Good day and welcome to the Polarity First Quarter 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Rich Haerle. Please go ahead.

Thank you, operator. Good morning and welcome to the PolarityTE financial results and corporate update conference call for the first calendar quarter of 2019. I'm Rich Haerle, Vice President of Investor Relations. With me today are Dr. Denver Lough, Chairman and CEO; Paul Mann, CFO; Dr. Nikolai Sopko, Chief Scientific Officer; Richard Hague, COO; and Matt Kemp, our Chief Commercial Officer. By now, you should have seen our earnings press release. A corresponding webcast and slide deck will be made available on our website in the Investor Relations section following this call. I'd like to remind investors that this call will include forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities and Litigation Reform Act of 1995, including, but not limited to, the types of statements identified as forward-looking in our most recent reports on Forms 10-K and 10-Q, including our transition report on Form 10-K for the two-month period ended December 31, 2018, as well as the 10-Q for the three-month period ended March 31, 2019 that will be filed later today, all of which will be available on our website in the Investor Relations section. These forward-looking statements represent our views only as of the date made and involve substantial risks and uncertainties, including many that are beyond our control. Please note the actual results could differ materially from those stated in any forward-looking statement. For a further description of the risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements as well as risks relating to our business, see our periodic reports filed with the SEC. I'd like to highlight to participants that this call is being recorded and we are making this call available to investors and the media via webcast. This call is the property of PolarityTE. Any redistribution, retransmission or rebroadcast of this call in any form without PolarityTE's expressed written consent is strictly prohibited. I would now like to turn the call over to Dr. Denver Lough, PolarityTE's Chairman and CEO, for highlights and results for the first calendar quarter as well as a corporate update.

