Pulse Biosciences, Inc

Greetings and welcome to Pulse Bioscience's third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should 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 your presentation.

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 view as of today, November 15th, 2021 only, and will include forward-looking statements and opinion statements, including predictions, estimates, plans, expectations, and other information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission. Our SEC filings can be found on our website or on the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. We will also discuss certain non-GAAP financial measures. Disclosures regarding these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures, can be found in the press release. Please note that this conference call will be available for audio replay on our website at pulsebiosciences.com 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, Darren Uecker.

Hello, and thank you all for joining us this afternoon. 2021 has proven to be a transformational year for Pulse Biosciences, as highlighted by our first recognized revenue in the third quarter. On today's call, we'll be discussing some of our recent accomplishments and plans to drive growth as we expand cell effect system commercial efforts. I will also touch on our clinical and regulatory pipeline. Then Ed will provide details from the field on the controlled launch program and the planned ramp up of commercial activities. Sandy will then share details around our financial results, and then I will conclude and open up the call for Q&A. Our product, the CellFX system with CellFX CloudConnect, is a multi-application platform for the delivery of our novel and proprietary nanofulse stimulation, or NPS, technology. The pulsed electrical energy delivered by our CellFX system directly impacts cellular structures, leading to the clearance of cells while sparing non-cellular structures, such as collagen. The differentiated non-thermal modality has been shown to clear benign skin lesions with a more favorable healing profile and aesthetic outcome than the thermal modalities currently used in dermatology practices today. In the third quarter, 12 dermatology practices that were participating in our controlled launch program opted to purchase their CellFX system and order initial cycle units to begin performing CellFX procedures commercially. The unique features and benefits of the CellFX system are enabling these clinics to launch a new category in dermatology, the treatment of benign skin lesions. These industry leaders took the time to learn and experience the unique features and benefits of the CellFX system and have determined that offering this unique procedure to clear common spots, bumps, and growths in a fashion that is not only acceptable but aesthetically pleasing for patients will meaningfully enhance the offerings at their practice. Previously, dermatologists were hesitant to address these lesions with currently available thermal modalities because either they were concerned about not being able to adequately clear the lesion or about the resulting aesthetic skin appearance. The benign lesion market is readily accessible by dermatologists as these patients are typically already visiting their practices for other treatments, but it remains largely untapped due to the lack of an adequate solution. CellFX procedure is unlocking what we believe is a currently addressable $3 billion market which contemplates cell effects procedures on a few benign lesions, sebaceous hyperplasia, seborrheic keratosis, and non-genital warts. Based on patients' perceived value of these treatments and the time required for dermatologists to perform them, which is roughly 15 minutes, this category is positioned to be one of the strongest revenue and profit-generating service lines in their practice. To simplify the economics for the clinic and the patient, we have created an innovative utilization-based model. Facilitated by the CellFX Cloud Connect infrastructure, CellFX consoles download purchased cycle units via our e-commerce store to power the use of the CellFX system in each treatment. Each lesion treated requires the use of cycle units. The number of cycle units used per lesion generally depends on the size and type of the lesion being treated. By offering cycle units rather than charging a fixed price for consumable procedure-based accessories, Physicians can charge patients on a per-lesion basis, which is how patients prefer to pay and also directly aligns with the clinic costs. We believe this model will facilitate utilization and remove obstacles that can occur with traditional medical device consumable-based business models. As we begin to grow our commercial installed base through controlled large participant conversions and commercial sales, cycle units will represent the key recurring revenue stream associated with each cell effect system. Q3 marked the first cycle unit purchases by clinics converting to commercial use of their CellFX system. In the long term, we expect utilization of the CellFX system to increase along with clinician experience as they become more comfortable with the procedure and new applications are introduced. As a reminder, CellFX Cloud Connect is not only the backbone of our business model. It offers clinics an array of