UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Commission File No. 000-51128001-32404

POLARITYTE, INC.

(Exact name of registrant as specified in its charter)

123 Wright Brothers Drive1960 S. 4250 West

Salt Lake City, Utah 8411684104

(Address of principal executive office)

Registrant’s telephone number, including area code (385) 237-2279(800)560-3983

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] ☐ No [X] ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] ☐ No [X] ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] ☒ No [  ]☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein and, will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] ☐ No [X] ☒

The aggregate market value of the common stock held by non-affiliates as of AprilJune 30, 2018,2021, was $192 million.$80,190,567.

The outstanding number of shares of common stock as of January 7, 2019,March 25, 2022, was 21,456,643.89,498,691.

Documents incorporated by reference: None.Portions of the registrant’s definitive proxy statement for the Special Meeting of Stockholders called for May 12, 2022 (2022 Proxy Statement) are incorporated into Part III hereof. The 2022 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the registrant’s fiscal year ended December 31, 2021.

TABLE OF CONTENTS

As used in this annual report, the terms “we”, “us”, “our”,“we,” “us,” “our,” “the Company”,Company,” and “PolarityTE” mean PolarityTE, Inc., a Delaware corporation, and our wholly owned Nevada subsidiaries (direct and indirect), PolarityTE, Inc., PolarityTE MD, Inc., PolarityTE RD,Arches Research, Inc., Utah CRO Services, Inc., IBEX Preclinical Research, Inc., and IBEX Property LLC., unless otherwise indicated or required by the context.

PolarityTE,POLARITYTE, the PolarityTE Logo, POLARITYRD, POLARITYIS, POLARITYRX, “WELCOMEWELCOME TO THE SHIFT”,SHIFT, WHERE SELF REGENERATES SELF, COMPLEX SIMPLICITY, IBEX, SkinTE, OsteoTE, CartTE, AdipoTE, MyoTE, NeuralTE, AngioTE, LiverTE, UroTE,ARCHES, and BowelTESKINTE are all trademarks or registered trademarks of PolarityTE. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights thereto.

Forward-looking Statements

This Annual Report on Form 10-K contains forward-looking statements. Risks and uncertainties are inherent in forward-looking statements. Furthermore, such statements may be based on assumptions that fail to materialize or prove incorrect. Consequently, our business development, operations, and results could differ materially from those expressed in forward-looking statements made in this Annual Report. We make such forward-looking statements pursuant to the safe harbor provisions in Section 27A of the Private Securities Litigation Reform Act of 19951933, as amended (the “Securities Act”), and other federal securities laws.Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Annual Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, without limitation:

Given theForward-looking statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Any forward-looking statement in this Annual Report on Form 10-K and the documents incorporated by reference herein reflects our forward-looking statements,current view with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, industry, and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

��

This Annual Report on Form 10-K also contains estimates, projections, and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.

PART I

Item 1. Business

PolarityTE - Welcome to the SHIFTOverview

PolarityTE, Inc., headquartered in Salt Lake City, Utah, is a young and growing commercial-stage, biotechnology company founded in 2016 -developing regenerative tissue products and biomaterials. Our first regenerative tissue product is SkinTE. On July 23, 2021, we believe the first of its kind. We are focused on the design and development of novel technology platforms that promote the regeneration of complex, cellular-derived tissue substrates and the propagation of self-organizing composite systems. We have developed, and will continue to evolve these technologies and platforms through uniquely targeted and yet comprehensive approachessubmitted an investigational new drug application (“IND”) for SkinTE to the interactome. The interactome is the complete set of physical interactions between molecules within a cell that underlies most genotype-to-phenotype relationships and modulates nearly all complex biological pathways and cellular networks seen in living systems. Understanding this, we believe that to effectively deliver our advanced technologies to patients we must not simply deliver products, but rather robust platform systems and evolving technology foundations that are intelligent, multi-functional, and able to adapt and evolve. Over the last year we have established and advanced three of our pipeline programs consisting of our core “TE” program, (which includes our first commercial product, SkinTE), our Related Technology Derivative program (“RTD”), and our Advanced Research Center program (“ARC”).

A glossary is provided at the end of this Item 1, which you may find helpful in reading this report.

Vision

We aspire to be a global biotechnology company that provides superior, tangible, and pragmatic platform technologies that provide superior results to patients, while reducing costs and promoting improved health economics for patients, providers, and payors. We believe this can be accomplished through our pursuit of complex simplicity, which embodies the development of robust cell/tissue-derived therapies that can be efficiently produced and deployed. PolarityTE is committed to delivering transformative technology that positively impacts humanity.

PolarityTE was founded by a dedicated group of doctors and scientists from The Johns Hopkins University School of Medicine, who left to become part of something bigger. Something that could transform the future of medicine. We believe that living systems require more than a simple singular input (for example a growth factor, stem cell, or nano-particle), to produce a complex output. Therefore, we took a different direction and developed multi-tiered platform technologies that propagate the necessary complex substrate required for regenerating fully-functional tissue, such as skin, bone, cartilage, muscle, blood vessels, and neural elements, as well as solid and hollow organ composite tissue systems. We have engineered and developed our regenerative materials and core tissue substrate technology platforms to allow us to induce, maintain, and promote the integrated polarity, organized assembly, and interface development of cells and tissues, so that they replicate regenerative healing in the body and are not seen as foreign by the immune system.

The core technology of TE products is minimally polarized functional units (“MPFUs”) consisting of self-complexing intelligent regenerative materials (“SCIRM”). SCIRM within an MPFU form polarizing, multi-cellular aggregates that act as an intrinsic, regenerative bio-reactor capable of expanding, proliferating, and synthesizing cells, materials, factors, or systems necessary for regenerating full-thickness, three-dimensional tissue. The TE products we develop begin with the patient’s own tissue to produce SCIRM that address the specific tissue or system needed for the patient’s care. Our product pipeline focuses on the development of regenerative products for a variety of tissue types and organ systems that are commonly altered, injured, or destroyed by a variety of diseases, pathologies, traumatic events, and medical interventions.

SkinTE, our first tissue product, was registered with the United StatesU.S. Food and Drug Administration (FDA) in August 2017, and is now commercially available for(the “FDA”) through our subsidiary, PolarityTE MD, Inc. (“PTE-MD”), as the repair, reconstruction, replacement, and regeneration of skin in patients who have a need for treatment of acute or chronic wounds, burns, surgical reconstruction events, scar revision, or removal of dysfunctional skin grafts. We are pursuing a regional plan for commercial rollout that began in late October 2018, and we now have 24 sales representativesfirst step in the field marketing SkinTE.

OsteoTE is designed to utilize the patient’s bone to repair, reconstruct, replace, supplement, or regenerate bone damage or defects. We registered OsteoTE with the FDA in December 2018. We are preparingregulatory process for the first application of the product in a clinical setting, which we are endeavoring to achieve in the first half of 2019.

Human cells, tissues and cellular and tissue-based products (“HCT/Ps”) are governed by specific FDA regulations the provideobtaining licensure for a registration pathway that is different than the pathway for traditional drug candidates. SkinTE and OsteoTE are both registered as HCT/Ps under Section 361351 of the Public Health Service Act.

The FDA subsequently issued clinical hold correspondence to us identifying certain issues that needed to be addressed before the IND could be approved. We haveprovided responses to the FDA, and on January 14, 2022, the FDA notified us that the clinical hold had been removed. The IND approval enables us to commence the first of two expected pivotal studies needed to support a numberbiologics license application (“BLA”) seeking a chronic cutaneous ulcer indication for SkinTE. Our first planned pivotal study under our IND is a multi-center, randomized controlled trial evaluating SkinTE in the treatment of additional TE products under development.diabetic foot ulcers classified as Grade 2 in the Wagner classification system (“Wagner 2 DFUs”) entitled “Closure Obtained with Vascularized Epithelial Regeneration for DFUs with SkinTE,” or “COVER DFUs Trial.” We plan to enroll up to 100 patients at up to 20 sites in the U.S. in the COVER DFUs Trial, which will compare treatment with SkinTE plus the standard-of-care to the standard-of-care alone. The following table illustratesprimary endpoint is the statusincidence of our TE product pipeline.

RTDDFUs closed at 24 weeks. Secondary endpoints include percent area reduction (“PAR”) at 4, 8, 12, 16, and ARC represent research24 weeks, improved quality of life, and developmentnew onset of new science and product opportunities based on whatinfection of the DFU being evaluated. As we learned while developingpursue the TE platform. RTD is focused on altered state analytes forfirst study, we plan to engage in discussions with the generation of composite materials that can be utilized for the augmentation, modulation, and regulation of cell and tissue-derived systems. ARC is focused onFDA regarding the design and implementation of the second pivotal study.

Beginning in 2017 we developed internally a laboratory and research capability to advance the development of gene transfer, small molecule synthesis, composite therapeutics,SkinTE and alterationrelated technologies, which we operate through our subsidiary, Arches Research, Inc. (“Arches”). At the beginning of self-propagating cell/tissue-derived bioreactors.

The following table shows theMay 2018, we acquired a preclinical research projects we are pursuing through RTD and ARC programs.

We have significant research facilities and a well-educated and skilled team of scientists and researchers. These resources are highly beneficialveterinary sciences business to the work we are doingbe used, in part, for preclinical studies on our TEregenerative tissue products, and in RTD and ARC. Wewhich we operate through our subsidiary IBEX Preclinical Research, Inc. (“IBEX”). Through IBEX, we also offer preclinical research services to unrelated third parties on a contract basis,basis.

SkinTE

The Importance of Skin

Skin has several functions. It provides a barrier to water loss and pathogens, and protects against diverse forms of trauma, including thermal, chemical, and ultraviolet radiation. Skin keeps us in touch with our environment through a host of nerve endings, regulates body temperature, and enhances metabolic functions. Skin is an active immune organ functioning as a first line of defense against a wide spectrum of common pathogens encountered on a regular basis. Biosynthesis of melanin in the skin reduces the harmful effects of ultraviolet light. Skin is a ready source of vitamin D, which we offer underplays an important role in maintaining healthy levels of serum calcium and resorption of bone.

The clinical significance of skin is illustrated by the trademark POLARITYRD. Contract research services help us defraymorbidity associated with chronic wounds, burns, and cutaneous defects. A 12-month prospective observational study of diabetic foot ulcers first published in Diabetic medicine: a journal of the costsBritish Diabetic Association in 2018 reported that out of maintaining a first-rate research facilitygroup of 299 patients, 17.4% had some sort of amputation of the foot and allow us6.0% of the 299 patients underwent revascularization surgery. A report published on Medscape in June 2018 states that pressure injuries are listed as the direct cause of death in 7-8% of all patients with paraplegia. And according to meet companies pursuing new technologies that may be opportunities for collaborative or strategic relationships going forward.

Limitationsstatistics collected by the National Burn Repository, the mortality rate from 2008 to Clinical Standards of Care, Regenerative Technologies and Tissue Substitutes

Clinical Standards of Care for Tissue Replacement

While both the literature and current practice indicate that the clinical standard of care remains the replacement of “like with like” (i.e. skin for skin, bone for bone, cartilage for cartilage), to date, many regenerative technologies, tissue engineered products and wound care products, have focused on “large scale manufacturable materials” and “off the shelf” designs, as opposed to employing a more patient-specific approach. Many of these types of products are xenografts, allografts, or alloplasts in part to allow for abundant sources of raw materials for the products. We believe these products merely act as synthetic cell/tissue substitutes, which are incapable of delivering true regeneration or regenerative potential of complex tissue systems and, therefore, why such products continue to fail to deliver results that are comparable to an autologous tissue graft (i.e. skin graft, bone graft, cartilage grafts etc.)2017 among burn patients treated at surveyed burn centers is approximately 3%.

We believe that historically the fieldsregeneration of regenerative medicine, tissue engineering,full-thickness skin with all the processes and appendages that enable it to some extent, cell-therapy have remained characterized by tremendous potential and promise for the future yet continueperform its vital functions is critical to remain limited by the pursuitlong-term, positive patient outcomes following serious skin injury.

Limitations of “artificial and/or synthetic” approaches that are overly reductionist, and thus fail to deliver “complete systems.” Some current regenerative medicine approaches try to isolate a single cellular population to regenerate a tissue, such as adipose-derived stem cells. Others try to deliver a molecule to manipulate cell function, such as driving cell growth and expansion, or coax one cell type to become another. Another approach tries to create some form of a scaffold that resembles the target tissue with specific properties designed to mimic that tissue. We believe these approaches incorrectly focus on the synthesis or engineering of singularities (i.e., a type of cell, a type of molecule, or type of matrix) in an attempt to build a complex tissue from the ground up, which we believe creates an incomplete system without interactions, diverse cells and molecules, or a natural environment to direct organization.Other Skin Treatment Therapies

Real Limitations: Using Skin as an Example

Current clinical standards and practice adhere to the concept that skin should be replaced with skin whenever possible in settings where patients have suffered the loss of such tissue. Understanding this, medical professionals are left with a decision to attempt to temporize a wound bed with an allograft, useautograft (using the patient’s own skin in a skin graft,graft), an allograft (using human skin from a donor), or apply a variety of skin substitutes to provide a skin-like barrier while the margin of the wound heals through secondary intention and contraction. Presently,Historically, harvest and placement of autologous full-thickness skin results in the best outcome within wound beds because it most closely resembles the full-thickness skin that was lost. However, full-thickness harvest of skin inherently also results in a full-thickness skin defect at the donor site, which requires primary closure (skin edge approximation and suturing) so as not to leave a gaping wound behind. Because of this absolute limit on how much autologous full-thickness donor skin can be harvested without leaving behind a non-closable wound, medical professionals can only harvest small, elliptically-shapedelliptically shaped pieces of such skin from areas of redundancy, which is termed full-thickness skin graft (FTSG)grafting (“FTSG”).

