PolarityTE Reports Third Quarter Financial Results and Provides Business Update

November 10, 2021

PolarityTE, Inc. (Nasdaq: PTE) a biotechnology company developing regenerative tissue products and biomaterials, today provided a business update and reported financial results for the three and nine-month periods ended September 30, 2021.

Recent Business and Financial Updates

• Based on recent informal interactions with FDA regarding certain chemistry, manufacturing, and control (CMC) issues related to the proposed potency assay for SkinTE^®, the Company believes that its complete response to FDA’s clinical hold correspondence will be submitted by year end.
• The Company continues to engage clinical trial sites and expects to be prepared to commence a pivotal study under the IND in short order if FDA accepts the IND following the submission of the Company’s complete response.
• On October 26, 2021, the U.S. Patent and Trademark Office issued a Notice of Allowance in U.S. Application No. 15/650,659, which covers additional methods using the Company’s minimally polarized functional unit (MPFU) technology. This is the Company’s third patent allowance in the United States. The Company was also granted Chinese Patent No. ZL 201580075326.3 on September 3, 2021, received a Notification Prior to Acceptance for Israeli Patent Application No. 252613 on July 25, 2021, and was granted Philippines Patent No. 1/2017/501009 on August 26, 2021. The Chinese patent covers skin-regenerative compositions utilizing the Company’s MPFU technology as well as methods of making a skin-regenerative composition utilizing the MPFU technology. The Israeli application and the patent in the Philippines each cover skin-regenerative compositions utilizing the Company’s MPFU technology. The Company continues to pursue additional patent applications in the United States and abroad related to its regenerative technologies, including SkinTE.
• Cash used in operations for the three months ended September 30, 2021 was $4.6 million, or an average of $1.5 million per month, representing a 32% reduction from the comparable period in 2020.
• Operating loss for the nine months ended September 30, 2021, was $24.2 million, an improvement of 35% from the operating loss of $37.4 million for the comparable period in 2020.
• The Company had cash and cash equivalents of $27.4 and working capital of $24.9 million at September 30, 2021.

Richard Hague, Chief Executive Officer, commented, “We are encouraged by the feedback we have received from the FDA regarding our IND for SkinTE, and we are on track to submit our complete response to the Agency by year end.  Additionally, we are making good progress preparing for the launch of our first pivotal study and we believe if FDA accepts our IND that we can enroll our first patient shortly after approval. We are also pleased with the continued growth of our intellectual property portfolio, and we are executing on these fronts while demonstrating good discipline with respect to managing our capital efficiently.”

Financial Results for the Period Ended September 30, 2021

There have been significant changes in the Company’s operations affecting its results of operations for the three and nine-month periods ended September 30, 2021, compared to the three and nine-month periods ended September 30, 2020.

SkinTE was registered and listed with the FDA in August 2017 based on the Company’s determination that SkinTE should be regulated solely under Section 361 of the Public Health Service Act and Part 1271 of Title 21 of the Code of Federal Regulations (i.e., as a so-called 361 HCT/P) and that, as a result, no premarket review or approval by the FDA was required.  The Company proceeded to develop sales and manufacturing capabilities for SkinTE and focused on advancing commercialization of SkinTE.  The Company began a regional commercial rollout of SkinTE in October 2018, and while it was marketed it was used in complex wounds, such as diabetic foot ulcers penetrating to tendon, capsule, and bone classified, Stage 3 and 4 pressure injuries, and acute wounds.  Given the Company’s significant real-world experience with the application of SkinTE and several supporting publications, the Company believes SkinTE could significantly improve clinical outcomes.  Following informal, voluntary discussions between the Company and the FDA the Company was advised by the FDA in April 2020 that its preliminary assessment is that SkinTE does not meet the requirements to be regulated solely as a 361 HCT/P.  Rather, the FDA’s preliminary assessment was that SkinTE is a biological product that should be regulated under Section 351 of the Public Health Service Act.  The Company re-evaluated its regulatory approach and determined it is prudent to submit an IND for SkinTE and an eventual BLA rather than engage in a protracted dispute with the FDA.  On July 23, 2021, the Company submitted an IND through its subsidiary and the Company’s business resources and activities are now focused primarily on advancing its IND, including addressing a clinical hold on our IND imposed by the FDA on August 20, 2021.  The Company ceased selling SkinTE at the end of May 2021, when the period of enforcement discretion previously announced by the FDA with respect to its IND and premarket approval requirements for 361 HCT/Ps came to an end.  As a result, the Company generated revenues from the sale of SkinTE and related sales, marketing, and administrative expenses related to that sales effort during the three and nine months ended September 30, 2020, which were not present during the period beginning in June 2021 and ending September 30, 2021.

Arches Research, Inc. a subsidiary of the Company (“Arches”) began offering COVID-19 testing services in May 2020 under 30-day renewable testing agreements with multiple nursing home and pharmacy facilities in the state of New York controlled by a single company, which substantially added to the Company’s services net revenues in the last seven months of 2020 and first three months of 2021.  When the New York nursing homes and pharmacies adopted on-site employee testing at the end of March 2021, the Company’s COVID-19 testing revenues declined substantially, and on or about August 17, 2021, the Company decided to cease COVID-19 testing.

The COVID-19 pandemic had a significant adverse effect on the preclinical research services offered by IBEX Preclinical Research, Inc., a subsidiary of the Company (“IBEX”) in 2020, but there has been a resurgence in that business during the first nine months of 2021.  The increase in revenues from IBEX services helped to offset the loss of COVID-19 testing revenues in the second and third quarters of 2021.  Nevertheless, revenues from the Company’s services business declined 63% in the third quarter of 2021 compared to the first quarter of the year.  Due to the circumstances described above, the Company expects revenues from its services business will be derived primarily from IBEX’s preclinical research and veterinary sciences business for the remainder of 2021.

As a result of the foregoing developments, the Company made a number of changes to its operations that impacted results of operations.  These included reductions in the Company’s work force in 2020 and 2021, and reducing the services and infrastructure needed to support a larger work force and commercial sales effort.

Comparison of the three months ended September 30, 2021, and the three months ended September 30, 2020

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