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spk00: Greetings and welcome to Pulse Bioscience's 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. 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.
spk06: 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 11th, 2022 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 on our Investor Relations page. With that, I would now like to turn the call over to President and Chief Executive Officer Darren Uecker.
spk01: 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 recent commercial activity. Then 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 CELFx system to ensure 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 new 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 headcount 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 effect 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 and their own experiences with treatments. In exchange for this valuable data, they earn credits towards the purchase of their system. As we shared on our last call, at the end of the first quarter, 39 clinics have converted to commercial use and 20 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 CellFX system outside of the controlled launch program, we ended Q1 with 42 commercial CellFX 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 and lesion selection, treatment protocols, and an understanding of the task of integrating the cell effect system into the clinic workflow across the continuum of clinic types, from cosmetically focused to 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 CellFX treatments. Though we view these learnings as positive indicators for the potential of the CellFX business for both clinics and Pulse Biosciences, we have also learned that the integration of the CellFX procedure into the busy dermatology clinic workflow requires a much higher touch model to generate the system utilization we expect. And while we generated increasing average commercial clinic utilization throughout Q1, as shown in the graph included in today's press release, NR10Q, we are not satisfied with the rate that the utilization increased or the inconsistent trajectory. And this has led to our change in commercial leadership and strategy. It is now our priority to address this and to drive more consistent and accelerating commercial utilization of cell effect systems. We are doing this by initially partnering with nine of our commercial clinics across the US, EU, and Canada to collaborate on developing commercial best practices that will demonstrate the clinical and economic value of a cell effect system completely integrated in a dermatology practice. During the month of April, Kevin and his team visited 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 we'll 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 effect system's 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 cleared specific lesions, in addition to our current capability to do so 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 510 to the FDA in the fourth quarter, we received an additional information request letter, also known as an AI letter, from the FDA. In the AI letter, the FDA stated it did 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 SH IDE study. Recently, 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 SH comparative clinical data. A follow-on discussion is being scheduled with the FDA to review the additional data sets. We expect to continue our collaboration with FDA during this 510K review process and to formally respond to the AI letter. Again, I would like to remind you that this current 510K submission is meant to add a specific indication for spacious hyperplasia to our current general indication and has no impact on the existing 510K clearance for the cell effect system. In the third quarter, 2021, we completed enrollment of our 150-patient FDA IDE-approved pivotal comparison study for the clearance of non-genital warts. This data will support the second specific indication we are planning to submit. We are currently finalizing the 510 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 and 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 FDA. This will include a meeting with FDA to discuss potential pivotal study for a specific indication to treat BCC lesions with the CellFX 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 CellFX system's 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 MPS 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 in happy to report, the cell effect system was well represented in the scientific program with an oral presentation and poster. In the oral presentation, Dr. Suzanne Kilmer discussed long-term NPS data on the clearance of sebaceous hyperplasia, showing high levels of lesions maintained or improved clearance and good cosmesis 12 months after treatment. Another poster presentation by Dr. Mary Elgash demonstrated the first case of HPV-related dermatosis on the lips. completely cleared by NPS. Both presentations drew strong engagement with clinicians who were eager to learn about the cell effect system and NPS technology. This week at the annual Symposium for Cosmetic Advances and Laser Education, Dr. George Ferruzza, 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 MCAS, which will take place in Paris. Now, I will turn the call over to Kevin.
spk03: Thank you, Darren. I'm excited to share my initial experience with clinicians and their practices. I have spent the past four weeks This early experience, seeing firsthand the large and exciting opportunity that lies ahead, has only validated and strengthened the reasons why I joined Pulse Biosciences. Clinicians share our vision around cell effects procedures and its potential. My top takeaways are twofold. First, that benign lesion market is a priority. and implement the changes required for optimal integration of the cell effects procedures into their clinics. I am confident that given these circumstances, the proper effort and investments, we can capitalize on clinical and commercial success. My early observations around potential observations hard for them to achieve routine utilization. At each of our partner clinics, we are analyzing each of these components through a framework that determines We will identify what works best from each clinic, and then we will help determine the necessary changes, observe their impact, and refine to optimize. With a set of best practices for each category and clinic type, we can begin to suggest more customized best practices at scale. Based on the shared conviction in the Cell Effect system, 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 what Pulse has always set out to do, which is develop the formula for success that can be passed on to the next wave of CellFX customers. Our focus in the near term will be to go deeper into these key accounts and clinics. While we continue to improve the quality of our I will now turn the call over to Sandy for the financial results.
