Polarityte reports first quarter results and provides business update

PolarityTE, Inc. a biotechnology company developing regenerative tissue products and biomaterials, today provided a business update and reported financial results for the first quarter ended March 31, 2021.

Business Update

• Reiterates previous guidance on Investigational New Drug (IND) submission in 2H:21
• Plans to wind down commercial sales of SkinTE® consistent with FDA enforcement discretion period ending on May 31, 2021
• Expects substantial spending cuts in connection with the end of commercial operations and confident in ability to manage cash effectively
• Reported positive top-line data from full 100 patient dataset of SkinTE diabetic foot ulcer (DFU) randomized controlled trial (RCT)
• Announced publication of complete interim analysis data from DFU RCT in the International Wound Journal

Operating Highlights for the Quarter Ended March 31, 2021

• Total revenues were $4.71 million in Q1:21 compared to $3.59 million in Q4:20, representing a 31% increase quarter over quarter
• SkinTE revenues were $1.73 million in Q1:21 compared to $1.20million in Q4:20, representing a 44% increase quarter over quarter (these revenues are not expected to recur in future reporting periods due to wind down of commercial operations)
• Contract services revenues were $2.98 million in Q1:21 compared to $2.39 million in Q4:20, representing a 25% increase quarter over quarter
  • Contract services revenues for Q1:21 includes $1.69 million from COVID-19 related testing (these revenues are expected to decrease in future reporting periods due to the loss of a significant customer, which has not and may not be replaced)
• Operational cash burn for Q1:21 was $6.61 million representing a 52% reduction from Q1:20, and includes $0.82 million of offering costs associated with capital raises in January 2021.

SkinTE Biologic License Application (BLA) Update

PolarityTE continues to make strong progress with its pursuit of a BLA for SkinTE and is reiterating its guidance on the submission of an IND to the FDA in the second half of 2021. In connection with this transition to the BLA pathway and based on the FDA’s recent announcement that enforcement discretion related to 361 HCT/P products will not be extended beyond May 31, 2021, the Company will cease commercial sales of SkinTE and wind down commercial operations. The Company is planning to make substantial reductions in the costs associated with its commercial operations, which will mitigate the effect on cash flow resulting from the loss of SkinTE revenues.

David Seaburg, Chief Executive Officer, commented, “The decision to wind down our commercial effort is based on the end of FDA’s stated period of enforcement discretion, and given our pending IND submission, to complete our transition to a clinical stage biotech company. I am incredibly grateful to the commercial team for what they have achieved through their dedication to SkinTE, and to the many providers who have successfully treated patients suffering from debilitating wounds of various types. With a limited team of just eight sales representatives, we reported record SkinTE sales of $1.73 million in the first quarter of 2021. This is not only a testament to the true potential of SkinTE, but to the amazing talent of all those involved with the product.” Mr. Seaburg continued, “Because many HCPs have already witnessed the benefits SkinTE can offer patients with challenging, hard to heal wounds, we are committed to exploring opportunities for physicians to continue to treat patients in need through compassionate use programs, such as FDA’s Expanded Access IND program.”

Richard Hague, President & COO, commented, “Our team firmly believes that a successful BLA for SkinTE will create a highly valuable asset based on the clinical data that will support our eventual BLA submission, which should drive widespread adoption, enable favorable payer coverage and clear marketing claims, and provide regulatory exclusivity if SkinTE is deemed a reference product. With over 1,200 clinical uses of SkinTE to date and many positive outcomes, we look forward to submitting an IND and commencing the clinical trials that will support our BLA, so that many more patients can benefit from treatment with SkinTE.”

Financial Results for the Quarter Ended March 31, 2021
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. The increase in net revenues for sale of products was the result of a sales strategy adopted in May 2020 to focus on regions and facilities where we had repeat users of SkinTE. During the first quarter of 2021 the average wound size treated with SkinTE was 637 cm² compared to 62 cm² in the first quarter of 2020, which corresponds with the difference in revenue between those periods. The increase in net revenues for services was the result of new COVID-19 testing services we began to offer through our Arches Research, Inc. subsidiary at the end of May 2020, which we did not offer in the first three months of 2020.

Total operating costs and expenses decreased to $10.75 million for the three-month period ended March 31, 2021, compared to $18.12 million for the same period in 2020, a decrease of 41%. The decrease is largely attributable to the substantial reduction in personnel effectuated in May 2020 that reduced salary and benefit costs across the Company. Salary and benefits totaled $3.86 million for the first three months of 2021 compared to $6.67 million for the same period in 2020, a decrease of 42%. Severance expenses decreased from $495,000 in the first quarter of 2020 to $4,000 in the first quarter of 2021. Stock-based compensation decreased 49% from $3.22 million in the first quarter of 2020 to $1.65 million in the first quarter of 2021. In addition to the reduction of salary and benefit costs, the following significant changes also contributed to the decrease in operating costs and expenses, which are a consequence of our reduction of personnel and adjustment of our operating activities that began in May 2020:

• Travel and related costs decreased from $0.525 million in the first quarter of 2020 to $0.123 million in the first quarter of 2021;
• Issuance costs, which are included in operating expenses, decreased from $1.156 million in the first quarter of 2020 to $0.824 million in the first quarter of 2021;
• Consulting costs, including legal, accounting, and audit fees, decreased from $1.301 million in the first quarter of 2020 to $0.897 million in the first quarter of 2021;
• Promotional consulting and expense decreased from $0.701 million in the first quarter of 2020 to $0.045 million in the first quarter of 2021;
• Lease expenses for our corporate office facility was $0.119 million in the first quarter of 2020, which did not recur in the first quarter of 2021 because the lease expired in 2020.

In connection with discontinuing commercial sales of SkinTE, we recorded as a restructuring charge a loss on impairment of property and equipment in the amount of $0.425 million during the first quarter of 2021, while the $0.452 million of restructuring and other charges in the first quarter of 2020 were severance costs arising from a reduction in force in March 2020.

Our operating loss decreased from an operating loss of $17.71 million for the three-month period ended March 31, 2020, to an operating loss of $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 change in fair value of common stock warrant liability and warrant inducement loss.

The table below shows adjusted net loss, which is a non-GAAP measure that shows net loss before fair value adjustments relating to our common stock warrant liability and warrant inducement loss. We believe this measure is useful to investors because it eliminates the effect of non-operating items that can significantly fluctuate from period to period due to fair value remeasurements. For purposes of calculating non-GAAP per share metrics, the same denominator is used as that which would be used in calculating net loss per share under GAAP.

Cash and Liquidity as of March 31, 2021
As of March 31, 2021, we had $37.2 million in cash and cash equivalents and working capital of approximately $34.5 million. Based on currently available information as of the date we file this press release, we believe that our existing cash and cash equivalents will be sufficient to fund our activities at least for the next 12 months.

Cash used in operating activities for the three-month period ended March 31, 2021 was approximately $6.61 million, which 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, which included $0.76 million of offering costs. The higher quarter over quarter cash burn is attributable to annual prepaid expenses paid in the first quarter of the year, such as insurance. Business Wire