Q4 2020 PolarityTE Inc Earnings Call

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Good day and welcome to the par sheet T E fiscal year, 2020 earnings call Today's conference.

France is being recorded.

At this time I would like to turn the conference over to Richard. Please go ahead Sir.

Thank you operator.

Good morning, and thank you for joining and clarity to you call to discuss fourth quarter and full year 2020 results on.

And rich Harley Vice President Investor Relations.

And on the call today are members of the executive team.

And that included David Siebert CEO.

Richard Hague, President and CFO, and Jake Patterson and interim CFO.

Before we begin I would.

Like to remind everyone that today's discussion will include statements about the company's future expectations.

And prospects and <unk>.

<unk> forward looking statements.

For purposes of the Safe Harbor provisions under the.

Private Securities Litigation Reform Act of 1095.

We caution that these forward looking statements are subject to risks and uncertainties.

It may cause actual results to differ materially from those indicated.

These forward looking statements are based on our current expectations and may differ materially from actual results due to a variety of factors that are more fully detailed under the caption risk factors and our filings with the SEC.

Our annual report on form 10-K for the year ended December 31 2020 to.

And to be filed with the SEC today.

Any forward looking statements made on this call speak only as of today's date Tuesday March 32021, and we disclaim any obligation to update such statements to reflect events or circumstances.

Occur after today's call as except required by law.

I'd like to highlight.

That the call is being recorded.

And we're making it available to investors and the media via webcast and replay will be available on our website and the Investor Relations section. Shortly following the conclusion of the call.

Additionally, it is the property of clarity GE.

And any redistribution retransmission or rebroadcast of this call and any form without <unk> expressed written consent is strictly prohibited.

I'd now like to turn the call over to David Siebert.

Thank you rich and welcome everyone I'm pleased to report that we had another record quarter in terms of revenue, but more importantly, we made significant progress on the preparation for our IND submission.

Today I will begin by highlighting some of the achievements we've made over the last year and then turn the call over to Richard Hague, who will provide an update on the regulatory development plan for skin GE, followed by a financial update from J Patterson.

Now I would like to highlight some notable achievements first last April we announced plans to pursue BLA for <unk>.

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And subsequently.

Feedback from the FDA.

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Great.

And we're achieving it.

Hi.

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Yeah.

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And the second.

2012.

Thank you.

And the patients.

And 2020.

And so legacy expenses, we commenced COVID-19 testing, which helped generate additional revenue into three operating expenses and we've right sized the company with respect to head count, which included a reduction to our commercial footprint.

Here are a couple of highlights.

Our 2020 operating cash burn was approximately 33% lower compared to 2019, while total revenues were up 79% year over year.

Even more impressed and because that the operating cash flow and in Q4 of 2020 was 70% lower than the same period in the prior year.

Total operating costs and expenses and 2020 were 47% lower than our debt in 2019 driven.

Driven largely by a 46% reduction and personnel.

And stock based compensation was down 77% and 2020 versus 2019.

We believe the organization is now operating at a greater level of efficiency and much of this was achieved and made a global pandemic pandemics and created substantial challenges and uncertainties of the organization, which we.

Drove growth.

Sure. We believe the company is now better positioned after having strengthened our balance sheet through recent financings with the current cash on our balance sheet. We expect our business activities will be funded into the third quarter of 2022.

Fourth we completed enrollment and a randomized controlled diabetic foot trial, comparing <unk> plus standard of care to standard of care alone. We look forward to sharing these results via presentation and press release.

CWC spring and May of this year.

And fifth we have made incredible progress to protect our intellectual property. The company's total number of allowed and granted utility patents is currently 10 internationally and two in the U S.

Now, let's turn to slide six for a review of our fourth quarter 2020 revenue versus third quarter.

Total revenues were approximately $3 $5 9 million up 8%.

<unk> revenues were approximately $1 2 million up 4% and.