spk07: Thank you, Kevin. Hello, everyone. On March 31, 2022, we announced and implemented a restructuring plan to reduce our operating expenses, preserve financial resources, and focus sales and marketing efforts on increasing utilization of the Cellifex system. Our board of directors approved changes to commercial leadership restructuring of the 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 $750,000 related to this restructuring in our financial statement as of March 31, 2022. For the first quarter of 2022, revenue was $444,000. System revenue was $367,000, and revenue related to cycle units was $77,000. Approximately $300,000 of total revenue was recognized on a non-cash basis driven by the conversion of 10 controlled launch participants opting to purchase their Cellisex system following completion of the program. Revenue in North America was $312,000, 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. The year-over-year increase in costs and expenses was primarily driven by the expansion of commercial and operational infrastructure, including increased headcount to support commercialization activities. Non-GAAP cost of revenues was approximately $795,000 for the three-month period ended March 31, 2022. 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 uncapitalized manufacturing operation costs were recorded in research and development expense. Non-GAAP research and development expenses increased by approximately $270,000 from a year ago to $6.1 million for the three-month period ended March 31, 2022. Research and development expenses in the first quarter of 2022 include approximately $125,000 of 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-month 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 $550,000 of restructuring-related charges and $300,000 of non-cash expenses related to our controlled launch program. Non-GAAP general and administrative expenses increased by approximately $164,000 to $3.2 million for the three-month period ended March 31, 2022. General and administrative expenses in the first quarter of 2022 include approximately $50,000 of restructuring-related charges. Non-GAAP net loss for the first quarter of 2022 was $14.2 million compared to a non-GAAP net loss of $11.4 million for the first quarter of 2021. As our restructuring plan was announced and effective on March 31, 2022, Headcount and expense reductions are not yet reflected in the activity for the first quarter of 2022. Operating expense reduction programs are expected to lower expenses by approximately 20% from the first quarter rent rate, resulting in full-year 2022 operating expenses similar to 2021 levels. As a result of our commercial team's near-term focus to increase utilization at our commercial clinics, 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 total $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 FDA. 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 4th, 2022, we announced the commencement of this offering. Each unit consists 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 25, 2022, have until 5 p.m. Eastern Time on May 23, 2022, to exercise their subscription rights. The subscription price per unit will be equal to the lesser of $3.72 per 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 expiration date of May 23rd, 2022. Stockholders 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 I will turn the call back to Darren for final remarks.
spk01: 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 progress in the coming quarters. And with that, joining me for Q&A are Kevin Danahy, Chief Commercial Officer, and Sandy Gardner, Executive Vice President and Chief Financial Officer. Operator, please open the call for questions.
spk00: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 Stevens. You may proceed with your question.
spk04: Good afternoon and thank you for taking my questions. I just have two. Maybe first for Darren and Kevin. I realize that the 1Q is clearly transitional 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 plant some goal posts for us just in terms of when we should tentatively assume that you can garner the learnings that you need from these Core 9 accounts, hopefully scaling them from 14 to 40, which 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.
spk01: Yeah, sure. Hey, Chris, thanks for the question and for joining the call. Yeah, I think the key here is that as we came out of the first quarter, as we mentioned in the prepared remarks, we just didn't see the acceleration of utilization that we 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, really working with those accounts to get their utilization to the place that we all think it should be 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 get those clinics up to their you know, 40 sessions per month, which is the goal that we've established with those clinics. But I will say that, you know, these are clinics that, you know, in our view, kind of hit the ground running and are really excited, you know, to be working with us really closely to establish these best practices for how to integrate the cell effect system into the clinic and really drive utilization. You know, I think on our last quarter's call, we said, you know, certainly by the end of the year, you know, our goal was to have this subset of clinics at that level. But again, that's, you know, that's a goal, and it's one that we'll be striving hard for. But in terms of guiding to, you know, to exactly when those clinics will get there, you know, I don't think we're in a position to do that. I'll let Kevin add a little bit more color to that. As he said, he's been out in the field. His team has been working closely with these clinics, and he can add some color in terms of how he selected these clinics.
spk03: Yeah, thank you, Darren. And Chris, thank you for the question. I think the most important thing is what we want 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 the clues to success. So what we want to do is just integrate into their practice learn from them, find out in these four quadrants that I talked about on patient selection and patient journey, clinic process integration, the procedure technique, and then the patient flow and follow-up, what are those clues and are they reproducible and teachable, 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 team framework philosophy with these clinics and really just capturing this information over the next several months so that we can push it out to the masses.
spk04: Appreciate the additional color. And then maybe if I may, Sandy, just for you, appreciate the details on the upcoming rights offering and 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 forward here in the 2Q versus the 1Q levels, and what I'm assuming is going to be at least a moderation from where we were previously on the top line, 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 a more focused sales and marketing activity? I guess, candidly, I'm just struggling a little bit here as to how you push forward on both the regulatory front and in terms of commercial success with OPEX. with that cash balance? Just trying to get some clarity there, if I may. Thank you.
