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spk01: Good day and welcome to the Polarity TE second quarter 2021 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Rich Hurley, Vice President of Investor Relations. Please go ahead, sir.
spk04: Thank you, operator. Good afternoon, and thank you for joining Polarity TE's call to discuss second quarter 2021 results. I'm Rich Hurley, Vice President of Investor Relations. On the call today are members of the executive team, which includes David Seberg, CEO, Richard Haig, 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 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, including but not limited to those detailed under the caption risk factors that are described in our annual report on Form 10-K for the year ended December 31, 2020, and subsequent reports filed with the SEC. Any forward-looking statements made on this call speak only as of today's date, Thursday, August 12, 2021, and we disclaim any obligation to update such statements to reflect events or circumstances that occur after today's call, except as required by law. I'd like to highlight to participants that the call is being recorded. A replay of the recorded call will be available on our website in the investor relations section shortly following the conclusion of the call. Additionally, it is the property of Polarity TE and any redistribution, retransmission, or rebroadcast of the call in any form without Polarity TE's express written consent is strictly prohibited. I would now like to turn the call over to David Sieberg.
spk05: Thank you, Rich, and welcome, everyone. I'd like to kick off today's call with some corporate updates and highlights from our quarter, and then turn the call over to Richard Haag, who will review our development plan for skin TE, followed by a financial update by Jake Patterson. As many of you are aware, on July 23rd, we submitted an IMD for skin TE and chronic continuous ulcers. We propose this indication because chronic continuous ulcers represent an unmet medical need in a large market with significant economic burden. To put this into context, it has been estimated that roughly 1% to 2% of adults in developed countries will experience a chronic contagious ulcer during their lifetime. Additionally, the costs associated with treating chronic wounds are substantial. For example, it has been reported that the average hospital charge per pressure injury is $48,000, and the direct costs of diabetic foot ulcers is on par with cancer at roughly $80 billion per year. Furthermore, based on the learnings from our prior clinical experience of treating over 1,200 patients with skin TE as a 361-HCTP, we chose to pursue an indication that included the most challenging and cost-intensive wounds with limited treatment alternatives. We believe this strategy presents a great opportunity to capture market share and establish optimized pricing and reimbursement. In April of 2020, we announced our plan to pivot SCIN-TE from a 361 HCTP pathway to a 351 pathway and informed investors to expect our IMD to be submitted sometime during the second half of 21. Immediately following that announcement, our entire team began working to ensure that we could submit this near the beginning of our guided range. I want to congratulate our entire team because it was their hard work and dedication and commitment that allowed us to submit our IND to the FDA in July. Now that our IND has been submitted, our top two priorities going forward as a clinically staged company are as follows. First, securing acceptance of our IND and commencing our first pivotal study as we advance skin TE through the regulatory process towards an eventual BLA submission. And second, continued focus on capital efficiency. Jake will provide additional details in his prepared remarks on this side, but I would like to highlight that cash used in operation activities during the second quarter was 38% lower than the prior quarter. Furthermore, we continue to target a base operational cash burn of less than $2 million per month on average. This is an exciting time to work at Polarity TE, and we are very proud of the progress we've made to date. We continue to believe that a successful BLA will make skin T a more valuable asset, and we remain committed to working closely with the FDA to accomplish that outcome. Now I'd like to turn the call over to Richard Hague, who will provide additional detail surrounding the development plan for skin T. Richard?
spk06: Thank you, David, and good afternoon, everyone. As David described, we were very pleased to have submitted our skin T EIND with a proposed indication for chronic continuous ulcers on July 23rd. In response to our submission, we recently received requests from FDA's clinical and CMC reviewers for additional information, and we have provided responses to those requests earlier this week. I would categorize the feedback and questions we received as very helpful and generally in line with what we had anticipated. We feel that our responses and our revised clinical plan align well with FDA's feedback and further support our position on key elements of our IND. With regards to our proposed indication, FDA's industry guidance is clear that two pivotal trials are required to achieve an initial BLA approval. With that in mind, we felt that pursuing trials in two different wound types would potentially allow for the broader indication of chronic cutaneous ulcers. FDA guidance defines chronic cutaneous ulcers as a wound that has failed to proceed through an orderly and timely series of events to produce a durable, structural, functional, and cosmetic closure. Our first proposed trial is for Wagner 2 DFUs, which can be described as full-thickness wounds with exposed critical structures. We have seen very positive real-world outcomes in this hard-to-treat patient population and believe that skin TE can ultimately differentiate itself from other treatment alternatives for this wound type. Our second trial is yet to be proposed to FDA. However, we would expect to target another highly complex and difficult-to-heal wound type, where we have also seen positive results with skin TE. An important common theme with complex chronic cutaneous ulcers is the overall cost of patient care due to comorbidities and length of hospital stay. Based on our prior commercial experience, we have a great deal of confidence that in most cases, a single application of skin TE, which can be applied in multiple settings of care, will have an important role to play in the effective management of this patient population. Once the IND is accepted, we plan to begin enrolling patients in our first study within three months and expect enrollment and follow-up to take approximately 24 to 30 months. Pending additional interaction with FDA, we would look to begin enrolling a second trial soon after the initiation of the first. We estimate that each study will cost approximately $5 million. It is too soon to speculate on how FDA will react to our responses or what, if any, additional information requests we may receive, but we are fully committed to working with the agency as we seek to have our IND accepted as quickly as possible. Now, I'd like to turn the call over to Jake Patterson for a financial update. Jake?