It is because there remains only a finite supply of FTSG donor material and sites that medical professionals often rely on the harvest of split-thickness skin grafts (STSG)(“STSG”) for coverage of voids of the integument to get better coverage and more skin. STSGs, however, do not represent the true anatomy or function of native skin because such graftSTSG harvest procedures onlycommonly take the top 1/10,000th100th of an inch of the patient’s own skin and therefore do not capture all the necessary cellular and tissue elementscomponents and structures required for the regeneration of normal skin (Figure I).

Figure I. Common Site Locations for Skin Graft Harvesting. The left figure depicts the process and common locationskin. Because of where a split-thickness skin graft (STSG) is harvested from with a vibrating razor that shaves off the very top 1/10,000th of an inch of skin as depicted in the skin cross section. STSGs are often then meshed (pocked with holes like a screen door) to allow for improved stretch over surfaces and to permit fluid drainage to pass through the graft and avoid build up under the graft like a bubble. The right figure depicts the common sites where full-thickness skin grafts are harvested from patients. Note that these areas are often hidden in anatomic locations where there are creases or folds to place the resulting scar from primary linear closure in aesthetically considerate places.

After the failure to harvest all the necessary skin structures cellular elements and tissue interfacescomponents from the STSG donor site, the patient is left with an incomplete top layer of skin covering the initial defect (recipient site) and a remaining bottom layer at the donor site. In this setting, both donor and recipient sites contain incomplete skin, which often results in dysfunctional, painful scar tissues and lifelong morbidities.

Because ofDue to the limits of STSG and FTSG and the type of procedures required for such harvests, the industry has continued to investigate skin substitutes and skin alternatives that can be used in place of native cutaneous substrate.skin. Among these alternatives or options are a culturecultured epithelial autograft (a form of manipulated autograft,autograft), allograft (tissue grafts derived from a donor of the same species as the recipient but not genetically identical), xenograft (a tissue graft or organ transplant from a donor of a different species from the recipient), and alloplast. Noneengineered skin substitutes. To our knowledge, none of these substitutes have been able to replicate the appearance of native skin or regenerate full-thickness skin or the cutaneous appendages (hair(e.g., hair follicle, sweat gland, sebaceous glands, etc.), which are necessary for the development of full-thickness, functionallynormal skin.

Our Solution - SkinTE

The core technology of SkinTE is minimally polarized hierarchically organizedfunctional units (“MPFUs”). MPFUs are multi-cellular segments created from a piece of the patient’s healthy skin. SkinTE allows the patient to regenerate full-thickness, three-dimensional skin (similar to a FTSG) by contributing a much smaller skin sample, while reducing the scarring and morbidities associated with STSGs, and producing results we believe to be superior to STSGs and synthetic skin substitutes. SkinTE can be utilized by a variety of health care providers in an operating room, wound clinic, or doctor’s office. The process begins with the collection of a skin sample from the patient and shipping the sample in a temperature-controlled shipping box to our FDA-regulated biomedical manufacturing facility. The harvested skin is used to manufacture SkinTE, which is expeditiously returned for application to the patient’s wound. Processing of the skin creates multi-cellular segments that are optimized for grafting, which retain the progenitor cells found throughout the skin, including the hair follicles. The product is not cultured or expanded ex-vivo, and no enzymes, growth factors, or serum derivatives are utilized during manufacturing. The final product, SkinTE, is delivered in a syringe and has the consistency of a paste. Following wound bed preparation, SkinTE is spread evenly across the entire surface of the wound and engrafts within the wound in a similar manner to traditional skin grafts. Once integrated with the wound bed, the product expands and regenerates full-thickness skin across the entire surface.

The forgoingGiven our significant real-world experience with SkinTE in clinical settings for a variety of wounds and several supporting publications, we believe SkinTE can be successful in closing full-thickness complex wounds, such as DFUs penetrating to tendon, capsule, and bone classified Wagner Grades 2 through 4; Stage 3 and 4 pressure injuries; and, acute wounds. Full-thickness DFUs that penetrate to deep structures are best classified as University of Texas Grades 2 and 3, corresponding to Wagner Grades 2 through 4, and are at the highest risk for progressing to amputation with very few treatment options and a paucity of high-level data related to current treatment options. Similarly, Stage 3 pressure injuries involve the entire thickness of the skin example shows that the traditional approachand Stage 4 pressure injuries have exposed muscle, tendon, or bone. Due to regenerative medicine that competitors employ is anchored within tissue engineering algorithms that—while cost-effective becauselimited reliable solutions, these injuries affect a large number of mass production and scalability—are incongruent with living cells, dynamic tissues, and reactive systems, and, therefore, fail to produce outcomes that effectively heal and alleviate suffering.

Our Solution

people for extended periods of time. We believe that focusing our bio-generative SCIRM technology platformsefforts in these hard-to-treat wound types, where there are fundamentally newsignificant unmet needs, can deliver substantial positive impacts in patients’ lives and inherently promote a drastically different approach to current conventional cell therapy efforts, regenerative technologies, and current products. Therapeutic singularities such as a single stem cell, a single growth factor, a single scaffold, or a combination of such singularities are unable to engineer a complex tissue in vitro for subsequent deployment into living systems. Recognizing the complexity of tissue regeneration as absolutely requiring cell-to-cell and cell-to-tissue polarity, interfaces, gradients, modulation, and multiplex system interactivity and real-time integration, we embrace a substantially more complete form of tissue regeneration that is biologically sound and evolutionarily cohesive with the dynamics of living systems.

We have designed and developed an entirely new form of regenerative cell/tissue therapy platform based on SCIRMs organized in complex MPFUs that when deployed into a wound or tissue defect undergo integrative regenerative healing within the system in which it was deployed by effectively acting as its own bioreactor and thus expanding, proliferating, and synthesizing those cells, materials, factors, and systems necessary for full-thickness generation and regeneration across a spectrum of tissue substrates and organ systems.

Our technology platform is based on complex living tissue systems and the interfaces that drive cell-tissue-matrix polarization events. We recognize there is something powerful, reactive, and dynamic controlling tissue generation, which is the interactome; the whole set of interactions a cell is impacted by, both intra and extra-cellularly. Cells rarely act on their own to create functional repair or regeneration, but rather tissues have functionally-organized cellular aggregates called appendages (almost like small organs), which run, and even regenerate, the composite tissues they are a part of when altered, stimulated, and processed in certain ways.

We believe each person’s cells and tissues have vastly different and dynamic profiles (genes, RNA, proteins, metabolites, etc.) and, therefore, different requirements when it comes to the regenerative potential or healing capacity of tissue-based systems. With this in mind, we designed our core “TE” platform technology to focus not on singularities, but on regenerating complete tissue systems.

Our core “TE” platform and self-complexing intelligent regenerative materials technologies are based on our ability to create MPFUs, which contain polarizing multi-cellular aggregates capable of expanding, proliferating, and synthesizing those cells, materials, factors or systems we believe are necessary for integrative full-thickness three-dimensional tissue regeneration, not simply two-dimensional cell sheets. Instead of starting with artificial materials, synthetic factors, or altered cell suspensions, our platform begins with the patient’s own (autologous) tissue and those components, appendages and substrates we believe are necessaryvalue for the development of an expandable and self-propagating complete system. The key attributes of our platform technology include the following:SkinTE franchise for several reasons.

Our Competitive Strengths

Clinically, we believe SkinTE is highly differentiated from current treatment alternatives in these hard-to-treat wound types. In real-world experience and data from preliminary studies conducted to date, we believe that SkinTE has covered exposed critical structures, completely filled in wound depth including tunneling, and ultimately provided complete and durable wound closure with the regenerated tissue having many of the important characteristics of native skin such as pliability, strength, sensation, ability to sweat, and hair growth. In contrast to a multi-staged approach combining numerous treatments in an algorithm dictated by wound progression, SkinTE can be applied directly into deep wounds with exposed structures, typically requires only a single application in the vast majority of cases and, unlike other products in this space, may not require a skin graft to achieve final closure. In our experience, providers treating complex wounds are most concerned with reliably covering deep structures, as this mitigates a substantial risk factor for the patient and converts the wound to a lower grade that is more manageable. We believe that covering deep structures and filling wound volume with newly generated vascular tissue is an important advantage of SkinTE and differentiates SkinTE from other treatments that have increased failure rates in these hard-to-treat wound settings. Another valuable aspect of SkinTE clinically is that it is created from a relatively small skin harvest that is well tolerated by the patient.

We believe that patients with complex wounds face significant unmet needs, and that providers are motivated to better address them. If future clinical trials conducted under our key competitive strengthsIND demonstrate outcomes similar to those observed in real-world experience and preliminary clinical studies, we believe that SkinTE has the potential to shift practice patterns, accelerate adoption, and capture a significant portion of these hard-to-treat wound markets.

Clinical Trials

Under the SkinTE IND

Our IND for SkinTE was opened in January 2022. Our first planned pivotal study under our IND is a multi-center, randomized controlled trial evaluating SkinTE in the treatment of diabetic foot ulcers classified as Grade 2 in the Wagner classification system (“Wagner 2 DFUs”) entitled “Closure Obtained with Vascularized Epithelial Regeneration for DFUs with SkinTE,” or “COVER DFUs Trial.” We plan to enroll up to 100 patients at up to 20 sites in the U.S. in the COVER DFUs Trial, which will compare treatment with SkinTE plus the standard-of-care to the standard-of-care alone. The primary endpoint is the incidence of DFUs closed at 24 weeks. Secondary endpoints include percent area reduction (“PAR”) at 4, 8, 12, 16, and 24 weeks, improved quality of life, and new onset of infection of the DFU being evaluated. As we pursue the first study, we plan to engage in discussions with the FDA regarding the design and implementation of the second pivotal study.

On June 25, 2021, we entered into a statement of work with a contract research organization to provide services for the clinical trial described in the IND at a cost of approximately $6.5 million consisting of $3.1 million of service fees and $3.4 million of estimated costs. The estimate increased $1.4 million from the $5.1 million estimated at September 30, 2021, due to additional costs expected for longer trial subject follow up (6 months versus 3 months) and a corresponding increase in trial subject visits. In July 2021 we prepaid 10% of the total cost recited in the original work order, or $0.5 million, which will be applied to payment of the final invoice under the work order. Over the approximately three-year term of the clinical trial the service provider shall submit to us for payment invoices on a monthly basis for units of work stated in the work order that are completed and billable expenses incurred.

Pre-IND

PolarityTE conducted several clinical trials before it filed its IND for SkinTE, which were conducted on a post-marketing basis with SkinTE as a 361 HCT/P. These clinical trials include the following:

PursuingBurns and Traumatic Wounds

We initiated a head-to-head trial comparing SkinTE to the Development of a Complete System that Rivals the Clinical Standard of Care: We believe that we have designed and developed a technology platform that may displace the current clinical standard of care in complex tissue regeneration, reconstruction and/or replacement efforts. Currently, the clinical standard of care for the reconstruction of complex tissue voids relies on autologous tissue transplantation. For example, critical defects of the skin, bone, cartilage and other tissues are most appropriately treated through the autologous graft or flap coverage. While these efforts remainSTSG, the clinical standard of care, in most settings, such processes result simplythe first quarter of 2018. Eight patients were enrolled in the transplantationtrial and the primary endpoint for the trial was graft take. Data from the trial was published in the Journal of tissue from one areaBurn Care & Research in September 2020. Eight patients with deep-partial/full thickness burns had a portion of their wounds treated with SkinTE and the remainder of their burn treated with split-thickness skin grafting. The SkinTE treated wounds had graft take and achieved closure by their last follow-up with a single application. A single adverse event at a SkinTE harvest site secondary to a dehiscence (technical error) occurred requiring secondary closure at the time of the bodypatient’s definitive grafting procedure. There were no other adverse events pertaining to another region. Such movement of autologous tissue materials often provides “coverage” but does not resultthe SkinTE applications in significant expansionthe trial.

Diabetic Foot Ulcer (DFU) Trials

DFUs are chronic wounds and represent one of the cellular entities or tissue substrates. costliest, and medically significant, health related morbidities encountered during a patient’s lifetime. The estimated annual U.S. payor burden of DFU ranges from $9.1 billion to $13.2 billion according to a 2014 article in Diabetes Care, a publication of the American Diabetes Association. The outpatient management of DFUs represents the major contributing cost to the health care system. Inadequate assessment and management with chronicity of treatment is one of the primary cost drivers and failures of care.