And contract services revenue were approximately $2 $3 9 million up 9%. This includes revenues from COVID-19 testing, which was approximately $1 $86 million and Q4.

Now I'd like to touch on our full year 2020 results versus 2019, which truly demonstrates the transformation of this company has undergone over the past year and.

In 2020 total revenues were approximately $10 3 million up 79%.

<unk> revenues were approximately $3 $73 million up 59% and contract service revenues were approximately approximately $6 4 million up 94% again. This includes revenues from COVID-19 testing, which was approximately $4 $3 2 million. Since we began testing in late may of last year.

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While we are extremely proud of our fourth quarter and 2020 results. It is important to note that the FDA stated policy on enforcement discretion for 361 https ends in May.

If enforcement discretion is not extended or the FDA does not make other accommodations from manufacturers of 361 products, who are transitioning to a $3 51 product we may need to see some marketing skills.

In addition, we recently received information from our largest COVID-19 testing customer on New York based nursing home operator that New York is allowing on site COVID-19 testing for nursing home staff, which we expect will reduce our testing revenues were exploring needs to add new services from this customer such as processing tests for their residents instead.

Net of their staff and working to identify new customers, but we do expect fluctuations and our 2021 COVID-19 testing revenue due to a shifting and dynamic landscape.

I'd like to make one thing very clear rigs.

And regardless of whether <unk> remains on the market. After the conclusion of the enforcement discretion, we would not expect to see a major impact to our P&L because we believe we can eliminate cost that correspond to the loss revenue and.

Evidenced by the progress we've made over the past year and transitioning this business. We are prepared to pivot quickly and effectively and response to this potential change, including continuing to manage our costs.

Accordingly, our focus remains on achieving the key regulatory milestones necessary to attain a and b obtain a BLA for <unk>, which we believe will maximize the long term value of this asset.

Now I'd like to turn the call over to Richard who will provide an update on our regulatory development plan for <unk> and.

And other operational updates Richard.

Thank you David and good morning, everyone.

Pleased to share the progress we've made towards our goal of submitting and <unk> and the second half of this year.

As I described on our last earnings call. We received our initial pre IND and feedback.

Feedback from FDA and Q4.

Since then we've had other interactions with the agency they have given us additional clarity and confidence around our ongoing R&D enabling activities.

And these activities remained specifically focused on three areas.

CMC or chemistry manufacturing and controls preclinical and clinical.

With regards to CMC, our team is making excellent progress towards characterizing <unk>, which over the next few months should allow us to validate and implement and matrix of product release assays to meet FDA requirements and.

In parallel we're making some really strong progress on our transition to current good manufacturing practices or cgmp.

On the preclinical front.

Plan to conduct a certain.

And to conduct certain additional preclinical work, including a GOP toxicology study. However, based on recent feedback we received from the FDA. We do not expect the completion of this work to delay the timing of our R&D submission or the initial the initiation of our pivotal trials.

As discussed on our Q3 call data from our recently completed <unk> RCT and will be included as part of the skin and safety package.

You should note that we currently have 29 patients enrolled and RVO you RCT and.

And plan to stop enrollment after we reached 30 patients with the <unk>.

Final <unk> data package is complete and time, we will include it and our IND submission as well.

Believe it stopping mobile use study is the right decision as it will allow us to reduce costs and better aligned with our strategy to pursue full thickness the abuse.

Our lead indication.

With regards to critical we plan to move forward with the trial design that we initially proposed to the agency, which is focused on full thickness defuse ranging in size from two centimeter squared to 10 centimeter square penetrate the deep structures, such as capsule tandem or bone.

And this corresponds to Wagner grades two and four and University of Texas grades two and three.

In January we had a very valuable clinical advisory Board meeting, which included a number of highly experienced and care positions representing multiple specialties.

Through the excellent feedback we received we believe the final trial design can be submitted to the RMB will be well received by FDA and by clinicians who will eventually participated and the trial.

