PolarityTE Inc (PTE) 2020 Q3 法說會逐字稿

Good day and welcome to the PolarityTE Third Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Rich Haerle. Please go ahead.

Thank you, operator. Good morning and thank you for joining PolarityTE's call to discuss third quarter 2020 results. I'm Rich Haerle, Vice President of Investor Relations. On the call are members of the executive team, which includes David Seaburg; Richard Hague, President, CEO; and Jake Patterson.

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 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 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, 2019, as well as quarterly reports on Form 10-Q filed with the SEC in 2020.

Any forward-looking statements made on this call speak only as of today's date, Monday, November 09, 2020, 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.

Thank you, Rich, and welcome, everyone. I'm pleased to report that we had an exceptional third quarter. Not only did we exceed the high end of our guided range with $3.34 million in revenue, making Q3 the best revenue quarter in the history of the company, we also made significant progress refining our development plan for SkinTE under a 351 BLA pathway and created operational efficiencies in our COVID-19 testing business that will allow us to scale this effort.

I'd like to highlight 3 notable accomplishments. First, since announcing the decision to transition our regulatory pathway for SkinTE back in April, our team has made significant progress preparing for a BLA. We completed necessary data and patient outcomes that enabled us to submit a pre-IND briefing material to the FDA in August and we received feedback from the FDA in October, and are actively developing a plan to submit an IND with multiple indications, including DFUs, pressure ulcers and acute wounds, which represents a multibillion-dollar market opportunity.

Second, we streamlined our operations and made significant cuts to our cost structure, which resulted in a meaningful year-over-year reduction in expenses. Compared to the third quarter of 2019, in the third quarter of 2020, our operational cash burn was reduced by 43%, G&A expenses were reduced by 61%, sales and marketing expenses were reduced by 68%. All of this resulting in a net loss that was 69% lower than a year ago.

And finally, we integrated technology solutions to streamline our COVID-19 testing operations that should allow us to scale that business.

Now let's turn to Slide 4 (sic - Slide 5) for a quick review of our third quarter revenue versus Q2. Total revenues were approximately $3.34 million, up 47%. SkinTE revenues were approximately $1.16 million, up 22%. Contract services revenues were approximately $2.18 million, up 65%. And note, this includes revenue from our COVID-19 testing business, which was approximately $1.75 million in Q3.

Before turning the call over to Richard who will provide greater detail on our regulatory pathway, I'd like to provide some high-level -- a high-level overview of what you can expect from us as we move forward. We anticipate completing enrollment for our DFU RCT by the end of the year and release final data sometime in late Q1 or early Q2.

We believe a critical milestone will be a successful IND submission, which we plan to complete in the second half of 2021. After a successful IND submission, we intend to initiate several clinical trials and provide timely updates on our clinical development program and interactions with the FDA as we pursue a successful BLA.

Finally, we want investors to know that we recognize the value in finding proper strategic and commercial partners, and therefore, we intend to actively pursue partnership opportunities as we move through the BLA process.

I'd now like to turn the call over to Richard Hague who will provide a thorough regulatory update and detail for the steps we are taking as we pursue a BLA for SkinTE. Richard?

Thank you, David, and good morning, everyone. I would like to start by saying that overall, we were encouraged by the feedback we received from FDA as part of our recent pre-IND interactions. As expected, we have considerable work to do, but we now have a level of clarity that is allowing us to define an exciting development plan for SkinTE under a 351 BLA pathway that I will describe momentarily.

With regards to our interaction with the agency, there were 3 main areas of focus that were sought clarity on, which were clinical, nonclinical and chemistry manufacturing and controls or CMC.

On the clinical front, FDA reviewed our data package and determined that although our ongoing DFU RCT had certain elements of what they describe as an adequate and well-controlled trial, it ultimately would not be viewed as a pivotal efficacy study. However, we believe the data can be utilized as part of the overall clinical safety package for SkinTE.

While we were hopeful FDA might have allowed us to leverage this study for efficacy, their view was not surprising given that the study was originally designed as a 361 post-marketing study when it was launched back in April of 2019.

The main point of distinction between the agency's guidance on an adequate and well-controlled trial for BLA approval compared to our current RCT was related to length of follow-up. FDA would like to see 24 weeks of patient follow-up post-SkinTE application as compared to our current 12-week endpoint, which is more the standard for 361 or 510(k) products. The ability to capture this data retrospectively at our current RCT would be difficult given that 75% of our patients have already completed the study and have been lost to follow-up.

Additionally, FDA requested that we further validate our approach to SkinTE dosing. Although, we believe that we have shown in both the preclinical and clinical setting that our minimum standard harvest size generates adequate product to close wounds outlined in our study's inclusion criteria, which are 1 centimeter square to 25 centimeter square, we plan to take the additional steps to ensure that we satisfy FDA's guidance for future trials.

