UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
Or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
Pulse Biosciences, Inc.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of the registrant’s common stock as of October 25, 2024:
“Pulse Biosciences,” the Pulse logos and other trademarks or service marks that we use in connection with the operation of our business appearing in this quarterly report on Form 10-Q (this "Quarterly Report"), including CellFX, CellFX CloudConnect, CellFX Marketplace, Nano-pulse Stimulation, nsPFA, nano-PFA, CellFX nsPFA, and NPS, are the property of Pulse Biosciences, Inc. Solely for your convenience, some of our trademarks and trade names referred to in this Quarterly Report are listed without the ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks and trade names. Also, this Quarterly Report may contain additional trade names, trademarks or service marks of others, which are the property of their respective owners. We do not intend our use or display of any other company’s trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any of these other companies.
Unless expressly indicated or the context requires otherwise, the terms “Pulse,” “Company,” “we,” “us,” and “our,” in this document refer to Pulse Biosciences, Inc., a Delaware corporation, and, where appropriate, its wholly owned subsidiaries.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Right-of-use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Lease liability, current | ||||||||
| Total current liabilities | ||||||||
| Lease liability, less current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 7) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value; authorized – shares; shares issued and outstanding | ||||||||
| Common stock, $ par value; authorized – shares; issued and outstanding – shares and shares at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income (loss) | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2024 |
2023 |
2024 |
2023 |
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| Revenues: |
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| Product revenues |
$ | — |
$ | $ | $ | |||||||||||
| Total revenues |
— |
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| Cost and expenses: |
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| Research and development |
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| General and administrative |
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| Total cost and expenses |
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| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
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| Other income: |
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| Interest income, net |
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| Total other income |
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| Loss from operations, before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax benefit |
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| Net loss |
( |
) | ( |
) | ( |
) | ( |
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| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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| Net loss per share: |
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| Basic and diluted net loss per share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average shares used to compute net loss per common share — basic and diluted |
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See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Nine Months Ended September 30, |
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| 2024 |
2023 |
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| Cash flows from operating activities: |
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| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation |
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| Amortization of intangible assets |
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| Stock-based compensation |
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| Changes in operating assets and liabilities: |
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| Prepaid expenses and other current assets |
( |
) | ( |
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| Other receivables |
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| Right-of-use assets |
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| Accounts payable |
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| Accrued expenses |
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| Lease liabilities |
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) | ( |
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| Accrued interest on related party note payable |
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| Net cash used in operating activities |
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) | ( |
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| Cash flows from investing activities: |
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| Purchases of property and equipment |
( |
) | ( |
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| Net cash used in investing activities |
( |
) | ( |
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| Cash flows from financing activities: |
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| Proceeds from issuance of common stock under employee stock purchase plan |
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| Proceeds from issuance of common stock and warrants in relation to rights offering, net of issuance costs |
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| Proceeds from exercises of warrants |
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| Proceeds from exercises of stock options |
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| Issuance cost in relation to related party note extinguishment |
( |
) | ||||||
| Deferred issuance costs in relation to future at-the-market equity offering |
( |
) | ||||||
| Net cash provided by financing activities |
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| Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities: |
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| Equipment purchases included in accounts payable and accrued expenses |
$ | $ | ||||||
| Rights offering deemed pro-rata distribution to shareholders |
$ | $ | ||||||
| Principal and accrued interest of related party note settled via issuance of common stock |
$ | $ | ||||||
| Other receivable from exercises of warrants |
$ | $ | ||||||
| Rights offering and at-the-market issuance costs in accounts payable |
$ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(In thousands)
(Unaudited)
| Additional | Accumulated Other | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Issuance of common stock and warrants in connection with rights offering, net of issuance costs of $ | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||||||
| Issuance of shares under employee stock purchase plan | ||||||||||||||||||||||||
| Issuance of shares in at-the-market offering, net of issuance costs of $ | ||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Additional | Accumulated Other | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Issuance of common stock and warrants in connection with rights offering, net of issuance costs of $ | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||||||
| Issuance of shares under employee stock purchase plan | ||||||||||||||||||||||||
| Issuance of shares in at-the-market offering, net of issuance costs of $ | ||||||||||||||||||||||||
| Issuance of equity-classified subscription rights as part of rights offering (Note 6) | — | |||||||||||||||||||||||
| Rights offering deemed pro-rata distribution to shareholders (Note 6) | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Additional | Accumulated Other | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||||||
| Issuance of shares under employee stock purchase plan | ||||||||||||||||||||||||
| Warrant exercise, issuance cost adjustment | — | |||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Additional | Accumulated Other | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | (Deficit) Equity | |||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Issuance of common stock as part of debt extinguishment, net of issuance costs of $ | ||||||||||||||||||||||||
| Issuance of shares upon exercise of warrants, net of issuance costs of $ | ||||||||||||||||||||||||
| Issuance of shares under employee stock purchase plan | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of the Business
Pulse Biosciences, Inc. is a novel bioelectric medicine company committed to health innovation using its patented Nano-pulse Stimulation ("NPS") technology, a revolutionary energy modality that delivers nanosecond-duration pulses of electrical energy, each less than a millionth of a second long, to nonthermally clear targeted cells while sparing adjacent noncellular materials. NPS technology, also referred to as Nanosecond Pulsed-Field Ablation ("nsPFA" or "nano-PFA") technology when used to ablate cellular tissue, can be used to treat a variety of medical conditions for which an optimal solution remains unfulfilled. The Company developed its proprietary CellFX System, a novel nano-PFA delivery platform, and commercialized the initial application of its nano-PFA technology to treat benign lesions of the skin. In parallel, the Company has designed a variety of applicators, or disposables, to explore the potential use of the CellFX platform to treat disorders in other medical specialties, such as cardiology, gastroenterology, gynecology, and ear, nose and throat. These applicators include devices for open surgical procedures, endoscopic or minimally invasive procedures, and endoluminal catheters, and each has been used in preclinical studies. Based on our preclinical experience and the potential to significantly improve outcomes for patients in a large and growing market, the Company decided in 2022 to focus its primary efforts on the use of nsPFA energy and the CellFX platform in the treatment of atrial fibrillation ("AF") and in a select few other markets where it could have a profound positive impact on healthcare for both patients and providers, such as soft tissue ablation.