SkinTE was used to treat 10 patients (11 DFUs) in a pilot trial completed in June 2019, and first reported at the Symposium on Advanced Wound Care Fall 2019. The following are the results as determined by independent review:

After the limited ability to expand beyond 1:1 – 1:4 ratios, donor site size and morbidity must be taken into consideration when harvesting autologous tissues. Understanding these limitations that exist within the clinicaltrial, we conducted a multicenter, randomized controlled trial evaluating SkinTE plus standard of care (SOC) versus SOC alone in treatment of diabetic foot ulcers [NCT03881254] (the “DFU RCT”). In July 2021, we have soughtannounced final data from the DFU RCT. The size of the study was 100 patients who were evaluated across 13 sites, with 50 participants receiving SkinTE plus SOC and 50 receiving SOC alone. The primary endpoint was percentage of ulcers closed at 12 weeks. A secondary endpoint was percent area reduction (PAR) at 4, 6, 8, and 12 weeks.

The trial met the primary endpoint of wound closure at 12 weeks and secondary endpoint of Percent Area Reduction (PAR) assessed at 4, 6, 8, 10, and 12 weeks. Final analysis of the DFU RCT shows the following:

Mean (SD) values for PAR at weeks 4, 6, 8, 10, and 12 by treatment group

Venous Leg Ulcer (VLU) Trials

VLUs are a type of chronic wound and constitute a significant burden on the worldwide health care system and are often refractory to treatment. Up to one-third of treated patients experience four or more episodes of recurrence. Delivering all the elements of native skin can potentially reduce the recurrence rate.

SkinTE was used to treat 10 patients in a pilot trial completed in September 2019, and first reported at the Symposium on Advanced Wound Care Fall 2019, where PolarityTE received recognition as Best Abstract. The following are the results as determined by independent review:

We started a multicenter, randomized controlled trial evaluating SkinTE versus standard of care in treatment of VLU [NCT03881267] (“the “VLU-RCT”), but decided in the first quarter of 2021 to suspend that trial after 29 patients were enrolled because we believed that our resources would be better used in future clinical trials conducted under an open IND that can be used in our eventual planned BLA submission. In February 2022, we announced final data from the VLU RCT. The 29 patients who were evaluated across 10 sites, with 14 participants receiving SkinTE plus SOC and 15 receiving SOC alone. The primary endpoint was percentage of ulcers closed at 12 weeks. A secondary endpoint was percent area reduction (PAR) at 4, 6, 8, and 12 weeks.

The trial met the primary endpoint of wound closure at 12 weeks and secondary endpoint of Percent Area Reduction (PAR) assessed at 4, 6, 8, 10, and 12 weeks. Final analysis of the VLU RCT shows the following:

Mean (SD) values for PAR at weeks 4, 6, 8, 10, and 12 by treatment group

Market Opportunity

The primary markets for SkinTE are wounds from traumatic injury, chronic wounds (including DFUs, VLUs, and pressure ulcers), burn wounds, and acute wounds, such as traumatic wounds, and wounds from surgical procedures.

Our Plan for Advancing SkinTE

Our IND for SkinTE was accepted by the FDA in January 2022, and this enables us to commence the first of two expected pivotal studies needed to support a BLA for a chronic cutaneous ulcer indication for SkinTE. We expect to begin enrolling subjects in the COVER DFUs Trial in the second quarter of 2022. We also expect to engage with the FDA during 2022 regarding the design of the second pivotal study we plan to conduct under our open IND.

Products subject to BLA requirements must be licensed under the Public Health Service Act to be marketed. In order to be licensed, a BLA must demonstrate the safety, purity and potency of the product candidate based on results of preclinical studies and clinical trials. A BLA must also contain extensive chemistry, manufacturing, and controls (CMC) and other manufacturing information, and the applicant must pass an FDA pre-license inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with the FDA’s current good manufacturing practices (“cGMP”) requirements. Satisfaction of FDA licensure requirements typically takes several years, and the actual time required may vary substantially based on the type, complexity, and novelty of the product. PolarityTE cannot be certain that any BLA approvals for its products will be granted on a timely basis, or at all.

The steps for obtaining FDA approval of a BLA to market a product in the U.S. ordinarily include:

Preclinical tests typically include laboratory evaluations of product chemistry, toxicity, and formulation, as well as animal studies, and an IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. Even though our IND for SkinTE is open, the FDA can request additional information and testing pertaining to the product and the procedures for manufacturing and delivering the product.

Our preliminary experience indicates that SkinTE may benefit patients with immediately life-threatening conditions and other serious diseases or conditions. In 2009, the FDA implemented new regulations related to Expanded Access Investigational New Drug Applications (“Expanded Access INDs”), which are often colloquially referred to as “compassionate use,” and pertain to the use of an investigational drug or biologic when the primary purpose is to diagnose, monitor, or treat a patient’s disease or condition, rather than to obtain the kind of information about the drug that is generally derived from clinical trials. The FDA has proposed several processes for obtaining Expanded Access INDs, which we will evaluate for potential implementation now that the IND for SkinTE is open. Under FDA regulations the amount that may be charged for SkinTE used under an Expanded Access IND must be authorized by the FDA and, if authorized at all, may be limited to our direct costs of manufacture. We believe, however, that an Expanded Access IND may enable us to provide SkinTE to providers treating persons with life-threatening or serious diseases and conditions, and thereby maintain existing, and develop an autologous tissue that requires minimal donor sitenew, relationships with physicians in the wound care industry.

Potential Product Enhancements or Additions

SkinTE POC

Our SkinTE point-of-care device is intended to permit the processing and can be significantly expandeddeployment of SkinTE immediately following the initial harvest at the point-of-care. SkinTE POC is in the development stage.

SkinTE Cryo

SkinTE Cryo allows PolarityTE to offer multiple deployments from one original harvest through a cryopreservation process. Using one harvest for multiple deployments may improve patient treatment when a patient is susceptible to multiple chronic wounds, the provider suspects a patient might require a second deployment of SkinTE due to past non-compliance with rehab protocols, or the provider elects to use a staged deployment on the patients themselves.

Novel Platform Technology. Our technology platform deploys activated MPFUs into a patient with a large wound due to wound location or other tissue defect with the goal of regenerating fully-functional, polarized tissues and hierarchically organized tissue structures. We design the MPFUs to facilitate the expansion, proliferation, and synthesis of the cells, materials, factors, and systems that we believe are necessary for complete, full-thickness generation and regeneration across a spectrum of tissue substrates and organ systems. Rather than relying on a single stem cell, growth factor, or scaffold, we believe that complex tissue regeneration requires a dynamic composite cellular interface to engineer a complex tissue thattherapeutic circumstances. SkinTE Cryo is expected to integrate into living systems. We design our core tissue substrate materials to create complex functional living tissue systems in a way that mirrors natural healing in the bodydevelopment stage and is not seen as foreign bya long-term development project.

PTE 11000

PTE 11000 is an allogenic, biologically active dressing for use in wound care and aesthetics to accelerate healing of skin. It is a composition made using cadaveric tissue via a proprietary process. It is currently in the immune system. preclinical phase of development, and we cannot predict when that phase may be complete.

Other Tissue Regeneration Products

We believe our platform technology will produce superior outcomesinnovative technologies may be platforms for providers and patients.

Deep Pipelinedeveloping therapies that address a variety of Additional Potential Applications. We believe our platform’s capabilities can be extended across many indications, including skin, bone, cartilage, muscle, blood vessels, and neural elements, as well as solid and hollow organ composite tissue systems.

For example, we believe there are currently unmet medical needs that can be addressed by the regeneration of cartilage for the treatment of osteoarthritis and facial reconstruction, the regeneration of fat-for-fat transfers during plastic surgery procedures, the regeneration of nerves following traumatic loss, the regeneration of blood vessels for vascular grafts, the regeneration of the urogenital epithelium and submucosa for urethral strictures and bladder reconstruction following tumor removal, the regeneration of liver tissue for liver fibrosis or failure, and the regeneration of bowel tissue to prevent leaking where the bowel is reconnected or replaced due to excessive loss from trauma, surgery, or congenital defects. We believe the significant number of product opportunities afforded by our platform will generate sustainable growth opportunity.

Shortened Product Development Timelines. Since our core TE product candidates all stem from a common platform technology, we believe we can accelerate research and development, pre-clinical model prototyping, and product development in a manner that is efficient and optimized across tissue substrates.

Scalable Manufacturing and Distribution Capability. Because we believe our technology can be applied across a variety of tissue substrates, we believe we are able to prototype, model, and develop products for commercialization relatively quickly. We have developed flexible manufacturing processes, systems, and facilities that we believe can allow us to quickly respond to increases in demand and market forces. Because we believe we can apply our technology to many types of tissue and organ systems, we believe we can effectively scale and reproduce the manufacturing and distribution of multiple pipeline products at the same time. In addition, we believe we can leverage our platform technology to create a variety of substrate sub-platforms and related technology derivative arms, which can act either as additive technologies to core TE products, or as stand-alone products. We believe we may also be able to integrate our technology with other off-the-shelf products (e.g., to cellularize an acellular scaffold or function with existing dressings).

Our Growth Strategy

Complete the full commercial launch of SkinTE and establish SkinTE as an improvement over the standard of care for skin tissue injuries, including wounds, burns, and scars. We believe that SkinTE has the potential to supplant prevailing methods of wound and burn care because, unlike existing treatment options, it is designed to regenerate full-thickness skin using small samples of the patient’s own tissue. Rather than being limited by dimensions of the tissue received, SkinTE is designed to regenerate significantly beyond the sample size. Our regional commercial rollout of SkinTE commenced in late October 2018, and is focused on severe wounds and burn patients at key regional centers as, in our experience, these patients are often in critical need of large areas of skin regrowth and may have limited available healthy skin to use for skin grafts. Along with the treatment of severe wounds and burns,foreseeable future we intend to marketapply our business and financial resources to the SkinTE for chronic wounds, surgical reconstruction events, including cosmeticIND and elective surgeries, and for scar revision or the removal of dysfunctional events.

Based on our internal analysis of annual patient volumes and relative wound sizes, we estimate the annual addressable markets within the United States for burn wounds, surgical reconstruction and traumatic wounds, and chronic wounds are $3 billion, $23 billion, and $24 billion, respectively. These markets are largely contained within the approximately 127 burn centers, 600 level I-III trauma centers, and greater than 2,000 wound care centers and clinics within the United States.

Capitalize on our scalable manufacturing capabilities and the 361 HCT/P regulatory pathway to commercialize additional pipeline products quickly and efficiently. In addition to SkinTE, we are actively preparing and advancing two additional TE core products, OsteoTE and CartTE, for FDA registration using the 361 HCT/P pathway that does not require FDA approval prior to market entry. Our current expectation is to rely on the versatility of our platform technology, the 361 HCT/P regulatory pathway, and our scalable manufacturing capability to develop and launch these two new products over the next two years.

Explore partnership or collaboration opportunities for pipeline candidates, as well as potential acquisitions or in-licenses of complementary product candidates. We are actively exploring the possibility of partnership or collaboration opportunities with third parties, which we believe could be used to facilitate the commercial adoption of our pipeline candidates worldwide or in certain territories. We are selectively evaluating the formation of collaborative alliances, product licensure and distribution agreements, and integrated product offerings, as well as opportunities to accelerate the commercializationBLA and development of our products. In the future, we also expect to consider the acquisition or in-license of complementary product candidates.

SkinTE

General

Our first product,work on SkinTE is registered with the FDAPOC, and is now commercially available for treatment of defects of the skin. SkinTE is created from a small piece of the patient’s own tissue, which is extracted and then manufactured using our proprietary technology platform to expand and regenerate full-thickness, fully functional skin with what we believe to be the critical layers, including epidermis, dermis and hypodermis, and appendages including hair follicles and glands. Each application of SkinTE is patient-specific and designed for a single deployment. We believe SkinTE offers a compelling alternative to current standards of care for skin regeneration.

PolarityTE designed SkinTE for use by physicians and other healthcare professionals in the treatment of patients who have suffered from an event, disease, or process, or who have an acquired defect that has resulted in the functional loss or absence of the skin. Specifically, SkinTE is designed for the treatment of chronic wounds such as diabetic foot ulcers, acute wounds, chronic burn wounds or scars, acute burn wounds, scars of the integument, and defects from medical or surgical resection or reconstruction events that require skin coverage. According to a 2015 report from MedMarket Diligence, LLC, more than 250 million wounds are expected globally by 2020. And according to Statistics MRC’s 2016 Global Regenerative Medicine Market Outlook, the global market for regenerative medicine and tissue engineering is expected to grow to $101.3 billion by 2020.

During the fiscal year ended October 31, 2018, we established the product logistics, interactions with hospitals, and our clinical operations and market access teams, so that we can handle all aspects of manufacturing and commercializing an autologous skin product. During this limited market release we serviced over 50 patients. We have no reported adverse reactions from any of the applications of SkinTE. We hired our first sales force and have been building out our first regional release since October 2018. The full national release of SkinTE is planned for 2019.

SkinTE is registered as a 361 HCT/P with the FDA pursuant to Section 361 of the Public Health Service Act and 21 CFR 1271. An HCT/P is defined as an article containing or consisting of human cells or tissues that are intended for implantation, transplantation, infusion, or transfer into a human recipient. Products that qualify as 361 HCT/Ps are not subject to the FDA’s pre-market clearance or approval requirements, but rather can be immediately listed for commercial use with the FDA and are then subject to post-market regulatory requirements such as compliance with current good tissue practices (cGTP), adverse event and deviation reporting, and post-market inspections by the FDA. For more information on the 361 HCT/P regulatory pathway, please see “Government Regulation” and “Risk Factors – Risks Related to Registration or Regulatory Approval of Our Product Candidates and Other Government Regulations.”

