Q3 2021 PolarityTE Inc Earnings Call

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Good day and welcome to the polarity T E third quarter 2021 earnings Conference call. Today's conference is being recorded at the time I will turn the conference over to Mr. Kamran harder. Please go ahead Sir.

Thank you operator, good morning, and thank you for joining clarity <unk> call to discuss third quarter 2021 results on Cameron boiler General counsel on the call today are Richard Hague, Chief Executive Officer, and President and Jake Patterson Chief Financial Officer.

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 1995 weeks.

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, which are described in our <unk>.

We will report on Form 10-K for the year ended December 31, 2020, and subsequent reports filed with the SEC.

Any forward looking statements made on this call speak only as of today's date Wednesday November 10th to 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.

Like to highlight the 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> and any redistribution retransmission or rebroadcast of the call in any form without clarity Te's Express written consent.

Is strictly prohibited.

I'd now like to turn the call over to Richard Hague CEO.

Yeah.

Thank you Cameron and good morning, and welcome everyone I.

I will kick off today's call with an update on our progress related to our I N D for skin.

As well as share other highlights from the quarter and then turn the call over to Jake Patterson, who will provide a financial update.

Yes.

As you're all aware, we submitted an <unk> for skin T E with a proposed indication for chronic ulcers.

<unk> on July 23rd.

And ultimately received the notice of clinical holds from FDA on September 17th.

The primary hold issues or certain chemistry manufacturing and control or CMC items and the company is implementing what it believes is a well defined plan to address the issues identified by FDA.

We are working diligently to generate and assemble the information required to finalize their complete response.

We expect to submit to the agency by yearend.

We feel confident that all the hold issues are addressable. However, we did request and we're very pleased to receive additional input from F. D. A specific to a proposed approach to new potency assay.

Based on this feedback we believe that the assay strategy, we are pursuing could be key to supporting the acceptance of our I M D.

It's important to remind everyone that to date F. D. A has not expressed any concerns regarding the safety has continued throughout the I N D review process.

Additionally, because we came to an agreement with FDA regarding our proposed clinical trial design, we have been able to work in parallel to engage multiple clinical trial sites and believe if our I N. D has accepted that we can begin enrolling patients shortly after approval.

I would now like to discuss other key accomplishments that have recently occurred.

On October 26, the U S patent and trademark office issued a notice of allowance, which covers additional methods using our minimally polarized functional unit or M. P. New technology. This is polarity te's third patent allowance in the United States.

We were also granted a Chinese patent on September 3rd.

Philippines patents on August 26, and received notification prior to acceptance for Israeli patent application on July 25th.

Each of which cover polarity T E N P. A few technology.

We continue to pursue additional patent applications in the U S and abroad related to our regenerative technologies, including skin T.

Cash used in operations for three months ending September 30 was $4 6 million or an average of one 5 million per month, representing a 32% reduction from the comparable period in 2020.

An operating loss for the nine months ended September 30 was $24 2 million.

A decrease of 35% from the operating loss of $37 4 million for the comparable period in 2020.

I'd now like to turn the call over to our CFO Jake Patterson.

Jake.

Thank you Richard and good morning, everyone.

As we have previously disclosed there've been significant changes in our operations affecting our results of operations for the three and nine months periods ended September 32021, compared to the three months three and nine months periods ended September 32020.

These changes include the cessation of skin T commercial sales and a significant reduction of our Covid testing business in Q2 of this year, which we completely ceased in Q3.

Accordingly, we reduced our workforce services and infrastructure that were needed to support Covid testing and the skin T E commercial sales efforts.

Net revenues decreased $2 2 million or 67% for the three months ended September 30, 2021 compared to the same period in 2020.

There were no product revenues in the quarter and service revenues decreased by 49% compared to the corresponding period in 2020 due to the decline in cessation of the Covid testing business.

