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spk03: Greetings and welcome to Pulse Bioscience third 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 the conference over to your host, Philip Taylor. Thank you. You may begin.
spk02: 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, November 10, 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 gap 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 Kevin Danahy.
spk01: Thank you, Tripp. Good afternoon, everyone, and thank you for joining us. On today's call, I will discuss our refreshed vision for the company, including our strategic shift in focus to advance our core MPS technology controlled by the CellFX system in specific sectors of healthcare. I will also highlight the recent changes we made to the organization to support this new strategic direction. And I will turn the call over to our new Chief Technical Officer, Darren Uecker, to discuss our product initiatives. Then Sandy will cover the financial results and we will open the call to questions. To start, I am very excited to lead the company through this next exciting chapter. In present time, the vast majority of our focus is centered on evaluating opportunities in cardiac healthcare where we are confident we can create significant value with our nanopulse field technology. Pulse Bioscience is positioned to make this decisive strategic shift. The preclinical work that we have already completed provides mounting evidence MPS, driven by our novel proprietary Celefex system, can be safe and effective in cardiac tissue ablation. We made the decision to move forward with the use of MPS, controlled by Celefex, in cardiac tissue ablation for the treatment for atrial fibrillation as our lead application. Atrial fibrillation, or AF, is a type of arrhythmia or irregular heartbeat caused by faulty electrical signals in the heart. AF is a highly prevalent condition and is growing significantly with an aging population. It is estimated that 35 million people worldwide are affected by AF. The treatment of AF is performed in hospitals in both the in- and outpatient procedures. Treatment requires the precise and safe ablation of heart tissue to block or otherwise prevent these faulty electrical signals from causing the irregular heartbeat. We believe MPS controlled by CellFX is suited to perform an integral role for this application. Darren will provide more detail on the novel and proprietary mechanism of MPS and why we believe the application of MPS controlled by CellFX in AF can result in a highly differentiated solution of significant value to patients, physicians, cardiac centers, and pulse bioscience stakeholders. As an update on dermatology, we have taken steps to significantly reduce our footprint by reducing the related sales, marketing, and support staff. Now, I'd like to turn it over to Darren.
spk04: Thank you, Kevin. As Chief Technology Officer, I look forward to leading the product development and technology advancement of NPS technology in our cell effects system, and I'm excited to be working closely with our Chief Strategy Officer, Mitch Levinson, to move our NPS technologies into new application areas. At Pulse Biosciences, we have developed a novel and proprietary tissue treatment platform based on nanopulse stimulation, or NPS. where ultra-fast electrical energy pulses with nanosecond pulse durations from billionths up to a millionth of a second are used to stimulate cellular effects that can lead to positive therapeutic outcomes. NPS is broadly considered a pulse field technology, but the use of nanosecond duration pulses leads to a highly differentiated cellular mechanism of action that can be applied to a number of important clinical applications. A nanosecond pulse is an incredibly fast pulse. To give a sense of the scale, a nanosecond is to a second what a second is to 31.7 years. It's an incredibly short amount of time. We have demonstrated that when these incredibly fast energy pulses are applied to cells, they penetrate the cell and disrupt the function of the internal organelles of the cell by creating small holes in the organelle membranes, known as poration. These organelles include the mitochondria, which is the cell's power plant, and the endoplasmic reticulum. which plays an important role in protein synthesis. When the function of these organelles is disrupted, cell goes through a natural regulated cell death process. This ability to get inside the cell with a non-toxic application of electrical energy while preserving the integrity of the outer cell membrane to initiate regulated cell death is a cornerstone of NPS. The regulated cell death process leads to a more natural healing response as the body's immune system is accustomed to dealing with cell death through this natural and regulated mechanism, as opposed to sudden necrotic cell death caused by other energy-based therapies, which can lead to a significant inflammatory response that slows the return to normal tissue function. We believe it is this ability to initiate regulated cell death through the temporary formation of pores in intracellular organelle membranes that importantly differentiates NPS from other energy-based therapies. such as irreversible electroporation and radiofrequency ablation. Another important and unique feature of NPS is the lack of impact it has on acellular structures, such as the extracellular tissue that provides the tissue architecture to promote healing. While thermal energy modalities will destroy all tissue indiscriminately, NPS has a selective mechanism that impacts cells but leaves the structure, which typically is made of collagen, intact, allowing the tissue to heal in a more natural way. NPS also has been shown to spare nerve fibers, or those parts of the nerve that carry electrical impulses, and blood vessel architecture in tissue. Another significant benefit when the therapeutic intent is to clear unwanted cells and promote healing and a return to normal tissue function. This novel mechanism of action has been demonstrated in human clinical and preclinical studies across a large number of organs and tissue types, and evidence supporting this has been published in a number of peer-reviewed publications. Some of these can be found on our website. The CellFX system is our commercial NPS delivery platform. We designed this system with the goal of being able to apply it to a defined set of potential therapeutic applications. The CellFX system is FDA cleared, has the CE mark, and Canadian approval for use in dermatology. Over 6,000 patients have been treated in dermatology to date with the CellFX system, demonstrating benign skin lesions can be safely cleared and result in superior cosmesis when compared to thermal modalities. We've learned a great deal from our experience in dermatology. First and foremost, that our cell effect system is indeed a platform