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spk03: Good day and welcome to the Polarity TE third quarter 2021 earnings conference call. Today's conference is being recorded. At this time, I will turn the conference over to Mr. Cameron Hoyler. Please go ahead, sir.
spk01: Thank you, operator. Good morning, and thank you for joining Polarity TE's call to discuss third quarter 2021 results. I'm Cameron Hoyler, general counsel. On the call today are Richard Haig, chief executive officer and president, and Jake Patterson, chief financial officer. 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, which are described in our annual report on Form 10-K for the year ended December 31st, 2020, and subsequent reports filed with the SEC. Any forward-looking statements made on this call speak only as of today's date, Wednesday, November 10th, 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 Richard Hague, CEO.
spk02: Thank you, Cameron, and good morning and welcome, everyone. I will kick off today's call with an update on our progress related to our IND for Skin TE, as well as share other highlights from the quarter, then turn the call over to Jake Patterson, who will provide a financial update. As you are all aware, we submitted an IND for skin TE with a proposed indication for chronic continuous ulcers on July 23rd and ultimately received a notice of clinical hold from FDA on September 17th. The primary hold issues are certain chemistry, manufacturing and control or CMC items. And the company is implementing what it believes is a well-defined plan to address the issues identified by FDA. we are working diligently to generate and assemble the information required to finalize our complete response, which we expect to submit to the agency by year end. We feel confident that all the hold issues are addressable. However, we did request and we're very pleased to receive additional input from FDA specific to a proposed approach to a new potency assay. Based on this feedback, we believe that the assay strategy we are pursuing could be key to supporting the acceptance of our IND. It's important to remind everyone that to date, FDA has not expressed any concerns regarding the safety of skin TE throughout the IND review process. Additionally, because we came to an agreement with FDA regarding our proposed clinical trial design, we have been able to work in parallel to engage multiple clinical trial sites and believe if our IND is accepted that we can begin enrolling patients shortly after approval. I would now like to discuss other key accomplishments that have recently occurred. On October 26th, the US Patent and Trademark Office issued a Notice of Allowance which covers additional methods using our Minimally Polarized Functional Unit or NPFU technology. This is Polarity TE's third patent allowance in the United States. We were also granted a Chinese patent on September 3rd, a Philippines patent on August 26th, and received notification prior to acceptance for an Israeli patent application on July 25th, each of which covered Polarity TE's NPFU technology. We continue to pursue additional patent applications in the U.S. and abroad related to our regenerative technologies, including Skin TE. Cash used in operations for three months ending September 30 was $4.6 million, or an average of $1.5 million per month, representing a 32% reduction from the comparable period in 2020. An operating loss for the nine months ending September 30 was $24.2 million, a decrease of 35% from the operating loss of $37.4 million for the comparable period in 2020. I'd now like to turn the call over to our CFO, Jake Patterson. Jake?
spk00: Thank you, Richard, and good morning, everyone. As we have previously disclosed, there have been significant changes in our operations affecting results of operations for the three and nine-month periods ended September 30, 2021, compared to the three and nine-month periods ended September 30, 2020. These changes include the cessation of SkinTE commercial sales and the significant reduction of our COVID testing business in Q2 of this year, which we completely ceased in Q3. Accordingly, we reduced our workforce, services, and infrastructure that were needed to support COVID testing and the SkinTE commercial sales effort. Net revenues decreased 2.2 million, or 67%, for the three months ended September 30, 2021. compared to the same period in 2020. There were no product revenues in the quarter, and service revenues decreased by 49% compared to the corresponding period in 2020 due to the decline and cessation of the COVID testing business. Operating costs and expenses decreased $2.7 million, or 25%, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The reduction in operating costs and expenses is attributable to reductions in general and administrative expenses and sales and marketing expenses that were partially offset by increases in research and development expenses and restructuring and other charges. As Richard mentioned earlier, cash used in operations for the three months ended September 30 was 4.6 million, or an average of 1.5 million per month, representing a 32% reduction from the comparable period in 2020. Our goal is to maintain base operational cash burn, which excludes costs associated with clinical trials and BLA related activities below $2 million per month on average. We finished the third quarter of 2021 with approximately $27.4 million of cash and cash equivalents and $24.9 million of working capital. We believe the cash and cash equivalents on our balance sheet will fund our business activities into the fourth quarter of 2022. I'd now like to turn the call back over to Richard Hague for some concluding remarks.
spk02: Thank you, Jake. We are very pleased with the progress we've made in 2021 to transform Hilarity TE into a late-stage clinical development company. This transformation has included a substantial undertaking by management to reduce expenses and to orient ourselves toward achieving future milestones in our development program for Skin TE. As a result, we expect a number of critical catalysts to occur in the first half of 2022 and throughout next year. Those could include the acceptance of our skin TIND for chronic cutaneous ulcers, the initial enrollment of our first pivotal study, and the subsequent launch of our second pivotal study. Furthermore, we plan to pursue a fast track designation under an open IND, as well as engage FDA in discussions to finalize our plan of action for future indications. It is important to note that our strategy to pursue a complex chronic cutaneous ulcer indication, which includes the most challenging and cost-intensive wounds, is based on the learnings from our prior clinical experience of treating over 1,200 patients with skin TE as a 361-HCTP. We continue to have a great deal of confidence that a single application of skin TE which can be efficiently utilized in multiple settings of care, will play a significant role in the management of a patient population with limited treatment alternatives and ultimately allow us to effectively penetrate a multi-billion market opportunity.
spk04: Thank you for joining the call today. I'd now like to open it for Q&A.