Thank you, Rich. And thank you to all of shareholders for you continued support and those listeners joining us today for this Q1 2019 PolarityTE corporate update call. I'm pleased with what we've accomplished during this past quarter and continue to be extremely excited about what the future holds for this young and growing company. Joining me today on this call is our newly appointed Chief Operating Officer, Richard Hague; our Chief Commercial Officer, Matt Kemp; our Chief Scientific Officer, Dr. Nikolai Sopko; and our Chief Financial Officer, Paul Mann. All of these individuals will be presenting their respective sessions on this call today. Today, I will briefly provide you with a business overview and an update on some of the key items occurring at PolarityTE. I will focus on three major areas in this section of the call. This is a general review of the enterprise and the progress we've made across a variety of areas at the company. Second, I will review the plan, progress and process we've been executing on with the translation of SkinTE and the staged commercial efforts we have pursued in order to bring our product to healthcare providers we support and the patients we serve. Third, I will provide a general review of where we are currently in the process of bringing SkinTE through our progressive product market stages and provide insight to the success we have had during the strategic product roadmap. As many of you know, since its founding, PolarityTE has sought to change the paradigm in the design, development and the practice of regenerative and neogenerative therapies. In doing so, we have sought to change to disrupt the concept of regenerative medicine away from simply hope and dreams and into something real, evolving and utilized. In order to begin to do this, we need to develop something pragmatic, intangible that could truly impact patients' lives and something that could enhance and replace the current clinical standard of care. And back in late 2017, just under one year from the formation of PolarityTE, we delivered a very different technology, the first of our neogenerative CoreTE platform technology, SkinTE, to providers and patients. At that time, we explained that the planned commercialization for SkinTE, much like the technology and product, will also be very different. And it would encompass a sequence of overlapping stage processes that I will discuss shortly. It is through these stage processes of bringing the product to market that we will also scale and stage the PolarityTE team. And now, as we prepare for transition from a translational research and development biotechnology company into a multifunctional enterprise with novel technology platforms and uniquely designed commercial products that we've begun to assemble even more advanced team of field leaders, a team of experienced and proven success as we've begun to establish our presence in the market and expand our reach. Some of these recent additions which bring tremendous value to our PolarityTE family include Richard Hague, Polarity's new Chief Operating Officer; Matt Kemp, our new Chief Commercial Officer; Minnie Baylor-Henry, our recent addition to the PolarityTE board of directors; Angela Ziegler [ph], the company's new Vice President of Marketing; David Seaburg, who joined us from the board, is our New President of Corporate Development; and James Lodigiani, our Vice President of Sales and Market Development. In addition to building an extraordinary team, we've also seen considerable progress throughout PolarityTE's enterprise in early 2019, including a 50% quarter-over-quarter of SkinTE deployments for Q1 of 2019, 14 abstracts accepted for presentation in Q1 at national conferences, publication of our first peer-reviewed journal article for SkinTE and the International Wound Journal and more to come. We've also seen five clinical trials that are either currently enrolling or have completed enrollment. We've seen exciting outcomes data from two chronic wound pilot evaluation trials, which were presented at national wound conferences. We've seen the initiation of two SkinTE multicenter, randomized, controlled trials which are currently enrolling and listed on clinicaltrials.gov. We have a signed lease for the first PolarityTE node to help bring products like SkinTE efficiently to patients in need. And we've seen successful closeout of the FDA inspection of the Salt Lake City, Utah central manufacturing facility with a voluntary action indicated, VAI, classification. And, finally, subsequent to recent and significant incoming growth opportunities, we undertook a strategic capital raise of around $29 million to position ourselves to pursue those opportunities, which we hope to share with shareholders in the market very shortly. With that said, I would now like to focus on the plan, the process, our progress with our first available product, SkinTE. For over a year now, many of those who follow the company have seen this slide presented at conferences, Street calls and roadshows. And they've asked, what exactly does it really mean? Well, there's a reason why we continue to display this slide. We, at PolarityTE, knew early that developing an intrinsically different technology never seen before would always require a strategic approach, a commercial process, a product support system that is significantly unique. And in a conservative manner, we plan to introduce these elements of the technology, product manufacturing, reimbursement and support systems in a staged manner for staged growth. These stages, as it relates to bringing the commercial product to market, is outlined here as follows. Limited market release or what we refer to as an LMR, followed by regional market release, or RMR, which we are currently in now, followed by our national market release, or NMR, and lastly, but certainly not least, a full-scale market release, conveniently referred to as our FMR. And if you now focus your attention to slide eight, we will provide you with what each of those stages of market entry entail and the certain type of metrics you can utilize to actually track our progression. The red scale bar at the top of the slide indicates where we currently are in the stage process, now partly in our regional market release. The limited market release, which began in 2018, began as to optimize the support product system, prove the product works across a spectrum of defects ranging from acute and chronic wounds to burn through trauma and surgical reconstruction as well aesthetic scar revision. The regional market release, which we designed to initiate access and test our reimbursement process, is focused on gaining access to providers, practices and healthcare network by getting the necessary agreements in place to eventually be able to truly sell SkinTE. In addition, with the receipt of our SkinTE product code just this year in early January, we're stress testing our reimbursement process across a variety of clinical care settings, provider networks, payer systems and defect types. The RMR, or regional market release, is about tailoring and optimizing an effective system and process in order to achieve product success in the long run. The national and full-scale market release will focus on conventional market growth, with the NMR directed toward activation of those accessed accounts and further penetration of those accounts to drive robust long-term adoption. More will be said about the NMR and FMR as we approach those stages of market development for our SkinTE product. In order to understand the importance of the RMR, we must understand some basic concepts surrounding the sales cycle process, specifically for SkinTE. The sales cycle process represents the steps required to have a user, a provider, a facility utilize and pay for SkinTE. Here in this diagram, you can see that SkinTE sales cycle process comprises key stages required prior to having providers regularly pay for the SkinTE product. First, the sales team makes contact with providers and educates them on a product process, reimbursement and types of clinical outcomes one could see with its SkinTE product. Once interest and desire to use SkinTE are established, there are typically four optional transitional processes which are optimal for different providers in different types of facilities. These are what we provide as access to the system. These access options include a direct purchase agreement, a paid evaluation, assessment by a value analysis committee, and/or the use of a trial evaluation agreement, which may include one or more trial evaluation products depending on the size and need of that facility. This transition to gain access takes time. And my colleagues Richard Hague and Matt Kemp will go into significantly more detail about this process. Following completion of this access stage, the provider and/or facility and Polarity enter into a purchase agreement, allowing for the sale of SkinTE product within that clinical care setting or facility. This could be considered the more formal access for the product to be deployed for revenue. It is at this point that our sales team initiates the sale of the product and drives adoption into the facility or the system. Lastly, I'd like to share with you all that we have learned from our limited market release and now this very important stage of the initial stage of our RMR. While the limited market release provided intelligence on how to optimize our product system before larger scale use, the regional market release is now providing us with intelligence on how to optimize our commercial, logistical and reimbursement strategies. To date, we have learned developed that, while SkinTE has the same autologous patient-specific type of product, for all intents and purposes, it is impacted by different types of providers, practices and processes, and thus requires tailored approaches, teams and execution. For example, while SkinTE has been successful across the full spectrum of clinical care settings and provider types, the type of providers and practices and specific facilities, processes do impact the time required to execute and eventually receive a purchase agreement. For example, large healthcare systems typically have more approval processes than a small office or clinic setting with only a few providers. Pertaining to payment for SkinTE, we have seen successful reimbursement of the SkinTE product across all clinical care settings, as well as through private and public payer systems. We do, however, always want to remain well prepared for future changes in the reimbursement landscape and, therefore, have specifically designed our clinical trial studies to provide effective, prospective clinical data, clinical utility and valuable health economic measurements for SkinTE in order to maintain an effective reimbursement system into the future. Lastly, while we already knew some of this from the limited market release, the regional market release is providing us with greater intelligence into what specific types of providers, practices, networks, facilities and healthcare systems impact the SkinTE process in intermediate clinical outcomes. This is very important. And all of this is helping us to validate our plan to tailor our sales and clinical sales force toward being more trained for specific types of wounds, providers, clinical care settings and market demand. And now, I'd like to turn the call over to a recent and strategic addition to our team, Mr. Richard Hague, PolarityTE's new Chief Operating Officer. Thank you.