spk07: Sure, Chris. So we don't expect an additional restructuring at this point in time. We do believe that the cash balance that we have, and I think you really hit the nail on the head, it is the focused sales and marketing effort. As we're focusing with these nine clinics, It really is 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. As I've mentioned on previous calls, our cash 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 approximately $14.5 million, and then that doesn't include an additional $14.5 million million dollars that could come if fully subscribed from the warrants later in the summer, early fall.
spk04: Understood. Thank you for that additional call, Sandy. I'll get back into you. Thanks, Chris.
spk00: Our next question comes from the line of Swayampakula Ramakhan with HC Wainwright. You may proceed with your question.
spk02: Thank you. This is RK. Um, good afternoon, Sandy. Um, can you tell us like how many units are now? Um, I mean, are there any units left within that initial launch period or, or all of them in the, in the, in the commercial, um, aspect of, of, to their, um, uh, of the initial, of the launch?
spk01: Yeah. Uh, thanks for our case. So there, um, as we talked about, uh, there are 42 commercial clinics today and there are 20 clinics that are still in the controlled launch program.
spk02: Okay. Um, then, you know, um, Kevin was saying something about how he wants to kind of progress using this four quadrant. Um, I'm just trying to understand, um, you know, how much time do you really need, you know, to kind of do all those analytics, um, and make it work? Um, because, you know, it looks like time is the essence for you guys right now. Um, how are you, how are you thinking through this process so that you can try to ramp, um, ramp as quickly as you can, you know, to the, to the 40, uh, um, to the equalization getting up to the 40 clicks?
spk01: Yeah, good question, RK. What I can tell you is, you know, it's an all hands on deck effort at the company. So, you know, we're highly focused on driving this program and driving that utilization. I think, you know, we realized that we were, you know, probably too wide and not deep enough. And so now we're really focusing, as we mentioned on, this subset of today nine clinics. What I can tell you is we have extremely high focus and attention on those clinics. We're working closely with them across those four quadrants that Kevin talked about. What I can't tell you is exactly when we'll be able to get them all up to the goal of 40 sessions per month. I can assure you that we're working diligently to get that done. And we'll continue to provide updates on our progress. And Kevin and his team are in the field every day working on it. So I think without providing exact timelines on when that will happen, we'll continue to provide updates as we make progress.
spk02: So when you say there's an utilization rate of 14 at this point, is that among these nine clinics we are talking about, or is this across all the clinics that are outdated commercially?
spk01: No, that's 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 40. Okay.
spk02: All right. Thank you. Thanks for taking my questions.
spk01: Yeah, you bet. Thanks, RK.
spk00: Our next question comes from the line of Anthony Vendetti with Maxim Group. You may proceed with your question.
spk05: Hi, good afternoon. This is actually Jeremy on the line for Anthony. How are you doing?
spk01: Hey, Jeremy.
spk05: So just I wonder, the numbers that you provided for the number of clinics that have opted to switch to commercial and and how many are remaining. You said on the press release it's as of quarter end, but does that also stay the same to date? We're almost halfway through the second quarter. Have those numbers changed a little bit at all?
spk07: We're actually only providing the information as of the end of the quarter. We're working through this quarter and we'll have that update in August for any additional clinics that have converted and or purchased through the second quarter.
spk05: Okay. All right. Thank you. And then, so just, could you also, I know, I think you've talked about, you might have touched on the prior call. Can you remind us some of the reasons why the 11 clinics have opted not to adopt the cell effect system? And then just as a tag along, once you have your blueprint, is this, is there an opportunity to go back to those clinics who have not opted out and try and, you know, present it again, showing them this would be the best practices?
spk01: Yeah, that's a good question, Jeremy. The 11, I think it's a variety of reasons. I think first and foremost, the Controlled Launch Program was a program that required a lot of work and commitment from the clinic. In order to basically take in the CellFX system, a lot of learnings that were required, we asked them for a lot of data. I think some of the clinics that we initially targeted and enrolled in the control launch program, as they got involved with it, just realized that the workload that was required to work with us and to integrate this new technology was just something that they weren't prepared for, whether it was timing or just their staffing requirements. 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 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 the other bucket of clinics that opted out were those that perhaps had a mix 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 really fall into the bucket of having a mix, kind of a good mix of both cosmetic and medical patients. And 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 clinics.
spk05: Okay. That information is really helpful. I'll hop back in the queue. Thanks.
spk01: Thanks, Jeremy.
spk00: 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 Uker for closing remarks.
spk01: 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.
spk00: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.
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