Our Wound, Burn and Skin Reconstruction Treatment Solution – SkinTE

We described in detail above the real limitations of the standard of care in tissue regeneration as applied to skin. We designed SkinTE to address the limitations from which current wound and burn treatment methods suffer. We designed SkinTE to combine the advantages of autologous STSGs with those of FTSGs. Notably, SkinTE is designed to provide not only the large surface area treatment capability of STSGs, but also the restoration and smaller, less morbid donor site associated with FTSGs. In essence, we believe our minimally manipulated SkinTE product can provide an expandable form of a FTSG.

To our knowledge, SkinTE is the only fully autologous, homologous skin regeneration product available for the treatment of wounds and functional losses of the skin of human patients. We face competition from providers of FTSGs and STSGs, as well as other companies developing and selling skin substitutes. We are aware of several companies focused on the wound market, including Avita Medical, Integra LifeSciences, Wright Medical Group, MiMedx, Osiris, Organogenesis, Allosource, MTF Biologics and Vericel. Any advances in regenerative medicine by a competitor may be used to develop therapies competing against SkinTE. However, to our knowledge SkinTE is the only fully autologous homologous skin regeneration product available for the treatment of wounds and functional losses of skin that enables the patient to regenerate his or her own skin with all the functions of full thickness skin, including hair, sweat glands, sebaceous glands, capillary beds, and all layers of skin, including epidermis, dermis, hypodermis, and subdermal fat. We believe SkinTE produces a superior result for patients that challenges the current standard of care and the therapies offered by other companies in the wound care market.

SkinTE is composed of small viable cellular and tissue-based units, which we call MPFUs, that retain all the components of skin that we believe are required to regenerate full-thickness skin. The initial processes underlying the function of SkinTE are analogous to those responsible for the healing of an autologous skin graft, namely imbibition, inosculation, and neo-vascularization. During imbibition, SkinTE, and the small cellular and tissue based units that comprise it, survive through the direct application of the SkinTE “paste” on the wound bed, exchanging nutrients and waste within the fluid of the wound bed. Inosculation is the stage in which the capillaries and blood vessels already present within the wound bed begin to align and connect with those present within the graft. Neovascularization marks the ingrowth of new blood vessels into the wound bed and out of the graft, with vasculogenesis describing the formation of new vessels from cellular precursors present within the wound and graft, and angiogenesis referring to the sprouting of new vessels from pre-existing ones. Due to their size and composition, we design the small cellular and tissue based units within SkinTE to have reduced metabolic demand and to be capable of surviving through diffusion, and to readily excrete metabolic waste, resulting in what we believe can be less ischemic damage when compared to FTSGs. Reduction in ischemic damage has the potential to decrease scar formation and provide a more functional result. Following completion of the initial stages of integrating and healing within the wound bed, the SkinTE product is designed to begin forming and organizing discrete areas of full-thickness skin. We have observed in preclinical animal testing that these regenerative centers of full-thickness skin then expand out radially across the wound, eventually coalescing with each other and the margins of the wound.

Unlike the currently marketed skin substitutes of which we are aware, each SkinTE tissue-product is derived entirely from the patient’s own skin and is not combined with any other tissue-engineered substitutes. We believe these differences allow SkinTE to regenerate all the important layers of the skin as well as the necessary cutaneous appendages for the development of functionally-polarized, hierarchically organized autologous, homologous skin.

The SkinTE Process

SkinTE is designed as an all-in-one system to make the process as simple and efficient as possible for the user—whether that individual is a surgeon, medical doctor, physician assistant or nurse in an operating room, wound clinic, emergency department, doctor’s office or forward operating military base. When a new clinical center or practice is activated to begin using our SkinTE product, we ship a supply of all-inclusive harvest boxes (see the image furthest to the left above) to the facility for convenient on-site, off-the-shelf storage for that user and facility. Each harvest box contains all the materials and instruments needed to perform the relatively standard skin excision procedure to obtain the tissue sample, and all the pre-paid/pre-completed shipping labels, and a one-touch, cool pack shipping box that maintains the temperature within the harvest box as it is delivered to a PolarityTE biomedical manufacturing facility.

At our manufacturing facility, we use proprietary techniques to create a paste-like product from the small piece of healthy patient tissue that preserves the original tissue’s microenvironment and allows new cells to integrate into existing, healthy cells, with similarly organized assembly and interface development. Following manufacturing at our facility, the SkinTE product is shipped back to the provider at a time that best suits the patient and provider’s scheduling and location needs (i.e., operating room, procedure clinic, in-patient bedside, out-patient doctor’s office). Our goal is to be able to return the ready-to-use SkinTE product to physicians as early as the same day. We have observed, however, that most physician requests have been for return within 24-72 hours from tissue harvest. At application time, once the patient wound bed is prepared per clinical guidelines, SkinTE is dispensed onto the surface of the wound bed (see the image in the middle above). The wound is dressed using a non-adherent, occlusive, non-absorbent dressing placed directly over the SkinTE product (see the image furthest to the right above), with recommended dressings that we include in the deployment box.

To assist physicians and other medical providers in using SkinTE, we developed a web application called the PolarityTE 24-Hour Real-Time Assistant, or the RTA, which permits experienced and medically trained PolarityTE physicians and staff to provide real-time support through a customer’s computer or smart phone. The RTA permits HIPAA-compliant direct calling, video chat, text, emails, and data sharing. Through the RTA, our customers can also track their packages and submit forms. We also use the RTA to gain advanced visibility into daily manufacturing requirements and product flow.

Selling SkinTE

In 2018, we completed the first two stages of our SkinTE commercial roll-out strategy. The first was the limited market release phase, which focused on generating trial/ utilization with the goal of securing real-world clinical data and experience to prepare the organization and product for a broader commercial release. The second stage was the regional market release that began in late October 2018 with the additional build out of our commercial organization to establish SkinTE with major burn and trauma centers across the United States. Each hospital targeted requires an assessment by their Value Analysis Committee (VAC) prior to commencing commercial SkinTE deployment. This is a formal process that can take approximately 4-6 months to complete. After VAC approval, terms of the SkinTE purchase agreement are finalized and patient identification and treatment initiates, which can take several months.

Once purchase agreements are in place, our sales team and clinical operations staff maintain close contact with the facility to support the initial therapeutic applications of SkinTE. Due to the transformational nature of the product, this relationship helps to ensure the facility’s ability to effectively incorporate SkinTE into their existing burn or wound management protocols.

The selling process to achieve an initial sale averages between six and nine months. The sales process is affected by several factors, including the incidence and nature of burn and wound care cases at target accounts and the receptiveness of the health care providers to adopt a new therapeutic approach.

Once the first deployment of SkinTE has occurred, there is generally a delay before subsequent deployments at the same facility. The timeframe is typically between three and six months, as we have found physicians appear to pause until the clinical outcome of the first application can be fully appreciated. To help decrease theat this time between the first and second deployment, we are actively pursuing multiple randomized controlled clinical trials toput on hold further illustrate SkinTE clinical outcomes and overall value proposition. Furthermore, as SkinTE gainswork on other product development.

Manufacturing

PolarityTE maintains at its facility in utilization and acceptance by health care providers, the lead time to first sale should decrease as information on SkinTE and clinical results are more broadly disseminated in the medical community.

SkinTE is billed by the square centimeter size of the skin defect to be treated, as is standard for skin wound treatments. Because SkinTE is created from the patient’s own tissue, we can price below other treatment options like skin substitutes. Unlike other treatment options, SkinTE can deliver permanent, functional full-thickness skin replacement with only one application, compared to the multiple procedure regimens common for split-thickness skin grafts, full-thickness skin grafts, autograft, allograft, and alloplast therapies.

Payment and Reimbursement

Inpatient Setting. In the inpatient setting, facility reimbursement is dictated by the associated bundled Medicare Severity-Diagnosis Related Group (MS-DRG) payment for the entire episode of care under the Medicare Inpatient Prospective Payment System (IPPS). The bundled DRG facility payment is determined by the DRG code applied, which factors in the primary diagnosis and patient characteristics, such as co-morbidities present on admission. In this scenario, all products and supplies utilized during the episode of care are paid for with the bundled DRG facility payment, including products like SkinTE. In addition, physician services are billed and reimbursed outside of the bundled DRG facility payment, including any procedures performed during that admission, which are billed for and reimbursed utilizing Current Procedural Terminology (CPT) codes associated with the respective procedures. SkinTE has been used within the inpatient setting and reimbursed underneath the applicable DRG bundled facility payments, and to our knowledge all associated procedures billed for outside the DRG as physician services with CPT codes have been reimbursed, as well.

Hospital Outpatient Department (HOPD) and Ambulatory Surgical Center (ASC) Setting. Like the inpatient setting, bundled Ambulatory Classification Payment (APC) facility payments are received under the Medicare Outpatient Prospective Payment System (OPPS) for services and supplies utilized during episodes of care within Hospital Outpatient Departments (HOPDs) and Ambulatory Surgical Centers (ASCs). In these settings, bundled APC facility payments are dictated by the procedure(s) performed and billed for through the appropriate CPT codes. SkinTE has been used in these settings and covered with the associated bundled APC facility payments and physician services have been paid for outside of the APC payment utilizing CPT codes to bill for the associated procedures. In addition, we are working towards applying for pass-through status, which would allow SkinTE to be billed for outside of the bundled APC facility payment.

Office or Clinic Setting. In contrast to the inpatient, HOPD, and ASC settings, care provided in a physician office or clinic is reimbursed based on individual Healthcare Common Procedure Coding System (HCPCS) and CPT codes, facilitating reimbursement for the specific products utilized and procedures performed during the clinic visit. The CPT codes used in the setting are the same or similar to the CPT codes used to bill for physician services in the other settings of care. In 2018, providers utilized HCPCS Q code 4100 (skin substitute not otherwise specified) to bill for the use of SkinTE in the office. Of the providers that used SkinTE in the office or clinic setting throughout 2018, to our knowledge all were reimbursed utilizing Q4100. Early in 2018 we filed an application with The Centers for Medicare and Medicaid Services (“CMS”) for a unique HCPCS SkinTE Q code. We were successful and received Q code 4200, which was effective January 1, 2019. Therefore, beginning January 1, 2019, providers using SkinTE in the office or clinic setting can use Q4200, the unique SkinTE specific Q code, when billing for the product. Reimbursement rates in the Medicare Hospital Outpatient Payment System (HOPPS) vary based on whether the product is designated a low-cost product or high cost product. Assignment is based on average selling Price (ASP) as reported to CMS. New Q codes with limited ASP on file with CMS are automatically assigned to the low-cost product category. We reported our first ASP in October 2018, so SkinTE’s Q code will initially be designated a low-cost product limiting the reimbursement to $483 for a single application in a clinic setting. We will continue to report ASP and work with CMS on this process because we believe that SkinTE can qualify as a high-cost product reimbursable at $1,548 for a single application in a clinic setting.

Clinical Studies

We initiated a head-to-head trial comparing SkinTE to the split-thickness skin graft, the clinical standard of care, in the first quarter of 2018. Enrollment is in progress and we expect it will be completed in 2019. In parallel with this clinical trial, we have been accumulating clinical results on non-trial patients from our market release for application of SkinTE for various indications, including acute burn, burn reconstruction, surgical reconstruction, scar revision, and chronic wounds, such as diabetic foot ulcers and venous stasis ulcers. Some of these cases have been presented independently by, or in collaboration with, providers at national conferences including the 2018 American Professional Wound Care Association Conference, the 2018 Diabetic Foot Global Conference; 2018 American Society of Plastic Surgery - The Meeting; 2018 Symposium on Advanced Wound Care; and, the 2018 Innovations in Wound Healing. We believe peer-reviewed publication of these results will occur in 2019. Following very encouraging pilot results, preparations are underway to list on clinicaltrials.gov and enroll patients in two separate randomized controlled trials in diabetic foot ulcers and venous stasis ulcers, which constitute the most common causes of chronic lower extremity wounds that affect over a million Americans. These trials will each treat over 100 patients, compare SkinTE to the standard of care, and evaluate the efficacy and cost benefit of a single application of SkinTE providing important reimbursement information for the Centers for Medicare & Medicaid Services and outpatient applications. These will be multi-center trials that will enroll throughout 2019.

OsteoTE

We applied our platform technology to develop OsteoTE, our autologous, homologous bone regeneration product. OsteoTE is designed to utilize the patient’s own bone to target applications for bone repair, reconstruction, replacement, supplementation, and regeneration, including in the long bone (hard, dense bones that provide structure, strength and mobility such as the femur or humerus), craniomaxillofacial, spine, dental, hand, and foot/ankle markets. As with skin, we believe existing treatments for the repair of bone with autologous grafts suffer from significant limitations that we can address with OsteoTE. We have conducted several preclinical large animal studies using established bone treatment models, including critical-sized cranial bone defects and spinal fusion models. The preclinical results for OsteoTE are very encouraging and parallel the results seen with SkinTE – the ability to regenerate complex tissues recapitulating the structure and function of the native tissue from which it was created. Below are preliminary images of OsteoTE bone regeneration in a preclinical model of a cranial defect.

