Good day, and welcome to the PolarityTE Inc. Second Quarter 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Richard Haerle, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Operator. Good morning, and thank you for joining PolarityTE's call to discuss second quarter 2020 results. I am Rich Haerle, Vice President of Investor Relations. On the call today are members of the executive team, which includes David Seaburg, CEO; Richard Hague, 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 the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated. These forward-looking statements are based on our current expectations and may differ materially from actual results due to a variety of factors that are more fully detailed under the caption Risk Factors in our filings with the SEC, including our Annual Report on Form 10-K for the year-ended December 31, 2019, as well as quarterly reports on Form 10-Q filed with the SEC in 2020. Any forward-looking statements made on this call speak only as of today's date, Thursday, August 6, 2020, and we disclaim any obligation to update such statements to reflect events or circumstances that occur after today's call, except as required by law. I'd like to highlight to participants that the call is being recorded. We are making it available to investors and the media via webcast, and a replay will be available on our website in the Investor Relations section shortly following the conclusion of the call. Additionally, it is the property of PolarityTE, and any redistribution, retransmission or rebroadcast of the call in any form without PolarityTE's express written consent is strictly prohibited. I would now like to turn the call over to David Seaburg.

Thank you, Rich, and welcome everyone. I am pleased to report that Q2 was PolarityTE's best quarter on record in terms of total revenues. And despite a challenging environment created by COVID-19 - the COVID-19 pandemic, we also had our best quarter ever in SkinTE sales. In addition, we created a new revenue opportunity through COVID-19 testing and validation, which helped mitigate our monthly cash burn. As reported over the past quarter in our press releases, major changes have been underway at PolarityTE. We undertook the process to right-size the Company, streamline our commercial efforts, pivot to a new regulatory pathway strategy and completed substantial cost reduction efforts that led to a significant reduction in cash burn, which Jake Patterson will provide more details on during his prepared remarks. That process required our management team and workforce to identify ways to do more with less. And make no mistake, this undertaking was often difficult, especially in the face of COVID-19 headwinds. But as evident by our second quarter results, our efforts are beginning to pay off. Now, I'd like to quickly review our second quarter revenue numbers. Total revenues in Q2 were $2.27 million, up 143% quarter-over-quarter. SkinTE revenues were $944,000, up 121% quarter-over-quarter and Contract Services revenue was $1.32 million, up 162% quarter-over-quarter. This includes revenues from COVID-19 testing and validation, which I will discuss in more detail later in my prepared remarks. Let's move on to discuss some SkinTE highlights during Q2. As mentioned, revenue for SkinTE in the second quarter was a record $944,000. We believe this improvement is the result of two important changes that we have made to our sales strategy earlier this year. The first is pricing. You might recall that during our fourth quarter earnings call, we discussed that despite positive outcomes and a desire to treat more patients with SkinTE, several providers identified the high cost of treating larger wounds with SkinTE as a reason for hindering use. As a result, we introduced a new pricing structure at the end of Q1, which began to yield results in the beginning of Q2. The second change was to redirect our sales efforts to focus on inpatient surgical wounds, which includes traumatic wounds and Stage III and Stage IV pressure injuries. We believe these changes are what led to a meaningful quarter-over-quarter increase in average wound size treated and record SkinTE revenues. Now, I'd like to recap some notable recent achievements. First, as most of you are aware, we announced positive interim results from our multi-center randomized controlled trial evaluating SkinTE in the