And we're taking steps now to ensure that we can begin enrolling patients.

And after and IMT approval is hand in hand.

At this point I would like to highlight the additional steps, we're taking to maximize the full potential of <unk> over the next several quarters.

Shortly after the idea of opening we expect to submit a second day, a few trial protocol to FDA, which will focus on full thickness the abuse greater than 10 centimeter square on.

Goal is to get the study up and running as soon as it is approved and to use the data from the two studies to pursue a broad BLA approval for the hard to heal defuse previously described.

Stage, three and four pressure injuries remain an important priority for us and as the next indication we plan to pursue.

We are currently analyzing internal and external patient data.

Define the parameters are and appropriate trial design.

Our plan is to submit a supplemental or additional R&D and the syndication later this year or early 'twenty 'twenty two.

We plan to take similar steps to follow on with and acute one indication.

We believe that the work we're doing now and preparation for that <unk> will be the foundation for accelerating the approval process.

Other indications.

We're very encouraged by what our team has been able to accomplish and the five months since our last earnings call and we remain confident and our ability to execute on our strategy to pursue multiple indications for <unk>.

We continue to be inspired by the outstanding real World results that physicians and their patients experience and extremely challenging on types and remain steadfast and our belief that <unk> can be a game changer and this underserved multibillion dollar market.

And I would like to turn the call over to Jay Peterson for a financial update.

Jake.

Thank you Richard and good morning, everyone.

And as David mentioned for the fourth quarter of 2020, we reported approximately $3 five 9 million and total revenues.

This includes revenues from skin.

Which we referred to as products and our 10-K.

And revenues from the sale of contract research services, which we refer to as services and the 10-K Rev.

Revenue from products during the quarter were $1 2 million and revenues from services were $2 $39 million.

On previous calls we discussed our targets with lowering based operation and cash burn to less and $2 million grew month on average I'm happy to report that we achieved this target from the fourth quarter cash.

Cash used in operating activities and the fourth quarter of 2020 was approximately $8 million.

Which included $76 million of offering and re price and cost or $4 $82 million, excluding Hartford and re price and costs were approximately $1 $6 million per month on average, which is 70% lower than the $5 three 3 million monthly average and the fourth quarter of 2019 and 29.

And the two to 5 million monthly average and the third quarter of 2020.

Additionally for the full year ending December 31, 2020 cash used from operations was 30 775 million.

33% lowered and cash used from operations during 2019.

Consistent with our DLA strategy and discussed in previous press releases, we are continuing to work aggressively to reduce our base operational cash burn and expect it will remain on average below $2 million per month, excluding costs associated with the clinical trials and daily related activities.

We finished the fourth quarter of 2020 with approximately $25 5 million of cash and cash equivalents on our balance sheet.

While our future cash projections may change, including the additional capital range from a direct investment and exercise of warrants and January of this year, we believe current cash.

And cash equivalents will be sufficient to fund our activities through the end of 2021 and into the third quarter of 2022.

I'd like to turn the call back over to David for some concluding remarks.

Yes.

Thanks, Jay Covid.

As a team we've taken extraordinary steps to position this company for the future by implementing transformational changes over the past year, we continue to.

And make progress on our regulatory plan for skin GE and are eager to reach important regulatory milestones and we could begin to generate clinical data under 90, and eventually obtain a DLA to help more patients and providers realize the benefit of skin T.

We've reduced monthly cash burn in Q4 by 70% versus the prior year.

We now have 10 granted or allowed patents worldwide, we have seen skimpy applied and over 1100 clinical cases and reported record service and product revenues in 2020.

We successfully enrolled a large randomized control trial and <unk> with data expected in May and we have shored up our balance sheet such that we have adequate cash to fund operations into the third quarter of 2022.

