PolarityTE Inc (PTE) 2020 Q4 法說會逐字稿

Good day, and welcome to the PolarityTE Fiscal Year 2020 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Rich Haerle. Please go ahead, sir.

Thank you, operator. Good morning, and thank you for joining PolarityTE's call to discuss fourth quarter and full year 2020 results. I'm Rich Haerle, Vice President of Investor Relations. On the call today are members of the executive team that includes David Seaburg, CEO; Richard Hague, President and COO; and 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 that are more fully detailed under the caption Risk Factors in our filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2020, to be filed with the SEC today. Any forward-looking statements made on this call speak only as of today's date, Tuesday, March 30, 2021, and we disclaim any obligation to update such statements to reflect events or circumstances that occur after today's call, as except required by law.

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

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 in the preparation for our IND submission. Today, I will begin by highlighting some of the achievements we 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 SkinTE, followed by financial update from Jake Patterson.

Now I'd like to highlight some of these notable achievements. First, last April, we announced plans to pursue a BLA for SkinTE. Since we submitted a pre-IND meeting request in August [and we] received feedback from the FDA in October. With that feedback, we are preparing the IND, which we believe will provide frameworks for achieving a successful BLA. [We maintained a collaborative dialogue] with the FDA and remained on track to [submit IND] in the second half of 2021.

Second is capital preservation and efficiency. In 2020, we limited the number of nonessential legacy expenses. We commenced COVID-19 testing, which helped generate additional revenue and defray operating expenses, and we rightsized the company with respect to headcount, 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 impressive is that the operating cash burn in Q4 of 2020 was 70% lower than the same period in the prior year.

Total operating costs and expenses in 2020 were 47% lower than our -- than in 2019, driven largely by a 46% reduction in personnel. And stock-based compensation was down 77% in 2020 versus 2019. We believe the organization is now operating at a greater level of efficiency and much of this was achieved amid a global pandemic and created substantial challenges and uncertainties for the organization, which we drove through.

Third, we believe the company is now better positioned after having strengthened our balance sheet through recent financings. With the current cash in our balance sheet, we expect our business' activities will be funded into third quarter of 2022.

Fourth, we completed enrollment in a randomized controlled diabetic foot trial comparing SkinTE plus standard of care to standard of care alone. We look forward to sharing these results via presentation and press release at SAWC Spring in 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, 8 internationally and 2 in the U.S.

Now let's turn to Slide 6 for a review of our fourth quarter 2020 revenue versus third quarter. Total revenues were approximately $3.59 million, up 8%. SkinTE revenues were approximately $1.20 million, up 4%. And contract services revenue were approximately $2.39 million, up 9%. This includes revenues from COVID-19 testing, which was approximately $1.86 million in Q4.

Now I'd like to touch on our full year 2020 results versus 2019, which truly demonstrates the transformation this company has undergone over the past year. In 2020, total revenues were approximately $10.13 million, up 79%. SkinTE revenues were approximately $3.73 million, up 59%. And contract service revenues were approximately $6.40 million, up 94%. Again, this includes revenues from COVID-19 testing, which was approximately $4.32 million since we began testing in late May of last year.

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 HCT/P ends in May. If enforcement discretion is not extended or the FDA does not make other accommodations for manufacturers of 361 products who are transitioning to a 351 products, we may need to cease marketing SkinTE.

In addition, we recently received information from our largest COVID-19 testing customer, a 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. We are exploring needs to add new services for this customer, such as processing tests for their residents instead of their staff. And working to identify new customers, but we do expect fluctuations in our 2021 COVID-19 testing revenue due to a shifting in dynamic landscape.

I'd like to make one thing very clear. Regardless of whether SkinTE remains in 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 costs that correspond to the lost revenue. As evidenced by the progress we've made over the past year in transitioning this business, we are prepared to pivot quickly and effectively in response to this potential change, including continuing to manage our costs. Accordingly, our focus remains on achieving the key regulatory milestones necessary to obtain a BLA for SkinTE, which we believe will maximize the long-term value of this asset.

Now I'd like to turn the call over to Richard Hague, who will provide an update on our regulatory development plan for SkinTE and other operational updates. Richard?

Thank you, David, and good morning, everyone. I am pleased to share the progress we've made towards our goal of submitting an IND for SkinTE in the second half of this year. As I described in our last earnings call, we received our initial pre-IND feedback from FDA in Q4. Since then, we have had other interactions with the agency that have given us additional clarity and confidence around our ongoing IND-enabling activities.

These activities remain specifically focused on 3 areas: CMC, or chemistry manufacturing and controls, preclinical and clinical. With regards to CMC, our team is making excellent progress towards characterizing SkinTE, which over the next few months, should allow us to validate and implement a matrix of product release assays to meet FDA requirements. In parallel, we are making similarly strong progress on our transition to Current Good Manufacturing Practices, or CGMP.