treatment of diabetic foot ulcers, showing a statistically significant difference in the treatment arms at 4 weeks, 6 weeks, 8 weeks and 12 weeks. Importantly, 72% of DFUs treated with SkinTE closed within 12 weeks versus 32% of those treated with standard of care. Second, in Q2 there were three peer-reviewed manuscripts published, International Wound Journal, Plastic and Reconstructive Surgery - Global Open and Cureus. In addition to those three publications, just last week our VLU pilot data was published in prs.gov. And finally, our manufacturing facility in Augusta, Georgia was completed ahead of schedule and began operation in late Q2. Now let's discuss our Contract Services business, which includes our new COVID testing initiative. As mentioned, total revenue for the second quarter from contract services, which is comprised of our IBEX and Arches research subsidiaries, was $1.32 million, up 162% quarter-over-quarter. Of that, $712,000 was generated through our newly formed COVID-19 testing and validation business. We are pleased with these revenues and happy to play a part in supporting public health efforts to combat the spread of COVID-19. When the pandemic struck, our entire organization looked for ways to help. Several of our employees volunteered their time to support health care facilities, and we quickly identified COVID-19 testing as an area that with a little upfront cost we could utilize our existing lab equipment and the capabilities of our R&D team to support the health and safety of the public while at the same time generating meaningful revenues for the Company. At the end of April, we successfully obtained our CLIA certificate of registration and began testing for COVID-19 shortly thereafter, predominantly for health care providers and nursing home staff. Our initial efforts focused on New York State, but we are now expanding to other geographies. We believe that we can efficiently increase our testing capabilities to meet additional demands. While there is some uncertainty around how long the mandates for COVID-19 testing will last, so long as demand for testing remains in place we are confident in our ability to generate meaningful revenue from this initiative. We are of the view that the demand for COVID-19 testing will continue at least through the remainder of 2020 and possibly well into 2021. Our successful entry into the COVID-19 testing market could not have been possible without the hard work and dedication of our Chief Scientific Officer, Dr. Nik Sopko, and his entire R&D team. Now, I'd like to offer some guidance for the third quarter. PolarityTE has gone through a true transformation over the past year under new leadership. Most importantly in April, we announced several initiatives that the Company would undertake due to the impact of the COVID-19 pandemic and the change in our regulatory strategy, namely reducing payroll expenses and discretionary spending across the organization. In the last couple of months, we witnessed what we believe to be the early stages of increased demand for SkinTE, and as I mentioned, is the result of several strategies we put into place during the past several quarters that are starting to have a positive impact on our business. Accordingly, we are now much better equipped to forecast near-term revenue for each of our business segments and therefore believe it is prudent to provide investors with revenue guidance for the third quarter. We expect our third quarter - our revenues for the third quarter of 2020 to be as follows, total revenues in the range of $2.7 million to $3.2 million; SkinTE revenues in the range of $1 million to $1.2 million; and Contract Services revenues will run at or above what we saw when those operations were at a steady state in the second quarter, resulting in a range of $1.7 million to $2 million. We are confident in these - in our estimates based on the current state of our business, even during this challenging environment. Nonetheless, we must recognize that while our SkinTE and Contract Services businesses have operated efficiently during this pandemic, we are in very uncertain times due to COVID-19, and a substantial rise or fall in the number of COVID-19 cases could impact these projections. Now, I'd like to turn the call over to Richard Hague to provide an operational update and some of the steps we are taking as we pursue BLA. Richard?

