Pulse Biosciences (PLSE): Shock Therapy Doesn’t Cut It

by Sonya Colberg, Senior Editor - 5/23/2017 9:09:38 AM

Pulse Biosciences (PLSE) churns out disappointing study results and accelerated losses, yet the stock has shot up over 400% as unwary investors follow a billionaire’s whims.

The Burlingame, California company is working on technology that shoots electrical pulses at cells in hopes of annihilating tumors. The materially weak company burned up $8 million last year alone as it flitted along its non-FDA-cleared, non-product, non-revenue wavelength.

Now, stockholders face shockwaves amplified by the baseless stock action.

Investors may get the company’s viewpoint here. Meanwhile, TheStreetSweeper weighs in, offering the current points that have this stock pulsing with risks for average stockholders:

*Billionaire Getting Boring?

The mundane Puse had trudged along trading in the $4 to $5 range since its May 2016 initial public offering. It became a rock star early last February, after the company announced billionaire investor Robert Duggan’s ~15% stake in the company. He initially bought stock for $6.10 per share.

The influential executive has been adding to his stake and news outlets have reported his frequent filings since then. Below is the recent run-down:

(Source: Company SEC filing)

The stock gassed up to $30-plus in March and then cooled off to $20:

(Source: Yahoo)

Regardless, large institutional investors just do not care. Big institutions hold a miniscule 3% stake in Pulse, while small investors follow along behind Mr. Duggan.

But now everybody seems to be getting a little bored.

With all due respect, the billionaire’s followers no longer have a good reason to follow unless he’s prepared to buy the whole float at $20. Then he can sit back and say he owns basically a shell that will have to perform before long

 

*MDB Capital, Directors: Getting Out While The Getting’s Good

The rally has brought out sell-happy insiders.

The stock began to sag after hitting $30. So with shares selling for around $25, MDB Capital, perhaps worried that the stock would soon swoon, suddenly unleashed shares locked up since the IPO:

On April 18, 2017, the underwriter of the Company’s initial public offering, MDB Capital Group LLC, informed the Company that it had immediately and irrevocably waived the lock-up provisions for pre-IPO stockholders holding approximately 3.9 million shares of the Company’s Common Stock.  These stockholders, which include certain of the Company’s directors and 5% holders would have been subject to the lock-up until May 17, 2017 under the terms of the existing lock-up agreements.

So, 3.9 million shares – including those owned by MDB and other insiders - were unlocked for potential sale a month early.

Company directors are also using the simmering stock rally to get out.

On the 8th, 10th and 12th of this month, Thierry Thaure and Robert Greenberg dumped a half-million-bucks worth of stock apiece.

The insiders sold their entire stake … 50,000 shares:

 

(Sources: Company SEC filings, TheStreetSweeper)

Insiders unloading all their stock at $21 to $24. Yep, sounds like a sell signal to us.

Now, let’s circle around and consider other concerns surrounding this billionaire-fueled rally…

*Case In Point: Mistake Worth Billions

Just because a billionaire has invested in Pulse doesn’t mean it’s a good investment.

Case in point is billionaire investor Bill Ackman, who lost nearly $4 billion in Valeant Pharmaceuticals. Valeant had wallowed in a world of absurd accounting, debt-fueled acquisitions and horrific drug price hikes. Then a lawsuit arose accusing Valeant and Ackman’s Pershing Square hedge fund of insider trading during Valeant’s failed 2014 hostile takeover bid for Allergan.

By the time his fund dumped all its Valeant shares in mid-March 2017, the fund had suffered a 90% loss. Mr. Ackman’s investors, according to Forbes, were the big, almost forgotten losers.

So, the little guys can grow weary of billionaires and their toys…

*Technologically Challenged

Average investors seem to be getting bored with the lack of momentum in this company that has not performed and, we believe, will not perform.

Pulse claims its electric-pulse technology can likely “control” tumors and spark immune responses. But the technology is unreliable, unremarkable and performs worse than the competition, as Kerrisdale Capital described in a recent report.

Though Pulse has applied for 510(k) submission, the FDA has approved nothing. The technology is just in the beginning stages and a long way from any serious talk about any commercial use.

“We have not projected a timeline for when we would receive our first commercial dollar,” CEO Darrin Uecker said in the May 7 earning call.

Meanwhile, Pulse’s own sponsored research shows its NPS (Nano-Pulse Stimulation) technology can’t reliably kill cancer cells even in a lab setting. And some human patients suffered residual cancer or abnormal lesions -- worse outcomes than through standard surgery. More recent Pulse-funded research found that NPS can’t kill some human cancer cells.

*A $2 Stock

Meanwhile, competitors’ technology nearly identical to Pulse’s NPS have been commercial disappointments. AngioDynamics’ NanoKnife, for example, has undergone much clinical testing plus a decade of marketing yet left management disappointed in January 2017: “(Segment revenue was) down 6% year-over-year and was driven by lower sales in ablation products and NanoKnife…”

Let’s consider NanoKnife’s ~$29 million implied market valuation. If Pulse could somehow miraculously justify the same valuation (which we don’t believe it can, certainly not at this stage), Pulse’s stock would have 92% downside. So a generous valuation for Pulse would be $2 per share.

Pulse technology is, we believe, irrelevant and can’t overcome the disappointments endured by its arguably superior competition.

*Conclusion

The retail investor, in our view, is getting tired of following the billionaire and there’s no more short squeeze.

Insiders recently sold out in the lower $20s and the stock, we believe, will test $20 again. We’ll see if the wealthy investor wants to buy at $20 – which is about 20% lower than today’s price. And then, if he gets out of the way, the price can plunge to $15 in a matter of seconds.

We believe there’s more supply than demand, now that average investors appear unwilling to follow the billionaire into this valuation hole. And nobody can stand to chase a $392 million shell of a company that can’t perform… at least not for long.

 

* Important Disclosure: The owners of TheStreetSweeper hold a short position in PLSE 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 streetsweepereditor@yahoo.com.

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