Thank you, Denver. Good morning, everyone. First, let me say that I have been extremely impressed by the highly talented and passionate people here at PolarityTE and I am very pleased to be part of the team. At this point, I'd like to share a brief overview of my background for your reference. I have a long history in the wound care and orthopedic space. After working for J&J and Pfizer in the traditional orthopedic implant market, I moved down to Genzyme with the goal of being involved with cutting-edge technology. While at Genzyme, I helped to bring to the market the first autologous cell therapies for cartilage and burns. It was there that I first experienced the positive impact that these types of products could have on patients' lives. It was also where I first experienced the challenges and rewards of driving the adoption of products launched in a nontraditional manner. During my 18 years at Genzyme, I progressed through the organization, ultimately, heading up the global cell therapy and regenerative medicine business unit where I oversaw all the critical functions of the business. Sanofi acquired Genzyme in 2011; and in 2014, I helped lead the divestiture of the cell therapy business to what eventually became Vericel. Following my time at Sanofi Genzyme, I had a brief stint at TEI Medical where I built out their wound care prior to them being acquired by Integra. And for the last three-and-a-half years, I was at Anika Therapeutics in the role of chief commercial officer. Anika's products portfolio was utilized in multiple areas, including orthopedics, wounds and aesthetics. During my time at Anika, I also oversaw various functions within the organization, including clinical and R&D and worked closely with colleagues to define and execute Anika's regulatory and BD strategy. Given my background, I was naturally curious when I first heard about PolarityTE. As I did further research, I became very intrigued by what I learned. And now, having spent a month immersed in the business, it is very clear to me that Denver and the team have developed a product and a technology platform that is truly transformational. SkinTE is clearly a groundbreaking approach to wound healing. However, reflecting on my experience at Genzyme, I believe initial expectations for SkinTE were unrealistic due to the inevitable hurdles that come with launching a novel and disruptive product. It is important to recognize that, while HCT/P regulated products can get to market faster, you often face the challenge of building user confidence and clinical evidence at the same time you are developing your market. Each patient and provider experience are unique and act as a building block for increased adoption. Looking at where we are today, I'm excited by the steps the commercial team are taking to increase product adoption. As you will hear from Matt momentarily, we are making significant progress with our key leading indicators. Additionally, as Nik will share shortly, we are adding to our growing body of clinical evidence. Ultimately, it takes time to earn the trust of HCPs and their institutions, especially when introducing a game-changing product. Based on my experience, and I'm confident that we are laying the appropriate and necessary foundation to ensure the broad adoption of SkinTE. At this point, I'd like to briefly transition to highlight several strategic imperatives that I will lead in the coming months. The first is to manage the day-to-day operations of the business in a highly efficient and cost-effective manner. It is imperative that we are positioned to support the current and future growth of the business, but we must do so in a fiscally responsible way. Second is to establish a set of key business priorities with an emphasis on revenue generating and revenue supporting activities. The goal here is to align and focus the organization and our financial resources accordingly. Third is to identify and drive alternative revenue streams through potential out-licensing and strategic partnerships. It is important for us to leverage the value of our full technology platform and our internal R&D expertise. Additionally, I will provide ongoing guidance to the commercial team to ensure our evolving strategy allows us to achieve our future revenue objectives. I would like to close by reiterating my enthusiasm for being part of the PolarityTE team. Everyone in this room and throughout the organization has seen the impact that SkinTE can have on patients' lives and it is truly inspirational. I look forward to working with my colleagues to maximize the adoption of SkinTE and our exciting pipeline of products. Thank you. And at this point, I'd like to turn the presentation over to Matt Kemp.

Thank you, Richard. In Q1, we extended our regional market release with the goal of expanding the number of sites and HCPs that deploy SkinTE in targeted areas around the country. In Q1, we saw an increase in the number of in-process sites or those where we have initiated activity, leading to the utilization of SkinTE. That number moved from 335 at the end of Q4 to 433 at the end of Q1. While this number continues to grow, our focus on a go-forward basis is a more important metric, and that is the number of active users, or those that have used SkinTE in the preceding two quarters. To be classified as an active user, you have a SkinTE agreement in place. Either a product evaluation agreement, formally known as a trial evaluation agreement, or you have a purchase agreement. And in some cases, you actually have both. In Q1, the active users rose from 60 to 100, a total of 81 patients, both paid and unpaid, were treated through these sites, representing an increase of 50% versus Q4. Of this total, 42 were paid cases which increased roughly by 20% versus Q4. While our goal is to generate revenue, we realize that the path to more rapid adoption of a new technology is through trial usage or, more appropriately described as product evaluation. As we move forward in our regional market release, the number of initiated product evaluations, and these are unpaid products, and subsequent cases at sites around the country have become an important indicator of potential adoption of paid SkinTE cases in the future. To that end, we initiated product evaluations at 20 sites in Q1 versus only 4 in Q4 and increased the number of patients treated to 39. This represented over 100% growth versus Q4. The SkinTE selling process in a hospital setting moving from value analysis committee submission to approval to product evaluation agreement and approval to purchase agreement and paid product is an average of 4 to 6 months. When we look at the total number of patients treated, not surprisingly, we've seen the strongest adoption of SkinTE in the chronic wound market as physicians are able to see the product work in the smaller wounds very quickly. And as Nik will soon discuss, we've seen impressive results so far from pilot trials both in GFUs and BLUs and expect that these data will be key to driving adoption and reimbursement of SkinTE in the future. In addition to further penetrating the chronic wound market, we'll be focusing our efforts in the coming months to increase adoption of SkinTE in the larger wound and burns segments. Due to the complex nature of these patients and given the point-of-care is often in the surgical setting, it is important that we evolve our field team to ensure that we provide the highest level of clinical and customer support to the segment of the market. To accomplish this, we will be hiring additional clinical salespeople with experience and relationships in surgical and critical care settings, and bringing on several highly talented burn account managers to partner with leading burn centers to drive increased SkinTE adoption. Overall, we've made progress in commercializing SkinTE in Q1 and we are eager to put our new plan for larger wounds into practice. We will of course keep you all apprised of our progress over the coming quarters. And now, I'd like to turn over our call to our Chief Scientific Officer, Dr. Nik Sopko, to provide an update on clinical trials and recent data.