Thank you, David, and good morning everyone. First, I'd like to say that I'm extremely proud of the organization for the creativity and agility that they showed in getting our COVID-19 testing business up and running in the second quarter. Having said that, I want to be clear that the successful transition of SkinTE to a 351 product remains our top priority. Our entire organization is aligned to support and prepare for a BLA for SkinTE, as we clearly understand the significant benefits associated with securing SkinTE approval under a BLA. Since our last earnings call, we have taken the following steps in pursuit of this goal. First, we have marshaled internal and external resources in support of a planned type B pre-IND meeting. As the first step, our official meeting request letter was submitted to the FDA yesterday, August 5th. Secondly, we have made significant progress on the briefing document that is required to be submitted to FDA 30 days in advance of the pending pre-IND meeting date. This document will outline in great detail our proposed plan for eventual SkinTE approval and request clarity from the agency on multiple topics related to that plan. And third, as previously mentioned, we've analyzed and reported the positive data from the interim analysis of the first 50 patients enrolled in our ongoing RCT evaluating SkinTE in the treatment of DFUs, which we plan to include as part of our briefing document. To set appropriate expectations, the guidance for the timeline of our interaction with the FDA is as follows. The agency should respond within 21 days from the receipt of our meeting request with dates by which our briefing materials are due and by which the agency will respond to the questions in our briefing document. A response to questions should be provided within 60 days of the meeting request, although there may be delays to that timing due to the pressures of the agency in COVID-19. Traditionally, the agency may also grant an in-person meeting with the sponsor, but our understanding is that all FDA meetings are currently happening telephonically, and there's no assurance that a meeting, whether telephonic or otherwise, will be granted. We will then take the feedback from the agency's written responses and meeting, if one occurs, and use that to then form our subsequent interactions, whether that be an eventual IND submission or another submission seeking additional information or clarity. Regarding our RCTs, as always they continue to be an important part of our efforts. And as such, I'd like to provide the following update. As of today, there are 74 patients currently enrolled in the DFU study and 29 patients currently enrolled in the VLU study. We expect the DFU study to reach target enrollment of 100 patients by the end of 2020 or early 2021, and expect the final readout in the latter portion of the first quarter or early second quarter of next year. Our VLU trial is ongoing, but is enrolling much more slowly. As we enter discussions with FDA, we will continue to evaluate the need for additional data and how it may be incorporated into our BLA strategy. I hope that you all were able to join our July 27th conference call with Dr. David Armstrong, Study Chair for our RCT and DFUs, and I note that a replay of the call and webcast is available on our website. As David mentioned, we are very pleased with the results of DFU interim analysis and think that the data provides incremental evidence for physicians as they consider utilizing SkinTE. We also believe it is robust, well controlled data like that - what was presented as well as successful BLA that will ultimately lead to a more valuable asset and widespread adoption of SkinTE. While we don't know if the FDA will allow for continued sales after the discretion period ends, we were encouraged by the record-setting quarterly results in a challenging environment and took note that the FDA recently extended the enforcement discretion period from November of 2020 to May of 2021. Now, I'd like to turn the call over to Jake Patterson for the financial update. Jake?

Thank you, Richard, and good morning everyone. As David mentioned, for the second quarter of 2020 we reported approximately $2.266 million in total revenues, which includes revenues from SkinTE, which we refer to as our - as products in our 10-Q, and revenues from the sale of Contract Research services, which we refer to as services in the 10-Q. Revenues from products during the quarter were $944,000 and with - revenues from the services were $1.322 million. For the second quarter of 2020, cash used in operations was approximately $11.56 million or approximately $3.85 million per month on average, which is roughly 17% lower than the monthly cash burn used in operations during the first quarter. This cash burn included a reduction in accounts payable of over $3 million and severance costs of $600,000. Consistent with our BLA strategy and discussed in previous press releases, we have aggressively worked throughout the quarter to reduce cash burn, including, first, reducing payroll expense through a company-wide salary and wage reduction; second, focused commercial efforts while lowering headcount and marketing and other commercial spend; third, reduction in force of over 30% of the regenerative medicine business workforce; and fourth, cutting discretionary spending across the organization. As discussed in our last earnings call, we still expect to exit 2020 at an operating cash burn rate, excluding possible BLA costs, of under $2 million per month, which is down significantly from our Q4 2019 average monthly operating burn rate of $5.3 million. We finished the second quarter of 2020 with approximately $30.5 million of cash and cash equivalents on our balance sheet. And we believe current capital resources will be sufficient to fund PolarityTE's current business plan, including related operating expenses and capital expenditure requirements, into the second quarter of 2021. Our highest financial priority remains near-term minimization of our cash burn to enable a successful BLA submission for SkinTE. I'd now like to turn the call back over to David Seaburg for some concluding remarks.