Comparative Imaging of OsteoTE in Critical Sized Cranial Defect Model System. (a.) Three-dimensional (3-D) micro computed tomography (micro-CT) native cranial bone displaying pre-defect left parietal and right parietal bones ofin vivomodel system at timepoint T^PDN. (b.) Gross image of surgically-created, complete, bi-parietal critical sized defects of both the left and right parietal bones within thein vivomodel system at timepoint T⁰. (c.) 3-D micro-CT of surgically-created, complete (full-thickness), bi-parietal critical sized defects of both the left and right parietal bones within thein vivomodel system. ① Indicates the right parietal bone region with 8 mm diameter defect at timepoint T⁰ which was un-treated and maintained as the defect control throughout study. ② Indicates the left parietal bone region with 8 mm defect which was treated with OsteoTE and maintained as the defect-treated control throughout the study. (d.) 3-D micro-CT of surgically-created, complete, bi-parietal critical sized defects of both the left and right parietal bones within thein vivomodel system at 4 weeks post-procedure and intervention (timepoint T^PPI-4WK). ❶Indicates the un-treated right parietal bone region (defect control) at 4 weeks. ❷ Indicates the treated left parietal bone region (OsteoTE) at 4 weeks. (e.) Depicts the relative margins of the primary bi-parietal defects (dotted circles) at time point T⁰; ROI (broken line box) indicates zoomed comparison of 4 weeks post-treatment defects of 3-D micro-CT and correlative 3-D thermal spectrum colored surface plot indicating relative surface depth and volumetric contour. Abbreviations: Pre-defect Native Timepoint (T^PDN): timepoint at which native skull was imaged prior to creation of defect; Defect Native Timepoint (T⁰): timepoint at which complete (full-thickness) 8 mm critically sized defects were created in parietal skull regions; Post-procedure and intervention at 4 weeks timepoint (T^PPI-4WK): timepoint at which 4 weeks have passed since the defects were created +/- treated with intervention.

Based on our internal analysis of the Truven Health Analytics Market Scan Research Database, there were approximately 1.9 million addressable orthopedic cases in the United States, including patients suffering from pathology of the femur, radius, ulna, tibia, fibula, or humerus. We believe OsteoTE can be deployed in numerous indications in the Craniomaxillofacial, Foot and Ankle, Hand and Wrist, Hip and Pelvis, Spine, Long Bone and Dental markets. Each of these markets presents a potential multi-billion dollar market opportunity for OsteoTE. According to a report issued by the research firm MarketsandMarkets, the global spinal fusion and implant market is expected to reach $17.3 billion by 2021, the global craniomaxillofacial implants market is expected to reach $2.5 billion by 2021, and the dental market is expected to reach $35.4 billion by 2021. We registered OsteoTE with the FDA as a 361 HCT/P tissue-based product in December 2018, and our goal is to commercialize OsteoTE through a phased release starting in early 2019.

CartTE

With our CartTE product candidate, we are aiming to deliver on a long-imagined product—one that can tackle the highly prevalent and debilitating process of osteoarthritis to delay or prevent the need for more invasive procedures, such as prosthetic joint replacement and reconstruction. Furthermore, we believe the autologous cartilage construct delivered with CartTE can be utilized in a variety of other applications, including facial reconstruction, facial aesthetics, hand reconstruction, as well as wrist reconstruction. We have initiated the preclinical studies needed to evaluate cartilage replacement in critical-sized defects and will continue to evaluate CartTE’s potential in various cartilage replacement indications.

Osteoarthritis of the hip or knee is estimated to affect 9% of the US population greater than 30 years of age, with costs of treatment totaling $28.6 billion in 2013, according to a review by Grande et al. Market projections by Krutz et al. in 2007 predict that the demand for primary (first-time) total hip and knee replacements will grow to 572,000 and 3.48 million procedures per year by 2030 in the US, respectively. In contrast to the staggering number of patients suffering from osteoarthritis and those pursuing joint replacement, the cartilage repair and regeneration market is only estimated to reach $6.7 billion by 2025, according to a Cartilage Repair/Regeneration Market Analysis report by Grand View Research. This lopsided market, in which cartilage repair and regeneration only captures a small fraction of the patient population that could benefit from articular cartilage regeneration, demonstrates a significant opportunity for our autologous cartilage regeneration product, CartTE, to displace the current trends and standards of care, delivering the regenerative medicine product that has remained elusive until now.

Additional Core TE Product Candidates

In addition, we intend to continue developing:

We believe a number of the product candidates described above will be suitable for marketing via the 361 HCT/P regulatory pathway. If we successfully register and list a product with the FDA using the 361 HCT/P pathway, we plan to deploy a commercialization strategy that is like that for SkinTE. Any products not suitable for the 361 HCT/P regulatory pathway will need to go through the FDA pre-market approval process, which usually involves the filing, as applicable, of an Investigational New Drug Application or Biologics License Application that will require further preclinical and clinical testing and substantially extend the time of bringing the product to market.

Manufacturing

We do not separately engineer individual manufacturing processes around each individual tissue product. Rather, we design, develop, and adapt our core “TE” products and product candidates to a common manufacturing process that allows us to establish fast, effective, and cost-efficient systems. Adopting a common manufacturing process enhances our production capacity and expansion strategy, and at the same time potentially reduces our cost of goods sold.

We have designed and developedSalt Lake City, Utah, manufacturing processes and quality systems that allow usit to receive a skin specimen, qualify the incoming tissue, process and manufacture the cell/SkinTE tissue product, and perform outgoing quality control and quality assurance work prior to shipping. We believe that our ultra-clean dual-barrier system, which involves clean room structures containing fully-isolated and air-locked internal ISO 4 containment systems, allows us to move specimen and product in an efficient manner, while maintaining protective quality systems.

We have designed our scalablePolarityTE validated its manufacturing process as being aseptic. All SkinTE is manufactured within an ISO 5 isolator located within an ISO 7 cleanroom. PolarityTE’s processes are designed and validated to allow usprevent the spread of communicable disease, and to be flexibleprevent cross-contamination between samples, and agile in real-time, while allowing us to shift resources daily to meet acute production needsits quality systems comply with current Good Tissue Practices (“cGTP”) under 21 C.F.R. Part 1271.

PolarityTE is modifying its manufacturing practices and facility so that it complies with cGMP under requirements of the Federal Food, Drug and Cosmetic Act, as well as respondunder 21 C.F.R. Parts 210 and 211, and other applicable regulations, which are in addition to larger factors, including market forces, multi-facility buildouts, and changes in rapidly evolving technology platforms. In designing our products and systems, we focused both on being able to meet market demand and to scale manufacturing. We believe that we have designed our manufacturing clean dual-barrier system to be efficient in flow processes, column production, and scalability. In compliance with ISO standards and cGTP our repeating clean manufacturing column systems and fully-isolated and air-locked internal ISO 4 containment units are engineered and designed with scalable production in mind.referenced above.

We currently operate a facility in Salt Lake City, Utah, consisting of approximately 178,528 square feet. We use this facility for product manufacturing and research and development work. We intend to establish over time remote manufacturing facilities we call “nodes” at locations close to health care providers we believe will be significant purchasers of our products. One of the significant benefits of nodes is the creation of manufacturing redundancy, so that production can be sustained if one of our manufacturing facilities is unable to produce due to natural disaster or other cause. We also believe nodes have the potential to lower shipping costs, which would improve our gross margin on products sold in the areas where the nodes are located.Suppliers

Suppliers

As part of ourPolarityTE’s strategy of ensuring timely delivery of ourits products, we haveit has avoided relying on any third-party supplier as a sole source vendor for any element of ourits production process. In the past year, we have signed agreements with major suppliers to reduce costs, ensure faster fulfillment, and increase our bulk purchasing capability. We havePolarityTE has identified alternate suppliers and, where appropriate, supply alternatives for any sourcing challenges.need.

Intellectual Property

As we advance our platform technology, our RTA,technologies, product, and our RTDs,pipeline developments, we seek to apply a multilayered approach for protecting intellectual property relating to our innovation – with patents (utility and design), copyrights, trademarks, as well as know-how and trade secret protection.

We do not currently own any granted patents, butare actively seeking U.S. and foreign patent protection in selected jurisdictions for a variety of technologies, including our MPFU technology, our Complex Living Interface Coordinated Self-Assembling Materials (“CLICSAM”) technology, our Composite-Interfacing, Biomaterial Accelerant Substrate (“CIBAS”) technology, as well as Biological Sample Harvest and Deployment Kits. We have a number of patentpatents issued and pending applications pending in the U.S. and around the world. We have four pending U.S. non-provisional utility patent applications relating to MPFUs – U.S. Serial Nos. 14/954,335; 15/650,656; 15/650,659; and 16/165,169. Each of these applications claims priority to a U.S. provisional application filed on December 2, 2014. We have one Patent Cooperation Treaty (PCT) International Patent Application (PCT International Publication No. WO 2016/089825) and national phase applications have been entered in OAIP, ARIPO, Australia, Brazil, Canada, China, Colombia, Costa Rica, Eurasia, Europe, Great Britain, Hong Kong, Israel, India, Indonesia, Japan, South Korea, Mexico, Malaysia, New Zealand, Philippines, Singapore, South Africa, Thailand, United Arab Emirates, Ukraine, Vietnam. These applications, as well as our pending non-public applications (which will only be identified after publication), are proceeding along the normal timeline of patent office examination in each respective country. The receipt of office actions from patent offices is part of the examination process, as is our response to such office actions. To date, no application has been abandoned or lapsed. Nor has any application been rejected in a manner that forecloses the possibility of receiving a granted patent from that same application. All our patent applications are currently alive and actively being pursued. We cannot predict when or where the first set of patent claims might be granted, nor can we speculate on the scope of claims in such a future patent.

We seek to complement the protection of our innovation with a portfolio of trademarks and service marksallowed in the United States and aroundabroad related to our MPFU technology, including U.S. Patent No. 10,926,001 issued on February 23, 2021; U.S. Patent No. 11,000,629 issued on May 11, 2021; U.S. Patent No. 11,266,765 issued on March 8, 2022; and U.S. Application No. 17/326,734 filed on May 21, 2021. Each of U.S. Patent Nos. 10,926,001; 11,000,629; and 11,266,765 have an estimated expiration date of November 30, 2035.

Patent terms extend for varying periods of time according to the world.date of patent filing or grant and the pertinent law in the various countries where patent protection is obtained. The POLARITYTE trademarkactual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage, and the availability of legal remedies in the country. Further, patent term extension may be available in certain countries to compensate for a regulatory delay in approval of certain products.

The U.S. healthcare legislation enacted in 2010 created an approval pathway for biosimilar versions of innovative biological products that did not previously exist. Prior to that time, innovative biologics had essentially unlimited regulatory exclusivity. Under the new regulatory mechanism, the FDA can approve products that are similar to (but not generic copies of) innovative biologics on the basis of less extensive data than is required by a full BLA. After an innovator has been registeredmarketed its product for four years, any manufacturer may file an application for approval of a “biosimilar” version of the innovator product. However, although an application for approval of a biosimilar may be filed four years after approval of the innovator product, qualified innovative biological products will receive 12 years of regulatory exclusivity, meaning that the FDA may not approve a biosimilar version until 12 years after the innovative biological product was first approved by the FDA. The law also provides a mechanism for innovators to enforce the patents that protect innovative biological products and for biosimilar applicants to challenge the patents. Such patent litigation may begin as early as four years after the innovative biological product is first approved by the FDA.

In the United States, the increased likelihood of generic and biosimilar challenges to innovators’ intellectual property has increased the risk of loss of innovators’ market exclusivity. First, generic companies have increasingly sought to challenge innovators’ basic patents covering major pharmaceutical products. Second, statutory and regulatory provisions in the United States Australia, Brazil, China,limit the European Union, Iceland, India, Israel, Japan, South Korea, Malaysia, Mexico, Norway,ability of an innovator company to prevent generic and biosimilar drugs from being approved and launched while patent litigation is ongoing. As a result of all of these developments, it is not possible to predict the Russian Federation, Singapore, Switzerland, Taiwan, and Turkey. Additional registered trademarks inlength of market exclusivity for a particular product with certainty based solely on the United States include our logo, WELCOME TO THE SHIFT, and WHERE SELF REGENERATES SELF.expiration of the relevant patent(s) or the current forms of regulatory exclusivity.

In striving to protect and enhancethe proprietary technology, inventions, and improvements that are commercially important to the development of our business, we also rely heavily on trade secrets relating to our proprietary technology and on know-how. We enter into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

CompetitionWe seek to complement the protection of our innovation with a portfolio of trademarks and service marks in the United States and around the world. The POLARITYTE trademark has been registered in the United States and in other countries throughout the world. Additional registered trademarks in the United States include our logo, WELCOME TO THE SHIFT, WHERE SELF REGENERATES SELF, and SKINTE.

Competition

The regenerative medicine industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on intellectual property. We face substantial competition from companies developing and selling regenerative medicine products, as well as academic research institutions, and governmental agencies, and public and private research institutions.

Many of our current or potential competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, (if required), which could result in our competitors establishing a strong market position before we are able to enter the market. The key competitive factors affecting the success of our programs are likely to be their efficacy, safety, convenience, price, and the availability of reimbursement from government and other third-party payers.

