*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)
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.
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.