Thanks Jake. I'd like to conclude today's call by thanking all our employees for their hard work and dedication during this past year as we work to restructure this business. I've always said the most valuable part of PolarityTE is something that investors and analysts can't factor into their models, which is the experience, talent, commitment and creativity of our employees. The recent positive shift in our Company's performance can only be attributed to the fierce determination and commitment of our employees to successfully execute on the strategic initiatives we put into place to rebuild this business. Each of you should be incredibly proud of the progress we made together during the past year and especially during the second quarter. I cannot thank you enough for your commitment and dedication to PolarityTE and the patients we serve. Now, I'd like to open the call up for Q&A. Back to you, operator.

[Operator Instructions] We will now take our first question. Please go ahead.

This is Kristen Kluska from Cantor Fitzgerald. Thanks so much for taking my questions and congrats on the progress this last quarter. So I wanted to further discuss the new pricing structure related to larger wounds. I know you began rolling this out in late Q1 and it seems that based on revenues in paid cases versus the last quarter, that the increase in revenues in part attributed to treating larger wounds. So on that note, just wanted to see if you could share some general feedback related to the new pricing and then also, if you have plans to expand this with some of the other active users at this point?

Sure. I'd love to address that, Kristen. Thanks for the question. One thing that we cited, and again back in Q4 when we had our call, was after really learning from our providers through discussions we had with them and noticing that there was a drop-off in usage after some trial evaluation products we're giving. We recognized that and learned that treating larger wounds was expensive, and it ate into a lot of the DRG, especially for some of the largest wounds that we treated. It really hindered use. So we, therefore, took steps to really reduce the SKUs - the amount of SKUs within our pricing structure, and we took the higher end in particular down significantly and actually ended up capping it to really make sure we open the doors and gave providers that wanted to use our products but were getting pressured from the finance groups of these different hospital systems. We wanted to make sure that we gave them every opportunity to use it and to increase adoption and especially use it in larger wounds. That pricing change, and I'll tell you, Kristen, was really important. And it immediately started to gain traction. We got incredible results back from the - from our sales team as far as responses from this. And what it really led to was the average wound size that we treated during the quarter, it was significantly different than - in Q2 than Q1. And when I say significant, Q2 our average wound size was around 314 square centimeters versus around 62 square centimeters in Q1, so a noticeable difference, and again, really driven by the fact that we made this change - this concerted change, and we're really seeing continued momentum from it.

And I know the DFU data is kind of just hot off of press. But wondering if you could share any initial feedback that you've got from the community regarding the interim results that were recently presented?

Yes, that's actually another great question. It's interesting, our sales team has been getting a lot of reverse - many reverse inquiries from providers that we had originally reached out to as we - as this product was launched, and they really either shunned our request or didn't engage with us from the standpoint of using the product because seeing it through a clinical trial evaluation really was kind of the key trigger for them to begin adopting. So we've received calls from many providers that in the past did not use the product and wouldn't use the product, mainly because they wanted to see it through the eyes of the clinical trials. And we believe that it's been very encouraging.

And then, regarding the briefing documents that you plan to share with the agency, I think in the past you discussed you had over 700 patients worth of SkinTE evidence. Wondering if you could talk about any updates to this number. So for example, were you including the patients that were treated in the recent trial? And then on that note, are you going to be able to kind of separate some of this data and results by the specific wound indications?

Richard, do you want to run with that question or Nik Sopko?

Yes, I'm happy to take that. So - yes, so Kristen, we're over 800 total patients treated now, and that includes our RCT patients as well. And in terms of what we include in the briefing document, we're certainly putting together a detailed package that's going to include all patients treated, certainly going to be separating them out by whether they come from a pilot study of RCT or real-world evidence, et cetera. So, that will certainly be included. And in terms of wound type, I think we'll be spending some time and effort on categorizing those accordingly. Certainly, the most prominent data that we have is in the DFU. So, that'll be our lead data set that we'll put forth with the FDA.

And then regarding the node that's in Augusta, Georgia, just wondering if there are any next steps here? And then also, considering that it's geographically very close to the largest burn center in the US, wondering how the pricing dynamics we talked about could be important here just given that burn wounds are sometimes some of the more larger ones that you tend to study?

Yes, so...

Richard, you can comment on that?