With regards to the nonclinical and CMC subject matters, the agency's responses were consistent with industry guidance and confirmed our current strategy. We will continue our work to fully characterize the final SkinTE product in a way that allows us to identify, quantify and implement the key release assays required by FDA. In parallel, we will complete any additional preclinical work as needed.

With regards to our go-forward strategy, given FDA's feedback on our current DFU RCT, it is clear that we will need to run 2 adequate and well-controlled trials to support a BLA. With this in mind, it has given us the opportunity to re-evaluate our development plan for SkinTE. We believe that the majority of our required CMC nonclinical work can be leveraged for multiple indications. And as a result, our plan is to pursue up to 3 indications for approval, either in parallel or in very tight sequential fashion.

Given our significant real-world experience and several supporting peer review publications, we have a high degree of confidence that SkinTE can be successful in closing full thickness complex wounds, such as DFUs penetrating to tendon, capsule and bone; Stage 3 and 4 pressure injuries; and acute wounds.

Although these distinct wound types may have different ideologies, they have common characteristics, including significant wound depth, frequent presence of tunneling and undermining, and exposure of critical structures. These wounds often require multiple treatment stages in order to fill volume and cover exposed structures before proceeding to traditional skin grafts or more invasive reconstruction.

In our experience, wound care providers are heavily focused on finding better treatments due to the seriousness of patient outcomes where failure may result in both the acute occurrence and elevated lifetime risk of amputation, long-term disability and death. We believe that focusing our efforts in these indications where there is a significant unmet need can have a meaningful impact on patients' lives and translate to substantial value for PolarityTE and the SkinTE franchise for the following reasons.

First and most importantly, SkinTE can truly differentiate itself from treatment alternatives in these wound types. It has shown the unique ability to cover exposed critical structures, completely fill in wound depth including tunneling, and ultimately provide complete closure with the regenerated tissue having many of the important characteristics of native skin, such as pliability, strength, sensation, the ability to sweat and hair growth.

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

In our experience, providers treating complex wounds are most concerned with reliably covering deep structures, essentially eliminating the largest risk factor in converting the wound to a lower grade that is more manageable. We believe that covering deep structures and filling wound volume with newly regenerated vascular tissue is one of the greatest and most predictable strengths of SkinTE, whereas most treatments increase in failure rate in this setting. Furthermore, these results can be accomplished with a relatively small skin harvest that is well tolerated by the patient.

And second, as David described earlier, these wound types represent an underserved, multibillion-dollar market opportunity. Given the current landscape of complex wounds and the motivation of providers to better address them, generating high level evidence, demonstrating improved outcomes and health economics that replicates what has been observed with SkinTE and real world experience, we believe can shift practice patterns, significantly accelerate adoption and allow us to capture a substantial share of these markets.

In the coming weeks and months, we will be undertaking the key activities to ensure a timely IND filing in the second half of 2021. These will include the completion of the necessary CMC and preclinical work to satisfy FDA requirements, ongoing interaction with the FDA to discuss additional indications and trial designs, preparation and submission of the IND, as well as activities to ensure that we can begin enrolling patients in clinical trials as soon as we receive approval from FDA.

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

Thank you, Richard, and good morning, everyone. As David mentioned, for the third quarter of 2020, we reported approximately $3.34 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 $1.16 million and revenues from services were $2.18 million. For the third quarter of 2020, cash used in operations was approximately $6.76 million or approximately $2.25 million per month on average, which is roughly 42% lower than the monthly cash used in operations during the second quarter.

Consistent with our BLA strategy, and as discussed in previous press releases, we have continued to work aggressively to reduce cash burn. As discussed in our last earnings call, we still expect to exit 2020 at an operating cash burn rate of under $2.0 million per month, which is down significantly from our Q4 2019 average monthly operating burn rate of $5.3 million.

We finished the quarter -- the third quarter of 2020 with approximately $23.19 million of cash, cash equivalents and short-term investments on our balance sheet. And we believe current capital resources will be sufficient to fund PolarityTE's current business plan, including related operating expenses and capital expenditure requirements through the second quarter of 2021.

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

Thank you, Jake. We are very proud of how much we accomplished over the past several quarters as we reposition this PolarityTE into a more traditional clinical development company.

SkinTE has now been used to treat more than 900 patients with no reported adverse reactions and we have seen outcomes that are truly transforming patients' lives for the better and often address dire unmet needs in hard-to-treat wounds, which should give investors great confidence about the safety and efficacy profile of SkinTE.

We believe a clear regulatory strategy to pursue multiple indications will allow us to penetrate this multibillion-dollar market, these opportunities, as we seek to unlock value and create value for our shareholders. Thank you for joining today's call. I'd now like to open it up for Q&A. Operator?