spk03: Thank you. If you wish to ask a question, please signal by pressing star one on the telephone keypad. And if you're using your speakerphone, please ensure that your mute function is turned off. Again, press star one for a question.
spk05: We will now pause for just one moment. Our first question comes from Kristen Kluska from Canterford Storage.
spk03: Please go ahead.
spk06: Hi, good morning. This is Kristen Kluska at Canter. Thanks for taking my questions. The first one I wanted to ask was I know that last quarter on the call you had submitted some initial responses to the FDA, so it would just be helpful to understand the process. Have you received any additional clarity on these initial responses that you sent, and how does this tie into the full scope of this full response that you're guiding to potentially submit by year end?
spk02: Yeah. Hi, Kristen. Thanks for your question. So the way this process unfolded is that we submitted our IND on the 23rd of July. And then at that point, FDA had 30 days to come back to us with various questions, which they did do. So these information requests, we responded to those. in detail to provide clarity to the FDA. And ultimately, you know, those responses were utilized as part of their review of our entire IND package. At the end of that 30-day period, they ultimately informed us that while, you know, many of the issues that they had presented to us were addressed, they still had other key issues that they felt were not sufficiently addressed. And so that was what led to the clinical hold communication. We were, you know, communicated to verbally with regards to that. And then ultimately the final clinical hold letter was received on September 17th. And in that letter, they identified a list of specific hold issues that we needed to address. So that's the process that we're in right now. It's a very, you know, black and white process. The items that were identified were quite straightforward and we feel confident we can address them all. The one area that we did pursue additional feedback around was our potency assay. And we did receive some additional feedback there. And that gave us some confidence that the approach that we were planning to pursue and are pursuing now seemed reasonable to the FDA. So basically, that's the way the process has unfolded, and now we're in that final stage over the next six weeks or so to complete the assembly of the new information for this complete response letter.
spk06: Okay, thank you for that detail. And then in your final remarks regarding Catalyst, you had mentioned the potential of looking at the second simultaneous trial next year. So, I think that you had previously left this off as discussions still needed to be had in terms of whether or not you could run these two trials simultaneously. So, you know, is there any update there in terms of the fact that you are potentially looking to explore it next year then?
spk02: Well, I think it's just a matter of rephrasing our earlier thoughts. I mean, our goal has always been to accelerate that second trial as fast as possible. We do need to have additional discussions with the agency around that second trial, not only the wound type that we pursue, but also the trial design itself. And our goal would be to kick that off as quickly as possible after the first trial is underway. So, our plan is once the IND is open is to submit a request for additional conversations with the agency and, you know, hopefully we can get that study, that second study underway shortly after the first one. Our plan is not to wait until the first one ends. Whether we can, you know, whether we can kick it off, you know, a couple months after or, you know, a few more months after remains to be seen. But our goal is to get it started as quickly as possible.
spk06: Okay. And then for Wagner to DFUs, do you think that there's a bar? I mean, obviously, this is a clinical trial, so you need to hit the endpoints. But, you know, what do you think that, like, physicians and potential users of the product are looking for? And, like, how does this correlate to standard of care, the U.S. Wound Registry, etc.? ?
spk02: Yeah, that's a great question. I mean, we purposely, as we've described before, are going after these deep wounds, these wounds that have exposed critical structures. And the reason for that is because we've seen in real-world cases where skin T has performed quite well in filling the volume of those wounds and closing over the structures. And so we don't envision having a perfect closure rate on these wound types. It's extremely difficult, but we do expect to see, you know, meaningful differences versus the standard of care based on not only our past experience, but our initial DFU study in Wagner once. So, based on our experience with our physicians, you know, they're looking to see that coverage of those exposed structures and that percent area reduction that is, you know, basically moves that wound from a two to a one it is much more easily managed. So, you know, we believe that we're going to see a very meaningful closure rate, as well as very meaningful percent area reduction. And both of those endpoints, one being the primary, one being the secondary, we think will be very important to not only physicians, but also to payers to show the value of skin T in that patient population.
spk06: Thank you. And then with your recent patents that were granted, could you talk about in totality what's the runway or the expiration across all these patents? And then looking at your internal patents that you're hoping to submit for, what could the potential extension look like?
spk02: Yeah, that's a good question. You know, in terms of timing, all of our patents have been granted in the last, you know, 12 to 18 years. months, so the runway for these is quite significant. And we're going to continue to pursue other patents around our technology and believe that we can continue to build a nice portfolio that will support the use of the product in a variety of different ways. So at this point, we have a nice long runway with these patents and are excited about pursuing additional ones as we continue to develop and pursue the patents for the NPFU technology and other components of the technology that support SCIN-TE.
spk06: Great. Thanks so much for taking my question.
spk04: Yeah. Thank you, Kristen. Appreciate it. Once again, if you wish to ask a question, please signal by pressing star 1 on your telephone
spk01: Cameron Hoyler speaking. We do have a question that came in through the webcast. And Jake, perhaps you can field this one. The question is, how long can your cash sustain you before you need to raise additional capital? Sort of asking about the runway. Could you speak to that?
spk00: Sure. As I mentioned during my remarks, we were pleased to report that during the third quarter, our average monthly cash burn was approximately $1.5 million. That's below the $2 million per month that we previously announced as our target. And based on our targets for cash burn, current estimates for expenses, and cash on hand, we believe that we have capital sufficient to fund our operations into the fourth quarter of 2022. In the interim, we will be opportunistic in our approach to raising capital.
spk05: Thanks, Jake. Okay, so this concludes today's call.
spk04: Thank you for your participation. You may now disconnect. Thank you, operator. Thank you, everyone.
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