On the preclinical front, we plan to conduct a certain -- to conduct certain additional preclinical work, including a GLP 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 IND submission or the initial -- the initiation of our pivotal trials.

As discussed on our Q3 call, data from our recently completed DFU RCT will be included as part of the SkinTE IND safety package. I should note that we currently have 29 patients enrolled in our DFU RCT, and plan to stop enrollment after we reach 30 patients. If the final VLU data package is complete in time, we will include it in our IND submission as well. We believe that stopping the VLU study is the right decision as it will allow us to reduce costs and better align with our strategy to pursue full-thickness DFUs as our lead indication.

With regards to clinical, we plan to move forward with the trial design that we initially proposed with the agency, which is focused on full-thickness DFUs, ranging in size from 2 centimeter square to 10 centimeter square that penetrate to deep structures such as capsule, tendon or bone. These correspond to Wagner grades 2 and 4 and University of Texas grades 2 and 3.

In January, we had a very valuable clinical advisory board meeting, which included a number of highly experienced wound care physicians representing multiple specialties. Through the excellent feedback we received, we believe the final trial designed to be submitted through the IND will be well received by FDA and by clinicians who will eventually participate in the trial. We are taking steps now to ensure that we can begin enrolling patients soon after an IND approval is in hand.

At this point, I would like to highlight the additional steps we are taking to maximize the full potential of SkinTE over the next several quarters. Shortly after the IND is opened, we expect to submit a second DFU trial protocol to FDA, which will focus on full-thickness DFUs greater than 10 centimeter square. Our goal is to get this study up and running as soon as it is approved and to use the data from the 2 studies to pursue a broad BLA approval for the hard-to-heal DFUs previously described.

Stage 3 and 4 pressure injuries remain an important priority for us and is the next indication we plan to pursue. We are currently analyzing internal and external patient data to define the parameters of an appropriate trial design. Our plan is to submit a supplemental or additional IND for this indication later this year or early 2022. We plan to take similar steps to follow on with an acute would indication.

We believe that the work we're doing now in preparation for the DFU IND will be the foundation for accelerating the approval process for these other indications. We are very encouraged by what our team has been able to accomplish in the 5 months since our last earnings call. And we remain confident in our ability to execute on our strategy to pursue multiple indications for SkinTE. We continue to be inspired by the outstanding real world results that physicians and their patients experience in extremely challenging would types and remain steadfast, and our belief that SkinTE can be a game changer in this underserved, multibillion-dollar market.

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

Thank you, Richard, and good morning, everyone. As David mentioned, for the fourth quarter of 2020, we reported approximately $3.59 million in total revenues, which includes revenues from SkinTE, which we refer to as products in our 10-K, and revenues from the sale of contract research services, which we refer to as services in the 10-K. Revenue from products during the quarter were $1.2 million and revenues from services were $2.39 million.

On previous calls, we discussed our target of lowering base operational cash burn to less than $2 million per month on average. I'm happy to report that we achieved this target in the fourth quarter.

Cash used in operating activities in the fourth quarter of 2020 was approximately $5.58 million, which included $0.76 million of offering and repricing costs or $4.82 million, excluding offering and repricing costs or approximately $1.6 million per month on average, which is 70% lower than the $5.33 million monthly average in the fourth quarter of 2019 and 29% lower than the $2.25 million monthly average in the third quarter of 2020.

Additionally, for the full year ending December 31, 2020, cash used in operations were $37.75 million, which is 33% lower than cash used in operations during 2019. Consistent with our BLA strategy and discussed in previous press releases, we have continued 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 clinical trials and BLA-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 raised from a direct investment and exercise of warrants in 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 Seaburg for some concluding remarks.

Thanks, Jake. 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 make progress on our regulatory plan for SkinTE and are eager to reach important regulatory milestones so that we could begin to generate clinical data under an IND and eventually obtain a BLA to help more patients and providers realize the benefit of SkinTE.

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 SkinTE applied in over 1,100 clinical cases and reported record service and product revenues in 2020. We successfully enrolled a large randomized controlled trial in DFUs 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 the progress we've made, particularly given the ongoing global pandemic in our recent decision to pursue a BLA. I believe the company is in a strong position, and I'm incredibly proud of the entire team for getting us here.

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

(Operator Instructions) We will now take our first question.

This is Kristen Kluska from Cantor Fitzgerald. The first one I had was SAWC next month, could you please comment on which metrics we might see data from outside of wound closure? Well, it look 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, do you want to take this question?

Yes, sure, Kristen. So yes, the data presentation will be similar to what we presented last year. This SAWC presentation will be focused on top line data, and there will be some additional data that we'll report after SAWC as additional analysis is done.