Operating costs and expenses decreased $2 $7 million or 25% for the three months ended September 32021, compared to the three months ended September 30 2020.

The reduction in operating costs and expenses is attributable to reductions in general and administrative expenses.

And sales and marketing expenses that were partially offset by increases in research and development expenses and restructuring and other charges.

As Richard mentioned earlier cash used in operations for the three months ended September 30 was $4 6 million or an average of $1 5 million.

Representing a 32% reduction from the comparable period in 'twenty 'twenty.

Our goal is to maintain base operational cash burn, which excludes costs associated with clinical trials and BLA related activities below $2 million per month on average.

We finished the third quarter of 2021 with approximately $27 4 million of cash and cash equivalents and $24 $9 million.

Of working capital.

We believe the cash and cash equivalents on our balance sheet will fund our business activities into the fourth quarter of 2022.

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

Yeah.

Thank you Jake.

We're very pleased with the progress we've made in 2021 to transform polarity T E into a late stage clinical development company the.

This transformation has included a substantial undertaking by management to reduce expenses and to orient ourselves toward achieving future milestones in our development program for skin T.

As a result.

We expect a number of critical catalysts to occur in the first half of 2022 and throughout next year.

Those could include the acceptance of our skin T I N D for chronic cutaneous ulcers.

The initial enrollment of our first pivotal study and.

And the subsequent launch of our second pivotal study.

Furthermore, we plan to pursue a fast track designation under an open I M D.

As well as engage FDA and discussions to finalize our plan of action for future indications.

It is important to note that our strategy to pursue a complex product cutaneous ulcers indication, which includes the most challenging cost intensive bonds.

Is based on the learnings from our prior clinical experience of treating over 200 patients with skin T. He is at 361 H C. T P.

We continue to have great have a great deal of confidence at a single application of skin T E, which can be efficiently utilized in multiple settings of care will play a significant.

Difficult board and the management of the patient population with limited treatment alternatives and ultimately allow us to effectively penetrate.

LT billion market opportunity.

Yeah.

Thank you for joining the call today I'd now like to open it up for.

For Q&A.

Thank you if you wish to ask a question. Please signal by pressing star one on the telephone keypad.

You're using a speaker phone. Please ensure that your mute function is turned off again press star one for a question you would have a pause for just one moment.

Our first question.

Comes from Kristen <unk> from Cantor Fitzgerald. Please go ahead.

Hi, Good morning. This is Christian cluster candor. Thanks for taking my questions. The first one I wanted to ask was I know that last quarter on the call. You had submitted some initial responses to the FDA. So would just be helpful to understand the process have you received any additional clarity on this.

These initial responses that you stand and how does this tie into the full scope of.

This full response that youre guiding to potentially by year end.

Yeah, Hi, Christian Thanks for your question.

So the way this process unfolds is that we.

We submitted our.

Our R&D on the 20 <unk> of July and then at that point. The FDA had 30 days to come back to us with with various questions, which they did do.

So these information requests we responded to those.

In detail two.

To provide clarity to the F D a.

Ultimately those responses were utilized as part of their review of our entire package.

At the end of that 30 day period, they ultimately informed us that while.

Many of the issues that they had.

Presented to us were addressed.

Still have the other key issues that they felt were not sufficiently addressed and so that was what led to the clinical hold communication.

We were.

Yeah communicated to verbally with regards to that and then ultimately the <unk>.

Final clinical hold letter was received on September 17th and then that letter they identified a list of specific hold issues that we needed to address so that's the process that we're in right now.

Black and white process the items that were identified where we're quite straightforward and we felt confident we can address them all but one of the area that we did pursue additional feedback around was our potency assay.

And we did receive some additional feedback there and that gave us some confidence that the approach that we were or are planning to pursue and are pursuing now what seemed reasonable to the FDA. So.

So basically that's the way the process has unfolded and now we're in that final stage over the next.

Six weeks or so to.

To complete the assembly of the of the new information for this complete response letter.