The Company was incorporated in Nevada on May 19, 2014. On June 18, 2018, the Company reincorporated from the State of Nevada to the State of Delaware. The Company is located in Miami, Florida, and continues to maintain its offices in Hayward, California. The Company maintains a website at www.pulsebiosciences.com where general information about the Company is available.
The Company’s activities are subject to significant risks and uncertainties, including the need for additional capital. The Company does not currently have any material cash flows from operations. It currently generates no revenue and will need to raise additional capital to finance its operations. However, there can be no assurances that the Company will be able to obtain additional financing on acceptable terms and in the amounts necessary to fully fund its operating requirements.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with the Company’s December 31, 2023 audited Consolidated Financial Statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The condensed consolidated financial statements have been prepared in accordance with the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) and, as permitted by such rules and regulations, omit certain information and footnote disclosures necessary to present the financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The condensed consolidated balance sheet as of December 31, 2023 was derived from the audited consolidated financial statements as of that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations for the three-month and nine-month periods ended September 30, 2024, are not necessarily indicative of the results to be expected for the entire year or any future periods.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the financial statements of Pulse Biosciences, Inc. and its wholly-owned subsidiaries. Intercompany balances and transactions, if any, have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates that affect the amounts reported in the financial statements and accompanying notes to the financial statements. Estimates include, but are not limited to, the valuation and recognition of stock-based compensation, the valuation of equity-classified subscription rights, inventory valuation, warranty obligations, income taxes, and the useful lives assigned to long-lived assets. The Company evaluates its estimates and assumptions based on historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from these estimates.
Significant Accounting Policies
The Company’s significant accounting policies are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The Company continually evaluates the accounting policies and estimates used in preparing the consolidated financial statements. During both the year ended December 31, 2023, and the nine-month period ended September 30, 2024, the Company issued stock options to certain employees which contain market conditions related to overall market capitalization. Additionally, the Company has issued stock options to certain employees which contain performance conditions related to certain financial measures and achievements of strategic and operational milestones.
Stock-Based Compensation
The Company's stock-based compensation programs include stock options and an employee stock purchase program.
The Company periodically issues stock options to officers, directors, employees, and consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date. Stock-based payments to officers, directors and employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values, which are estimated using the Black-Scholes option-pricing model. Stock-based compensation expense is charged to operations on a straight-line basis over the vesting period. The Company has granted stock options with both time-based as well as performance-based vesting conditions. For stock awards with performance-based vesting conditions, the Company does not recognize compensation expense until it is probable that the performance-based vesting condition will be achieved. The analysis to determine such probability involves estimates and judgements from management and the estimate of expense may be revised periodically.
The Company has also issued certain stock options with market-based vesting conditions. These vesting conditions relate to the achievement of certain market capitalization targets of the Company. The grant date fair value for these stock options was determined using a Monte Carlo simulation. The expense is recognized over the requisite service period for each tranche of the awards. The requisite service period is the service period derived from the Monte Carlo simulation model. If the market capitalization targets are met sooner than the derived service period, the Company will accelerate the recognition of stock-based compensation expense to reflect the cumulative expense associated with the vested shares. The Monte Carlo simulation requires the Company to make assumptions and judgements about the variables used in the calculation including the expected term, volatility of the Company's common stock, an assumed risk-free interest rate, and cost of equity. The assumptions used in the option-pricing model represent management’s best estimates. If factors change and different assumptions are used, the Company's stock-based compensation expense could be materially different in the future.
See Note 6 for a detailed discussion of the Company’s stock plans and stock-based compensation expense.
Product Warranty
The Company provides a standard warranty on eligible products which provides the customer assurances that the products comply with the agreed-upon specifications. The standard warranty does not provide any services in addition to those assurances. The Company accrued a warranty reserve for products sold based upon the best estimate of the nature, frequency, and costs of future claims. These estimates are inherently uncertain given the short history of sales, and changes to the historical or projected warranty experience may cause material changes to the warranty reserve in the future. In June 2023, the Company reduced the accrued warranty liability to zero. Based upon the Company's shift in focus, there are a limited number of consoles currently covered under the standard warranty. All inventory has been fully written off, therefore the only incremental costs to fulfill a warranty claim in 2024 would be shipping costs or the costs to replace the CellFX nsPFA electrode, which would be immaterial in nature.
Warranty accrual activity consisted of the following for the three-month and nine-month periods ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Add: Accruals for warranties issued during the period | ||||||||||||||||
| Less: Adjustment for inventory at cost and excessive and obsolete inventory | ( | ) | ||||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
Net Loss per Share
The Company calculates basic net loss per share by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding during the period. For purposes of this calculation, options to purchase common stock and common stock warrants are considered common stock equivalents. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted net loss per share.