Thank you, Matt. Today, I would like to discuss the evidence we are building to support continued adoption, including abstracts presented at clinical conferences, pilot trial data and the clinical trials we have recently initiated and are currently enrolling. First, it's important to note we continue to build upon scientific evidence with 14 abstracts accepted for presentation at national and international conferences in Q1, including one that received top abstract special designation at the Diabetic Limb Salvage Conference in Washington DC for the presentation of results from our diabetic foot ulcer pilot trial. As many of you know, diabetic foot ulcers are a significant problem affecting up to 3.5 million Americans, which are difficult to treat and have a high risk resulting in amputation. Lower extremity wound care is estimated to cost the US healthcare system $58 billion. There is a clear need to improve upon current treatments. We seek to better understand how SkinTE can address this need and have been encouraged with the results of our two pilot trial evaluations we have seen so far. Our diabetic foot ulcer pilot trial evaluated 11 patients treated with SkinTE who had diabetic foot ulcers resistant to standard of care treatment. Importantly, 10 of the 11 patients achieved complete closure within 12 weeks with a single application of SkinTE. This is particularly encouraging given the closure rate with standard of care dressing and offloading is often less than 40%. One patient developed an unrelated infection of previously placed foot hardware and was excluded. We anticipate presenting the final results of this pilot trial at the Annual American Diabetes Association meeting in June. We are also encouraged by the venous leg ulcer interim pilot data presented yesterday at the Society of Advanced Wound Care Spring Conference in San Antonio, Texas. To date, all patients treated with SkinTE who had venous leg ulcers that failed standard of care treatment [Technical Difficulty] wound closure within 12 weeks following a single application of SkinTE. Data presented yesterday will be available on our website shortly. These two pilot trials were undertaken in preparation for our two recently launched multicenter randomized controlled trials comparing SkinTE to the standard of care in diabetic foot ulcers and venous leg ulcers and are being led by the principal investigator, Dr. David G. Armstrong, Professor of Surgery at the University of Southern California and founder of the Southwestern Academic Limb Salvage Alliance. Each trial has an expected enrollment of 100 patients and a primary endpoint of percentage of index ulcers healed at 12 weeks. Of note, these trials are designed to not only show SkinTE's clinical efficacy, but also cost-effectiveness in the treatment of these difficult-to-heal ulcers, an important consideration for reimbursement. Finally, our head-to-head trial evaluating SkinTE for the treatment of burns is actively enrolling with encouraging results and we have not observed any adverse reactions to date. We anticipate presenting interim results in the conference cycle in the latter half of this year. In summary, we have a total of five clinical trials. And just a few comments on the pipeline as we continue to execute on our plan. Similar to SkinTE, our initial commercial activity for OsteoTE will begin with a limited market release where we are targeting foot and ankle and craniomaxillofacial defects, two areas where we have an existing commercial footprint with foot and ankle specialists and reconstructive surgeons. While other applications of OsteoTE exists, for example, spine and long bone, we plan to take a stepwise approach and will move into those areas only post completion of the foot and ankle and craniomaxillofacial limited market release. And, finally, as it relates to CartTE, preclinical studies are currently in place and we'll provide updates as we continue to advance the product forward. Now, I would like to invite Paul Mann, our Chief Financial Officer, to share Q1 financial results in greater detail.

Thank you. And good morning, everyone. We issued a press release earlier today that included a financial update, which I'll briefly summarize. For the first quarter of 2019, we reported approximately $1.5 million in total revenues, which includes revenues from SkinTE and our contract service organization. Revenues from SkinTE during the quarter were $300,000 and revenues from contract research services were approximately $1.2 million. Research and development costs during the first quarter, about $5.4 million, which include approximately $1.1 million in non-cash charges. [indiscernible] revenues expense were majority of the costs associated with the DFU and VOD pilot studies that were presented yesterday at the SAWC conference and the startup costs associated with our randomized clinical trials for the company recruiting patients in the United States. For the first quarter 2019, cash used in operations was $16.6 million. This is in line with our expectations given the growth in our manufacturing and commercial infrastructure. There are approximately $2 million of costs that occurred during the first quarter, but are unlikely to occur in other quarters during 2019. For example, our auditing and accounting expenses were elevated because we file two 10-Ks as we transitioned from an October 31 year-end to December 31 year-end. We expect our cash used in operations to be less than $5 million per month for the remainder of the year. We finished the first quarter with $44.7 million of cash, cash equivalents and short-term investments on our balance sheet. During April, we raised an additional $29 million for the issuance of equity in underwritten public offering. We currently have a number of significant strategic growth opportunities available to us and this capital will help us fund those projects. The manufacturing node which we'll be constructing in one of the world's largest burn and wound centers is an example of such a great opportunity and we look forward to announcing more of these types of projects in both the United States and abroad. Following the capital raise, as we look at our capital needs, we believe we have sufficient liquidity on our balance sheet to fund our operations beyond the next 12 months. As most of you are aware, we transitioned from an October 31 fiscal year-end to December 31 fiscal year-end, and this slide details our expected reporting schedule for the remainder of 2019. With that, I will hand the call back to Denver for concluding remarks.