spk03: Thank you, Richard, and good afternoon, everyone. For the second quarter of 2021, we reported approximately $2.54 million in total revenues, which includes contract service revenues of $1.34 million and product revenues for Skin TE from April to the cessation of Skin TE sales on May 31st of $1.2 million. Total operating costs and expenses decreased 18% from $12.48 million for the three-month period ended June 30, 2020, to $10.24 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 in subsequent periods. Operating loss decreased 22% from $11.1 million for the three-month period into June 30, 2020 to $8.63 million for the comparable period in 2021. Net loss decreased 75% from $12.68 million for the three-month period in June 30, 2020, to $3.19 million for the comparable period in 2021. The decrease in net loss is primarily driven by the forgiveness of the company's PPP loan in June, the change in fair value of common stock warrant liability, and decreased operating expenses in the quarter. Cash used in operating activities for the second quarter of 2021 was approximately $4.1 million or on average 1.4 million per month, a decrease of 65% from 11.6 million or an average of 3.9 million per month in the second quarter of 2020, and a decrease of 38% from 6.6 million or an average of 2.2 million per month in the first quarter of 2021. The lower quarter-over-quarter cash burn is due to lower operating spend and decreased accounts receivable. We will continue to target base operational cash burn, which excludes costs associated with clinical trials and DLA related activities, below 2 million per month on average. We finished the second quarter of 2021 with approximately 32.6 million of cash and cash equivalents and 30.5 million of working capital. We believe the cash and cash equivalents on our balance sheet will fund our business activities through the end of 2021 and into the third quarter of 2022. I'd now like to turn the call back over to David Seberg for some concluding remarks.
spk05: Thank you, Jake. The progress we've made during the past several months to execute on our development plan for Skin TE reinforces my confidence that we have a team in place with the talent, dedication and experience required to achieve a successful BLA approval. Our recent IND submission was a critical first step to advance SCIN-TE through the regulatory process, which, along with our commitment and focus on capital efficiency, remains our highest priorities. I'd now like to open the call up for Q&A, and thank you for joining us today.
spk01: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. A voice prompt on the phone line will indicate when your line is open. Please state your name before posing your question. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal.
spk02: We will go ahead with our first question.
spk01: Caller, you may go ahead. Your line is open.
spk00: Hi, this is Kristen Kluska from Cantor Fitzgerald. Thanks for taking my questions. The first one was just a clarification question. So, it seems like the dialogue with the FDA since you submitted the IND has been quite rapid in terms of your response earlier this week. Just wanted to ask if there were any further responses required from your team at this point, or is the next steps essentially to receive the next round of feedback from the FDA regarding what you submitted?
spk05: Thanks, Kristen, and it's always a pleasure. I love that you go first because you always ask the best questions. Richard, would you like to address Kristen on that?
spk06: Sure. Hi, Kristen. Great question. Actually, we did receive an additional question. a response back to our response from the clinical group. And we're in the process of responding to them and should have that response in sometime early next week. And we feel like we've made good progress in that particular area with them.
spk00: Okay, thanks for that. And then last quarter you commented that over 1,200 patients have been treated with skin PE. I wanted to pick your brain and see if you have a rough estimate on the percent of those that would fall under this definition of having a chronic cutaneous ulcer. I know some of them were, of course, in the trial setting that you shared and others were one-off experiences.
spk06: Yeah, I would say this is a very rough number because we don't capture on every single patient the wound type. It's not always shared with us clearly. But I would say probably 30 to 40 percent of those patients easily would fall under that category. And it's probably higher than that. But I can certainly do some, you know, have the team do some additional research and share that information with you. But it's a significant number.
spk00: Okay, great. And then the $5 million per study figure that you cited, I know you're not in a position today to discuss the trial design with us, but could you help us understand which factors specifically went into coming up with this number? Is it based off of perhaps like the number of patients that were proposed for the trials or what other factors helped you come up with this number?
spk06: Yeah, it certainly starts with the proposed number of patients. So given our experience with our previous DFURCT, that informed us in terms of statistical power where we needed to be for this proposed study. So that was the guiding aspect of the cost structure. And of course, we're working with the CRO, who has a great deal of experience in the wound care space. And so through our discussions with them, And based on the work that they plan to do to support our trial, that also was part of the equation.
spk00: Okay, got it. Thanks. And then once you do have everything set with the FDA in terms of this IMD acceptance, You know, what are you specifically going to communicate to the street? I think, you know, a common question is timing around trials, and you clearly have some experience already on the field with this. Is that something that you feel you'll be in a position to share once the IND is accepted, or how should we be thinking about catalysts and items like that?
spk06: Yeah, absolutely. I mean, that is our ultimate goal is to be able to lay out a very, very clear timeline both from a cost perspective and from a completion of the appropriate studies. Certainly we're going to get clarity in the coming weeks regarding the first study and our first proposal, and then we're going to follow on shortly after that for an interaction to address the second study proposal. So that one will get the most clarity, but we certainly plan to have some additional insight soon in terms of the timing of various things.
spk00: Okay, last question. Assuming with this second trial that the IND gets accepted, would you expect that these trials would be running simultaneously with each other or are you waiting to get results from the first before moving on to the second? Thanks again for taking my questions.
spk06: Sure. Thank you, Kristen. So, that's part of the discussion that we have to have with FDA. in terms of the timing and what they will allow. We certainly want to accelerate the clinical study process as much as we can. So, you know, we're going to be as aggressive as we can. But, of course, we have to follow the guidance from FDA. So that's a bit of an unknown right now. But, you know, the underlying thought here is we're going to be as aggressive as we can in getting that second study up and running.
spk02: Thank you. Thanks, Kristen.
spk01: And as a reminder to our audience, if you would like to ask a question, you may signal by pressing star 1 on your telephone keypad. And it does appear that we have no further questions at this time. We would now like to conclude our call. We do thank you for your participation and you may now disconnect.
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