Pulse Biosciences (PLSE): Furiously Peddling Toward More Risk

by Sonya Colberg, Senior Editor - 3/21/2017 8:27:13 AM

TheStreetSweeper releases an investor alert regarding Pulse Biosciences (PLSE).

The company is working on a device that uses pulsed electric to possibly treat tumors and skin problems such as warts. Stock in the zero-revenue company began trading on the Nasdaq last spring.
 
Investors may find the company website here. Meanwhile, TheStreetSweeper presents Pulse's rickety basket of risks:
 
*1. Best Estimate of Pulse's Value: IPO Value
The Burlingame, California company conducted its initial public offering or IPO less than a year ago ... at a price per share of $4.
We were not thrilled to see that MDB Capital Group acted as co-underwriter. The riskiest of companies have to sign up with an investor like MDB because most other banks shy away from such teeth-chattering risk.
 
All too often, struggling companies are underwritten by MDB, enjoy a fleeting stock rise, then suffer a big drop back.

Second Sight Medical Product (EYES) is one example. The firm managed their initial public offering three years ago at $17 per share. Shares jumped out at $21 but have declined more than 90% to ~$1.20:

- mmmm(Source: Yahoo)

So Pulse is the same company it was on that warm, sunny day last May 18 when the stock first began trading on the Nasdaq.

Pulse has no source of revenue, no commercial product and has not made a dime.
 
(Sources: Company SEC filings, TheStreetSweeper)
 
And though Pulse touts its 510(k) submission, the submission is insignificant; the FDA has decided nothing and a study shows that candidates that make it to phase II rarely advance to phase III - only 31% move forward. Indeed, the company has shown no meaningful progress since the initial public offering.
 
So at this stage, TheStreetSweeper can't imagine the stock being worth even 20% higher than IPO price.
 
But the market has been running headlong, pushing Pulse over 500% since then ... to a price that we believe remains unjustifiable.

*2. Ripping Through Cash

Pulse has been digging the hole deeper and deeper because new medical device companies simply get doggone expensive just swaying in place. Much less stepping ahead.

Pulse is already over $12.6 million in the hole.
 
The company is ripping through cash at a rate of about $970 each hour... approximately $2 million in a quarter...

(Source: Company SEC filing, TheStreetSweeper)

So, thanks primarily to its IPO, the company had around $16 million in cash in December. If you add the $5 million made from the February private stock sale and subtract current cash burn, there's enough for a while.

But the real money-gobbling begins if the company ever progresses. Then it would have to add massive costs for everything from clinical trials, to making the device to marketing and distribution.

To get an idea of the money Pulse would need to approach the human trial stage, let's consider some  rivals...

*3. Competition: Clobbering Pulse

Competitors in the cancer market include Juno Therapeutics (JUNO) and Kite Pharma (KITE).

Research and development is the lifeblood of all the biotechs. But Juno spent 18 times more than Pulse on research and development. And Kite spent over 118 times more on R&D.

(Sources: SEC filings, Marketwatch, TheStreetSweeper)

Clearly Pulse will have to spend much more to catch up with Juno and Kite. And those two have barely stepped on the gas toward the accelerated spending required to fuel a biotech.

But even spending hundreds-of-millions on research and development can't assure success or profit.

These companies are doing much better than Pulse as far as revenue and cash. But despite their experience, Juno and Kite are still very risky and sickly, too.

(Sources: Company SEC filings, year's end cash, TheStreetSweeper)

Similarly, Pulse revenue, cash, earnings and R&D budget fall far short of a competitor in the targeted wart and dermatology field, Syneron:

(Sources: Marketwatch, Yahoo, TheStreetSweeper; ELOS last available 2015 numbers)

Biotech carries no guarantees, other than you can bet on burning plenty of cash chasing a product that may or may not ever become reality.

Case in point: Juno shares recently declined again when the company announced it would not progress its cancer treatment due to "unfortunate and unexpected toxicity." The stock reeled late last year after several patients died during clinical trials.

So, how would a company like Pulse fund such large risk-filled costs and any of the more massive expenses waiting ahead?

Ah, that's where the average stockholder could get run over ...


*4. Imminent Risk: Dilution
 

So if Pulse tries to do anything but stand still, the most likely funding options are a debt-for-stock deal or selling more stock.

Both alternatives mean current stockholders have a pretty fair risk of watching their stock get watered down. That's nothing new. About 4.5 million shares that have been under the 12-month-post-IPO lockup will soon be released.

That stock can be sold in the first week of May.

Especially if sold en masse, those millions of shares could significantly water down shares owned by existing stockholders. The company warns that it will continue to issue and dilute:

 "...we expect to finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements.

"If we raise funds by issuing equity or equity-linked securities, the ownership of our stockholders will be diluted...".

It's like billionaire investor Warren Buffett once said:

"Anytime a company becomes a serial issuer of stock, they don’t think much of their stock.

"And they’re using it as an over-valued currency. And almost always something bad comes from that,” said Mr. Buffett.

 

*5.Technical Indicator: Hitting The Stock "Sell" Button
 
Finally, a stock's relative strength indicator (RSI) can show when a stock is poised to fall. An RSI of 70 or above is typically a good sell signal.
Over the last few days, Pulse has been well above 70 into the 80s
On Monday, we could see the stock beginning to give in to the RSI forces. The price is falling ...
 
(Source: Marketwatch, TheStreetSweeper)
 
 
(Source: Marketwatch, TheStreetSweeper)
An RSI of 50 is the mid-range and widely considered a point at which the stock price "wants" to be.
But Pulse's RSI suggests the stock is beginning to move toward the mid-range but still has a lot of room to fall.
Based on the RSI, we believe Pulse stock is at substantial risk of quickly dropping several more dollars.

*Conclusion

Pulse needs the wisdom of Warren Buffett, the cash of Merck, the luck of the Irish and the fangs of a junkyard dog.
 
Company stockholders have climbed on a rickety bicycle and are furiously pedaling over an endless road of watered down shares. Ongoing bumps and risks lie ahead, ultimately likely waiting to dump average stockholders in a heap.
 
TheStreetSweeper expects shares will drop by ~ 50% near-term... still a preposterous valuation for this stock.
 

* Important Disclosure: The owners of TheStreetSweeper hold a short position in CRCM and stand to profit on any future declines in the stock price.

* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected]

 

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