RTD and ARC

We believe our TE platform technology is a revolutionary approach to regenerative medicine in and of itself, but we also find that it suggests new areas of inquiry and potential innovation. To this end, we have active research we are pursuing through our Related Technology Derivatives (RTD) and Advanced Research Center (ARC) programs. RTDs can be designed to augment the application and regenerative outcomes of our pipeline products or be used as standalone products. ARC programs focus on the improvement of RTDs as well as augmentation of our pipeline products. We are excited about the recent advancements in the field of gene therapy and are interested in the possibility of genetically altering our products, including SkinTE, to better treat and possibly cure rare diseases, such as Epidermolysis Bullosa, a genetic condition that causes the skin to be very fragile and to blister easily.

Contract Research Services

In May 2018, we purchased the assets of a preclinical research sciences business and related real estate from Ibex Group, L.L.C., a Utah limited liability company, and Ibex Preclinical Research, Inc., a Utah corporation. We acquired these assets to accelerate research and development of our TE product candidates and now operate theprovide preclinical research services to third parties. In 2021 all of IBEX’ business as IBEX to advance our product development and deliver preclinical researchactivity was providing services to third parties. The business consists of a “good laboratory practices” (GLP) compliant preclinical research facility that complies with Good Laboratory Practices and is USDA registered, and includes a vivarium, operating rooms, preparation rooms, storage facilities, and surgical and imaging equipment. The real property includes two parcels in Logan, Utah, consisting of approximately 1.75 combined gross acres of land, together with the buildings, structures, fixtures, and personal property located on the real property. In March 2022, we reached a non-binding understanding with an unrelated third party that contemplates the sale of IBEX and the real property used in the operation of IBEX. The potential sale is subject to a number of contingencies. Even though the proposed sale may not materialize, we are exploring our options with respect to IBEX, which is likely to result in some other disposition or winding up of the business in 2022.

PolarityTE RD offersHistorically, Arches offered a complimentary array of research services to those offered through IBEX, providing access to experimental planning, histology, and in vivo and in vitro imaging, including micro-ct. The PolarityTE RD arm is well equipped with state of the art equipment and sophisticated research staff that provideThere was a range of services including veterinary and preclinical services, advanced imaging, biomedical engineering and validation, molecular biology assays and proteomics analyses.

Government Regulation

Government authorities or laws and regulationssubstantial surge in COVID-19 testing throughout the United States as a result of the COVID-19 pandemic, which began in the spring of 2020. In 2020 and other countries regulate2021, Arches had equipment and staff capable of performing polymerase chain reaction testing for COVID-19. Arches had the manufacturing, approval, labeling, packaging, storage, record-keeping,opportunity to use its research facilities to offer laboratory testing services for COVID-19, and promotionto that end registered under the Clinical Laboratory Improvement Amendments (“CLIA”) in May 2020, and it began providing COVID-19 testing services on May 27, 2020.

Arches’ primary customer for testing services was an organization controlling multiple long-term care and laboratory facilities in New York State and surrounding areas. Beginning in April 2021 there was a significant loss of products such as thoseCOVID-19 testing revenues due to the loss of Arches’ major testing customer in the first quarter of 2021. Subsequent efforts to find new business to replace the lost testing business were not successful and we have developed and are developing. Any product we are developing must comply withmade the standards required for the product category under which the product is classified by such government authorities or laws.decision to cease COVID-19 testing in August 2021.

Government Regulation

FDA Regulation of Tissue-Based Productsand Marketing Approval

The FDA has specific regulations governing human cells, tissues and cellular and tissue-based products, or HCT/Ps. An HCT/P is a product containing or consisting of human cells or tissue intended for transplantation into a human patient. In the United States, HCT/Ps are subject to varying degrees of regulation byU.S., the FDA depending on if they fall solely withinregulates biological products under the scope of Section 361 ofFederal Food, Drug, and Cosmetic Act (“FDCA”), the Public Health Service Act, (the “PHS Act”) (42 U.S.C. § 264)and various federal regulations. These FDA-regulated products are also subject to state and local statutes and regulations, as well as applicable laws or if theyregulations in foreign countries. The FDA, and comparable regulatory agencies in state and local jurisdictions and in foreign countries, impose substantial requirements on the research, development, testing, manufacture, quality control, labeling, packaging, storage, distribution, record-keeping, approval, post-approval monitoring, advertising, promotion, marketing, sampling, and import and export of FDA-regulated products. Failure to comply with the applicable requirements at any time during the development process, approval process, or after approval may subject an applicant to administrative or judicial sanctions, suspension of development or marketing, or non-approval of product candidates. These sanctions could include a clinical hold on clinical trials, FDA’s refusal to approve pending applications or related supplements, withdrawal of or restrictions on an existing approval or licensure, untitled or warning letters, product recalls, product seizures, import detentions or export restrictions, total or partial suspension of production or distribution, injunctions, fines, restitution, disgorgement, civil penalties, or criminal prosecution. Such actions by government agencies could also require us to expend a large number of resources to respond to the actions. Any agency or judicial enforcement action could have a material adverse effect on us. We are regulated as drugs, devices,not sure whether legislative changes will be enacted, or biological products under Section 351whether the FDA regulations, guidance, or interpretations will be changed, or what the impact of any such changes may be on the PHS Act (42 U.S.C. § 262)marketing approvals or licensures, or the FD&C Act.prospects thereof, for our products.

If an HCT/P meets the criteria for regulation solely under Section 361IND and Clinical Trials of the Public Health Service Act (so-called “361 HCT/Ps”), no premarket FDA review for safetyDrug and effectiveness underBiological Products

Prior to commencing a human clinical trial of a drug device, or biological product, marketingan IND application, which contains the results of preclinical studies and relevant clinical studies or other human experience along with other information, such as information about product chemistry, manufacturing, and controls and a proposed protocol, must be submitted to the FDA. An IND is required. However,a request for authorization from the processorFDA to administer an investigational drug or biological product to humans. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA within the 30-day time period raises concerns or questions about the conduct of the tissueclinical trial. In such a case, the IND sponsor must resolve any outstanding concerns with the FDA before the clinical trial may begin. A separate submission to the existing IND must be made for each successive clinical trial to be conducted during development of the drug or biologic.

An independent Institutional Review Board (“IRB”) must review and approve the investigational plan for the trial before it commences at each site. Informed written consent must be obtained from each trial subject.

Human clinical trials for drug and biological products typically are conducted in sequential phases that may overlap:

All clinical trials must be conducted in accordance with FDA regulations, including good clinical practice (“GCP”) requirements, which are intended to protect the rights, safety, and well-being of trial participants, define the roles of clinical trial sponsors, investigators, administrators, and monitors, and ensure clinical trial data integrity and reliability. Regulatory authorities, including the FDA, an IRB, a data safety monitoring board, or the sponsor, may suspend or terminate a clinical trial at any time on various grounds, including, among other reasons, a finding that the participants are being exposed to an unacceptable health risk or that the clinical trial is not being conducted in accordance with FDA requirements.

During the development of a new drug or biologic, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2 clinical trials, and before a New Drug Application (“NDA”) or Biologics License Application (“BLA”) is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the end-of-Phase 2 clinical trials meetings to discuss their Phase 2 clinical trials results and present their plans for the pivotal Phase 3 registration trial that they believe will support approval of the new drug/biologic.

Disclosure of Clinical Trial Information

Sponsors of certain clinical trials of FDA-regulated products, including drugs, biologics, and devices, are required to register and list its productsdisclose certain clinical trial information on clinicaltrials.gov. Information related to the product, trial subject population, phase of investigation, study sites and investigators, and other aspects of the clinical trial, is made public as part of the registration. Sponsors also are obligated to disclose the results of their clinical trials, including the study protocol and statistical analysis plan, after completion. Disclosure of the clinical trial results can be delayed until the new product or new indication being studied has been approved, as long as approval occurs within a certain timeframe. Competitors may use this publicly available information to gain knowledge regarding our development programs.

The BLA Approval Process

SkinTE is an autologous product, meaning it is derived from the cells and tissues of the individual to be treated with the product. Based on the FDA’s feedback to the Company, SkinTE will not be marketed in the U.S. until it is licensed by the FDA comply with regulations regarding labeling, record keeping, donor eligibility and screening and testing,through the BLA approval process. The process required by the tissue in accordance with established current Good Tissue Practices (cGTP), and investigate and, in certain circumstances, report adverse events or deviations.FDA to obtain licensure generally involves the following:

To be a 361 HCT/P, a product generally must meet all four of the following criteria:

We believeThe FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the agency’s threshold determination that SkinTEit is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in- depth review. The FDA has agreed to certain performance goals in the review of BLAs. Most applications for standard review BLA products are reviewed within ten months of submission, and OsteoTE qualify as 361 HCT/P tissue-basedmost applications for priority review BLA products and believe that our core “TE” products in development (e.g., CartTE) will qualify as 361 HCT/Ps. Other products we are developing are being evaluated with respect to regulatory classification, and we will prepare for any pathway of manufacturing or regulation that is required.

All establishments that manufacture 361 HCT/Ps must register and list their HCT/Ps with the FDA’s Center for Biologics Evaluation and Research (“CBER”) within five days after commencing operations. In addition, establishments are required to update their registration annually in December or within 30 days of certain changes, and submit changes in HCT/P listing at the time of orreviewed within six months of submission. The review process may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission. Even if such change. Establishmentsadditional information is submitted, the FDA may ultimately decide that manufacture 361 HCT/Psthe BLA does not satisfy the criteria for approval.

The FDA may also refer applications for novel BLA products or products that present difficult questions of safety, purity, or potency, to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.

Before approving a BLA, the FDA will know that they are registered intypically inspect one or more clinical sites to assure compliance with 21 C.F.R. § 1271.10(a)GCP. The FDA may also inspect preclinical study sites to verify compliance with Good Laboratory Practice (“GLP”) requirements prior to approval. Additionally, the FDA will inspect the facility or the facilities at which the BLA product is manufactured. The FDA will not approve the BLA unless compliance with cGMP requirements is satisfactory, and the BLA contains data that provide substantial evidence that the product is safe, pure, and potent for the indication studied.

After the FDA evaluates the BLA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter outlines the deficiencies in the submission and may require substantial additional testing, including additional large-scale clinical testing or other information in order for the FDA to reconsider the application. If, or when, theythose deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.

The cost of preparing and submitting a BLA is substantial. Furthermore, each BLA submission requires a user fee payment (approximately $3.1 million in fiscal year 2022), unless a waiver or exemption applies. Waiver of the fee may be sought on several grounds, including that the applicant is a small business submitting its first human drug application to the FDA for review, but there is no assurance we will qualify or receive a validated form with the registration number (“FEI#”) after submitting the Form FDA 3356 (registration form). Current Good Tissue Practice (“cGTP”) requirements govern, as may be applicable, the facilities, controls,waiver if and methods usedwhen we file a BLA in the manufacturefuture. The manufacturer or sponsor of HCT/Ps, including without limitation, recovery, donor screening, donor testing, processing, storage, labeling, packaging,an approved BLA is also subject to annual establishment fees.

An approval letter authorizes commercial marketing and distribution of 361 HCT/Ps.the licensed product with specific prescribing information for specific indications. As a condition of BLA approval, the FDA inspectionmay require substantial post-approval testing and enforcement with respectsurveillance to establishments described in 21 C.F.R. § 1271 includes inspections conducted, as deemed necessary, to determinemonitor the product’s safety, purity, and potency and may impose other conditions, including post-market studies, labeling restrictions, or other risk evaluation and mitigation strategies, which can materially affect the product’s potential market and profitability. Once granted, product approvals may be withdrawn if compliance with the applicable provisions and may include, butregulatory standards is not limitedmaintained, or problems or safety issues are identified following initial marketing.

Changes to an assessmentsome of the establishment’sconditions established in an approved application, including changes in indications, labeling, device components, or manufacturing processes or facilities, equipment, finishedrequire submission and unfinished materials, containers, processes, HCT/Ps,FDA approval of a new BLA or BLA supplement before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures labeling, records, files, papers, and controls requiredactions in reviewing BLA supplements as it does in reviewing BLAs.

Biosimilar Exclusivity

The Biologics Price Competition and Innovation Act of 2009 (BPCIA) creates an abbreviated approval pathway for biosimilar products. A biosimilar is a biological product that is highly similar to, and has no clinically meaningful differences from, an existing FDA-licensed reference product. Biosimilarity must be shown through analytical studies, animal studies, and at least one clinical study, absent a waiver. A biosimilar product may be deemed interchangeable with a prior licensed product if it is biosimilar and meets additional requirements under the BPCIA, including that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. Where permitted by state law, an interchangeable product may be substituted for the reference product without the involvement of the prescriber.

A reference biologic is granted twelve years of exclusivity from the time of first licensure of the reference product, and no application for a biosimilar may be submitted for four years from the date of licensure of the reference product. The first biologic product submitted under the abbreviated approval pathway that is determined to be maintained under 21 C.F.R. § 1271. Such inspections can occur at any timeinterchangeable with the reference product may obtain exclusivity against a finding of interchangeability for other biosimilars for the same condition or without written notice at such frequency asuse for the lesser of (i) one year after the first commercial marketing of the first interchangeable biosimilar; (ii) eighteen months after the first interchangeable biosimilar is determinedapproved if there is no patent challenge; (iii) eighteen months after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable biosimilar applicant; or (iv) 42 months after the first interchangeable biosimilar’s application has been approved if a patent lawsuit is ongoing within the 42-month period.

