Q2 2021 PolarityTE Inc Earnings Call

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Good day and welcome to the polarity T E second quarter 2021 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Rich Harley Vice President of Investor Relations. Please go ahead Sir.

Thank you operator, good afternoon, and thank you for joining <unk> call to discuss second quarter 2021 results are maturely, Vice President Investor Relations on the call today are members of the executive team, which includes David cheaper CEO, Richard Hague, President and C O O J.

Patterson interim CFO before we begin I would like to remind everyone that today's discussion will include statements about the company's future expectations plans and prospects that constitute forward looking statements for purposes of the safe Harbor provisions under the private Securities Litigation Reform Act of 1900.

Five.

We caution that these forward looking statements are subject to risks and uncertainties that 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, including but not limited to those detailed under the caption risk factors that are described in our annual report on Form 10-K for the year ended December 31, 2020 and subsequently.

<unk> reports filed with the SEC.

Any forward looking statements made on this call speak only as of today's date Thursday August 12, 2021, and we disclaim any obligation to update such statements to reflect events or circumstances that occur after today's call.

Except as required by law.

I'd like to highlight two participants that the call is being recorded a replay of the recorded call will be available on our website in the Investor Relations section shortly following the conclusion of the call.

Additionally, it is the property of <unk> T E and any redistribution retransmission or rebroadcast of the call in any form without <unk> expressed written consent is strictly prohibited.

I'd like to turn the call over to David cheaper.

Thank you rich and welcome everyone.

Like to kick off today's call with some corporate updates and highlights from our quarter and then turn the call over to Richard Who'll review, our development plan for skin T followed by our financial our financial update by Jake Patterson.

As many of you are aware on July 23rd we submitted an <unk> for skin GE and chronic continue yourselves ulcers. We propose this indication because chronic virginias ulcers represent an unmet medical need and a large market with significant economic burden.

So putting this into context. It has been estimated that roughly 1% to 2% of adults in developed countries will experience a chronic ingenious also during their lifetime.

Additionally, the costs associated with treating chronic wounds are substantial for example, it's been reported that the average hospital charge per pressure industry in Europe and injury is $48000.

And the direct costs of diabetic foot ulcers is on par with cancer at roughly $80 billion per year.

Furthermore, based on the learnings from our prior clinical experience with treating over 1200 patients with skin T is a 361 H C. G. P. We chose to pursue an indication that included the most challenging and cost intensive wounds with limited treatment alternatives.

We believe this strategy presents a great opportunity to capture market share and establish optimized pricing and reimbursement.

In April of 2020, we announced our plan to pivot skin from a 361 H T. T. P pathway to a $3.51 pathway and informed investors to expect India to be submitted sometime during the second half of 'twenty one immediately.

Immediately following that announcement, our entire team began working to ensure that we could submit this near the beginning of our guided range.

I want to congratulate our entire team because it was their hard work and dedication and.

And commitment that allowed us to submit our IND each of the FDA in July.

Now that R&D has been submitted our top two priorities going forward is it clinically stage company are as follows.

First securing acceptance of our Indy and commencing our first pivotal study as we advance <unk> through the regulatory process towards an eventual BLA submission and second continued focus on capital efficiency.

Jack will provide additional details in his prepared remarks on the side, but I would like to highlight the cash used in operation activities. During the second quarter was 38, 8% lower than the prior quarter.

Furthermore, we continue to target a base operational cash burn of less than 2 million per month on average.

This is an exciting time to work it polarity T. He and we are very proud of the progress we've made to date.

We continue to believe that a successful BLA will make skin T. A more value valuable assets and we remain committed to working closely with the FDA to accomplish that output.

Now I'd like to turn the call over to Richard Hague, who will provide additional detail surrounding the development plan for skin T. Richard.

Thank you David and good afternoon, everyone. As David described we were very pleased to have submitted our skin T E. I N D with a proposed indication for chronic cutaneous ulcers on July 23rd.

In response to our submission we recently received request from FDA as clinical and CMC reviewers for additional information we've provided responses to those requests earlier. This week I would categorize the feedback and questions. We received is very helpful and generally in line with what we had anticipated.

We feel that our responses and our revised clinical plan align well with FDA feedback and further support our position on key elements of Europe.

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With regards to our proposed indication FDA is interested guidance is clear the two pivotal trials required to achieve an initial BLA approval with that in mind, we felt that pursuing trials in two different wound types would potentially allow for the broader indication of product cutaneous ulcers.

F D. A guidance defines chronic cutaneous ulcers ulcers as a wound that has failed to proceed through an orderly and timely series of events to <unk>.

Produce a durable structural functional and cosmetic closure.

Our first proposed trial is for Wagner to D. F use which can be described as full thickness wounds with exposed critical structures.

We have seen very positive real world outcomes in this hard to treat patient population and believed that skin T. He could ultimately differentiate itself from other treatment alternatives for this one type.

Our second trial has yet to be proposed to the F. D. A however, we would expect to target another highly complex and difficult to heal wound type where we all have also seen positive results was going to eat.

An important common theme with complex chronic cutaneous ulcers as the overall cost of patient care due to comorbidities and length of hospital stay.

Based on our prior promotional express we have a great deal of confidence that in most cases, a single application of skin T E, which can be applied in multiple settings of care will have an important role to play in the effective management of this patient population.

Once the IND is accepted we plan to begin enrolling patients in our first study within three months and expect enrollment and follow up to take approximately 24 to 30 months.

Pending additional interaction with FDA, we would look to begin enrolling a second trial.

Soon after the initiation of the first.

We estimate that each study will cost approximately $5 million.

It is too soon to speculate on how FDA will react to our responses or what if any additional information request we may receive.

We are fully committed to working with the agency as we seek to have our I N D accepted as quickly as possible.

