back in the queue. Thanks.
Thanks, Jeremy.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Darren you go for closing remarks.
Thank you operator, and thank you everybody for joining the call today and for the great questions. We appreciate your time and attention and support and we look forward to future updates. Thank you.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation or the rest of your day.
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