Based on the Accounting Standards Codification ("ASC") 260-10-55, Earnings Per Share - Implementation Guidance and Illustrations, the Company determined that the 2024 Rights Offering (Note 6), contained a bonus element. A rights offering is deemed to have a bonus element when the exercise price at issuance is less than fair value of the Company's stock. The Company has retroactively adjusted earnings per share and weighted average number of shares outstanding for the bonus element for prior periods presented.
Basic and diluted net loss per common share is the same for all periods presented because all warrants, stock options and restricted stock units outstanding are anti-dilutive.
The following outstanding stock options, and warrants were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect:
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Common stock warrants | ||||||||
| Common stock options | ||||||||
| Total | ||||||||
Recent Accounting Pronouncements Not Yet Adopted
In March 2024, the FASB issued ASU No. 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements, an amendment of the FASB Accounting Standards Codification. The amendments in this ASU are related to the removal of various references to FASB Concept Statements from the codification to make clear distinctions between authoritative and non-authoritative literature in the codification. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not believe this standard will have an impact on its consolidated financial statements and related disclosures.
As of September 30, 2024, there were no additional material changes to the information provided regarding recent accounting pronouncements in Note 2, “Summary of Significant Accounting Policies” in the Company’s Form 10-K for the fiscal year ended December 31, 2023.
3. Fair Value of Financial Instruments
The authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels, and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below.
Level 1 - Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include money market funds.
Level 2 - Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. The Company did not classify any of its investments within Level 2 of the fair value hierarchy.
Level 3 - Unobservable inputs for which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. The Company did not classify any of its investments within Level 3 of the fair value hierarchy.
The following table sets forth the fair value of the Company’s financial instruments measured on a recurring basis as of September 30, 2024 and December 31, 2023, respectively (in thousands):
| September 30, 2024 | |||||||||||||||||
| Assets | Classification | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Money market funds | Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | |||||||||||||
| December 31, 2023 | |||||||||||||||||
| Assets | Classification | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Money market funds | Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | |||||||||||||
The Company did have any financial liabilities measured on a recurring basis as of September 30, 2024 or December 31, 2023.
4. Balance Sheet Components
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Laboratory equipment | ||||||||
| Furniture, fixtures and equipment | ||||||||
| Software | ||||||||
| Construction in progress | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation expense was $
Intangible Assets, Net
Intangible assets primarily consist of acquired licenses to utilize certain patents, know-how and technology relating to the Company’s NPS technology for biomedical applications acquired from Old Dominion University Research Foundation (“ODURF”), Eastern Virginia Medical School, and the University of Southern California. In addition, the Company entered into a Sponsored Research Agreement with Old Dominion University’s Frank Reidy Research Center for Bioelectrics, which includes certain intellectual property rights arising from the research. The Company is amortizing the intangible assets over an estimated useful life of
Intangible assets, net consisted of the following (in thousands):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Acquired patents and licenses | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Total intangible assets, net | $ | $ | ||||||
A schedule of the amortization of intangible assets for the remainder of 2024 and the succeeding two fiscal years is as follows (in thousands):
| Years ending December 31: | ||||
| 2024 (remaining 3 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total | $ |
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Compensation expense | $ | $ | ||||||
| Clinical trial fees and costs | ||||||||
| Professional fees | ||||||||
| Other | ||||||||
| Total accrued expenses | $ | $ | ||||||
5. Goodwill
In 2014, the Company acquired
In accordance with ASC Topic 350, Intangibles-Goodwill and Other (as amended by Accounting Standards Update 2017-04), the Company reviews goodwill for impairment at least annually or whenever any events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. As of September 30, 2024, there were indicators of impairment and it was determined that no impairment of goodwill existed.
6. Stockholders’ Equity and Stock-Based Compensation
2024 Rights Offering and Subscription Rights
On March 28, 2024, the Company announced that its Board of Directors ("Board") unanimously approved plans to initiate a rights offering, whereby the Company would distribute non-transferable subscription rights at no charge to all holders of the Company's common stock, par value $
On July 3, 2024, the Company announced the closing of its 2024 Rights Offering. The 2024 Rights Offering resulted in the sale of 2024 Units, at a price of $
Private Placement Securities Purchase Agreement
On April 30, 2023, the Company entered into a Securities Purchase Agreement with Robert W. Duggan, the Company’s majority stockholder and Co-Chairman, pursuant to which the Company agreed to issue and sell to Mr. Duggan
2022 Rights Offering
On June 9, 2022, the Company completed a rights offering (the “2022 Rights Offering") resulting in the sale of
Common Stock Warrants
2024 Rights Offering Warrants
In connection with the 2024 Rights Offering, the Company issued 2024 Rights Offering Warrants to purchase a total of
2022 Rights Offering Warrants
In connection with the 2022 Rights Offering, the Company issued 2022 Rights Offering Warrants to purchase a total of
Equity Plans
2017 Equity Incentive Plan and 2017 Inducement Equity Incentive Plan
The Board previously adopted, and the Company’s stockholders approved, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”).
