Kerrisdale Capital Reveals Latest Short Selling Target: Will It Be The Next Straight Path?

Kerrisdale Capital, best known recently for its spectacular blow up on its Straight Path short, piqued investor interest yesterday when it disclosed that it would "publish on a new short tomorrow" adding that "entranced by a billionaire investor, investors haven't done their homework on this one."

And, moments ago, Kerrisdale did as promised, when it revealed that the target of its latest short campaign is Pulse Biosciences (PLSE).

This is what the short selling fund disclosed in a series of tweets this morning:

This $400m med device co is up 6x since 2016 IPO yet has achieved very little claims its "nano-pulse stimulation" tech has unique cancer-fighting powers. In fact, many other treatments have same properties  touts its first-in-human trial as a win, but look at the results. Efficacy far worse than surgery. These are the "after" pictures! PLSE pitch closely resembles that of NanoKnife, a product made by $ANGO that the mkt values at only ~$30m. Yet $PLSE trades 10x higher. New $PLSE-funded data (not disclosed by mgmt) shows 10-20% of human cancer cells survive even the most intense nano-pulse regimen. Sad! We believe $PLSE has >90% downside as the hype fizzles and commercialization efforts falter, as with many other similar products.

It adds the following investment summary from its 24-page report (link):

We are short shares of Pulse Biosciences, a ~$400mm medical-device company with 13 employees, zero revenue, and one focus: developing and commercializing a technology it calls “Nano-Pulse Stimulation” (NPS), in which cells are exposed to very strong electrical fields for very 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, in the words of the company’s chief scientific officer, to “essentially transform[ them] into vaccines to direct the immune system to destroy them.” On the basis of this high concept (as opposed to any significant commercial or technical progress), Pulse’s stock price has increased six-fold since its May 2016 IPO.

 

This run-up is senseless. Contrary to Pulse’s highly selective narrative, even if NPS one day performed as advertised, it would still have little value. For one thing, an existing ablation device called the NanoKnife, which has been on the market for a decade, also kills cells by exposing them to very strong electrical fields for very brief periods of time. While Pulse insists that its technology, by using somewhat stronger fields for somewhat briefer periods, generates wildly different effects, the scientific literature argues otherwise: many allegedly unique benefits of NPS, like the induction of apoptosis (a form of programmed cell “suicide”) and the stimulation of the immune system, apply not just to NanoKnife but to a wide range of other run-of-the-mill treatments. From a clinical perspective, Pulse’s NPS is nothing special, especially relative to NanoKnife – which, in turn, is a perennial flop with less than $20 million in annual revenue.

 

Worse still, our review of published NPS results reveals that the technology doesn’t perform as advertised. To the contrary, it’s often appallingly ineffective. For instance, 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 (but supposedly, for the time being, benign) lesions. Very recently, new research funded by Pulse itself 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 – an alarming phenomenon whose cause remains a complete mystery. The unexpected discovery of this “residual resistivity” or “tolerance” – published online in December, headed for print in May, yet, to our knowledge, never mentioned by Pulse management – may by itself wipe out what little commercial value NPS might have had. What’s the point of a method for killing cancer that can’t kill cancer?

 

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

The stock initially tumbled as much as 11%, however now the algos are BTFD; the whole gap lower may be eventually filled if investors assume that Kerrisdale "luck" remains and that another acquiror could emerge for the suddenly devalued PLSE, sending the stock higher as it squeezes the shorts.

Full note below (link).

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