It's truly remarkable progress we've made particularly given the ongoing global pandemic and our recent decision to pursue a BLA I believe the company is and the strong position and I'm incredibly proud of the entire team for getting us here.

Now I'd like to open the calls up for Q&A.

Thank you Sir.

And would like to ask a question. Please signal by pressing star one on your telephone keypad.

If you're using a speaker phone. Please make sure you're on mute function is turned off to allow your signal to reach our equipment.

That's all I spent on the phone line with indication your line is open please.

Please state your name and company before posing your question.

Again that is star one to ask a question.

We'll now take our first question. Please go ahead caller your line is open.

Hi, Good morning, everybody. This is Kristen <unk> from Cantor Fitzgerald, Thanks for taking my questions.

First one I had was and CWC next month could you. Please comment on which metrics we might see data from outside of wound closure well it looks similar to the presentation. We saw last year with the first 50 patients and then are you also planning to conduct any further work around cost and time savings.

Sure Richard you want to take this question.

Yeah, sure Hi, Kristen I'll say, yes, the data presentation will be similar to what we presented last year.

And this CWC presentation will be focused on top line data.

And there will be some additional data that will report.

After a CWC as additional analysis is done.

Got it. Thank you and then for the <unk> trial understand that you're hoping to enroll one more patient here, but wondering once you have all that data collected if this is something you would look to share the data from that at a future Medical conference.

Yes, we do plan to do that the reason we chose 30 is a stopping point and so we could have a and even distribution of 15 patients and the control arm and <unk> and the treatment arm and we certainly do plan too.

And to present that and hopefully get that day to publish down the road.

Great. Thank you and then with your cash guidance here into the third quarter of 2022.

You talk about which trials or how you thought about incorporating these trials that you laid out today and the guidance specifically in terms of number of patients and it sounds like from your report earlier that you'll be looking to run these and kind of a tight sequence formation.

Yes, so I'm sorry could you just clarify your question regarding the financial side.

Yeah. So because you provided guidance for us today and for the third quarter of 2022, just wondering how you've thought about incorporating your future trials into the guidance you provided today.

Oh, yes, okay. Thank you.

So they need the budget that we put in place and incorporates the trials on.

That we've described are the D F Q2.

And while the first trials, we said, we hope to be able to soon have the ideas open to get that enrolled a couple of months later on.

And so possibly by the end of <unk> and of this.

This year or early into next year.

And the larger D. F. You won't trial to follow on shortly after that so that is built into the budget as well as the pressure injury.

Study as well so that the debt cash guidance incorporates those studies.

Great. Thanks, and last question here is how important is this data that youre going to share and CWC, you think to help with enrolment timelines for the trial and then you know what have you kind of seen across the space with COVID-19 in terms of whether these procedures.

Whether it's skimpy on another product or our sales being done has there been kind of an overhang lifted up after you know people are getting their vaccines and hospitalizations going down and certain geographies.

Yes, so we're certainly excited about presenting the current.

If you RCT data believe that'll be valuable for not only for investors to respect and appreciate.

The value of skimpy on these patient types, but also as you said many of the sites that we've worked with on that study would most likely participate and our new study. So we're excited about the carryover from that.

With regards to the impact of Covid, certainly we've seen that like everyone has but.

We've seen a more and more uptake of the product recently and we don't believe by the time that our studies kick off that the impact will be significant at all.

We've described we're we're gonna be treating some very challenging.

Deep loans.

Non elective procedures. These are critical procedures. So we expect the enrollment there too to be to be solid and to move forward as we expect.

Great. Thank you.

Thank you Kristen.

Yes.

As another reminder to ask a telephone question. Please signal by pressing star one.

Also please state your name and company before posing your question. Please.

And I'll take our next question. Please go ahead caller your line is open.

Hmm.

Morning, and David and which of them and this is RK from H C. Wainwright.

Couple of quick questions. Okay.

And so.

And that's only one month away from the day.

Enforcement and are.

And our enforcement programs and enforcement.