The 2017 Plan has a
During November 2017, the Board adopted the 2017 Inducement Equity Incentive Plan (the “Inducement Plan”) and reserved
The Inducement Plan has a
A summary of stock option activity under the 2015 Plan, 2017 Plan, and Inducement Plan for the nine-months ended September 30, 2024 is presented below:
| Stock Options Outstanding | ||||||||||||
| Number of shares | Weighted average exercise price | Weighted average remaining life (in years) | ||||||||||
| Balances — December 31, 2023 | $ | |||||||||||
| Options granted | ||||||||||||
| Options exercised | ( | ) | ||||||||||
| Options canceled | ( | ) | ||||||||||
| Options expired | ( | ) | ||||||||||
| Balances — September 30, 2024 | $ | |||||||||||
| Exercisable — September 30, 2024 | $ | |||||||||||
Time-based Options
The Company awards time-based options which vest and become exercisable, subject to the individual’s continued employment or service through the applicable vesting date. Time-based options can have various vesting schedules, most commonly new hire grants which generally vest
A summary of the time-based stock option activity under the 2015 Plan, 2017 Plan and Inducement Plan for the nine-months ended September 30, 2024 is presented below:
| Stock Options Outstanding | ||||||||||||
| Number of shares | Weighted average exercise price | Weighted average remaining life (in years) | ||||||||||
| Balances — December 31, 2023 | $ | |||||||||||
| Options granted | ||||||||||||
| Options exercised | ( | ) | ||||||||||
| Options canceled | ( | ) | ||||||||||
| Options expired | ( | ) | ||||||||||
| Balances — September 30, 2024 | $ | |||||||||||
| Exercisable — September 30, 2024 | $ | |||||||||||
The fair value of the time-based options granted during the nine-month period ended September 30, 2024 was $
Performance-based Options
Certain stock options awarded by the Company contain performance conditions related to certain financial measures and achievements of strategic and operational milestones. Once a specific performance condition is fulfilled, the associated options will fully vest and become exercisable.
A summary of the performance-based option activity under the 2017 Plan and Inducement Plan for the nine-months ended September 30, 2024 is presented below:
| Stock Options Outstanding | ||||||||||||
| Number of shares | Weighted average exercise price | Weighted average remaining life (in years) | ||||||||||
| Balances — December 31, 2023 | $ | |||||||||||
| Options granted | ||||||||||||
| Options exercised | ( | ) | ||||||||||
| Options canceled | ( | ) | ||||||||||
| Options expired | ( | ) | ||||||||||
| Balances — September 30, 2024 | $ | |||||||||||
| Exercisable — September 30, 2024 | $ | |||||||||||
The fair value of the performance-based options granted during the nine-month period ended September 30, 2024 was million.
Market-based Options
Certain stock options awarded by the Company contain market conditions related to achievement of certain market capitalization targets. The options will vest and become exercisable once the specific market capitalization targets are fulfilled.
A summary of the market-based option activity under the 2017 Plan for the nine-months ended September 30, 2024 is presented below:
| Stock Options Outstanding | ||||||||||||
| Number of shares | Weighted average exercise price | Weighted average remaining life (in years) | ||||||||||
| Balances — December 31, 2023 | $ | |||||||||||
| Options granted | ||||||||||||
| Options exercised | ||||||||||||
| Options canceled | ||||||||||||
| Options expired | ||||||||||||
| Balances — September 30, 2024 | $ | |||||||||||
| Exercisable — September 30, 2024 | — | |||||||||||
The fair value of the market-based options granted during the nine-month period ended September 30, 2024 was $
The Company estimates the fair value of time-based and performance-based stock options on the grant date using the Black-Scholes option pricing model. The estimated fair value of these employee stock options is amortized on a straight-line basis over the requisite service period of the awards. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. The fair value of time-based and performance-based stock options was estimated using the following weighted-average assumptions:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Expected term in years | ||||||||||||||||
| Expected volatility | ||||||||||||||||
| Risk-free interest rate | | | | |||||||||||||
| Dividend yield | ||||||||||||||||
The Company estimates the fair value of market-based stock options on the grant date using a Monte Carlo simulation model. The estimated fair value of these employee stock options is amortized over the requisite service period for each tranche of the awards. The requisite service period is the service period derived from the Monte Carlo simulation model. If the market capitalization targets are met sooner than the derived service period, the Company will accelerate the recognition of stock-based compensation expense to reflect the cumulative expense associated with the vested shares. The fair value of market-based stock options was estimated using the following weighted-average assumptions:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Expected term in years | ||||||||||||||||
| Expected volatility | | | | | ||||||||||||
| Risk-free interest rate | | | | | ||||||||||||
| Dividend yield | ||||||||||||||||
2017 Employee Stock Purchase Plan
The Board previously adopted, and the Company's stockholders approved, the Company’s 2017 Employee Stock Purchase Plan (the “2017 ESPP”).
The 2017 ESPP is a broad-based plan that provides employees of the Company and its designated affiliates with the opportunity to become stockholders through periodic payroll deductions that are applied towards the purchase of Company common shares at a discount from the then-current market price. Subject to adjustment in the case of certain capitalization events, a total of
The Company estimates the fair value of ESPP grants on their grant date using the Black-Scholes option pricing model. The estimated fair value of ESPP grants is amortized on a straight-line basis over the requisite service period of the grants. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. The Company utilizes its estimated volatility in the Black-Scholes option pricing model to determine the fair value of ESPP grants. The fair value of ESPP grants was estimated using the following weighted-average assumptions:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Expected term in years | ||||||||||||||||
| Expected volatility | | | | | ||||||||||||
| Risk-free interest rate | ||||||||||||||||
| Dividend yield | ||||||||||||||||
Stock-based Compensation
Total stock-based compensation expense consisted of the following (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
As of September 30, 2024, not all of the performance conditions of the performance options are probable to be achieved. Compensation expense has only been recognized for those conditions that are assumed to be probable.