Thank you, Paul. In closing, I'd like to thank our shareholders for your support as we build PolarityTE for the future. The new hospital integrated node we announced just last month is both an extension of, and a template for, the innovation approach that we are taking in order to bring practice changing products like SkinTE, OsteoTE and eventually CartTE efficiently to patients in need. We continue to explore significant inbound growth opportunities to extend our reach and are energized by what we are finding both here in the US and abroad. But we must always do what is right for the company. In the short time since the company's formation, we have built a great team and made enormous strides. The hallmarks of a great company are its ability to innovate, learn and adapt. Our work is just beginning and we recognize that our corporate journey is certainly an evolutionary one. We look forward to keeping you abreast of our progress over the coming months, quarters and years, and I'd like to thank everyone for joining us. We will now turn it over to Rich Haerle for transitioning to our Q&A session.

Thank you, Denver. Now that we've completed the presentation section of our calendar first quarter earnings call, we'd like to turn the remainder of time over to question-and-answer session. Please be advised that some questions may be related to materials that are sensitive and/or related to non-public material information and therefore will not be discussed. I would also like to remind everyone on the call that this question-and-answer session includes forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 including, but not limited to, the types of statements identified as forward-looking in our most recent reports on Form 10-K and 10-Q including our transition report on Form 10-K for the two month period ended December 31, 2018, as well as the 10-Q for the three-month period ended March 31, 2019 that was filed this morning, all of which will be available on our website in the Investor Relations section. I would now like to turn the call over to the operator for question-and-answer.

Thank you, sir. [Operator Instructions]. We can now take our first question from Josh Schimmer from Evercore. Please go ahead.

Thanks so much for taking the questions. First, Richard, maybe for you, thanks so much for the concise summary and realistic outlook. When you referred to data being needed to really drive adoption, how should we be thinking about either of the small case series that are being reported versus the full Phase III trial results for really opening the door?

Well, Josh, thank you for the question. I appreciate that. I think the way you have to look at this is that, as we build experience, there are early adopters out there that are more than willing to try technology based on their case series, both from themselves and their peers. As you look for broader adoption throughout the larger market, certainly, the RCTs help drive that. So, it's a phased approach and it kind of falls in line with the regional market release moving towards the larger market release.

Have you seen situations in the past where the case series can drive meaningful data or is there – are there precedents for this approach?

Yeah. Certainly. In my experience back with Genzyme, when we launched products that at the point – at that point in time where not regulated, the BLA process hadn't existed at that point, so, basically, I've seen the process of building local champions that believe in the product have good outcomes, generate their own data on that and then are able to influence peers in the community based on their position in the community and the outcomes of their patients. So, it's certainly precedent that this can occur and occur favorably.

And do you see SkinTE being a product that can drive that kind of early adoption based on its merits and these case series?

Yeah. Absolutely. The beauty of SkinTE product is that it's a visual product. You're seeing the healing occur right in front of you. And when you have feedback from patients as well, it becomes a pretty compelling story. So, I absolutely do see that to be the case here.

Maybe two more quick questions. Richard, so for you, on the same token, is it then too early to launch OsteoTE? What's the data case to drive that product or is this a different setting where less data can drive?

No. I think it's very similar, as Denver outlined earlier. This is a very limited market release. The goal here is to gain user experience, learn a little bit more about the product, understand how it performs and, obviously, gain the experience that we will build upon. So, it's a building process. But I think, right now, once the product is ready to go live that we'll be in a position to gain that import experience and build from it.

Thanks so much. And for Denver or Paul, I guess, why is sales and marketing so low, but G&A so high? What are the components of each? How should we be thinking about modeling these two lines going forward?

Thanks for the question, Josh. It's Paul here. So, G&A contains most of the cost of the organization, and so that is very high. The sales and marketing cost is largely a variable cost based on commission dollars, and so that will grow with time as we succeed in the marketplace. So, do G&A as being flat to declining in the next, say, 12 months and sales and marketing increasing.

So, why is your G&A so substantially higher than most other small earlier stage companies?

So, the G&A contains a very large non-cash item in terms of stock option expense. And during the quarter, that was about $10.7 million. And so, if you look at the cash G&A charge, it's substantially lower. And we booked most of the stock option expense for the organization through the G&A line.

Okay. Thanks very much.

We can now take our next question from Kevin DeGeeter from Oppenheimer. Please go ahead.