(Operator Instructions) We can now take our first question from Kevin DeGeeter from Oppenheimer.

Maybe starting with the regulatory. Can you just confirm when you say requiring 2 studies for approval that, one study each, for example, in DFUs and pressure wounds would be adequate or are we talking potentially, for example, you have 2 pressure wound studies?

And then just with regard to additional preclinical work, are there additional animal model studies that you anticipate completing prior to IND filing? How should we think about that work over the next year or so?

So I think that's a great, great, great questions, Kevin. Richard, do you want to take the regulatory question -- the first one that he mentioned?

Yes, sure, of course, Kevin. Yes. So the quick answer is, we most likely are going to need to run 2 additional studies for a lead indication. So if we choose to go after advanced diabetic foot ulcers or pressure injuries as our advanced -- as our lead indication, we most likely will need to do 2 additional clinical trials for that purpose.

It's unclear to us going forward for additional indications whether or not an additional study would be sufficient enough to confirm the results from the first studies. I think one of the things that's important to note is that although the ideology for these studies are different, they're very similar in terms of the characteristics of these wound types. So we hope that we're able to leverage our initial studies for future indications in parallel or, as I said earlier, in very, very tight sequential fashion.

To your second question, with regarding additional animal studies, yes, we will be running some additional work there, mostly confirmatory work. The beauty of that is that we have our own in-house team capable of running those studies in our own GLP facility. So we can get those done very, very quickly and efficiently.

And then maybe as a follow-up question. Can you comment or have you received feedback from the agency as to how we should think about availability of SkinTE for clinicians and patients during this ongoing process of -- will SkinTE remain on the market through the registration period? Or is that a question that remains to be clarified?

Yes. That is a question that remains to be clarified. We, like others in this space, are awaiting some clarity from FDA. Besides us and other companies, there have been associations that have reached out to FDA looking for clarity, including the Tissue Bank Association.

So hopefully, we'll get some -- some of that additional clarity either individually through our own process with FDA directly when we're able to ask that type of a question or through broader communication from the agency.

Great. And if I can just slip in one housekeeping question. In prior quarters, you've disclosed a number of patients treated with SkinTE in the quarter. What was that number in the third quarter?

The number of paid cases was 122, Kevin, versus the second quarter, the number of paid cases, I believe it was 88.

We can now take our next question from Kristen Kluska from Cantor Fitzgerald.

So just when you think about these 3 lead indications that you're evaluating, could you talk about how much that decision was driven by, one, the level of unmet need; two, of course, for the DFUs, you do have some data on hand from the pilot and interim data readout; and then three, the real-time usage that you've seen and results through commercialization.

Yes. Sure, Richard, do you want to take that one as well?

Yes, of course. So a big part of the decision was based on the unmet need. I mean, we've seen SkinTE work extremely well in some of these very, very difficult complex wounds. So initially, of course, with the DFU data that we had being generated, there was hope that a Wagner 1 indication might be the fastest path to market. And so, that was what we presented to FDA to see if that was going to be feasible.

But given their response, it gave us the opportunity to look at the markets as a whole as well as where we've seen SkinTE perform so well. And so, that's what led us to consider these more advanced complex cases. These diabetic foot ulcers that are full thickness and down to bone and other structures, these late-stage pressure ulcers in -- these acute wounds is where we've treated probably about a 100 patients in each of those indications in our real-world experience and seeing excellent outcomes.

And then you mentioned the partnership front. Just wondering if there are any key geographies to be mindful of here? And when looking at these 3 wound types that you highlighted, whether to look at the case numbers and prevalence different anywhere?

Sorry. Richard, do you want to grab that?

Yes, of course. At this point, we're mainly focused on the U.S. So while we will be open to additional conversations outside the U.S., our main focus is in the U.S. And I think David's reference to potential partnerships down the road really pertain to our ability to make progress with the BLA. And, as we do, entertain discussions and conversations with individuals and companies that would make sense in terms of bringing the product to market and/or working out some other arrangements that might make sense for the company.

Yes. I think, Kristen, I think just to add to that, it's really important to understand our focus on cost and efficiency, right? What the cost is to really make sure that we're completely efficient in our ability to distribute effectively and what it looks like on the back end as we develop those relationships.

So we're really ultra-focused, hyper-focused on making sure that we really have a -- efficiency in the cost and our ability to get this to market as quickly as possible to generate revenue. So we're looking into that and we'll be exploring that as we move forward.

Okay. And the last question for me and I'll hop back in the queue. What would you view as the acute wound market opportunity?

