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.
Catalysts
In my opinion, there are two probable outcomes for this company.
1. It receives FDA approval in the 4
th
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