Yes, sure. So first off, yes, we're really excited to have that node up and running. The operations team did an outstanding job in getting that operational in a very timely fashion, especially given some of the travel limitations and all that we had. So first, I just want to start with that. Second, as I said, we're excited because there are some critical customers down there, the ones that we currently do business with routinely and the others that we hope to do more business with. And as part of that process, we're engaging those customers now, we've been engaging them now for a while. And we are working through pricing structures in some instances where - as David described earlier, where there was some hesitation around the larger wound sizes. So, that certainly is going to continue, any momentum that we start to build there, in terms of acceptance around the ability to utilize the product under a DRG setting that makes sense for the institution. So, regarding the size of wounds that we treat there, interestingly enough, the JMS hospital system treats a whole variety of wounds, not just burns but a variety of chronic and other types of wounds. So, we certainly hope to partner with them more closely and be able to fully utilize the window to its maximum capacity over time.

My last question here is whether you could share any metrics related to the new and repeat users. Thank you again.

Sure. I mean as far as metrics in this quarter, and I know we stated last - on our last call, Kristen, that we are going to shy away from really producing or giving out metrics as we get on this BLA pathway and focus on that core initiative, but some of the core metrics, commercial metrics, in the quarter were, our paid cases were a record 88 in Q2. I think we put that in our press release. New paid users were 15, and that's versus 24 in Q1. But again, that's in the face of a significantly reduced sales force and a focused effort to really go after the relationships that had been built within these bigger institutions and make sure that we continue to lean on where we've been successful. So, the paid user number was expected to go lower. Repeat paid users were 31, so up versus Q1. In Q1, I believe they were 28. So I think that it's really important to stress that it was a very good quarter to say the least. We're really happy with the results, 88 paid cases in Q2. I mentioned it was a record. I don't know that it was a record per se. I think we had one quarter where it was actually a little bit better. But that is a substantial or a very good number in our opinion and we're looking forward to continued adoption.

We will now take our next question. And as a reminder, please state your name before posing your question. Please go ahead.

Yes, it's Carl Byrnes from Northland Capital Markets. I was just hoping that you might be able to review the BLA timeline, there was a little cut-out on the prepared comments there, and then also, when internally you might expect a submission? Thanks so much.

Yes, of course, Carl, and I apologize if there was a cut-out there. So as I said, we submitted our meeting request letter yesterday to the FDA. That starts the clock, which is normally a 60-day clock, in terms of a response date to our questions. There's an interim interaction, which the FDA shares with us the actual date of those responses to be answered and which time we need to get our briefing document in, which is 30 days in advance of that pre-IND meeting date. So right now, we're on a - what I would call a 60-day clock. And of course, there's some uncertainty around that exact timing, given COVID and FDA schedule. But that obviously puts us out 60 days. If there is a telephonic meeting, then there will also be written minutes that come from that meeting. That would be received approximately 30 days after the actual telephonic meeting. If there's no telephonic meeting, we'll get the written responses from our questions at that date - the original 60-day date that the FDA specifies. So it either puts us at a point of which we'll have some clarity, either in 60 days or in 90 days, in terms of us being able to then evaluate what the FDA is telling us in terms our plan and what the next steps would be. It's a little bit early to speculate as to when the IND - actual IND submission would take place because obviously, we need to be able to assess FDA's responses to our plan and better understand where there might be gaps and what we need to address as part of the steps moving forward. We'll certainly keep people updated in the coming weeks as this progresses.

We will now take our next question. Please go ahead.

This is RK from HC Wainwright. The first question is on the SkinTE. Let's say, the FDA comes back asking you to do another RCT, is that - in the event that happens, is there any commentary that you can provide on what size of a study you will need to do and how long it would take for you to do - get the study done to complete the filing?

