PolarityTE Inc (PTE) 2021 Q1 法說會逐字稿

Ladies and gentlemen, good day, and welcome to the PolarityTE First Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to introduce our first speaker, Mr. Rich Haerle. Please go ahead, sir.

Thank you, operator. Good afternoon, and thank you for joining PolarityTE's call to discuss First quarter 2021 results. I'm Rich Haerle, Vice President of Investor Relations. On the call today are members of the executive team, which includes David Seaburg; Richard Hague, President and COO; Jake 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 1995. We caution that these forward-looking statements are subject to risks and uncertainties and 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 Form 10-Q for the quarter ended March 31, 2021, filed with the SEC.

Any forward-looking statements made on this call speak only as of today's date, Thursday, May 13, 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 to participants that the call is being recorded. We are making it available to investors and the media via webcast, and a replay will be available on our website in the Investor Relations section shortly following the conclusion of the call. Additionally, it is the property of PolarityTE, and any redistribution, retransmission or rebroadcast of the call in any form without PolarityTE's expressed written consent is strictly prohibited. I would now like to turn the call over to David Seaburg. David?

Thank you, Rich. And welcome, everyone. Today, I'll begin by highlighting our Q1 revenue that emphasize some of the important steps we have taken to transform PolarityTE into a clinically staged development company with a proven technology. I will then turn the call over to Richard Hague, who will provide an update on our regulatory development plan for SkinTE and recap the top line results from our DFU trial; followed by our Chief Financial Officer, Jake Patterson, to give you an update on our financials.

Please turn to Slide 4 for a review of our Q1 2021 revenue compared to Q4 2020. Total revenues were approximately $4.71 million, up 31%, SkinTE revenues were approximately $1.73 million, up 44%, and contract research service revenues were approximately $2.98 million, up 25% and this includes revenues from COVID-19 testing, which were approximately $1.69 million in Q1.

I'm very proud to say that Polarity is well on its way to making a successful transition into a clinically staged development company with a proven and patented technology. This is a direct result of the steps our management team has taken over the past year to reposition the company in addition to the hard work and dedication of each and every one of our employees. I'd like to address a few important points that we believe distinguishes PolarityTE from other biotech companies that are at a similar stage in the development process.

First, with over 1,200 SkinTE applications and 0 adverse reactions, we have accumulated an abundance of data from real world experience, which demonstrates that SkinTE successfully closes difficult-to-treat wounds. Additionally, earlier this week, we've reported top line data from a 100-patient diabetic foot ulcer randomized controlled trial, which met both the primary and secondary endpoint of wound closure and percentage area reduction at 12 weeks. We believe all this should give investors great confidence that SkinTE is a derisked asset as we pursue a BLA.

Second, with a very limited commercial effort consisting of just 8 sales reps, we were able -- still able to prove that SkinTE is a commercially viable asset. In Q1, we generated $1.73 million of SkinTE sales, which, on an annualized basis, is roughly $865,000 per rep. This represents a substantial commercial opportunity, which we believe could be significantly enhanced with a BLA approval. Third, we continue to see a growing body of evidence that supports SkinTE through scientific publications, including the most recent publication of interim results from the DFU trial published in the International Wound Journal. Currently, there are no over 10 peer-reviewed publications involving SkinTE. Fourth, the intellectual property portfolio for SkinTE continues to grow with the issuance of our second U.S. patent earlier this year and a notice of allowance in the Philippines. PolarityTE now possesses 11 allowed or granted patents, 2 in the U.S. and 9 internationally.

And finally, we continue to make real progress in our Pursuit of a BLA for SkinTE and remain on track to submit an IND in the second half of 2021.

Now I'd like to address the FDA's decision not to extend the enforcement discretion period for 361 products. To be consistent with the FDA's enforcement discretion period ending on May 31, 2021, we will be winding down commercial sales of SkinTE. Importantly, with the elimination of the associated costs of our commercial effort, we would not expect to see a major impact to our P&L after severance and restructuring costs.

Now I'd like to turn the call over to Richard, who will provide details from our recently completed clinical trial in diabetic foot ulcers and give an update on our BLA development plan for SkinTE. Richard?

Thanks, David, and good afternoon, everyone. First, I'd like to start by thanking our clinical team and all the physicians and patients that participated in our recently completed multicenter randomized controlled trial, evaluating the treatment of diabetic foot ulcers with SkinTE plus standard of care versus standard of care alone.

As reported earlier this week, we were extremely pleased with the preliminary top line results that clearly demonstrated that SkinTE's superiority over standard of care in both the primary endpoint of wound closure at 12 weeks and the secondary endpoint of percent area reduction at 12 weeks. As a reminder, 100 patients were evaluated across 13 sites, with 50 patients in the treatment arm and 50 patients in the control arm.

