September 19, 2019 - 2:38pm EST by
2019 2020
Price: 16.00 EPS 0 0
Shares Out. (in M): 21 P/E 0 0
Market Cap (in $M): 332 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0
Borrow Cost: Available 0-15% cost

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Pulse Biosciences, Inc (PLSE)
Pulse Biosciences went public in May of 2016 as “a development stage medical device company using a
novel and proprietary platform technology called Nano-Pulse Electro-Signaling or NPES.” The NPES
technology was developed at various universities over about a 20-year period, and the S-1 filing for the
IPO tells us that PLSE was a roll up of various start-up companies related to the technology, none of
which had successfully commercialized the product. At the time of the IPO, Pulse did not have a specific
business plan for developing a medical device it was more of a technology searching for an application.
The prospectus cited oncology, dermatology, minimally invasive ablation, and veterinary applications as
potential uses for the technology. While oncology seemed to generate some excitement, the evidence
for the efficacy of the technology was never very compelling. The 2017 10-K cites one initial study on 5
dogs treated for oral melanoma:
In 2017 five animals were treated under a protocol with this study design. The five animals
treated during 2017 underwent a total of 11 procedures and 224 individual NPS treatment
cycles. All cycles were successfully delivered using the PulseTx System and there were no serious
adverse events reported during the study All NPS treatments resulted in acute reduction of the
tumor volume, demonstrating that NPS can reduce tumor volume in this disease state. Two
animals survived through the 112-day follow-up period, with one animal having no visible
tumor at last report, which was seven months post initial NPS treatment. Three of the five
animals had progressive disease during the 112-day follow-up period and were euthanized
prior to the end of the study due to progressive disease
I believe that a 60% death rate cannot be considered a success, and apparently the company agreed
since it has no ongoing clinical trials for cancer in humans, though management has mentioned skin
cancer on the earnings calls. The company apparently has another canine study in progress, but the last
update on its status was the 2018 Q4 earnings call. CEO Daren Uecker said “It's currently enrolling. I
would say, it's enrolling a bit slower than we had anticipated.” There have been no updates since then.
Since cancer treatment didn’t pan out, Pulse turned its attention toward dermatology. On the Q4 2018
earnings call, CEO Darrin Uecker outlined the company’s business plan:
Our initial commercial applications will be in seborrheic keratosis, a common raised benign
pigmented lesion on the skin, and sebaceous hyperplasia, a small raised lesion caused by
overactive sebaceous glands, typically on the face. These are both significant opportunities and
where we have generated compelling clinical data. We have a growing pipeline of potential
future applications, including warts, acne and basal cell carcinoma that take advantage of the
mechanism of our NPS technology, built on a success of the early clinical result and are in
different stages of clinical development.
There are existing treatments for all these conditions, most of which are both effective and inexpensive.
Sebaceous hyperplasia, for example, can be treated with vitamin A, facial peels, laser therapy,
cryotherapy, and other methods.
On the Q4 2018 earnings call, Uecker said that PLSE was targeting Q3 2019 for 510(k) approval in Q3 of
2019. However, on the Q1 2019 earnings call, Uecker disclosed a setback:
This afternoon, we received an additional information letter request from FDA. And the FDA,
among other things, is questioning the adequacy of the predicate device provided in the 510(k).
Responding to this request will add time and require additional testing, inclusive of clinical trials
and collaboration with FDA. In consideration of the above, we are presently evaluating an
alternative approach, the de novo process approach, which would also likely require additional
time, testing and clinical studies. At the end of the day, the de novo approach may be in the best
interest of Pulse Biosciences.
The company is now targeting Q4 2019 for 510(k) clearance after responding to the AI letter in Q3. In my
opinion, the AI letter and 510(k) approval path indicate that there’s a non-negligible chance that
NanoPulse’s CellFX system for dermatology doesn’t actually work, but I’ll leave that aside for now and
assume that it does and evaluate PLSE’s business plan.
I believe that it’s a fair assumption that only patients with severe seborrheic keratosis are likely to use
an expensive medical device for treatment, which makes the device most directly competitive with laser
treatment and cyrotherpay. I did some searching on the internet and found a few sources that indicate
that laser treatment costs between $150 and $300 per treatment session and cryotherapy may run
above $400 per treatment. On the Q2 2019 earnings call, Uecker gave the following numbers:
“Once cleared by the FDA, we plan to offer different tip sizes for SH and SK lesions that can also
be used across an array of additional benign skin lesions. We plan to launch the CellFX System
with an initial ASP of $45,000, a price that we believe will encourage rapid adoption. We
estimate that by just treating 3 SH or SK patients per week, which is a very modest number, the
clinician can recoup their initial investment in as little as 4 months.”
Some arithmetic shows that assuming a 100% gross margin for a dermatology clinic (an absurd
assumption), patients would need to be charged $937 per treatment session for the clinic to recoup a
$45,000 investment in 4 months ($45,000 / (3 patients/week * 4 weeks/month * 4 months). These
numbers are unrealistic. Using $450 per treatment and a 40% gross margin, I estimate that the non-
discounted payback period is more like 21 months.
Pulse Biosciences presently has a $337 million market cap, a $298 million EV, and zero sales. To reach 3x
EV to sales, it will need $99.3 million in revenues, which equates to annual sales of 2,207 machines at
$45,000 each. Given that there are many existing treatments for seborrheic keratosis and the other
indications that the company might target down the line, and that PLSE has yet to present any data
showing that its technology is more effective than the competition, I believe that this company will
struggle to achieve the level of sales required to justify its valuation.
In my opinion, there are two probable outcomes for this company.
1. It receives FDA approval in the 4
quarter and launches the CellFX system in 2020. In this case, I
expect that sales will be disappointing and the system will prove to be a commercial failure.
2. The FDA does not approve the device, in which case the stock craters.
In scenario 1, I expect that the company will raise equity on the back of FDA approval. Pulse has burned
$30.3 million in cash over the last 12 months and had $42 million in cash on the balance sheet at the
end of Q2. This would help to limit the size and / or duration of any rally following FDA approval, and I
think the stock will sell off next year as sales disappoint.
The greatest risks to being short a company like PLSE are not fundamental. The company could put out a
press release that gets the market excited, or there could be a disruption in the lending market that
causes the rebate rate to shoot up.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


1.       It receives FDA approval in the 4th quarter and launches the CellFX system in 2020. In this case, I expect that sales will be disappointing and the system will prove to be a commercial failure.

2.       The FDA does not approve the device, in which case the stock craters.

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