So that's a very, obviously, broad description. So we're focused on full-thickness wounds and complex wounds, ones that are, as I said, exposed structures. So we would need to work with and will work with FDA to help define that indication.

I think that's an area -- I think with both the advanced DFUs and the pressure ulcers, I think the trial designs there are relatively straightforward and understood. In the acute wound market, that's one area that we definitely need to engage FDA on and better understand what they would look at in terms of language around that indication and in terms of a trial design.

So that's a little bit more information that we need to gather. But based on our real-world experience, we've seen SkinTE work in a whole variety of cases as we've presented in the past, some of the really challenging and compelling cases that we've shown before where we've seen SkinTE work so well.

(Operator Instructions) We can now take our next question from RK from H.C. Wainwright.

I have a couple of quick questions. By the way, this is RK from H.C. Wainwright. When you plan to publish the data from the current pilot study, which is ongoing, what sort of data will be released at that point? And I'm just trying to see what kind of a readout we could have into your larger studies that you need to do as part of your filing?

Richard?

Yes. RK, it's Richard. Could you repeat the first half of that question? I'm sorry.

No, I was just trying to figure out, what sort of data would you be releasing in your -- when you do your final analysis on the pilot study? I'm just trying to see what sort of a readout we could have from there to your 2 required studies that you need to do to file for the regulatory approval?

Well, the initial pilot studies and ongoing RCTs were specific to DFU Wagner 1. The additional information that we're going to be looking to gather in terms of clinical data will be related to other -- these other indications I described.

So it's too soon to say exactly what those studies are going to look like and what approach that we're going to take in terms of what phase studies those will be. But we'll be working with FDA around that. But there's some pretty, I think, traditional characteristics of those study designs that we'll be pursuing. And that's -- that will be the data that we'll be generating pivotal data for those particular indications we discussed.

And then you also stated that you need to do some additional characterization. And also, I thought I heard that you have to increase the size of the SkinTE compared to what you're using right now. So what sort of work would be involved in getting all that done? And do you also need to do any CapEx because of the larger size or what facilities you have you can manage production of the larger size SkinTE?

So certainly, I mean, in the BLA world, it's critical. FDA has always required full characterization of their final drug product to understand its components and to be able to identify and quantify those components and tie them back to your mechanism of action. And that's something that we've been aware of and work is ongoing in that space. So we're going to continue to do that work and we believe that we could successfully meet the requirements for that with regards to that.

On the dosing side, the beauty of SkinTE has always been that we could take a relatively small harvest and treat significant open wound. And we've proven that both in our real-world experience and pre-clinically, but we need to put just a little bit more work into categorizing that and validating that more specifically. So that ultimately, we can come to FDA and say that going forward, a harvest size of 'x' equates to a certain yield or dosage of product, which can then treat a certain wound size range of 'x' to 'y'.

And we need to do that a little bit more formally, as I've said, and to validate the work that we've done previously. So as I said on the earlier part of the call, because we have a GLP facility in-house and we have the team that can do that animal work, we're confident that we could do that work quickly and cost effectively as opposed to outsourcing. So that's something that we're looking forward to getting accomplished in the coming months.

Okay. And the last question for me is on the -- as part of your contract services revenue, you saw $1.75 million in COVID-19 testing. And obviously with the ongoing second surge of COVID-19 and more specifically in the mountainous region where you folks are, do you see increased demand for your services in the last couple of months, so that -- and this -- and what sort of demand are you seeing now and expect not only in the fourth quarter, but also into '21?

We do expect demand to increase. Our team -- internal team has done an outstanding job of being able to streamline our operations and processes related to testing. And we've added, as David described, some technical advancements within the processing that is allowing us to expand capacity.

Actually up to just recently, we've been pretty much at capacity given our internal limitations. But with the steps we've taken recently, we've extended -- expanded capacity pretty significantly and we are actively engaged with outside parties for additional -- bringing out additional testing and signing those contracts, hopefully in the coming weeks. So we see the COVID testing business to -- we expect it to be -- to growing in the coming weeks and months based on what's happening around the country.

(Operator Instructions) We can now take our next question from Carl Byrnes from Northland Capital Markets.

With respect to timing of potential partnerships, would that be potentially after the IND submission in second half of '21 or would it be potentially prior to that perhaps around or obviously after top line readout in DFU and other studies?

I mean, I think our intent is this is going to be a process that we're going to be looking into in parallel. So, I mean, as far as timing is concerned, I don't think that we can be definitive or clear around that at this point in time. And nor would I ever want to put false expectations out there around that.

But I would say that, our intent is to really explore this in parallel. And as soon as we are able to really disclose things publicly, we will. But there's really no timing that we can really put out there right now that we believe is rational.

(Operator Instructions) There are no further questions. We can now conclude the call. Thank you for joining. You may now disconnect.