Pulse Bioscience: High-voltage hype set to short circuit

Pulse Biosciences (PLSE) is a $400 million medical-device company with 13 employees, zero revenue and one focus: Developing and commercializing a technology it calls Nano-Pulse Stimulation (NPS). This technology exposes cells to strong electrical fields for brief periods of time in hopes of killing them. Pulse claims that this method of killing cells constitutes a “novel therapeutic tissue treatment platform” with the potential not only to destroy tumors directly but also to “essentially transform [them] into vaccines to direct the immune system to destroy them,” according to the company’s chief scientific officer. On the basis of this — as opposed to significant commercial or technical progress — Pulse’s stock price has increased six-fold since its May 2016 initial public offering (see “Too far, too fast, below”).

This run-up is senseless. Contrary to Pulse’s highly selective narrative, even if NPS one day performs as advertised, it would still have little value from a clinical perspective. Worse still, our review of published NPS results reveals that the technology doesn’t perform as advertised. In the only formal NPS clinical trial published to date, Pulse researchers treated three patients with skin cancer and in an outcome far worse than standard surgery, left two with residual cancer and a third with discolored and anomalous-looking benign lesions. Very recently, new research funded by Pulse concluded that “even after the most intense treatments” a sizable fraction of human cancer cells across a range of cancer types simply cannot be killed by NPS. 

Pulse’s technology, barely off the drawing board, has shown itself to be weak, unreliable, and undifferentiated. Investors with high expectations are in for a shock.
 

Investment Highlights

Pulse’s NPS technology is far less special than it claims. Similar technologies have repeatedly fallen short of expectations. Pulse’s marketing message closely resembles that of NanoKnife, manufactured by AngioDynamics (ANGO). However, NanoKnife has been a disappointment both clinically and commercially. A decade after launching,
NanoKnife still produces less than $20 million of annual revenue – a small part of a relatively small, yet crowded market for nonsurgical tumor ablation. 

If the NPS technology were as good as it claimed, it would still struggle in a saturated market. With so much evidence quickly stacking up against NPS, we believe it’s dead on arrival.

After an uneventful launch with its stock ranging between $4 and $6, on Feb. 10, Pulse announced that Pharmacyclics COO Maky Zanganeh and Robert Duggan, who became a billionaire after selling Pharmacyclics, bought significant stakes in Pulse. Investors, acting on this shift in ownership, drove the stock dramatically higher. The price has become so frothy that underwriter MDB Capital had waived lock-up provisions a month early for pre-IPO holders of 28% of the company’s shares.

While the past successes of Pulse’s new minority shareholders deserve respect, they can’t change what the technology is or how well it works. NPS is still very early in its development, having been used on only limited clinical trials, but, with no meaningful edge over competitors and an accumulating weak and inconsistent body of evidence, Pulse cannot justify its current valuation. 

With only weak and equivocal clinical data to support them, novel ablation modalities akin to Pulse’s haven’t gained significant market share. The most relevant example is the NanoKnife IRE technology, purchased in 2008 for just $25 million, a small fraction of Pulse’s current market cap. If Pulse somehow merited the same valuation as NanoKnife, its shares would have 92% downside. Of course, such a valuation is absurdly generous. Pulse has 13 employees and no commercial products. It is years from earning significant revenue. NanoKnife, by contrast, is actually in use today. There is simply nothing about Pulse’s prototype technology that deserves a 1,200% premium to its closest comparable. If a healthcare provider wasn’t swayed by NanoKnife’s selling points, then Pulse’s pitch will also fall on deaf ears.

Approached from any angle, Pulse is massively overvalued even if NPS technology is all it’s cracked up to be. At best, NPS is a close cousin to NanoKnife, an obscure, poor-selling product frowned on by insurers, and unable to gain a commercial foothold beyond a handful of users. The features that Pulse claims distinguish NPS from all other cancer treatments and ablation modalities – its ability to foster apoptosis and spark an immune response – are commonplace yet have done little to drum up sales. 

Pulse is a tiny company that has made virtually no progress toward commercializing a technology that barely seems to work in the first place, yet the market is pricing it as if it were already 13x more valuable than its closest peer. In the years to come, Pulse will need to repeatedly raise capital to cover its cash outflows as it attempts to inch closer to becoming a real business. We believe this money will be wasted: These nanosecond pulses deserve a nanocap valuation of 90% lower than where it trades today.  

Hedge fund Kerrisdale Capital Management is short PLSE.