that can deliver NPS-based therapies safely and effectively in multiple skin locations, from the head to the feet. We have validated this novel mechanism of action, the ability to non-thermally destroy unwanted cells, in this case, unwanted benign lesions such as common moles, while sparing the acellular dermal tissue, leading to a healing response that returns the skin to its normal appearance. These learnings and the histologic and clinical data we've generated in skin provide a foundation we will leverage going forward. The standard of care in cardiac tissue ablation for the treatment of AF today is the use of thermal ablation modalities, primarily the use of radiofrequency ablation. While thermal modalities have been in use for this application for many years, the efficacy remains disappointing. This is largely due to the safety concerns regarding collateral thermal damage to surrounding tissue, vessels, and nerves. This safety concern leads to undertreatment, treatment failures, and less than satisfactory efficacy for physicians and patients. We believe that our NPS technology can potentially overcome these issues because it will enable physicians to treat more thoroughly with less liability for collateral damage that thermal modalities have. Based on our preclinical data and unique applicator designs, we believe NPS, powered by the CellFX system, has the potential to provide a faster, more precise, and safer treatment than the standard of care. Although it's early in the development cycle, in recent years, others have been pursuing cardiac ablation with alternative pulsed field technologies. These technologies, generally referred to as irreversible electroporation, or IRE, are use pulse durations that are orders of magnitude longer than NPS, generally from 100 to 1,000 times longer, and rely on a mechanism of action for cell death that destroys the outer cell membrane, resulting in acute cellular necrosis and significant post-treatment inflammation. And in some cases, IRE systems have been shown to have a thermal damage component as well. We believe our cell effect system can offer significant advantages over these longer pulse width IRE systems in terms of the safety and efficacy profile, but also in terms of the procedure itself, where IRE can cause large muscle contraction of the patient during treatment and unanticipated cardiac rhythm events. We do not believe these issues will exist with NPS. Today, we are developing an NPS-enabled catheter approach to treating AF performed by electrophysiologists and an NPS-enabled surgical approach performed by cardiac surgeons. We believe NPS can support a significantly differentiated solution in both of these important AF therapeutic approaches and are working closely with top KOLs in both areas. We have encouraging early preclinical data using novel proprietary devices designed by our team and others and being used with the CellFX platform. These data give us confidence that NPS powered by our CellFX system can enable not only a potentially more efficacious and safe procedure, but one that can be faster and simpler to perform than the current standard of care. We look forward to providing updates on our progress in this area as we reach important milestones. Now, I'll turn the call over to Sandy for an update on our financial results.
spk00: Thank you, Darren. Given our shift in focus to advance NPS technology outside dermatology, there was no revenue recognized in the third quarter of 2022. Moving down the income statement, I'll focus my comments on our non-GAAP results. I encourage you to review today's earnings release for a detailed reconciliation of non-GAAP measures to the most comparable GAAP measures. For the third quarter of 2022, non-GAAP costs and expenses representing cost of revenues, research and development, sales and marketing, and general administrative expenses were $16.8 million compared to $13 million for the prior year period and $12.2 million for the prior quarter. Non-GAAP cost of revenues was approximately $8.3 million for the three-month period ended September 30, 2022. This includes a $7.2 million inventory reserve for excess and obsolete inventory as it relates to the dermatology business. Non-GAAP research and development expenses decreased by approximately $1.9 million from a year ago to $4.1 million for the three-month period ended September 30, 2022, primarily as a result of headcount and expense reductions as part of our restructuring plan. In addition to decreases in compensation and other employee-related expenses, reductions were also achieved in paid services, sponsored research, and clinical site fees and costs. Non-GAAP sales and marketing expenses decreased by approximately $1.4 million from a year ago to $2 million for the three-month period ended September 30, 2022, primarily due to our decision to end commercial activities in dermatology. Non-GAAP general administrative expenses decreased by approximately $592,000, $2.4 million for the three-month period ended September 30, 2022, primarily as a result of headcount and expense reductions as part of our restructuring plan. Non-GAAP net loss for the third quarter of 2022 with $16.8 million compared to a net loss of $12.4 million for the third quarter of 2021 and $11.9 million for the second quarter of 2022. On September 20th, 2022, we entered into an 18-month term loan agreement with Robert Duggan, our executive chairman, for a principal sum of $65 million. The loan agreement bears interest at a rate per annum equal to 5% payable quarterly commencing on January 1, 2023. Cash and cash equivalents totaled $69.2 million as of September 30, 2022, compared to $28.6 million as of December 31, 2021, and $14.8 million as of June 30, 2022. Cash used in the third quarter of 2022 totaled $10.6 million compared to $13.8 million used in the same period in the prior year and $12.8 million used in the second quarter of 2022. Now, I will turn the call back to Kevin for final remarks.
spk01: Thank you, Sandy. This strategic shift in focus to pursue the treatment of AF with MPS controlled by CellFX is an important and natural progression for our company. We have the core team with the right experience and dedication to deliver on this exciting opportunity. We look forward to keeping you updated on our progress. And with that, joining me for Q&A are Darren Uecker, Chief Technical Officer, and Sandy Gardner, Executive Vice President and Chief Financial Officer. Operator, please open the calls for questions.
spk03: At this time, we'll be conducting a question and answer session. If you'd 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 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we poll for questions.
spk01: There are no questions at this time.
spk03: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
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