Hi. Thanks for taking my questions. Morning, guys. And thanks for the really clear description and road map of this commercial plan. Could you also talk about your level of engagement with payers and managed care, particularly as it pertains to the chronic wound opportunity for SkinTE and how we should think about measuring your progress on that metric?

Sure. This is Matt Kemp. Thanks for your question. SkinTE is being reimbursed across the country. And as you know, in the inpatient setting, SkinTE costs are covered as part of that procedure DRG. In the outpatient setting, there's a variety of harvest and deployment codes with modifiers that can be selected by healthcare providers to submit a claim. And as it relates to payer policies, obviously, we are monitoring those across the board. And where we can and where prompted, we're having engagements with those payers, but it's an ongoing process in its early days in the commercialization process. But, overall, we want to reiterate that SkinTE is being reimbursed across all three types of wounds – the chronic wound space certainly, but also in trauma and reconstruction and also burn.

And just following up, though, on that, in the absence of a randomized control data, how should we think about the sort of pace of your coverage decisions? I appreciate that, at relatively low volumes, the product is getting reimbursed. But in terms of coverage policies, do you think randomized control data is really sort of what drives that process? Or do you think the organization can make significant progress prior to that type of data being generated?

Sure. So, reimbursement hasn't been a rate limiting factor so far in terms of demand, and that's not limiting demand. I think, as we – obviously, as more patients are going to be treated, we'll start to test some of those payer policies and we'll continue to partner with payers to support and providers to support request for additional information. I think it's clear that having the availability of randomized control data certainly helps payers gain confidence in the product and strengthens our value proposition. But, right now, and in the foreseeable future, as we're increasing the number of patients that are being treated, we don't expect reimbursement to be a big challenge for us.

Just one more for me and then I'll go ahead and get back in the queue. You did call out the expectation to expand the commercial team calling on burn accounts. Can you provide a little more granularity as to how you think about appropriate sizing of an expanded commercial operation for the burn market, which is pretty highly concentrated and maybe elaborate a little bit more terms of the experience or credentials or profiles of the right kind of rep to call on that channel?

Sure, sure. So, just to maybe take a step back, right now, we have a commercial team of 19 sales representatives around five clinical science managers and 10 home office support staff. And we right now plan on hiring six additional more sales reps to support demand in several major metropolitan areas. That demand is not exclusively in burn. It's actually in a variety of different settings. So, that includes chronic wound, trauma and reconstruction. And the team right now can adequately cover and support the existing 100 active users in those care settings. But I think as we move to transition those 433 in-process sites to active users over the next 6 to 9 months, we're going to strategically expand. Specifically, as the question around what we're doing in burn, while we are currently covering and engaging the burn market, I think it's clear to us that based on our experience in this limited market launch that focusing on a smaller subset, as you say, concentrated, those burn centers that really matter and that can help guide treatment algorithms as it relates to SkinTE's placement in that requires a group of individuals that have deep relationships with these sites. They are traditionally rep that have been in burn care for significant period of time. I think what our plans are is to start with a very small group of individuals. 3 to 5, and then they will work and partner with these leading burn centers to do what I just said. And that is number one, to help them, to partner with them, to integrate SkinTE in their current and existing treatment algorithms. We're also going to partner with these larger burn centers from a clinical trial perspective to gain additional experience and fine tune our product offering in burn.

Great, thanks so much. Thanks for taking my questions.

Next question comes from Tyler Van Buren from Piper Jaffray. Please go ahead.

Hey. Good morning, guys. My first question is on the pilot studies. Clearly, near 100% wound closure rates. Looks great. And you notice the standard of care being around 40% and I see peer-reviewed dermograph data at 12 weeks that shows 30%. Now, a 100% wound closure. So, can you just confirm that the criteria that you guys are using for wound closure is precisely as used in pivotal trials of other agents like dermograph as we think about comparing the data since it wasn't controlled?

Yeah. Absolutely. Hi, Tyler. This is Nik. Thank you for the question. And to your point, the definition for closure has been pretty well defined previously by the FDA, to have complete epithelialization with no drainage. And we are indeed following that same definition for our patients and also for the pilot trials and for the randomized-controlled trials that we have launched. You can see them on clinicaltrials.gov with how they're designed and they're largely following a lot of those other trial that you mentioned, so that they will be consistent with what prior data has shown. Additionally, we've taken great strides to design a very robust trial with an independent validator panel that confirms that all the wounds are closed and this is a panel of three very well-respected providers because we were seeing such great results with the pilot trials that we wanted to make sure we're being as thorough as possible.

Okay, that's helpful color. And then, just a couple points of clarification, in the last couple of fiscal quarters, you guys mentioned – you described them as in-process accounts and now they're in-process sites. And you also were calling them active accounts and other active users. I guess based upon the numbers you gave, they're not terribly different. But could you just, I guess, go over the decision to change the way that you describe them and discuss those differences and if we should be – if we are going to be getting users and sites data moving forward?