Total stock-based compensation expense by award type was as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Time-based options | $ | $ | $ | $ | ||||||||||||
| Performance-based options | ||||||||||||||||
| Market-based options | ||||||||||||||||
| ESPP | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
7. Commitments and Contingencies
2022 Loan Agreement
On September 20, 2022, the Company and Robert W. Duggan, the Company's majority stockholder and Co-Chairman, entered into a Loan Agreement (“2022 Loan Agreement”) in connection with Mr. Duggan lending the principal sum of $
Operating Leases
In January 2017, the Company entered into a -year lease (the “Existing Lease”) for approximately
In May 2019, the Company entered into Lease Amendment 1 (the “Lease Amendment”) in relation to the Existing Lease and added the lease of new premises of approximately
The Company evaluated the lease amendment under the provisions of ASC 842. It concluded that the Lease Amendment would be accounted for as a single contract with the Existing Lease because the additional lease payments due to the Lease Amendment was not commensurate with the right-of-use asset granted to the Company. Though the Lease Amendment was accounted for as a single contract, the Existing Premises, Expansion Premises 1 (occupied in November 2019) and Expansion Premises 2 (occupied in May 2020) are accounted for as separate lease components. Accordingly, the Company measured and allocated consideration to each lease component as of the modification date.
Supplemental balance sheet information related to leases (in thousands):
| September 30, | December 31, | |||||||
| Assets: | 2024 | 2023 | ||||||
| Right-of-use assets | $ | $ | ||||||
| September 30, | December 31, | |||||||
| Liabilities: | 2024 | 2023 | ||||||
| Current operating lease liabilities | $ | $ | ||||||
| Non-current operating lease liabilities | ||||||||
| Total lease liabilities | $ | $ | ||||||
Total cash paid for operating lease liabilities (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
Maturities of operating lease liabilities were as follows (in thousands):
| Year ending December 31: | ||||
| 2024 (remaining 3 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Total lease liabilities | $ |
Weighted-average remaining lease term and discount rate, as of September 30, 2024, were as follows:
| Weighted-average remaining lease term | ||||
| Weighted-average discount rate | % |
Rent expense, including common area maintenance charges, was approximately $
Legal Proceedings
From time to time, we may be involved in a variety of claims, lawsuits, investigations, and proceedings relating to securities laws, product liability, patent infringement, contract disputes, and other matters relating to various claims that arise in the normal course of our business, including the matter described below. The outcome of any legal proceedings is unpredictable but, regardless of outcome, they can have an adverse impact on us because of defense and settlement costs, diversion of management resources, negative publicity, reputational harm, and other factors. We maintain insurance that may provide coverage for such matters, including customary employment practices liability insurance.
In November 2022, the employment of our former Chief Financial Officer, Sandra Gardiner, terminated. Ms. Gardiner’s departure was not the result of any disagreement with the Company on any matter relating to its operations, accounting policies or practices, although the Company determined that she was not eligible to receive any severance benefits under the terms and conditions of her then existing employment agreement. In March 2023, Ms. Gardiner filed an arbitration demand with JAMS seeking severance benefits and other remedies, alleging breach of contract and unlawful termination in violation of public policy, among other things. We believe that Ms. Gardiner’s claims are without merit and we intend to vigorously defend ourselves against them. Because of the difficulty in predicting the outcome of any legal proceeding, the Company is not able to conclude that a liability is probable and cannot predict what the final outcome of Ms. Gardiner’s arbitration proceeding will likely be or provide a reasonable estimate for the range of ultimate possible loss, if any. However, at this time, we believe that the final resolution of this matter will not adversely affect our consolidated position, results of operations, or cash flows.
8. Segment Reporting
The Company operates and manages the business as reportable and operating segment. The Company’s Chief Executive Officer acts as the chief operating decision maker (“CODM”) of the Company. The CODM reviews the results of the Company on a consolidated basis. All of the Company’s long-lived assets are based in the United States.
9. Related Party Transactions
In May 2022, the Company determined not to renew its annual director and officer liability insurance policy due to disproportionately high premiums quoted by insurance companies. Instead, on May 31, 2022, the Company and Robert W. Duggan, majority stockholder and Co-Chairman, entered into a letter agreement (the “Letter Agreement”) pursuant to which Mr. Duggan agreed with the Company to personally provide indemnity coverage for a -year period, and he agreed to deposit cash and/or marketable securities into a third-party escrow, as security for these obligations, if requested by the Company. On May 31, 2023, the last day of the one-year period, the Company paid Mr. Duggan a fee of $
On September 20, 2022, the Company and Robert W. Duggan, the Company's majority stockholder and Co-Chairman, entered into the 2022 Loan Agreement in connection with Mr. Duggan lending the principal sum of $
10. Restructuring Charges
In February 2023, the Company eliminated positions and incurred a discrete restructuring related charge of $
11. Subsequent Events
In October 2024, the Board approved changes to the performance-based vesting conditions of certain unvested outstanding common stock option awards that were improbable of vesting. Specifically, certain performance-based stock option awards were changed to time-based vesting criteria and certain performance-based stock option awards were changed to market-based vesting criteria. Based on our preliminary analysis, the Company estimates it will recognize approximately $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included in this Quarterly Report and those in our Annual Report on Form 10-K.