For the primary endpoint, 70% of patients receiving SkinTE plus standard of care had wound closure at 12 weeks versus 34% of patients receiving standard of care alone, equating to a P-value of 0.0032. For the secondary endpoint, the percentage area reduction at 12 weeks was significantly greater for the SkinTE plus standard of care treatment group at 84.4% versus the standard of care alone at 53.5%. This equated to a p-value of 0.00024.

It is important to note that 45 of the 50 patients in the treatment arm received a single application of SkinTE, which is significant given that the most commonly used skin substitute products require multiple applications to achieve results. We look forward to sharing the full study results in the coming weeks. And as with our interim analysis results, which were currently published in the International Wound Journal, we expect the complete results from the full data set to be published at some point in the future.

Transitioning to regulatory, I am pleased to share that our team is continuing to make good progress as we are now in the final phase of our IND-enabling activities. We remain on track to submit our IND in the second half of this year and are working diligently to accelerate that time line as much as possible. We are very much looking forward to engaging FDA as a part of the upcoming IND process as we believe these interactions will inform and crystallize our future development plans for SkinTE.

The FDA's acceptance of our IND and subsequent enrollment of patients in our first pivotal trial are the critical near-term catalysts for the company. As we complete our transition and become a true clinical stage company, we recognize the need and look forward to being able to articulate future milestones and time lines that will significantly enhance shareholder value.

Following the acceptance of our IND, we plan to formalize our milestones and time lines so that the road map to a BLA for SkinTE is clear to our stakeholders. Additionally, I would like to note that as part of our IND submission, we plan to pursue an expanded access program for SkinTE, which, if approved, will allow physicians to continue to treat certain patients with serious and life-threatening wounds, and allow us to continue to gather very valuable safety and outcome data. Lastly, I believe it's important for us to briefly revisit what makes SkinTE truly unique, and why we are specifically focused on advancing its development towards a BLA approval.

The core technology of SkinTE is minimally polarized function units, or MPFUs, which are multi cellular segments created from a small piece of the patient's healthy skin that are optimized for grafting, and which retain the progenitor cells found throughout the skin, including the hair follicles. SkinTE allows the patient to regenerate full thickness, 3-dimensional skin, similar to a full-thickness skin graft, while reducing the scarring and morbidities associated with split-thickness skin grafts and producing results we believe to be superior to split thickness skin grafts and skin substitutes. It is also worth emphasizing that our experience in over 1,000 patients show that SkinTE is easy to use and can be utilized by a variety of health care providers in an operating room, wound clinic or doctor's office.

Clinically, we believe SkinTE is highly differentiated from current treatment alternatives and hard-to-treat wound types. In real-world experience and data from preliminary studies conducted to date, we have witnessed SkinTE cover exposed critical structures, volumetrically fill-in wounds that include tunneling and ultimately provide complete and durable wound closure, with the regenerated tissue having many of the important characteristics of native skin such as pliability, strength, sensation, ability to sweat and hair growth.

In contrast to a multistage approach, combining numerous treatments and an algorithm dictated by wound progression, SkinTE can be applied directly into deep wounds with exposed structures; typically requires only a single application in the vast majority of cases; and unlike other products in the space, may not require a skin graft to achieve bond and closure.

We believe that our DFU RCT results strongly supports the observational data we have gained through the extensive clinical use of SkinTE as a 361 HCT/P. It is for these reasons that we firmly believe in our ability to successfully execute on our IND clinical development plan.

In turn, we are confident that a successful SkinTE BLA, supported by robust clinical evidence, will drive widespread adoption, enable favorable payor coverage and clear marketing claims and provide regulatory exclusivity as SkinTE is deemed a reference product.

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

Thank you, Richard, and good afternoon, everyone. As David mentioned, for the first quarter of 2021, we reported approximately $4.71 million in total revenues, which includes revenues from SkinTE, which we refer to as products in our 10-Q, and revenues from the sale of contract research services, which we refer to as services in the 10-Q.

Revenues from products during the quarter were $1.73 million, and revenues from services were $2.98 million. Net revenues increased by 405% to $4.71 million for the 3-month period ended March 31, 2021, compared to $0.93 million for the same period in 2020. Total operating costs and expenses decreased 41% from $18.12 million for the 3-month period ended March 31, 2020, to $10.75 million for the comparable period in 2021. This decrease was largely driven by the substantial reduction in personnel effectuated in May 2020 that reduced salary and headcount-related costs across the company.

Our operating loss decreased from $17.71 million for the 3-month period ended March 31, 2020, to $8.21 million for the comparable period in 2021. Net loss, however, increased from $13.04 million for the 3-month period ended March 31, 2020, to $17.41 million for the comparable period in 2021. The increase in net loss is attributable to the fair value and inducement losses related to common stock warrants, which are nonoperating expenses.

