PolarityTE, Inc.
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

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.

[Rich Haerle:]

Thank you, operator. Good afternoon, and thank you for joining PolarityTE's call to discuss first quarter 2021 results. I am 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.

[David Seaburg:]

Thank you, Rich, and welcome, everyone. Today I'll begin by highlighting our Q1 revenue, then emphasize some of the important steps we have taken to transform PolarityTE into a clinically stage 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%. This includes revenues from COVID-19 testing, which were approximately $1.69 million in Q1. I'm very proud to say that PolarityTE is well on its way to making a successful transition into a clinically stage development company, with a proven and patented technology 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.

[Richard Hague:]

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.

[Jake Patterson:]

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 three 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 three 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 three month periods ended March 31, 2020 to $8.21 million for the comparable period in 2021. Net loss, however, increased from $13.04 million for the three 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 non-operating expenses. Cash used in operating activities for the three month period ended March 31, 2021 was approximately $6.61 million, and included $0.82 million of offering costs. Cash used in operating activities for the three month period ended December 31, 2020, was approximately $5.58 million and included $0.7 6 million of offering cost. 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 cost 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, 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.

[David Seaburg:]

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 an 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 PolarityTE 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:]

Thank you. Ladies and gentlemen, at this time the floor is open for your questions. And our first question comes from Kristen Kluska with Cantor Fitzgerald.

[David Seaburg:]

I knew you'd be first Kristen.

[Kristen Kluska:]

Hi, everyone. Thanks for taking my questions. And 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?

[David Seaburg:]

Sure. And Kristen, when 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?

[Kristen Kluska:]

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

[David Seaburg:]

Yeah, 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 were very fortunate to again, really learn early on about how pricing was impacting the adoption of this product. When we did shift gears in pricing, and I think everybody can look at our revenue trajectory and notice that there was a clear moved 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. Having a BLA might allow us to be a little bit more aggressive from a pricing perspective and 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 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?

[Richard Hague:]

Yeah, 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.

[David Seaburg:]

Yeah, specifically, in all these and we talked about at 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 in tandem 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.

[Kristen Kluska:]

Thanks for that. 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 see around the RCT, how are you thinking about the ability to enroll DFU patience? And then on the comments you made about looking at the roadmap and timelines 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 if the other criteria, essentially just around the number of subjects that will be required in the trial.

[David Seaburg:]

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

[Richard Hague:]

Sure. So answering your first one or your last one first, Kristen. So yeah, 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.

[Kristen Kluska:]

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 thought around enrolling patients in light of what you saw for this RCT?

[Richard Hague:]

Sure, so thank you for that. Yeah, so we're doing the work now to set the stage for enrollment as quickly as possible. So we hope that there'll be a couple of month's 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 on board. 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 possible -- if that is possible to accelerate this enrollment process. So, we are bringing on what we consider to be highly appropriate sites. And we're going to take a very aggressive role in 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.

[Kristen Kluska:]

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

[Richard Hague:]

Well, 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 SkinTE, as compared to standard of care. We have not yet reported the full data set, of course, for the complete study. But I would expect to see similar results. Dr. Armstrong had previously commented on a call that we'd 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 dataset. But obviously, that'll be forthcoming in the coming weeks.

[Kristen Kluska:]

Great. Thanks, everybody.

[Richard Hague:]

Thank you.

[David Seaburg:]

Thank you, Kristen.

[Operator:]

Thank you. And it looks like we have a question from Sean King with H.C. Wainwright.

[Sean King:]

Hi, thank you for taking my question. I just have two. 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 hospitals? And then as the second question, how would you realize the real-world data you accumulated to design the study better, and then hopefully, accelerate the study? Thank you.

[David Seaburg:]

Sure, I'll answer the first question, and I'll let Richard address question number two. 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. And we have a gentleman by the name of Ryan Mathis, who has led that group, and Jim Luciani as well, who have spent and worked tirelessly with our entire team to really make sure that they are in front of all the high users, if you will, of the SkinTE products. They're really dedicated to build relationships with them and do a lot of hand holding, especially during the earlier adoption phase, if you will, of this product. We do plan as Richard said, to develop -- go down the pathway of a 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're 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 on 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 the question number two?

[Richard Hague:]

Yeah, sure. 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 for, 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 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.

[Sean King:]

That's very helpful. Thank you.

[David Seaburg:]

Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this concludes the PolarityTE first quarter 2021 earnings call. Thank you for your participation. You may now disconnect.