Special Note Regarding Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to expectations concerning matters that are not historical facts. Words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “projects,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements related to our expected business, new product introductions, results of clinical studies, expectations regarding regulatory clearance and the timing of FDA or non-US filings or approvals including meetings with FDA or non-US regulatory bodies, procedures and procedure adoption, future results of operations, future financial position, our ability to generate revenues, our financing plans and future capital requirements, anticipated costs of revenue, anticipated expenses, the effect of recent accounting pronouncements, our anticipated cash flows, our ability to finance operations from cash flows or otherwise, and statements based on current expectations, estimates, forecasts, and projections about the economies and markets in which we operate and intend to operate and our beliefs and assumptions regarding these economies and markets. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. You should read the “Risk Factors” section of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein. We do not assume any obligation to update any forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. This Quarterly Report and any documents incorporated by reference may contain market data that we obtain from industry sources. These sources do not guarantee the accuracy or completeness of the information. Although we believe that our industry sources are reliable, we do not independently verify the information. The market data may include projections that are based on other projections. While we believe these assumptions and projections are reasonable and sound, as of the date of this Quarterly Report, actual results may differ from the projections.
Overview
We are a novel ablation company committed to health innovation using our patented Nano-pulse Stimulation (“NPS”) technology, a revolutionary energy modality that delivers nanosecond-duration pulses of electrical energy, each less than a millionth of a second long, to nonthermally clear or kill targeted cells. NPS technology, also referred to as Nanosecond Pulsed-Field Ablation (“nsPFA” or "nano-PFA") technology when used to ablate cellular tissue, can be used to treat a variety of medical conditions for which an optimal solution remains unfulfilled. We developed our proprietary CellFX System, a novel nsPFA delivery platform, and commercialized the initial application of its nsPFA technology to treat benign lesions of the skin. In parallel, we have designed a variety of applicators, or disposables, to explore the potential use of the CellFX platform to treat disorders in other medical specialties, such as cardiology, gastroenterology, gynecology, and ear, nose and throat. These applicators include devices for open surgical procedures, endoscopic or minimally invasive procedures, and endoluminal catheters, and each has been used in preclinical studies. Based on our preclinical experience and the potential to significantly improve outcomes for patients in a large and growing market, we decided in 2022 to focus our primary efforts on the use of nano-PFA energy and the CellFX platform in the treatment of atrial fibrillation and in a select few other markets where it could have a profound positive impact on healthcare for both patients and providers, such as soft tissue ablation.
CellFX nsPFA Percutaneous Electrode System
Our first product for soft tissue ablation in a surgical setting, the CellFX nsPFA Percutaneous Electrode System, consists of a disposable, percutaneous, needle electrode for use with our proprietary CellFX nsPFA Console. This novel electrode is designed to harness and deliver the key advantages of nsPFA energy, enabling precise nonthermal removal of cellular tissue without inducing thermal necrosis.
After years of preclinical development and testing, in June 2023, we initiated a first-in-human study using our proprietary nsPFA-enabled percutaneous electrode. This study, which is still ongoing, is being conducted by Professor Stefano Spiezia at the Ospedale del Mare in Naples, Italy, to help us better understand and confirm the mechanism of action and tissue response of nano-PFA energy in internal organs such as the thyroid. To date, we have treated thirty study subjects, all of whom tolerated the procedure well with no reported serious side effects. Ultrasound images post procedure have shown that the treated portions of the benign thyroid nodules have mostly been resorbed with no sign of scarring or fibrosis, which can be a side effect of other ablation modalities. We expect to complete this study in 2025.
In parallel, in November 2023, we filed a premarket notification 510(k) with the FDA for clearance to commercialize our novel CellFX nsPFA Percutaneous Electrode System in the United States. In March 2024, we received FDA 510(k) clearance for our CellFX nsPFA Percutaneous Electrode System for use in the ablation of soft tissue in percutaneous and intraoperative surgical procedures. More recently, in July 2024, we received FDA 510(k) clearance for a second size of the percutaneous electrode needle, which we believe will provide our customers with an additional treatment option for their patients.
Having secured 510(k) clearance to market and sell the CellFX nsPFA Percutaneous Electrode System in the United States with different sizes of percutaneous electrode needles, we have engaged with experts in the field of soft tissue ablation to gather information that will help shape our future commercial endeavors. To date, we have placed our CellFX System with seven sites in the United States and these sites have been performing initial patient treatments and evaluating the CellFX System under short-term evaluation agreements. To date, the clinicians in our pilot program have completed more than twenty-five patient procedures. We expect to pursue more clinical evidenced-based milestones throughout 2024 and into 2025 in connection with evaluating the early pilot commercialization of our percutaneous electrodes, and we expect to commence a pivotal clinical trial in mid-2025 to support a specific labeling indication to commercialize the Percutaneous Electrode System in the United States as a treatment for benign thyroid nodules.
Our Cardiac Surgical Program
Atrial fibrillation (“AF”) is a type of heart arrythmia, or irregular heartbeat, caused by faulty electrical signals in the heart. AF is a highly prevalent condition and is growing significantly with an ageing population. It is estimated that 43 million people worldwide are affected by AF. Treatment requires the precise and safe ablation of heart tissue to block or otherwise prevent these faulty electrical signals from causing the irregular heartbeat, and we believe nano-PFA technology is uniquely suited to perform an integral role for this application and that it will prove to be highly differentiated from standard thermal energy modalities in use today.