services and practice management tools to track utilization data and other metrics. Having the software connected to our internal customer relationship management system and enterprise resource planning system provides us and the clinics with crucial insights into the productivity and profitability of the CellFx system. Turning back to the commercial launch, we are now in the final phase of onboarding remaining clinics that have been selected to participate in the controlled launch program. We started the program in Q1 and to date have successfully onboarded 68 clinics across the U.S., Canada, and the EU. Due to administrative delays in a couple European countries, we believe we will onboard the remaining clinics in Q4, taking the total number of clinic participants to approximately 75. At this point, the initial controlled launch clinics are actively completing program requirements and converting to commercial use by opting to acquire their CellFX system. We expect many of the controlled launch clinics to be through the program by the end of the fourth quarter, and the remainder will complete in Q1 of 2022. While we anticipate a high percentage of the controlled launch participants will convert to commercial use, we have had a few clinics opt out of the program due primarily to the resource commitment required to participate in the program. Generally speaking, those that have opted out have done so early in the controlled launch process, while those that follow through to the end of the program have been converting. This was anticipated and we believe bodes well for future conversions. In addition to continued control launch conversions, we also anticipate initial commercial sales of the CellFX system in Q4, marking our transition from the control launch to our broad commercial launch as we enter 2022. The leading aesthetic dermatology clinics and key opinion leaders who have participated in the program and have opted to purchase have provided very positive feedback, and the deep relationships we have built with these key opinion leaders will form our foundation for growth as we expand our commercial efforts. An important development coming out of the controlled launch program is the physician's understanding of the cell effect system and its underlying mechanism of action. Through hands-on experience with the cell effect system and observations of the treatment and healing process, physicians are beginning to identify new applications to address additional unmet needs. We expected use of the cell effect system would naturally facilitate uncovering new opportunities to treat benign lesions and are pleased to see this is playing out as anticipated. One example of a new lesion of interest emerging from the controlled launch utilization is the treatment of dermatofibroma. Dermatofibroma are small, benign lesions typically found on the extremities, especially the lower legs. These persistent and sometimes painful growths are fairly common, with dermatologists reporting seeing as many as 30 patients presenting with them per week. However, the current treatment rate is low, due primarily to the lack of available treatments. Current standard of care, surgical excision, is used infrequently because it typically results in undesirable scarring. There are currently no energy-based devices that are regularly used to treat dermatofibroma, and for this reason, we believe this could potentially be a large market opportunity and a viable cell effects procedure performed with the current available treatment tips. That brings us to our current clinical work. The advancement of specific indications in dermatology for our cell effect system in the U.S. is a top priority for pulse biosciences. As we have stated previously, we have implemented a stepwise regulatory strategy in the U.S. under which we are pursuing specific indications for high-value applications. The first specific indication we are seeking regulatory clearance for is the treatment of sebaceous hyperplasia. We completed the FDA-approved IDE study for the treatment of sebaceous hyperplasia in earlier in the year and recently finalized all of the necessary analysis. We are pleased to report that the 510 will be submitted this week to FDA. A second specific indication we are targeting is for cutaneous non-genital wards. In the third quarter, we completed enrollment of our 150-patient FDA IDE-approved pivotal comparison study. After the appropriate follow-up visits are completed, which should occur in early Q1 2022, The data will be analyzed, and we are anticipating a 510 case submission in the first half of 2022. We will continue to pursue additional benign lesion clearances to grow the cell effect systems application portfolio where it makes the most sense for dermatologists. The early data sets for syringoma and nevi, or common moles, are promising. We will provide updates on the progress with these lesions as we approach pivotal clinical trials. Outside of our benign lesion pipeline, we have completed enrollment of all 30 patients in our FDA IDEA approved treat and resect basal cell carcinoma BCC feasibility study. We believe that NPS technology in the CellFX system can be used to treat smaller BCC lesions with improved outcomes in cosmetically sensitive areas, such as on the face. Because BCC is the most frequently occurring form of cancer in the