And what has been your day.

Good day.

And with the authorities.

Richard do you want to touch on that.

Sure.

So I mean, our dialogue has mainly been focused on the the IND.

Application process.

The guidance has been very I think very consistent from the agency with regards to enforcement discretion.

In terms of their interest and wanting to implement that however, as we know last year.

They decided to expand enforcement discretion.

A couple of months before it was too and and so it's hard to speculate right now exactly how they're going to handle this everyone knows that there you know.

Very very busy with Covid and.

And whether or not they'll be in a position to two.

To extend that or not remains to be seen and then I think the other question is exactly how they will handle certain products that are transitioning to a $3 51 and.

And are taking the appropriate steps to partner with the agency and how that will look at those types of products. So right now it's very much a speculation as to.

How how things are going to unfold.

But as David described earlier on the call were certainly prepared to to pivot and handle whatever whatever decisions come our way.

Right I think that's the key RK and there will be mentioned that regardless of what the outcome looks like you know we are prepared right and and I think that you know historically when you look at the execution of.

And this current management team we have responded I think very quickly.

And properly to different scenarios that we've been put you know have been put in front of us. This.

This is not going to be any different. So we are prepared and we've got a plan in place and.

And if need be we'll execute on that but.

The important part of it is that we we have eliminated or have you.

Look into and have determined the costs associated with.

Different aspects of this and and we're prepared to make it so that it is not an impact rocky and out and I think that's the important part the important takeaway is that we believe it's not going to happen and impact on our P&L and you need to go on that direction.

Okay. So if I and is filed and in second half 200 on us projecting.

Hum.

Can you help me understand like how long it would take and Jumbo times and.

And by the time, you know you have on everything that you need to file the BLA.

Sure. So you know a lot of it obviously depends on.

The timing of the R&D getting opened but once it's opened and we started enrollment.

Our historical perspective.

Guidance that it would be probably about 20 to 24 months to enroll these studies based on what we've seen previously with our current debt do you have your RCT. So you know with the fact that we plan to enroll our first study.

A couple of months after the ideas opened and then the follow on study a couple of months after that.

You could expect that roughly between 24 and 30 months, we should be in a position to have those those those data complete.

And then of course, you have to factor in the the the locked out of that data and the analysis out there before we file but I think thats.

Probably a good guideposts and about 24 to 30 month period. Once enrollment is is initiated.

Perfect. Thank you for that to chip and then the last Chris and David.

On on COVID-19 testing revenues and you.

And in Europe.

With some remarks out there on <unk>.

From state.

And in general how do you.

And so revenues.

Shape up, especially with the different states, having different mandates and and like mask mandates and whatnot.

How should we think about that revenue line.

And going forward, Yeah, I would just thanks for thanks for asking that looking at the end of the day you know we were clear about.

A customer that we have and you know New York faces and nursing home on.

It was pretty clear with us that they're going to see a shift from the way testing is being done.

That's going to have on near term impact on US there is no question on.

On you know that'll that'll have an impact most likely in Q2.

But we are working to explore ways to add new services for this customer.

On you know on we're also looking to identify new customers and we're working diligently on that so our point is we do expect fluctuations given the shifting dynamic of this landscape RK I mean, there's no question that that testing was something.

Something that we identified early on as you know would have hiccups potentially through 2021 assets.

The vaccines evolved so were seeing that head on and we're adapting to as best we can but yes, we do expect given that this recent feedback from our New York based nursing home operator that that you know near term, we're going to see a little bit of a slowdown from and testing.

Okay. Thank you. Thank you both for taking my questions.

Of course, thank you okay.

Yeah.

As a final reminder to ask a telephone question. Please cyclical pressing star one.

Well pause for just a moment to and I F and and opportunity to signal for a question.

There are currently no further questions at this time.

This concludes today's call. Thank you for your participation you may now disconnect.

Yeah.

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