The results of preclinical and clinical testing of both our nano-PFA cardiac products, namely our surgical ablation clamp and our endocardial ablation catheter, have exceeded our expectations and initial data have been presented at physician and industry conferences. While these devices serve different physicians, the application of the energy to safely and effectively ablate cardiac tissue and the treatment of AF are the same, and we believe there will be important synergies realized through their contemporaneous development. The Company’s cardiac surgical ablation clamp and cardiac endocardial ablation catheter both generate our proprietary nano-PFA pulses of electrical energy. We discuss each of these products under development in more detail below.
CellFX nsPFA Cardiac Clamp
Our surgical cardiac ablation clamp is designed for use by cardiac surgeons during the surgical treatment of AF. The standard of care surgical procedure for the treatment of AF is performed by cardiac surgeons and called the Cox-Maze procedure. The Cox-Maze procedure typically uses thermal ablation technologies, such as heat with radiofrequency ablation or cold with cryoablation, to create specific ablation lines in the heart muscle. These ablation lines block the conduction of electrical impulses and can cure patients of their AF.
We believe our nsPFA technology can provide important advantages over today’s thermal modalities in creating these ablation lines. For example, surgeons using the CellFX System should be able to deliver faster ablations through thicker tissue than thermal modalities because of the nonthermal mechanism of action that nano-PFA employs, which is not affected by heatsinks such as blood in the heart. In preclinical studies, our nsPFA Cardiac Clamp has consistently achieved transmural ablations in less than two seconds, independent of tissue type or thickness. Moreover, thermal modalities can cause char formation on electrode surfaces which can cause gaps in the ablation lines that might lead to treatment failure. This should not be an issue with nano-PFA ablation given its nonthermal nature. We believe these advantages will be important to cardiac surgeons, so we are working with leaders in the field to develop this technology quickly.
Over the last several years, we have been developing the cardiac ablation clamp from proof-of-concept to prototype, and we now have what we believe is our initial clinical design. We plan to pursue a PMA application for FDA approval to market the cardiac clamp, which will require pivotal clinical data to support the application. With PMA approval, we expect that we would commercialize the nsPFA Cardiac Surgical System in the United States specifically as a treatment for AF. If granted by the FDA, a specific treatment indication would permit direct marketing of the treatment benefits provided by the device. We expect to begin our pivotal clinical trial for AF in mid-2025. In parallel, we have initiated a multi-site clinical study to treat up to 30 patients in the Netherlands. The first five patients in this cardiac clamp study tolerated the procedure well and acute data have been encouraging. This study should provide information on first-in-human effectiveness and safety with our cardiac surgical ablation clamp.
In July 2024, we received Breakthrough Device Designation from the FDA for our CellFX nsPFA Cardiac Surgery System for the treatment of AF. The FDA’s Breakthrough Devices Program is a voluntary program for certain medical devices that potentially provide for more effective treatment or diagnosis of a life-threatening or irreversibly debilitating disease or condition. More recently, our Cardiac Surgery System was enrolled in the FDA’s Total Product Life Cycle (TPLC) Advisory Program (TAP). The FDA’s Center for Devices and Radiological Health (CDRH) launched the TAP program to help generate more rapid development of high-quality, safe, effective, and innovative medical devices that are critical to public health. TAP’s primary goal is to expedite patient access to innovative medical devices by providing early, frequent and strategic communications with the FDA and facilitating engagement with other key parties for developers of devices of public health importance. Both programs are designed to expedite the development, assessment, and review of medical devices for premarket approval, 510(k) clearance, or De Novo marketing authorization. Breakthrough Devices, even those enrolled in the FDA’s TAP Program, must still meet the FDA’s rigorous standards for device safety and effectiveness in order to be authorized for marketing, however.
CellFX nsPFA 360° Cardiac Catheter
We believe our cardiac, endocardial, catheter ablation device will have many of the same advantages that the surgical ablation clamp appears to have with respect to both performance and safety compared to standard thermal modalities. Our catheter is uniquely designed to provide a circumferential, or circular, ablation in a single treatment cycle. We believe this will enable faster treatment times compared to what is currently performed with thermal modalities, especially when ablating around the pulmonary veins, a common treatment approach for AF.
In recent years, Pulsed Field Ablation (“PFA”) has gained attention in electrophysiology for the treatment of AF because of its safety profile and speed. Current clinical products employing PFA in AF treatment differ from CellFX nsPFA technology in that the pulse widths are longer, typically in the microsecond domain. We believe CellFX nsPFA technology, which delivers pulses of electrical energy that are each less than a millionth of a second long, can offer similar safety advantages as PFA and may provide improved efficacy advantages based on the circumferential design of our catheter and because it appears CellFX nsPFA technology can create deeper ablations.
Similar to the cardiac ablation clamp, our proprietary catheter has been in development for several years and we have been working with leaders in the electrophysiology field to test the catheter in preclinical studies. After seeing encouraging preclinical results, in December 2023, we initiated a clinical study in Prague, Czech Republic, to test our CellFX nsPFA 360° Cardiac Catheter in patients with AF and early acute data and remapping data from this study have been promising. We have therefore expanded the initial clinical protocol to enroll up to 60 patients, from 30, and to include participation by two additional sites. The study is now almost fully enrolled. Investigators have successfully remapped the first half of the study participants and we have been encouraged by the preliminary results seen in the study. We believe the catheter will need to go through the PMA process for FDA approval to market and sell our cardiac endocardial catheter in the United States. We expect to commence a U.S. IDE pivotal clinical study sometime in the middle of 2025.