U.S., and the current treatment of BCC is wide margin surgical excision, which typically results in undesirable cosmesis, it is a very attractive market opportunity. In accordance with the BCC study protocol, we expect to complete the excisions of the treated BCC lesions by the end of this year, with analysis of the tissue by the study pathologist taking place in the first quarter of 2022. In addition, we plan to meet with the FDA in the first half of 2022 to discuss the details of a potential pivotal study for a specific indication to treat BCC lesions with the CellFX system. At this time, it's difficult to estimate what FDA may require for a pivotal study, and therefore the timeline for an FDA submission is also difficult to estimate. However, we remain encouraged by the potential of this opportunity for the CellFX system. Our pipeline philosophy is to target the most prevalent and compelling conditions to realize the true potential of the CellFX platform and maximize the value of NPS technology. Though there is clinical and regulatory work to be done before we can commercially launch additional applications, we believe it is beneficial to our physicians and patients to invest our resources where there is the greatest potential in improving their lives. On the global regulatory front, we are pleased to report that we have recently received approval to market and sell the CellFX system in Australia. This represents another validation of the safety of the CellFX system from regulators. This is the first country in the Asia Pacific region that we have received approval to ship and marks the beginning of our Asia Pacific commercialization. At this time, we expect our first shipment to Australia in early 2022 as we begin working with the top KOLs in that country. This is the first step to entering this territory. And although we do not anticipate significant shipments to this region in 2022, it will set a foundation for expansion in 2023. As we have mentioned previously, We continue to invest in investigational areas outside of dermatology. Early successful research initiatives have created tangible opportunities. And for that reason, we are pleased to have Mitch Levinson join the company as Chief Strategy Officer, in addition to serving on the board, which he has done for several years. Mitch has over 30 years of experience developing and launching novel medical device technologies across multiple medical disciplines. including dermatology, wound care, surgery, diagnostics, patient monitoring, and digital health. Mitch's experience in medical devices and with Pulse Biosciences and his expertise bringing new technologies to market make him uniquely qualified to be leading our efforts to expand the applications of the CellFX system and NPS outside of dermatology. As evidence of our early research success, Preclinical data was recently presented on the use of the NPS technology platform in the field of gastroenterology by Dr. Robert Ganz at the annual meeting of the American Foregut Society. The presentation titled, Manifold Stimulation Technology is a Promising New Energy Modality for Barrett's Esophagus, was extremely well received by this group of physicians. Dr. Ganz is a key opinion leader in this field and one of the foremost experts on the treatment of Barrett's esophagus using ablative technologies. Barrett's esophagus is a complication of gastroesophageal reflux disease, or GERD, faced by approximately 10% of people with chronic GERD symptoms, in which the tissue lining the esophagus becomes dysplastic, or precancerous, as a result of the damage caused by the chronic acid reflux. the dysplastic cells are associated with an increased risk of esophageal cancer, and for that reason are typically removed or destroyed using thermal energy modalities. The porcine study presented by Dr. Gans demonstrated that the cell effect system using our novel and proprietary esophageal applicator can remove the esophageal epithelium and submucosal glands without causing significant fibrosis or evidence of stricture, suggesting that NPS may provide unique safety and efficacy benefits. for the treatment of Barrett's esophagus over currently used thermal ablative technologies that can sometimes lead to adverse outcomes such as esophageal stricture, scarring, pain, and retreatment. Importantly, this evidence also demonstrates that the proven mechanism of action of NPS in skin can be applicable to other tissues of similar architecture, such as in the esophagus. This early pre-clinical work represents one new potential application area for the CellFX platform and NPS technology outside of dermatology. And while we believe there are exciting potential applications across many medical specialties for the CellFX platform, we remain committed and focused on execution of our commercial launch in dermatology. Going forward, we will continue to be disciplined with our pipeline strategy to prioritize R&D efforts based on comprehensive consideration of factors like the most important clinical needs for patients, and commercial opportunities. As plans and developments materialize, we will share our progress. Overall, we have made excellent progress across the business in 2021. In the third quarter, we continue to execute our strategic initiatives. Now I will let Ed provide a more detailed update on the CellFX system launch.