Cash used in operating activities for the 3-month period ended March 31, 2021, was approximately $6.61 million and included $0.82 million of operating offering costs. Cash used in operating activities for the 3-month period ended December 31, 2020, was approximately $5.58 million and included $0.76 million of operating costs. The higher quarter-over-quarter cash burn is attributable to the annual prepaid expenses in the first quarter of the year, such as insurance.

Although we will be losing SkinTE revenues, as David mentioned earlier, with the elimination of associated costs of our commercial effort, we would not expect to see a major impact to our P&L after severance and restructuring costs.

We will continue to work towards the previously disclosed target of keeping base operational cash burn, excluding costs associated with clinical trials and BLA-related activities below $2 million per month on average. We finished the first quarter of 2021 with approximately $37.2 million of cash and cash equivalents and $34.6 million of working capital. We believe the cash and cash equivalents on our balance sheet will fund our business activities into the third quarter of 2022.

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

Great. Thank you, Jake. We are really fortunate to have such an incredibly talented and dedicated team at PolarityTE, who have been working tirelessly to prepare for our upcoming IND submission. Additionally, and I can't stress this enough, I'm very thankful for all the great work done by our commercial team. Without their incredible efforts and confidence in the value that SkinTE brings to patients, we would never have been able to develop such a robust body of real-world evidence. Their persistence in working with the many physicians who use SkinTE has been invaluable to this company.

Moving forward with our vision, we believe that our refined clinical focus, real-world experience in treating difficult-to-heal wounds, a body of supportive clinical evidence, including clinical trial data and an expanding intellectual property portfolio, all validate our strengths as a company, the promise of our product and position Polarity for long-term success. I'd like to thank everybody for coming on the call today. And now I'd like to open the call up for Q&A. Thank you.

(Operator Instructions) And our first question comes from Kristen Kluska with Cantor Fitzgerald.

Congrats on the recent data you reported earlier this week. I wanted to ask you a question first about pricing, because, I know in the past, this is something you've evaluated based off of the current commercial experience from conversations you had. So I wanted to ask if you might look at this differently down the line, assuming you get a 351 approval based off of the conversations you've had in the past and then also the data that's now been generated from a trial setting?

Sure. And Kristen, and you say pricing, your question really is about the fact that in the past, we have shifted gears in pricing because of what we've learned in the market from the perspective of the very -- when it was a much higher price point, it was restricting the usage of certain hospitals and physicians from adopting the product more aggressively. Is that correct?

Yes, exactly. And then whether you might look at it differently through having a 351 approval down the line.

Yes. I mean, that's a very good question. First, I'll say, and I'll allow Richard to jump in and add to this comment. But we are very fortunate to, again, really learn early on about how pricing was impacting the adoption of this product. When we did shift gears on pricing, and I think everybody can look at our revenue trajectory and notice that there was a clear move up into the right from the standpoint of adoption and especially being used in the larger wounds, we were very fortunate to have that real-world experience and sort of relationships with our providers to really learn that, that was impacting our ability to really penetrate.

So to answer your question very simply, like, I do believe that pricing is obviously incredibly important to the adoption of this product. We will be very focused on that as we move forward. A BLA -- having a BLA might allow us to be a little bit more aggressive from a pricing perspective in certain indications based on a lot of different variables. But yes, we are going to look into that very closely. I think that we are willing to adapt in pricing from -- to ensure that we have proper adoption in the future. But I think that, that's something that we need to really dig into a lot deeper as we move on. Richard, do you have anything you want to add to that?

Yes. I would just add that certainly, with the amount of data that we need to generate to achieve a BLA, and that clinical data will also include, we think, a very valuable health economic data, we think that we could be very well positioned to relook at pricing. As you know, everything comes down to the cost of total care of patients, not just the price of your particular product. So we hope to be able to be in a position to build a very compelling value proposition around SkinTE as it relates to the entire cost of care for a patient.

Yes. Specifically, in all these -- and we talked about the very difficult-to-treat wounds where currently, the treatment options are incredibly limited, and the results are not very strong. So our product has really proven to be effective through the real-world experience we're seeing in these very difficult-to-treat wounds with exposed bone and tendon, et cetera.

So to your point, Kristen, as we move forward, yes, I would expect with an approved biologic for us to be able to have more pricing power, if you will, in the marketplace given the success that we've seen within those types of wounds.

And then how soon after an IND filing acceptance do you think you'll be ready to start the trial? And I know you don't know the number of subjects required at this time, but based on the enrollment trends you saw around the RCT, how are you thinking about the ability to enroll DFU patients? And then on the comments you made about looking at the road map and time lines that we should be thinking of. Can you further elaborate, I guess, specifically what's going to factor into that decision? I think you've guided in the past that the trials will be around 24 weeks. But is the other criteria essentially just around the number of subjects that will be required in the trial?