Sure. This is Matt Kemp. Thank you for your question. You're correct. We have slightly tweaked the descriptor, but the definitions essentially remain the same. So, in-process sites are those defined as hospital and clinics that have initiated the analysis community review, a trial evaluation agreement or purchase agreement, but these are sites that – not sites that we have active access to today, but are moving to using SkinTE commercially, so we will be calling them moving forward in subsequent quarters in-process sites. Active users is a better descriptor. These are actually individuals who have used the product commercially either in a trial evaluation process or actually a day case in the last two preceding quarters. And these are sites where commercial demand exists. They've committed to utilizing SkinTE and will continue to be a focus of ours to grow the business. To be considered an active user, you must have entered into an agreement with PolarityTE either from a trial evaluation perspective or a purchase agreement to use our products. And you know what? These active users are going to be considered really core to us realizing revenue over the following quarters.

Okay, that's helpful. And final question is, paid cases are up 20% quarter-over-quarter, but monthly revenues are down. And if you do the math on the amount per paid case, it's about $7,000 a case versus $12,000 in fiscal Q4. And so, that suggests that clearly the cases are being driven by these less expensive chronic wounds, which can be $1,000 a case. And you guys have 100 active users. And even if you transition all 400 of those in-process sites, I guess, the question is, are chronic wounds really enough to move the needle and inflect this launch? And why only put three to five individuals on burns? Why not have all of your efforts and all 20 something salespeople in burns because two paid burn cases could have equated to the sales this quarter for SkinTE or potentially exceeded that? And with the JMS manufacturing mode, when do you think that that could start contributing?

Okay. So, a lot of good questions now. I want to make sure that I addressed all of them. These are early days in the commercialization process. This is a limited market release and it's part of that. Core component is that we're learning. And what we're learning and what the market is telling us is there's significant demand right now in the chronic wound space. And as you appropriately pointed out, these are smaller wounds. And we think about the wound size, it is highly variable right now. And one patient – it's not a one for one equation, meaning each patient is individual. This is an autologous therapy that's manufactured for each individual patient. So, from a modeling perspective, I know that you're very interested in trying to create some assumptions moving forward. But I'd say, as it relates to wound size, right now, it's too early to give you an average of what we expect in each segment because it varies so widely. As it relates to node placement, in our first effort to do that, for us, it's not a if-you-build-it-they-will-come. What we are trying to do is move forward and ensure that, when we place a node that there is adequate demand. And part of placing a node is really based on improving customer service, decreasing turnaround times in the manufacturing and delivery, logistics process and also decreasing COGS. So, we are very excited about our first node placement and we think it's going to increase the product offering, the value add to accounts across the country.

Thanks very much for taking the questions.

We can now take our next question from Elemer Piros from Cantor. Please go ahead.

Yes. And good morning. Paul, I was wondering, so we can avoid being worried about 20% growth from a low base and 42 paid cases. Would you please provide a perspective about the JMS node in Augusta, Georgia? How many patients are being treated, burn patients, at this center? Do they treat some additional wound types as well? And the 6,300 square foot space that you're leasing, how many manufacturing columns can you put in there? And what would be your capacity to process samples at that facility, please?

Thanks for the question, Elemer. Look, I can't really comment on individual hospitals. So, you're probably best to direct your question to them if they'll answer it. In terms the lease and the size, we are paying a market rate for that lease, and that's set in the contract. I think we mentioned that in the 8-K when we 8-K-ed it. In terms of the number of manufacturing units or MFGIs [ph] being fit into that space, it's a substantial number. It'll be in excess of 20 [ph], but we may use the space for other things as well.

And so, that 20 or just call it 10, how many samples can you process during the year from those? Just we need to get a sense of…?

Yeah. So, right now, our processing time is a little over two hours. So, I'll let you run the math on that.

Okay. Denver, I had a question – a strategic question as well to you.

Certainly.

What would be your selection criteria or strategy to move this product to ex-US market?

That's a great question. You're beginning to already see a little bit of that strategy. Utilization of a scalable manufacturing logistic system, what we call PolarityTE nodal web, is key to the development and the deployment of our CoreTE technologies. Because of our short cycle time to actually create these effective products, we are able to place those types of manufacturing nodal facilities in strategic areas in the United States as well as internationally. But we would have to assure that internationally it was placed in an area where there was appropriate demand, appropriate reimbursement structures and systems as well as the ability to carry out appropriate logistics. We had once spoken with an investor who said, your technology clearly works, now you're a logistics company. And I agree to some extent. And so, we would have to make sure that that web appropriately worked in that region of the world. As Paul had pointed out, and I did in my closing statement, our capital raise was for strategic inbound growth opportunities, and that has to do with building out a strong footprint both nationally as well as strategic international placement of such manufacturing nodes, which we hope to share with the market in due course.

Thank you very much. Thanks. Thanks, Denver.

Thank you.

Next question comes from Carl Byrnes from Northland Securities. Please go ahead.

Thanks. Congratulations on your progress. Just a quick follow-up question, can you provide any updates on the progression of any potential non-US partners and what might that timing look like to the best of your ability? Thanks so much.