The CellFX Console
The CellFX Console is a tunable, software-enabled, console-based platform, designed to accommodate the clinical workflow preferred by physicians. The CellFX System is configured to accept a variety of disposable end-effectors or electrodes across a range of clinical applications. In February 2021, we received 510(k) clearance from the FDA for the CellFX System for dermatologic procedures requiring ablation and resurfacing of the skin. In January 2021, we received Conformité Européene (“CE”) marking approval for the CellFX System, which allows for marketing of the system in the European Union (“EU”). Shortly after these regulatory clearances, we began commercializing the CellFX System in dermatology for the treatment of benign skin lesions. However, in September 2022, we announced a shift in our focus from dermatology to cardiology and the treatment of AF. We have ceased all commercial sales and marketing operations in dermatology. At the present time, we continue to support our remaining commercial users and remain open to a potential commercial partnership. The CellFX System is being used for our current efforts in the treatment of AF and as part of the CellFX nsPFA Percutaneous Electrode System.
We continue to believe nano-PFA ablation, as well as NPS technology more broadly, has the potential to provide superior outcomes across a variety of medical disciplines and we may seek partnership opportunities to develop additional applications.
Financing Our Business
Over the past few years, Robert Duggan, our majority stockholder and Co-Chairman, has made significant investments in our Company to fund its operations. In June 2022, we completed a common stock rights offering to our existing stockholders, which raised $15 million in aggregate. Mr. Duggan purchased approximately 56% of the shares offered through this offering. Then, in September 2022, we entered into a loan agreement with Mr. Duggan pursuant to which he lent us $65 million to fund our product development operations. In April 2023, this loan agreement was terminated when Mr. Duggan and the Company entered into a Securities Purchase Agreement whereby the shares were paid for through the cancellation of both the principal sum of $65.0 million and all accrued and unpaid interest owed at the time under the 2022 loan agreement, which totaled approximately $0.2 million. In June 2024, we completed a rights offering of units (each unit comprising a share of our common stock and two warrants, each to purchase a one-half share of our common stock) to our existing stockholders, which raised $60 million in aggregate. Mr. Duggan purchased approximately 88% of the shares offered through this offering. Mr. Duggan may or may not elect to participate in any number of future fundraisings by the Company, whether similar to those described above or otherwise, and he may choose to invest more than his current pro rata share in any of these fundraisings, or alternatively he may offer to provide additional debt financing as may be needed in order to maintain the Company as a going concern.
The source, timing and availability of any future financing will depend largely upon market conditions and perceived progress in the Company’s on-going product development initiatives, as well as future clinical and regulatory developments concerning the CellFX System and our other NPS-based technologies. Funding may not be available when needed, at all or on terms acceptable to us. Lack of necessary funds may require us to, among other things, delay, scale back or eliminate some or all of our commercial activities, reduce headcount, trim research and product development programs, discontinue clinical trials, stop all or some of our manufacturing operations, defer capital expenditures, deregister from being a publicly traded company and delist from Nasdaq, or license our potential products or technologies to third parties, possibly on terms that cannot sustain our current business. In addition, economic instability caused by the armed conflicts in the Middle East and Ukraine and high interest rates, together with other market factors, could have an adverse impact on potential sources of future financing.
We have incurred substantial operating losses and have used cash in our operating activities since inception. To fund our business, we may utilize some combination of public or private equity offerings, debt financings, or potential new collaborations in the future. There can be no assurance, however, that any additional financing or any revenue-generating collaboration will be available when needed or that we will be able to obtain financing or enter into a collaboration on terms acceptable to us.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our critical accounting policies and estimates. Our critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2023.
Stock-Based Compensation
Our stock-based compensation programs include stock options and an employee stock purchase program. We periodically issue stock options to officers, directors, employees, and consultants for their services to the Company. Such issuances vest and expire according to terms established at the issuance date. Stock-based payments to officers, directors and employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values, which are estimated using the Black-Scholes option-pricing model. Stock-based compensation expense is charged to operations on a straight-line basis over the requisite service period. We have granted stock options with time-based, performance-based, and market-based vesting conditions. In October 2024, our Board approved changes to the vesting conditions of certain outstanding common stock option awards so that the performance-based vesting criteria of those particular awards will be changed to either time-based or market-based vesting criteria.
For stock options with performance-based vesting conditions, we do not recognize compensation expense until it is probable that the performance-based vesting condition will be achieved. The analysis to determine such probability involves estimates and judgements from management. The estimate of expense may be revised periodically based on the probability of achieving the required performance targets.
The vesting conditions for stock options with market-based vesting conditions relate to the achievement of certain market capitalization targets of the Company. The grant date fair value for these stock options was determined using a Monte Carlo simulation. The expense is recognized over the requisite service period for each tranche of the awards. The requisite service period is the service period derived from the Monte Carlo simulation model. If the market capitalization targets are met sooner than the derived service period, we will accelerate the recognition of stock-based compensation expense to reflect the cumulative expense associated with the vested shares. The Monte Carlo simulation requires the Company to make assumptions and judgements about the variables used in the calculation including the expected term, volatility of the Company's common stock, an assumed risk-free interest rate, and cost of equity.
Recent Accounting Pronouncements
Refer to “Recent Accounting Pronouncements” in Note 2 of Notes to Condensed Consolidated Financial Statements of this Quarterly Report.
Segment and Geographical Information
We operate and manage our business as one reportable and operating segment. Our Chief Operating Decision Maker ("CODM") reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. All of our long-lived assets are based in the United States.
Results of Operations
Comparison of the three-month periods ended September 30, 2024 and 2023
Our condensed consolidated statements of operations as discussed herein are presented below:
| Three Months Ended |
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| September 30, |
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