Sure. I think it's a very good question and one that we obviously are very interested in understanding ourselves. We do believe that a study similar to our ongoing RCT right now could be required by FDA. I think sizing is to be determined, but we've clearly shown that at the current number of patients that we plan to enroll for the current study, that it's powered significantly to show statistical significance against standard of care. But there's also a component around the number of patients for safety, et cetera, that the FDA would like to see. So we expect, at least for now, that the style of the study would be very similar to our current RCT, which we consider to be very positive, if that's the case, because obviously we've shown success in the first 50 patients that we treated. And then in terms of sizing, that remains to be seen. I think, it could anywhere - be anywhere from 100 patients to 200 patients roughly. But again, that's speculation right now and certainly, will be further understood once we engage the FDA.

Kudos to you and your team for doing the work you are doing on the public health side. So, what is the capacity of your CLIA certified facility in terms of doing the COVID-19 testing? And how much of that capacity is currently being used, or corollary to that is how much more can you do for - not only for the state of New York but outside as well?

Nik, would you like to answer that?

Yes, so obviously there's a lot of great demand right now for testing across the country in many different states. And we sort of proved this organically using resources we had at hand within R&D in the organization and we look to do that as the need continues. Right now, our capacity is several thousands of tests a week that we're able to do. And of course, we're mindful of our other obligations surrounding the BLA and making sure we're able to meet our primary focus. But there's things that we can do to increase the capacity as the demand increases.

[Operator Instructions] And we will take our next question, please go head. Please make sure you're not on mute.

This is Susan Chor from Oppenheimer calling in for Kevin DeGeeter. Firstly, I just want to say, I'm really excited to hear that there is some clarity on the potential BLA filing, so congratulations. And now questions; so you guys said that the COVID testing didn't cost you much. And I wanted to know if you could give some more granularity on cost per test and then how much revenue you guys are generating per test?

Sure, yes. We have quite a bit of R&D team here and a lot of the equipment that's necessary to do the RT-PCR preliminary chain reaction detection of the SARS-CoV-2 virus nucleic acid. And so in that sense, it was really kind of a natural fit with our capabilities to be able to help with this need and participate in this pandemic and really kind of give back to our community and other communities by being able to test. The cost per test fluctuates with supplies and demand. As you can imagine, the demand for a lot of things is great. But overall, we're able to keep the costs relatively low. We focus on working with sort of a business-to-business type testing model, not testing general public, we don't have things like tents or anything like that, but really working with other organizations that want to keep their employees safe. And so, a lot of that really depends upon overall volume that these individuals or organizations want to test. So, it really kind of depends on volume. But we're able to offer our testing at a significantly cheaper price. And again, it really varies depending on the volume that an organization wants, but significantly cheaper than a lot of the standard prices you'll see out there if you were to go to the hospital and want to get tested.

And I think it's also - this is David. It's hard - it's important to recognize that from a human capital perspective - and I refer back to my comments during my prepared remarks, hats off to our R&D team for putting in the effort they did, and others, around the organization. This effort is our employees really working nights, late nights and weekends, giving up their free time, these are salaried employees for the most part that are doing that, to generate additional revenues for the Company. When I talk about this Company and the value of its employees and what do they bring to the table, I think this really earmarks and describes and shows how passionate people are here. And so, when we talk about the cost structure and even from a headcount perspective, it was not a lift from that perspective at all, really. We had just our people working extra hard and dedicating their free time to - for the better of this effort.

One more question; so the FDA extended their enforcement discussion to May 2021. Does that imply that you guys can continue to skip sale of SkinTE until then? This is, of course, without BLA filing or FDA approval.

Yes, so we're certainly working under the impression that, that would be the case. Of course, as we engage the FDA and get into the discussions around our transition from a 361 to 351 product, that remains to be seen exactly how that will impact our process going forward. So certainly, we fall under the enforcement discretion as we have in the past, and we would expect to be able to continue to do so going forward. But certainly, we'll see how this unfolds as we engage with FDA. Certainly, one of our major objectives is to understand what that transition plan from a 361 to 351 product, what it will look like.

There are no further questions over the phone. So, you may take the web ones. All right, ladies and gentlemen, this will conclude today's conference call. Thank you for your participation. You may now disconnect.