Now I'd like to turn the call over to Jake Patterson for a financial update Jake.

Jake.

Thank you Richard and good afternoon, everyone.

For the second quarter of 2021, we reported approximately $2 five 4 million in total revenues, which includes contract service revenues of $1.34 million in product revenues for skin T from April to the cessation of skin T E sales.

On May 31 of $1.2 million.

Total operating costs and expenses decreased 18% from 12.48 million for the three months period ended June 32.

2020 to 10.24 million for the comparable period in 2021.

This decrease was largely driven by the substantial reduction in personnel fluctuated in May 2020, the reduced salary and head count related costs across the company and subsequent periods.

Operating loss decreased to 22% from $11.1 million for the three months period ended June 32022, 8.63 million for the comparable period in 2021.

Net loss decreased 75% from 12.68 million for the three months period in June 32020.

The 3.19 million for the comparable period in 2021.

The decrease in net loss was primarily driven by the forgiveness of the company's PPP loan in June the.

The change in fair value of common stock warrant liability and decreased operating expenses in the quarter.

Cash used in operating activities for the second quarter of 2021 was approximately $4.1 million or an average 1.4 million per month, a decrease of 65% from $11.6 million or an average of $3.9 million per month in the second quarter of 2020.

And a decrease of 38% from $6.6 million or an average of $2.2 million per month in the first quarter of 2021.

The lower quarter over quarter cash burn is due to lower operating spend and decreased accounts receivable.

We will continue to target base Opry operational cash burn, which excludes costs associated with clinical trials and daily related related activities.

Two 2 million per month on average.

We finished the second quarter of 2021 with approximately $32.6 million of cash and cash equivalents and $30.5 million of working capital.

We believe the cash and cash equivalents on our balance sheet will fund our business activities through the end of 2021 and into the third quarter of 2022.

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

Thank you Jake.

The progress we made during the past several months to execute on our development plan for skin GE reinforces my confidence that we have a team in place with the talent dedication and experience required to achieve the successful BLA approval.

Recent <unk> submission was a critical first step to advanced skin GE through the regulatory process, which along with our commitment and focus on capital efficiency remains our highest priorities.

I'd now like to open the call up for Q&A and thank you for joining us today.

Yeah.

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

Our voice prompt on the phone line will indicate when your line is open.

Please state your name before posing your question Okay.

Press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal.

We will go ahead with our first question.

Caller you May go ahead. Your line is open hi.

Hi, This is Kristin Scott from Cantor Fitzgerald. Thanks for taking my question. The first one was just a clarification question. So it seems like the dialogue with the FDA to you.

Andy has been quite rapid in terms of your response earlier. This week just wanted to ask if there were any further responses required from your team at this point or is the next steps essentially to receive the next round of feedback from the FDA regarding what you submitted.

Thanks, Thanks, Christine and it's always a pleasure I love that you go first because you always ask the best questions Richard.

Richard would you like to address Chris' question on that.

Sure Hi, Kristen Oh, it's a great question actually we did receive an additional response back through our response from.

From the clinical group and we're in the process of responding to them and should have that response in some.

Sometime early next week and we.

We feel like we've made good progress in that particular area with them.

Okay. Thanks for that and then last quarter you commented that over 1200 patients have been treated with skin P/e I want.

Pick your brain and see if you have a rough estimate on the percent of those that would fall under this definition of having a chronic cutaneous author I know some of them more of course in the trial setting that you shared and others were more one off experience.

Yeah, I would say this is a very rough number because we don't capture all on.

Every single patient the wound type its not always shared with us clearly, but I would say probably 30% to 40% of those patients easily would fall under that category and it's probably higher than that but I can certainly do some you don't have the team to do some additional research and ensure that info.

But it's it's a significant number.

Okay, Great and then the 5 million dollar per study figure that you cited I know you're not in a position today to discuss the trial design with us, but could you help us understand which factors specifically went into coming up with this number is it based off of perhaps like the.

Number of patients that were proposed for the trials or what other factors helped you come up with this number.

Yeah. So it certainly starts with the proposed lover of patients so given our experience with our previous D. F. You RCT that informed us in terms of loss.

Physical power, where we needed to be for this proposed study so that was the guiding.

Aspect of the of the cost structure and of course, we're working with the C. R O a.

Who has a great deal of experience in the wound care space and so a few of our discussions with them and based on the work that they plan to do to support our trial that also was it was part of the equation.

Yeah.

Okay got it thanks, and then once you do have everything set with the FDA in terms of this IND acceptance.

You know what are you specifically going to communicate to the street I think common question is timing around trials and you clearly have some experienced already on the field is that something that you feel you'll be in a position to share once the IND is accepted or how should we be thinking about catalysts and items like that.

Yeah, absolutely I mean that is our ultimate goal is to be able to lay out a very very clear timeline, both from a cost perspective and from a completion of the of the appropriate studies certainly we're gonna get clarity in the coming weeks over the regarding the first study in our first proposal.

And then we're going to follow shortly after that for a and interaction to address the second study proposal.

So that will we will get the most clarity, but we certainly plan to have.

Some additional insight soon in terms of the timing of various things.

Okay last question, assuming the second trial that the IMD gets accepted would you.

These trials would be running simultaneously with each other or are you waiting to get results from the first before moving on to the second thanks again for taking my question.

Sure. Thank you Kristen so that's part of the discussion that we have to have with FDA in terms of the timing and what they will allow we certainly want.

Want to accelerate the clinical study process as much as we can so we're gonna be as aggressive as we can but of course, we have to follow the guidance from FDA. So that's a bit of an unknown right now, but I you know the underlying thought here is where we're going to be as aggressive as we can and getting that debt that.

Second study up and running.

Thank you.

Okay.

Thanks Kristen.

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