Yes, both great questions. Richard, do you want to touch on these two?

Sure. So answering your first one -- or your last one first, Kristen. So yes, I think, part of what's going to inform us is the type of indication that we're going to, ultimately, get from FDA. We've seen SkinTE work in a multitude of wound types. And we are hoping to engage them in a discussion that gives us an opportunity to broaden the initial indication for this product.

Now that remains to be seen. As we've talked about previously, our goal is to initiate our first trial along the lines of a complex DFU indication. But I think what will ultimately inform us going forward is what additional work will need to be done to get a broader indication. And I think that is what we hope to gain from our interactions with the agency, and where we ultimately will gain some clarity and be able to share that with folks going forward.

And I'm sorry, your first question, I should have answered that first, I forgot it already.

No problem. I'm the one that asked too many questions. It was how soon after an IND filing acceptance, will you be ready to start the trial? And then thoughts around enrolling patients in light of what you saw for this RCT?

Sure. So thank you for that. Yes. So we're doing the work now to be -- to set the stage for enrollment as quickly as possible. So we hope that there'll be a couple of months gap at most between the IND being opened and our first patients being enrolled. We're taking aggressive steps right now to engage sites and, obviously, to do the work that we need to do, all the behind-the-scenes work that needs to be done to have these sites onboard. So we're hopeful and plan to accelerate that turnover of the trial as quickly as possible.

In terms of enrollment targets, we're still working on that through the number of sites that we ultimately bring on board. As we know from our past RCT took roughly about a little over 12 to 16 months to fully enroll that trial. Now of course, that was also through the COVID pandemic that was, obviously, posing challenges for a lot of folks. But our goal here is to do everything in our -- that is possible to accelerate this enrollment process. So we are bringing on what we consider to be highly appropriate sites and are going to take a very aggressive role and enhancing enrollment wherever we can. So certainly, more clarity to come on that as we get guidance from FDA around patient numbers. And other issues that we have to take into account.

And then the last question I have for you is based on the data earlier this week. Could you discuss the onset of effects for SkinTE? I know this was a big focus for the first 50 patients last year, and how data compared to the standard of care loan arm?

Well, we -- I mean, I think we've shown in the past in our interim data that the early onset of effects is critical and a big separator and differentiator for of SkinTE and -- compared to standard of care. We have not yet reported the full data set, of course, for the -- from the complete study. But I would expect to see similar results. Dr. Armstrong had previously commented on a call that we had about the impact of those early effects and was very pleased by those. And we would expect to see similar outcomes in the full data set. But obviously, that will be forthcoming in the coming weeks.

(Operator Instructions) And it looks like we have a question from Sean Kang with H.C. Wainwright.

I just have 2. First, while you're doing the clinical study, how would you maintain the commercial relationship that you had -- that you cultivated with the doctors and hospital?

And then the second question is, how would you realize the real-world data you accumulated to design the study better and then, hopefully, accelerate the study?

Sure. I'll answer the first question, and I'll let Richard address question #2. As far as maintaining the relationships, I think, one thing that we're really fortunate about is that we've got some really great leadership within the commercial team.

We have a gentleman by the my name of Ryan Mathis, who has led that group; and Jim Lodigiani as well who have spent and worked tirelessly with our entire team to really make sure that they are in front of all the user -- high users, if you will, of the SkinTE product. They're really dedicated to build relationships with them and do a lot of handholding, especially during the earlier adoption phase, if you will, of this product.

We do plan, as Richard said, to go down the pathway of an expanded access. And we are developing a group of people to be focused on that. And we are going to have Ryan and a small team working to maintain the relationships that we have in the marketplace because, to your point, they are incredibly valuable, and we've been really fortunate to get the support that we've had from these particular providers and surgeons to really identify better ways for this product to be used and support the adoption of this with their good name.

So we do plan to make sure that we intend to reach out and stay very connected with our user base, if you will. And fortunately, the leadership of the commercial team has done a great job developing those relationships for the long term, which we have every intent of maintaining. Richard, do you want to take question #2?

Yes, sure. I mean, regarding real-world evidence, it still remains a bit of a mystery with regards to how FDA is going to look at this data, not just for us, but for any company. They've talked about the potential to use this data and leverage it for future regulatory approvals. And we certainly have a good body of data that we've collected, and we certainly plan to have discussions with them around the value of that data. So, at this point, it would be speculation to try to guess as to what that value will ultimately be. But we're very proud of the data that we have. It has been very consistent in terms of safety and the positive outcomes we've seen.

So we're certainly hopeful that we can take full advantage of that as we discuss this with the agency.

Ladies and gentlemen, this concludes the PolarityTE First Quarter 2021 Earnings Call. Thank you for your participation. You may now disconnect.