Post-Marketing Requirements for FDA Regulated Products

Following licensure of a new product, the company and the licensed products are subject to continuing regulation by the FDA, state, and foreign regulatory authorities including, among other things, monitoring and record-keeping activities, reporting adverse experiences to the applicable regulatory authorities, providing regulatory authorities with updated safety and efficacy information, manufacturing products in its sole discretion. Our Salt Lake City manufacturing site was inspectedaccordance with cGMP requirements, product sampling, and distribution requirements, and complying with promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising and restrictions on promoting products for uses or in July 2018 and we received certain inspectional observations on Form FDA 483 followingpatient populations that inspection. We responded to those observations and are continuing a productive dialognot consistent with the FDA.product’s approved labeling (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet, including social media. Although physicians may prescribe products for off-label uses, manufacturers may not market or promote such off-label uses. Modifications or enhancements to the product or its labeling or changes of the site of manufacture are often subject to the approval of the FDA and other regulators, who may or may not grant approval, or may engage in a lengthy review process.

If we failThe FDA, state, and foreign regulatory authorities have broad enforcement powers. Failure to comply with applicable regulatory requirements could result in enforcement action by the FDA, regulations and laws applicable to our operationstate, or tissue products,foreign regulatory authorities, which may include the FDA could take enforcement action, including, without limitation, pursuing any of the following sanctions, among others:following:

For more informationAny of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on this regulatory risk, please see the discussion below, “Risk Factors,” including but not limitedour reputation, business, financial condition, and results of operations. Such actions by government agencies could also require us to expend a large amount of managerial and financial resources to respond to the information underactions. Any agency or judicial enforcement action could have a material adverse effect on us.

In the heading, “Risks RelatedU.S., after a product is approved, its manufacture is subject to Registrationcomprehensive and continuing regulation by the FDA. The FDA regulations require that products be manufactured in registered facilities and in accordance with cGMP. We have a facility for the production of clinical and commercial quantities of SkinTE that is being modified to operate in accordance with cGMP regulations. cGMP regulations require, among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct deviations from cGMP. For human cellular or Regulatory Approvaltissue-based products like ours, cGMP also includes current good tissue practices to prevent the transmission of Our Product Candidatescommunicable diseases. These regulations also impose certain organizational, procedural, and Other Government Regulations.”documentation requirements with respect to manufacturing and quality assurance activities. Manufacturers and other entities involved in the manufacture and distribution of approved drugs, biologics, and medical devices are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP and other laws. Accordingly, as a manufacturer we must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

If in the future we elect to use a contract manufacturer, we will be responsible for the selection and monitoring of qualified firms and, in certain circumstances, suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMP, could result in enforcement actions that can interrupt the operation of any such firm or result in restrictions on product supply, including, among other things, recall or withdrawal of the product from the market.

Newly discovered or developed data on safety, purity, or potency may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures.

Fraud, AbuseReimbursement, Anti-Kickback and False Claims Laws, and Other Regulatory Matters

WeIn the U.S., the research, manufacturing, distribution, sale, and promotion of drug and biological products are directly and indirectlypotentially subject to regulation by various federal, state, and state laws governing relationships with healthcare providers andlocal authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services (“CMS”), other potential referral sources for our products pertaining to healthcare fraud and abuse, including anti-kickback, false claims, and similar laws. In addition, federal and state laws are also sometimes open to interpretation. The Company could potentially face legal risks if our interpretation differs from those of enforcement authorities. Further, from time to time the Company may find itself at a competitive disadvantage if the Company’s interpretation differs from that of its competitors.

In particular, the federal healthcare program Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration (in cash or in kind), directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or recommending of, a good or service for which payment may be made in whole or part under federal healthcare programs, such as the Medicare and Medicaid programs. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. In implementing the statute, the Office of Inspector Generaldivisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency, state Attorneys General, and other state and local government agencies. For example, sales, marketing, and scientific/educational grant programs must comply when applicable with the federal Anti-Kickback Statute, the federal False Claims Act, the privacy regulations promulgated under HIPAA, and similar state laws. Pricing and rebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“OIG”MMA”) has issuedestablished the Medicare Part D program to provide a seriesvoluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that will provide coverage of regulations, known as the “safe harbors.” These safe harbors set forth provisionsoutpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that if all their applicable requirements are met, except certain remunerationidentifies which drugs it will cover and remunerative arrangements from violating the Anti-Kickback Statute. The failureat what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of a transaction or arrangement to fit precisely within one or more safe harbors doescovered Part D drugs, though not necessarily meanall the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive regulatory approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable element of a safe harborresults from the MMA may result in increased scrutiny by Government enforcement authorities, such as the OIG. Many states have lawsa similar to the federal law.reduction in payments from non-government payors.

Also, the federal civil False ClaimsThe American Recovery and Reinvestment Act (“FCA”) imposes civil liability on any person or entity that submits, or causes the submission of a false or fraudulent claim to the U.S. government. Damages under the FCA can be significant, and consist of the imposition of fines and penalties. The FCA also allows a private individual or entity (i.e., a whistleblower) with knowledge of past or present fraud against2009 provides funding for the federal government to suecompare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality, and the National Institutes for Health, and periodic reports on behalfthe status of the governmentresearch and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sale of SkinTE in the future. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sale of our product. If third-party payors do not consider SkinTE to be cost-effective compared to other available therapies, they may not cover our product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our product on a profitable basis.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug and biologics pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to be paidcontrol the prices of medicinal products for human use. A member state may approve a portionspecific price for the medicinal product, or it may instead adopt a system of direct or indirect controls on the profitability of the government’s recovery, whichcompany placing the medicinal product on the market. There can include both civil penaltiesbe no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and up to three timespricing arrangements for our product. Historically, products launched in the amountEuropean Union do not follow price structures of the government’s damages (usuallyU.S. and generally tend to be priced significantly lower than in the amount reimbursed by federal healthcare programs). TheU.S.

In the U.S. Department of Justice takes the position that the marketing and promotional practices of life sciences product manufacturers, including the off-label promotion of products, the provision of inaccurate or misleading reimbursement guidance, or the payment of prohibited kickbacks, may cause the submission of improper claims to federal and state healthcare entitlement programs such as Medicare and Medicaid by health care providers that use the manufacturer’s products, which results in a violation of the FCA. In certain cases, manufacturers have entered into criminal and civil settlements with the federal government under which they entered into plea agreements, paid substantial monetary amounts and entered into corporate integrity agreements (“CIAs”) that require, among other things, substantial government oversight, as well as reporting and remedial actions going forward

If we fail to comply with these laws, we could bePolarityTE is subject to enforcement actions, including but not limited to:

For more information on this fraud, abuse, and false claim risk, please see the discussion below, “Risk Factors,” including, but not limited to, the federal Anti-Kickback Statute, the federal False Claims Act, and other state and federal laws and regulations. The federal Anti-Kickback Statute makes it illegal for any person, or a party acting on its behalf, to knowingly and willfully solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchase, order, or prescription of a particular drug, or other good or service for which payment in whole or in part may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, many states have adopted laws similar to the federal Anti-Kickback Statute. Some of these state prohibitions apply to the referral of patients for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid. Due to the breadth of these federal and state anti-kickback laws, the absence of guidance in the form of regulations or court decisions and the potential for additional legal or regulatory change in this area, it is possible that PolarityTE’s future sales and marketing practices or its future relationships with medical professionals might be challenged under fraud and abuse laws, which could harm PolarityTE.

The federal False Claims Act prohibits anyone from knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs and biologics, that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Although we would not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information underto customers or promoting a product off-label. In addition, our future activities relating to the heading, “Wereporting of estimated prices for SkinTE, the reporting of prices used to calculate Medicaid rebate information, and other information affecting federal, state, and third-party reimbursement for our product, and the sale and marketing of SkinTE, are subject to numerousscrutiny under this law. Penalties for a federal False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties of between $11,181 and $22,363 for each separate false claim, the potential for exclusion from participation in federal healthcare programs. Although the federal False Claims Act is a civil statute, conduct resulting in a federal False Claims Act violation may also implicate various federal criminal statutes. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine. In addition, private individuals have the ability to bring actions under the federal False Claims Act and certain states have enacted laws modeled after the federal False Claims Act.

There are also an increasing number of state healthcarelaws that require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. In addition, as discussed below, a similar federal requirement requires manufacturers to track and report to the federal government certain payments made to physicians and teaching hospitals in the previous calendar year. These laws may affect our sales, marketing, and other promotional activities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect to these laws and regulations,their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state, and asoon federal, authorities.

The failure to comply with such laws and regulations could have an adverse effectregulatory requirements exposes companies to possible legal or regulatory action. Depending on our business and our abilitythe circumstances, failure to compete in the marketplace.”

Environmental Matters

Our research, development and tissue preservation activities generate some chemical and biomedical wastes, consisting primarily of diluted alcohols and acids, and human and animal pathological and biological wastes, including human and animal tissue and body fluids removed during laboratory procedures. The chemical and biomedical wastes generated by our research, development and tissue processing operations are placed in appropriately constructed and labeled containers and are segregated from other wastes. We contract with third parties for transport, treatment, and disposal of waste. We strive to remain compliant withmeet applicable laws and regulations promulgated by the Resource Conservation and Recovery Act, the U.S. Environmental Protection Agency and similar state agencies.

Reimbursement

In the United States, demand for access to any medical product will depend in large part on both the availability and the amount of reimbursement from third-party payers, including government healthcare programs (including Medicare and Medicaid), and commercial healthcare insurers, including managed care organizations and other private health plans. Third-party payers have complex rules andregulatory requirements for coverage and reimbursement of healthcare products and services. Even the applications to such third-party payers to be eligible for reimbursement for product or services are complex and can be lengthy and time consuming. For new technologies coming to market, these payers are increasingly examining the clinical evidence supporting medical necessity and cost effectiveness decisions in addition to safety and efficacy, which can result in barrierscriminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to early coverage reimbursement,allow a company to enter into supply contracts, including government contracts.

Changes in regulations, statutes, or denialthe interpretation of coverage and reimbursement altogether. Accordingly, significant uncertainty exists as toexisting regulations could impact our business in the availability of coverage and reimbursement statusfuture by requiring, for new medical products. If third-party payer reimbursement is unavailableexample: (i) changes to our customer hospitals, physicians, and providers,manufacturing facility; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our sales may be limited and we may not be ableproduct; or (iv) additional record-keeping requirements. If any such changes were to realize an appropriate return on our investment in research and product development.

Payers often set payment rates depending on the site of service and many use the Medicare program as a benchmark for their own payment methodologies. In the hospital inpatient setting, Medicare payment generally is set at pre-determined rates for all products and services provided during a patient stay, and is based on such factors as the patient diagnosis, procedures performed, patient age, and complications. In the physician office or clinic setting, Medicare payment generally is based on a fee schedule, with payment rates set for each procedure performed and product used, although the schedule may in some instance bundle the product into the payment for the procedure. In some outpatient settings, such as in the case of the hospital outpatient clinic setting, Medicare payment rates generally are premised on classifications of services that have similar clinical characteristics and similar costs. To better track utilization, we filed an application with CMS for a unique HCPCS SkinTE Q code. We were successful and received Q code 4200, which was effective January 1, 2019.

Reimbursement policies depend in part on legislation designed to regulate the healthcare industry and federal and state governments continue to propose and pass new healthcare legislation and government agencies revise or change their regulations and policies from time to time. We cannot predict whether or how such reform measures and policy changes would affect reimbursement rates and demand for our products.

Patient Privacy

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, including the final omnibus rule published on January 25, 2013, mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information. Among other things, HITECH makes HIPAA’s security standards directly applicable to business associates, defined as independent contractors or agents of covered entities that create, receive or obtain protected health information in connection with providing a service for or on behalf of a covered entity. Because our products use autologous tissue sources that are tracked and reapplied to the same individual patient from which the tissue was harvested, our business maintains substantial amounts of patient identifiable health information. HITECH also increased the civil and criminal penalties that may be imposed, against covered entitiesthey could adversely affect the operation of our business.

Patient Protection and business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforceAffordable Care Act

In March 2010, the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, certain state laws govern the privacy and security of health information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant civil or criminal penalties. Since we do not submit claims electronically to payers, we do not believe we are a covered entity under HIPAA.

Transparency Laws

The Patient Protection and Affordable Care Act, imposes, among other things, annual reporting requirements for covered manufacturers for certain payments and other transfers of value provided to physicians and teaching hospitals, as well as certain ownership and investment interests held by physicians and their immediate family members. We do not believe that we are a covered manufacturer under the Sunshine Act because our products are neither regulated as pharmaceuticals, biologics, nor medical devicesamended by the FDA,Health Care and 361 HCT/P autologous tissue sourcesEducation Reconciliation Act of 2010, collectively the PPACA, was enacted, which includes measures that have or will significantly change the way healthcare is financed by both governmental and private insurers. Among the provisions of the PPACA of greatest importance to the drug industry are the following:

There have been prior public announcements by members of the federal government regarding their plans to repeal and replace the PPACA and Medicare. For example, the Tax Cuts and Jobs Act of 2017 eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We are not expressly addressed by this law.sure whether additional legislative changes will be enacted and are unable to predict what impact changes in the law may have on the pricing and distribution of our product.