Yeah.

Okay. Thank you for that detail and then in your final remarks regarding catalyst you had mentioned the potential of looking at the second simultaneous trial next year. So I think that you had previously left the staff as discussions still needs to be had in terms of whether or not you could run. These two trials Simon.

Jamie It's Lee so is there any update there in terms of the fact that you are potentially looking to explore next year then.

Well I think it's just a matter of rephrasing or earlier thoughts I mean, our goal has always been to accelerate that second trial as fast as possible. We do need to have additional discussions with the agency around that second trial not only the wound types that we pursue but also the the trial design itself.

And our goal would be to to kick that off as quickly as possible.

After the first trial is underway. So our plan is once the ideas open us to submit a request for additional conversations with the agency and.

Hopefully we can get that study that second study underway. Shortly after the first one our plan is not to wait until the first one ads.

Whether we can whether we can kick it off.

A couple of months after or you know a few more months after remains to be seen.

But our goal is to get it get started as quickly as possible.

Okay, and then for Wagner to <unk> do you think that there is a bar I mean, obviously this is a clinical trial. So you need to hit the endpoints, but you know.

What do you think that like physicians and potential users of the product are looking for and like how does this correlate to standard of care in the U S wound registry et cetera.

Yes, that's a great question I mean, we purposely as we've described before going after these these deep wounds. These wounds that have exposed critical structures and the reason for that is because we've seen in real world cases, where skin T has performed quite well and in filling the volume of those.

<unk>.

In closing over the structures and so we don't envy.

Envision.

Giving a perfect closure rates on these wound types, that's extremely difficult, but we do expect to see a.

Meaningful differences versus the standard of care based on not only our past experience, but our initial <unk> study and Wagner once so based on our experience with our physicians.

They're looking to see that coverage of those exposed structures and that percent area reduction.

That is.

Basically moves that ruling from a two to a one it is much more easily manage so.

We believe that we're going to see a very a very meaningful closure rate.

As well as very meaningful percent error reduction in both of those endpoints one being the primary one being the secondary we think will be a very important.

Two to not all the positions, but also to payers to show the value of sketchy in that patient population.

Thank you and then with your recent patents that were granted could you talk about in totality, what's the runway or the exploration across all these patents and then looking at your internal pattern that youre, hoping just a niche for what could the potential extension look like.

Yeah, that's a good question.

In terms of timing all of our patents have been.

Granted in the last.

12 months to 18 months so the runway for for these is quite significant.

And we're going to continue to pursue other patents around our technology.

We don't believe that we can continue to build.

A nice portfolio that will support the use of the product in a variety of different ways. So at this point, we don't we haven't we have a nice long runway with these patents.

We are excited about pursuing additional ones as we as we continue to.

Development and pursue the the patents for for the M. P. A few technology and other components of the technology that supports <unk>.

Great. Thanks, so much for taking my question.

Yes, Thank you Christel I appreciate it.

Once again, if you wish to ask a question. Please signal by pressing star one on a telephone keypads.

Okay.

Yeah.

Yeah.

Thanks, Operator. This is Cameron boiler speaking, we do have a question that came in through the webcast.

And Jake perhaps you can feel this one the question is how long can your cash sustained U.

Before you need to raise additional capital sort of asking about the run rate could you speak to that.

Sure as I mentioned during my remarks, we are pleased to report that during the third quarter. Our average monthly cash burn was approximately $1 5 million.

So the 2 million per month that we previously announced as our targets.

And based on our targets for cash burn current estimates for expenses and cash on hand, we believe that we have capital sufficient to Thunder operations into the fourth quarter of 2022.

In the interim we will be opportunistic in our approach to raising capital.

Sure.

Thanks Jake.

Okay.

Okay. So this concludes today's call.

Thank you for your participation you may now disconnect.

Thank you operator, thank you everyone.

Yeah.

Okay.

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