Thank you, Karl. Appreciate the question. I would love to be able to share that type of information. However, it still remains confidential. We work closely with a variety of different groups. We are very excited about some of the potential opportunities, but like I had stated in the presentation, I want to make sure that it is absolutely the right thing to do for the company now as well as for our long-term growth strategy. And so, we evaluate all of those incoming strategics on a case by case basis. We perform significant due diligence. And I am hoping that sometime, in the future, we will be able to share some of that information with yourself and rest of the market. But it will take a little bit of time for us to finalize any of those types of agreements to be able to share.

Thanks.

Next question comes from Ramakanth Swayampakula from H.C. Wainwright. Please go ahead.

Hi. Thank you. This is RK from H.C. Wainwright. A lot of my questions have been asked. Couple of quick ones. I'm also trying to understand some of the definitions that you folks have. What is a paid case in your definition? And does the paid case means a one-time paid situation or is it an activated contractuals of account?

Sure. It's Matt. Thank you for your question. So, a paid cases, as it's defined, it's a case that the provider has agreed to use commercially. But you can't do a paid case until you signed a purchase agreement with clarity. And in that purchase agreement, we specify the pricing and the length of the time of the contract as valid. So, before you can move on to a paid case, you have to reach agreement with Polarity. And all of those active – in the active users, you either have had a paid case and that has been secured through a purchase agreement or you have entered into a product evaluation agreement where you can use the product in an unpaid fashion. Does that answer your question?

Yeah, yeah. That's helpful. And then, another question that's on the sales cycle. What's the average amount of training that any one of your salesperson would require to become effective? And you talked a little bit about the experience of the salesforce, but at the same time, how does that contribute to your sales cycle? And are there any ways that you're trying to reduce that sale cycle, so that you generate revenues a little bit quicker? Thanks for taking my call.

Sure. So, as it relates to training, the first thing I would point out is the sales team that we put together is highly experienced in the variety of room care setting. And so, we are not you know just hiring someone that has just graduated from college and is looking for their first job. But, obviously, we have a training program in place. But it's not a once and done, we train you for a week or two and then you are sent out to the field. We have an ongoing training program for our field team and for our clinical science team as well. And then, as it relates to how long it would take for them to be effective, what we said in previous calls, is that it takes about six months for a new sales rep to be fully sort of certified and also directly impacting sales in a profound way. And as it relates to the selling process or cycle time, there's numerous opportunities to decrease that. In some cases, where we have an early adopter that wants to use the product, they can move directly to purchase agreement. And we've seen that happen before in the past. The majority of our business is driven through the hospital setting, that 4 to 6 month timeframe is very representative of the time it takes from sort of the site being identified as one that potentially could be useful, has market potential, giving them all away through from a value analysis committee to approval and then ultimately to agreements that lead to a paid case.

Operator, we have time for probably one more call in the interest of time.

Perfect. We have one left in the queue from Josh Schimmer from Evercore. Please go ahead.

Hey, thanks for taking my quick follow-ups. First, we have heard from some specialists that the $1,000 approximate activation fee is a little bit onerous for smaller wounds and that may be holding back their use. Can you maybe describe your efforts to assess and/or reevaluate that upfront payment? And then second, given the limited cash on hand and the current burn rate, is this a time to be taking on new expansion projects as opposed to focusing on kind of conserving resources and executing on the [indiscernible]. Thanks.

Thanks, Josh. This is Denver. We actively solicit feedback from a whole host of providers that are out there that are using the product, both small and large. Market research is showing us, as you know, that the majority of sort of temporary skin substitutes alone, usually range from $1 to $300 per square centimeter. So, most of those don't come in single square centimeters and they'll essentially come in smaller sizes of 4 or even 10 square centimeters. So, it actually ends up being more costly often than our product itself. One, because per price dollar or price point per square centimeter is higher. But also because it's temporary, you have to apply it multiple times. So, if you can end up healing a DFU in a matter of 3 to 6 weeks with a single application of SkinTE, that's significantly cheaper both at a price point as well as utilization of a single application itself that greatly offsets that cost. And that sort of that health economic argument that I think is so important for insurance companies, providers, facilities as well as us because we came from that side and we understand the importance of approaching a market that is highly focused on capitation and limited resources. And so, we want to make sure that something like that is fully addressed with each and every one of the providers. And often when it is presented fully to them and they see that health economic argument, particularly the WACC committees, we typically don't see any true issues with that. With regards to the growth opportunities or expansion of the company with the current capital that we have in the bank right now and those that we're sort of orienting towards as strategic, we do not grow this company without performing comprehensive diligence. So, while I think there may be some people that believe we raised this capital to solely use to spend on moving into other markets, that's not necessarily the case. It's to position us to have strategic growth opportunities that are inbound that allow us to have leverage and effectively build the company in ways where partners are assisting and contributing to a lot of that sort of capital necessity. So, we would never focus on utilizing that capital as a sole sort of expense simply to build out a platform or a footprint in an area where there wasn't going to be absolute significant return, if that makes sense.

Sure. Thanks very much.

Thank you, Josh.

That concludes the questions. I would now like to hand the call back to the moderator.

Right. Thank you, operator. This now concludes the question-and-answer session of PolarityTE's calendar first quarter earnings conference call. We thank you for your time. We hope you're pleased with the incremental level of granularity provided and we look forward to our next corporate update and quarterly earnings call for the second quarter of 2019. Thank you very much.

That concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.