In May 2017, Kerrisdale Capital released its report on Pulse Biosciences, a $400 million medical-device company with 13 employees and no revenue. The company is developing a cancer-killing technology called “Nano-Pulse Stimulation” (NPS), which uses strong electrical fields over brief periods to kill cancer cells. Since its May 2016 IPO, Pulse had seen a six-fold gain in its stock price.
Cautions on NPS Claims
Kerrisdale Capital CIO Sahm Adrangi had doubts about the efficacy of the technology. After reviewing NPS, he saw little difference in the technology from competing products on the market–particularly NanoKnife, which has been on the market for a decade with little traction. Despite the similarity, Pulse has claimed unique benefits from NPS, such as the induction of apoptosis (a form of programmed cell “suicide”) and the stimulation of the immune system. Kerrisdale pointed out that NPS — even if confirmed — actually offers nothing unique from several treatments already on the market.
Pulse’s research didn’t hold up to scrutiny either. While claiming NPS a success, the company quietly published data–and does not mention in press conferences–that suggests NPS does not actually do what the company says it does. The question then became, what is the point of a cancer-killing treatment that does not actually kill cancer cells?
With the stock trading around $23.07 at the time, Pulse experienced a significant slide after Kerrisdale’s report. It recovered in June with a 52-week high of $39.50 on the news that it was starting a 106-day study of the use of NPS in the treatment of seborrheic keratosis a common skin lesion that affects over 80 million patients in the US. It’s been downhill ever since, trading just under $19 at the beginning of October.
Kerrisdale Predicts Continuing Lack of Results
In September 2017, trading on Pulse Biosciences was briefly halted pending news. Shortly thereafter, the company reported that it was withdrawing its marketing application with the FDA due to lack of required data and could not produce the requirement within the 90-day period for the application. Pulse insists it will reapply at an appropriate time in the future, but the failure to anticipate the requirements of its marketing application gives pause. Meanwhile, looming in the background are several class action suit investigations against Pulse. Several law firms are investigating potential investor harm resulting from the steep drop in stock price upon the announcement of the withdrawal of the FDA application. The law firms are reviewing allegations that Pulse may have issued materially misleading business information to the investing public.
Within two weeks, Pulse reported that it had made a $30 million private placement with accredited investor Robert W. Duggan at a price of $15.02 per share. Duggan has been involved as a Pulse investor for a while. In February 2017, Duggan, along with investment partner Maky Zanganeh, purchased $10 million in stock in addition to earlier purchases on the open market of 771,799 shares, resulting in an 18.2% stake for the team in the firm. With September’s private placement, the Duggan team now holds a 35.7% stake.
Pulse’s Results Don’t Fit the Marketing Hype
Nothing about NPS has changed since Kerrisdale’s initial findings. For Sahm Adrangi, investor support for Pulse remains perplexing. The NPS has clear comparisons to the NanoKnife, right down to its marketing. AngioDynamic, owners of NanoKnife, claim its “non-thermal” approach uses “electrical fields” that lead to “apoptotic-like cell death” with no damage to critical structures and vessels. The marketing is virtually identical. That technology, on the market for over a decade, has failed to generate annual revenues greater than $20 million for the company.
Another product, EDAP, which uses high-intensity focused ultrasound (HIFU), purported to treat cancers with the same non-invasive ablation (i.e., tissue removal). Time and again, non-surgical methods for cancer treatments have had negative results such as incomplete ablation, disease recurrence, and lower performance results compared to almost all other methods. EDAP’s HIFU products, which struggled to even receive FDA approval in the first place, generate around only $1 million in operating income.
Company Valuation is Skewed
Sahm Adrangi’s estimated valuations of Nanoknife at $29 million and EDAP at $26 million fall far below Pulse’s current market valuation of around $400 million. What’s more, Nanoknife and EDAP have actual, existing products with problematic results. Pulse has a hypothetical method and, to date, demonstrably inferior results. Worse, NPS is Pulse’s one and only product. In a simple comparison to NanoKnife, an almost identical product, NPS is overvalued by an astounding 90%.
Notwithstanding current developments of Pulse’s private placement with Duggan, Sahm Adrangi’s research remains the same. The Pulse Biosciences’ company data is out there, the efficacy of products is inferior to other cancer-treating methods, and the complete lack of significant, demonstrable results for NPS should keep the red flags flying on Pulse Biosciences.