Friday, November 27

PolarityTE, Inc. (PTE) CEO David Seaburg On Q3 2020 Results – Earnings Call Transcript

PolarityTE, Inc. (NASDAQ:PTE) Q3 2020 Results Earnings Conference Call November 9, 2020 8:00 AM ET

Company Participants

Rich Haerle – Vice President of Investor Relations

David Seaburg – Chief Executive Officer

Richard Hague – President and Chief Operating Officer

Jacob Patterson – Interim Chief Financial Officer

Conference Call Participants

Kevin DeGeeter – Oppenheimer Co. Inc.

Kristen Kluska – Cantor Fitzgerald

Swayampakula Ramakanth – H.C. Wainwright

Carl Byrnes – Northland Capital Markets

Operator

Good day and welcome to the PolarityTE Third Quarter 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.

Rich Haerle

Thank you, operator. Good morning, and thank you for joining PolarityTE’s call to discuss third quarter 2020 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; 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 9, 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 express written consent is strictly prohibited.

I would now like to turn the call over to David Seaburg.

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 three 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 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 multi-billion 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 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 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, 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?

Richard Hague

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 regard to our interaction with the agency, there were three main areas of focus that we sought clarity on, which were clinical, non-clinical, 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 described as an adequate and well controlled trial, it ultimately would not be viewed as a pivotal efficacy study. However, we believe that data can be utilized as part of the overall clinical safety package for SkinTE.

While we’re hopeful that 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, the close wounds outlined in our studies inclusion criteria, which are 1 cm2 to 25 cm2, we plan to take additional steps to ensure that we satisfy FDA’s guidance for future trials.

With regards to the non-clinical 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 pre-clinical 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 two adequate and well controlled trials to support a BLA.

With this in mind, it has given us the opportunity to reevaluate our development plan for SkinTE. We believe that the majority of our required CMC non-clinical work can be leveraged for multiple indications. And as a result, our plan is to pursue up to three indications for approval, either in parallel or in very tight sequential fashion.

Given our significant real world experience and several supporting peer-reviewed publications, we have a high degree of confidence that SkinTE can be successful in clothing 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 etiologies, 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 or 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 to have a meaningful impact on patients’ lives and translate the 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 unique ability to cover exposed critical structures, completely fill in wound depth, including tunneling, and ultimately provide complete closure for 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 the space, it may not require a 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 and 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 in 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 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 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 and 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.

Jacob Patterson

Thank you, Richard. 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.

David Seaburg

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 multi-billion dollar market for 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?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. We can now take our first question from Kevin DeGeeter from Oppenheimer.

Kevin DeGeeter

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

David Seaburg

Richard, you want to take the regulatory question, the first one that he mentioned.

Richard Hague

The quick answer is, we most likely are going to need to run two additional studies for our lead indication. So, if we choose to go after advanced diabetic foot ulcers or pressure injuries as our lead indication, we most likely would need to do two 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 etiology 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, very tight sequential fashion.

To your second question 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 on our own GLP facility. So, we can get those done very, very quickly and efficiently.

Kevin DeGeeter

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?

David Seaburg

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 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.

Kevin DeGeeter

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?

Jacob Patterson

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

Operator

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

Kristen Kluska

Just when you think about these three 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?

David Seaburg

Richard, you want to take that one as well?

Richard Hague

A big part of the decision was based on the unmet need. We’ve seen SkinTE work extremely well, and some of these are 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, these acute wounds is where we treated probably about 100 patients in each of those indications in our real world experience and seen excellent outcomes.

Kristen Kluska

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 three boom types that you highlighted, whether to look at the case numbers and prevalence different anywhere.

David Seaburg

Richard, you want to grab that?

Richard Hague

At this point, we’re mainly focused on the US. So, while we’ll be open to additional conversations outside the US, our main focus is in the US. And I think David’s reference our potential partnerships down the road really pertain to our ability to make progress with the BLA. And as we do, entertain discussions in 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.

David Seaburg

Personally, 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 in the back end as we develop those relationships. So, we’re really ultra-focused, hyper-focused on making sure that we really have 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.

Kristen Kluska

Last question for me and I’ll hop back in the queue. What would you view as the acute loan market opportunity?

Richard Hague

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 we’ll 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 were relatively straightforward and understood. And the acute wound market, that’s one area that we definitely need to engage the FDA on and better understand what they would look at in terms of language around the 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

We can now take our next question from RK from H.C. Wainwright.

Swayampakula Ramakanth

I have a couple of quick questions. 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? 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?

David Seaburg

Richard?

Richard Hague

RK, could you repeat the first half of that question? I’m sorry.

Swayampakula Ramakanth

I was just trying to figure out what sort of data would you be releasing 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 two required studies that you need to do to file for the regulatory approval.

Richard Hague

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 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’ll be the data that we’ll be generating, pivotal data for those particular indications we discussed.

Swayampakula Ramakanth

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 with what facilities you have, you can manage production of the larger size of SkinTE?

Richard Hague

Certainly, in the BLA world, it’s critical. FDA has always required full characterization of your 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 design going in that space. So, we’re going to continue to do that work. And we believe that we could successfully meet the requirements with regards to that.

On the dosing side, the beauty of SkinTE has always been that we can take a relatively small harvest and treat significant open wound. And we’ve proven that both in our real world experience and preclinically. 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 the 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.

Swayampakula Ramakanth

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, more specifically in the mountainous region where you folks are, do you see increased demand for your services in the last couple of months and what sort of demand you’re seeing now and expect not only in the fourth quarter, but also into 2021?

Richard Hague

We do expect demand to increase. Our 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 expanded capacity pretty significantly. And we’re actively engaged with outside parties for 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 growing in the coming weeks and months based on what’s happening around the country.

Operator

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

Carl Byrnes

With respect to timing of potential partnerships, would that be potentially after the IND submission in the second half of 2021 or would it be potentially prior to that, perhaps around or obviously after the top line readout in DFU and other studies?

Richard Hague

I think our intent is, this is going to be a process that we’re going to be looking into in parallel. So, as far as timing is concerned, I don’t think that we can be definitive or clear around that at this point in time, 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. As soon as we are able to you know 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

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

Credit: SeekingAlpha

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