Pulse Biosciences, Inc. (NASDAQ:PLSE) continues to move forward with its pipeline of nanosecond pulsed field ablation (nsPFA) devices.
The good news is that the company has received an FDA clearance for its CellFX nsPFA percutaneous electrode with soft tissue ablation indication. This milestone is expected to translate into initial sales for the company this year.
On the other hand, the market appears to be more focused on the larger opportunity through its surgical clamp and catheter device for cardiac indications, which remains in the preclinical trial process. The uncertainty in the timing of a possible clearance likely explains the poor performance in shares of Pulse, down more than 40% year to date.
We covered the stock last year, noting the company's weak balance sheet and recurring loss as an area of fundamental concern. While a recently announced rights offering has helped shore up liquidity, we expect PLSE to remain volatile but can look forward to potential catalysts supporting a positive long-term outlook.
PLSE Q1 Update
Pulse reported a Q1 net loss of -$10.1 million, slightly wider than the -$9.8 million loss in the period last year. The company did not generate any sales during the quarter, with the bulk of total expenses directed toward R&D as part of the clinical trials and FDA submission process.
Balance sheet cash was reported at $34.9 million to end the quarter against zero debt. The rights offering, once completed, will add up to $60 million of additional cash proceeds.
Management notes that assuming the exercises of all warrants related to the transaction, the company stands to raise up to $126 million, which would cover company growth plans through the start of 2026.
We mentioned the FDA clearance for the percutaneous electrode for use in soft tissue ablation. Pulse is moving forward with a commercialization strategy, targeting users from the pilot program as potential first customers. The latest announcement is that the system has been used in a procedure for the first time in the U.S.
There is some confidence that orders will translate into sales later this year, although the understanding is that there is a learning curve that makes the process of adoption by practitioners and hospitals take time. From the earnings conference call:
We've got a lot of physicians at major institutions that want to evaluate our system for soft tissue ablation. As some of you may know, in institutions like this and hospitals, there's an approval process. It usually takes several weeks, sometimes longer, to approve bringing in new technologies.
Right now, we are just really focused on building the appropriate training around the system, providing strong clinical support, and just ensuring that we are doing everything we can to help our physician customers get the best possible clinical outcomes that they can with our technology.
As it relates to the Cardiac Clamp, while the device uses the same nanopulse technology as the cleared percutaneous electrode, the complexities of cardiology make the roadmap for an FDA greenlight more difficult.
Pulse is confident that a recently submitted first-in-human feasibility study to move forward with a test on 30 patients will pave the wave for effectiveness and safety data to enhance the regulatory process. Still, the timetable here for generating significant revenues until at least 2026 and beyond. Management is not offering any official financial guidance.
What's Next For PLSE?
The attraction of Pulse Biosciences continues to be its potential to disrupt the global atrial fibrillation (AF) surgical devices market, for treatments covering cardiovascular disorders defined by irregular heartbeats often associated with high blood pressure and heart valve disease.
This market is seen growing between 10-15% per year given an aging population globally along with a greater focus on surgical treatments.
The company believes its nSPFA technology is superior to offerings from the current market leaders like AtriCure, Inc. (ATRC) and Medtronic Plc (MDT) together control nearly 85% of what is estimated to be a $250 million market.
Simply put, AtriCure's and Medtronic's systems use traditional radio-frequency energy technology that results in longer recovery periods and potential complications.
As it relates to valuation, PLSE trading at a current level of around $7.50 represents a market capitalization approaching $500 million, assuming the fully subscribed rights offering.
Recognizing this is a pricey level for a company with effectively zero current revenue, the valuation could make sense under the bullish assumption the company stands to capture a meaningful level of the AF market share from competitors like ATRC and MDT. This assumes the FDA clears the cardiac clamp and catheter product within the next two years.
For now, the market is simply in a waiting stage to hear progress on the approval process. By this measure, it's difficult to see the stock suddenly break out higher without a new major update or some evidence that the non-cardiac electrode system is driving strong orders.
Risks
Ultimately, Pulse Biosciences can be placed in a category of extremely speculative micro-caps. We mentioned the company does not currently generate revenues and has had a cash burn loss of more than $36 million in cash flow from operations over the past year to support its research and development strategy.
The main risk to consider is that there is a regulatory setback or the existing baseline timetable for the clamp and catheter launch gets extended.
Assuming the company raises its full $126 million in proceeds from the rights offering, the cash runway is for approximately 3 years of liquidity based on the current cash bleed run rate. This time frame may be shortened if accelerated spending is required for the upcoming stages in the clinical testing process.
There is also a scenario where the company cannot raise the expected proceeds or its product development effort fails. In this case, Pulse would need to pivot towards a new strategy, likely requiring significant investments and a new round of potentially shareholder-diluting financing.
The next two years will be critical for the company to prove its business model is viable, or else the risk of bankruptcy will need to be considered.
Final Thoughts
We rate Pulse Biosciences, Inc. as a hold, implying a neutral view on the direction of the share price over the near term. This balances the number of operational and financial uncertainties against a layer of optimism that the atrial fibrillation strategy will be successful. For readers just hearing about the stock now, a wait-and-see approach makes sense.
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