Got it. And then for the VLU trial, I understand that you're hoping to enroll 1 more patient here. But wondering once you have all that data collected, if this is something you would love to share the data from a future medical conference?

Yes, we do plan to do that. The reason we chose 30 is our stopping point is so we could have an even distribution of 15 patients in the control arm and 15 in the treatment arm. And we certainly do plan to present that and hopefully get that data published down the road.

Great. And then with your cash guidance here into the third quarter of 2022, could you talk about which trials or how you've thought about incorporating these trials that you laid out today in this guidance, specifically in terms of number of patients? And it sounds like from your report earlier that you'll be looking to run these in kind of a tight sequence formation?

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

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

Yes, okay. Thank you. Yes. So the budget that we've put in place incorporates the trials that we've described. The DFU trial, the first trial, as we said, we hope to be able to -- as soon as the IND is open to get that enrolled a couple of months later, so possibly by the end of this year or early into next year. And the larger DFU wound 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 cash guidance incorporates those studies.

Great. And last question here is how important is this data that you're going to share SAWC, you think, to help with enrollment time lines for this trial? And then what have you kind of seen across the space with COVID-19 in terms of whether these procedures, whether it's SkinTE or another product are still being done, has there been kind of an overhang lifted after people are getting their vaccines and hospitalizations going down in certain geographies?

Yes. So we're certainly excited about presenting the current DFU RCT data. I believe that will be valuable for not only for investors to respect and appreciate the value of SkinTE in these patient types, but also, as you said, many of the sites that we've worked with on that study would most likely participate in 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 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. As we've described, we're going to be treating some very challenging deep wounds. These are not elective procedures, these are critical procedures. So we expect enrollment there to be solid and to move forward as we expect.

(Operator Instructions) We will now take our next question.

This is RK from H.C. Wainwright. A couple of quick questions. So we are literally 1 month away from the enforcement period or enforcement -- potential enforcement, what has been your dialogue with the authorities?

Richard, do you want to touch on that?

Sure. So I mean our dialogue has mainly been focused on 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 in wanting to implement that. However, as we know, last year, they decided to expand enforcement discretion a couple of months before it was to end. And so it's hard to speculate right now exactly how they're going to handle this. Everyone knows that they're very, very busy with COVID. And whether or not they'll be in a position 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 351 and are taking the appropriate steps to partner with the agency and how they will look at those types of products. So right now, it's very much a speculation as to how things are going to unfold. But as David described earlier on the call, we're certainly prepared to pivot and handle whatever decisions come our way.

Right. I think that's the key RK. We mentioned that regardless of what the outcome looks like, we are prepared, right? And I think that, historically, when you look at the execution of this current management team, we have responded, I think, very quickly and properly to different scenarios that we have been -- have been put in front of us. This is not going to be any different. So we are prepared. We've got a plan in place. And if need be, we'll execute on that. But the important part of it is that we have eliminated or have looked into and have determined the costs associated with different aspects of this, and we're prepared to make it so that it is not an impact to our P&L. And I think that's the important part. The important takeaway is that we believe it's not going to have an impact on our P&L if we need to go in that direction.

Okay. So if the IND is filed in second half '21 as you're projecting, can you help me understand like how long it would take in general terms, by the time you have everything that you need to file the BLA?

Sure. So a lot of it obviously depends on the timing of the IND getting opened. But once it's opened and we start enrollment, our historical perspective guides us that it would be probably about 20 to 24 months to enroll these studies based on what we've seen previously with our current DFU RCT. So with the fact that we plan to enroll our first study a couple of months after the IND is open, 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 data complete. And then, of course, you have to factor in the lockdown of that data and the analysis of that data before we file. But I think that's probably a good guidepost is that 24- to 30-month period once enrollment is initiated.

Perfect. And then the last question, David, is like on COVID-19 testing revenues, you put some remarks out there on New York state testing. In general, how do you see these revenues shape up, especially with different states having different mandates, I mean like mask mandates and whatnot. How should we think about that revenue line going forward?

Yes. I would -- thanks for asking that. Look, at the end of the day, we were clear about a customer that we have in New York-based nursing home. It was pretty clear with us that they're going to see a shift in the way testing is being done. That's going to have a near-term impact on us. There's no question. That will have an impact, most likely in Q2. But we are working to explore ways to add new services for this customer. 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 that we identified early on as would have hiccups potentially through 2021 as the vaccines evolve. So we're seeing that head on, and we're adapting to it as best we can. But yes, we do expect, given this recent feedback from our New York-based nursing home operator that near term, we're going to see a little bit of a slowdown from -- in testing?

(Operator Instructions) There appears to be no further questions at this time. This concludes today's call. Thank you for your participation. You may now disconnect.