USDAEmployees

The CompanyWe have approximately 59 full-time employees and its subsidiaries conduct preclinical research and development, which is regulated by the United States Department of Agriculture (USDA) Animal and Plant Health and Inspection Service (APHIS) and must be performed in compliance with the Animal Welfare Act, Animal Welfare Regulations, and Animal Care Policies. The Company and each of its subsidiaries that conduct preclinical research have in place Institutional Animal Care and Use Committees to oversee compliance with the animal care and use program and report accordingly to the USDA on an at least a semi-annual basis. All performance sites that maintain USDA-covered species are actively registered as USDA research facilities.

Employees

We had approximately 123 full-time10 part-time employees as of OctoberDecember 31, 2018,2021, all of whom are in the United States.U.S. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.

Corporate History

Majesco Entertainment Company, a Delaware corporation (“Majesco DE”), was incorporated in the state of Delaware on May 8, 1998. On December 1, 2016, Majesco Acquisition Corp., a Nevada corporation and wholly-ownedwholly owned subsidiary of Majesco Entertainment Company, a Delaware corporation (“Majesco DE”)DE, entered into an Agreement and Plan of Reorganization with PolarityTE, Inc., a Nevada corporation (“PolarityTE NV”) and Dr. Denver Lough, the owner of 100% of the issued and outstanding shares of capital stocksole stockholder of PolarityTE NV. The asset acquisition was subject to shareholderstockholder approval, which was received on March 10, 2017, and the transaction closed on April 7, 2017. In January 2017, Majesco DE changed its name to “PolarityTE, Inc.” (“PolarityTE”). Majesco Acquisition Corp. was then merged with PolarityTE NV, which remains a subsidiary of PolarityTE. Majesco Acquisition Corp. II, formed in November 2016 under Majesco Entertainment Company, changed its name to “PolarityTE MD, Inc.,” and remains a wholly-owned subsidiary of PolarityTE.

Prior to the acquisition of PolarityTE NV, Majesco DE developed and published a wide range of video games on digital networks through its Midnight City label. On May 2, 2017, Majesco Entertainment Company, a Nevada corporation and wholly owned subsidiary of PolarityTE (“Majesco NV Sub”), was formed, into which all the assets and liabilities of this gaming business were placed. On June 23, 2017, PolarityTE sold the Majesco NV Sub to Zift Interactive LLC, a Nevada limited liability company, pursuant to a purchase agreement. Pursuant to the terms of the agreement, PolarityTE sold 100% of the issued and outstanding shares of common stock of Majesco NV Sub to Zift, including all the right, title, and interest in and to Majesco NV Sub’s business of developing, publishing, and distributing video game products.PolarityTE.

In May 2018 we acquired assets of a preclinical research and veterinary sciences business and related real estate, which we now operate through our subsidiary, Ibex Preclinical Research, Inc.IBEX. The aggregate purchase price was $3.8 million, of which $2.3 million was paid at closing and the balance satisfied by a promissory note payable to the Sellerseller with an initial fair value of $1.22 million and contingent consideration with an initial fair value of approximately $0.3 million. As a result, we have significant research facilities and a well-educated and skilled team of scientists and researchers that comprise the contract research segment of our business. These resources are highly beneficial to the work we are doing on our TE products and in RTD and ARC. We also offer research services to unrelated third parties on a contract basis, which we offer under the trademark POLARITYRD. Contract research services help us defray the costs of maintaining a first-rate research facility and allow us to meet companies pursuing new technologies that may be opportunities for collaborative or strategic relationships going forward.

Contact and Available Information

Our principal executive offices are located at 123 Wright Brothers Drive,1960 S. 4250 West, Salt Lake City, UT 8411684104, and our telephone number is (385) 237-2279. Our website address is www.polarityte.com.(800) 560-3983.

We file annual, quarterly, and current reports, as well as proxy statements, and other information with the Securities and Exchange Commission, which isSEC. Our SEC filings are available to the public at the SEC’s website at www.sec.gov. We also maintain a website located at www.polarityte.com, where these SEC filings and other information about the Company can be accessed, free of charge, overas soon as reasonably practicable after we electronically file the Internet at our website athttp://www.polarityte.com. In addition, any materials we fileinformation with, the Securities and Exchange Commission (“SEC”) are available on the SEC’s website as www.sec.gov free of charge.

Glossary– for ease of reference, the following provides simplified explanations for some of the terms used herein. This Glossary is not intended to define these terms as they may be used in other documents, authored by PolarityTE or otherwise

Allogeneic – relating to tissues or cells that are genetically dissimilar and hence immunologically incompatible, although from individuals of the same species.

Allogeneic tissue rejection – the rejection of foreign tissue after the body develops an immune response to it.

Allografts – tissue grafts derived from a donor of the same species as the recipient but not genetically identical, e.g. tissue grafts derived from cadavers.

Alloplast – an allogeneic material used to construct, reconstruct, or augment tissue.

Autologous tissue – tissue originating from one’s own body.

Bioreactor - a vessel in which a biological process is carried out that involves organisms or biochemically active substances derived from organisms.

Compartment Syndrome - a condition caused by pressure build up from internal bleeding or tissue swelling.

Dermis – the middle layer of skin, that contains connective tissue, hair follicles, and sweat glands.

Epidermis – the outermost layer of skin, responsible for providing a waterproof barrier and creating skin tone.

Epithelium - the tissue that covers a free surface or lines a tube or cavity of an animal body, such as the alimentary canal.

Fibroblasts - cells in connective tissue that produce collagen and other fibers.

Full-thickness skin graft (FTSG) - a skin graft that contains both the epidermis and the entire dermis.

Growth factor – a substance that is required for the stimulation of growth in living cells.

HCT/Ps - human cells, tissues and cellular and tissue-based products regulated by the FDA under 21 C.F.R. Parts 1270 and 1271.

Homologous – when used in relation to tissue, skin, or tissue product meansfurnish it is similar in position, structure, function, or characteristics to, the corresponding patient tissue.SEC.

Hypodermis – the deep subcutaneous layer of skin, below the dermis, that is made of fat and connective tissue.

Inosculate - to connect or join to become continuous.

Integument – the enveloping membrane of the body, including the epidermis, dermis, and all derivatives of the epidermis (hair, sebaceous glands, etc.).

Interface - a region of contact between living and/or organic material and other biomaterial or organic/inorganic material.

Interactome – the complete set of physical interactions between molecules within a cell that underlies most genotype-to-phenotype relationships and modulates nearly all complex biological pathways and cellular networks seen in living systems.

In Vitro - outside a living organism, for example laboratory vessel (e.g., a test tube) and under laboratory conditions.

In Vivo - in a living organism.

Ischemic damage - damage that causes a restriction in blood supply, thus causing diminished delivery of oxygen to the affected tissue.

MPFU - a minimally polarized functional unit.

Neovascularization - the formation of new vessels from pre-existing ones (angiogenesis) or from cellular precursors (vasculogenesis).

Osteoarthritis - a disease that occurs when the protective cartilage on the ends of bones wears down over time.

Parietal bone - a bone forming the central side and upper back part of each side of the skull.

Polarity – the asymmetric organization of cellular elements, which allows development of specialized tissue and downstream function.

Scaffold – a three dimensional material that has been engineered to cause desirable cellular interactions to contribute to the formation of new functional tissues.

Scar revision – minimizing a scar so that it is less conspicuous and blends in with the surrounding skin tone and texture.

SCIRM - self-complexing intelligent regenerative material.

Sebaceous glands – small glands in the skin that secrete lubricating oily matter (sebum) into the hair follicles to lubricate the skin and hair.

Skin graft - the transplantation of skin onto a damaged area of the body.

Split-thickness skin graft (STSG) – a skin graft that contains the epidermis and only part of the dermis.

Stem cell – an undifferentiated cell capable of renewing itself, and from which certain other kinds of cells arise by differentiation.

Stem cell niche - the microenvironment within a tissue that interacts with stem cells to signal cell growth, development, renewal, and differentiation.

Tissue engineering triad – the three components of tissue engineering, as historically taught, requiring the use of a scaffold, a signal such as a growth factor, and a cell component such as a stem cell.

Urethral stricture - the narrowing of the urethra caused by injury, infection etc.

Xenografts – a tissue graft or organ transplant from a donor of a different species from the recipient.

Item 1A. Risk Factors.

Our business and operations are subject to many risks and uncertainties as described below. However, the risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we may currently deem immaterial, may become important factors that could harm our business, financial condition, or results of operations. If any of the following risks occur, our financial condition or results of operations could suffer.

Risks Related to Our BusinessFinancial Condition

IfWe will need additional funding to pursue the clinical developmentregulatory process for SkinTE and commercialization of our lead product candidate, SkinTE, is not successful, our ability to financesustain our operations, may be adversely affected.

Our near-term prospects depend upon our ability to effectively market our lead product candidate, SkinTE, and to demonstrate its safety and effectiveness in humans, as well as its superiority over existing therapies and standards of care. Our ability to finance our company and to generate revenues will depend in part on our ability to obtain favorable results in the planned clinical evaluations of SkinTE and to successfully develop and commercialize SkinTE.

SkinTE could be unsuccessful if it:

If we are not successful in developing and commercializing SkinTE or are significantly delayed in doing so, our financial condition and prospects may be adversely affected and we may experience difficulties in raising the substantial additionalbe unable to raise capital requiredwhen needed, which would force us to funddelay, reduce, eliminate, or abandon our business.product development program.

We arereported an early stage company. Our limited operating history makes it difficult to evaluate our current business and prospects, and our profitability in the future is uncertain.

Our limited operating history hinders an evaluation of our prospects, which should be considered in light of the risks, expenses, and difficulties frequently encountered in the establishment of a new business in an industry with many market participants and intense competition, and in the shift from development to commercialization of new product candidates based on innovative technologies.

We have a history of operating losses and may never achieve or sustain profitability.

We have incurred significant operating losses, and may continue to incur significant operating losses over the next several years. We incurred a net loss of $65.4$33.7 million for the year ended OctoberDecember 31, 2018. Our2021, and on that date we had had an accumulated deficit of $508.4 million. We believe our cash and cash equivalents at December 31, 2021, will fund our current business plan including related operating expenses and capital expenditure requirements through the end of the third calendar quarter of 2022. Accordingly, there is substantial doubt about our ability to achieve profitable operationscontinue as a going concern beyond that time unless we can raise additional capital from external sources.

We expect to incur significant operating costs in the near term as we pursue the regulatory process for SkinTE with the FDA, conduct clinical trials and studies, and pursue product research, all while operating our business and incurring continuing fixed costs related to the maintenance of our assets and business. We expect to incur significant losses in the future, will depend in large part upon the successful development and commercializationthose losses could be more severe as a result of our product candidatesunforeseen expenses, difficulties, complications, delays, and technologies. Factors impacting our ability to successfully develop and commercialize our product candidates include:other unknown events.

The likelihood of the long-term success of

If adequate funds are not available for our company must be considered in light of the expenses, difficulties, and delays frequently encounteredbusiness in the development and commercialization of new and innovative medical techniques and technologies, unknown and uncertain regulatory hurdles for a new and novel technology or technique, competitive factors and competition, as well as the uncertain nature of new business development and ongoing capital requirements.

Wefuture, we may have inadequate resources to complete the development and commercialization of our product candidates or to continue our development programs.

We are a development stage company, and thus we expect to continue to spend a significant amount of cash on research and development of our product candidates. Until we can successfully commercialize our product candidates and achieve significant revenue, if any, we will be required to raise additional capital to fund our ongoing operations. We may not be able to raise capital on acceptable terms,delay, reduce the scope of, or at all.

The cost and timing of completion of our preclinical and clinical development programs is uncertain.

We expect that a large percentage of our future research and development expenses will be incurred in support of current and future preclinical and clinical development programs. These expenditures are subject to numerous uncertainties in timing and cost of completion. We evaluate our objectives in preclinical models based upon our own development goals, but such evaluation may differ from requirements ofeliminate the plans for obtaining regulatory authorities. We may conduct early stage clinical trials, which may differ for each of our targeted marketslicensure or markets we may target in the future (i.e., presently, skin, bone, muscle, cartilage, fat, blood vessels, and nerves). As we obtain results from investigations, preclinical studies, or clinical trials, we may elect to discontinue or delay further evaluations for certain product candidates or programs to focus resources on more promising product candidates or programs. Completion of clinical trials may take several years and the length of time generally varies according to the type, complexity, novelty, and intended use of a product candidate. The cost of clinical trials is uncertain and may vary significantly over the life of a product or development project because of unanticipated differences, regulatory requirements, or other obligations, or challenges arising during clinical development.

Our product development programs are based on novel technologies. As a result, our product candidates are inherently risky.

We cannot guarantee that the results we see in clinical applications will be comparable to the preclinical results we have observed in animals for all our product candidates. We also cannot at this stage be certain of the safety of all product candidates that may be developed from our platform technology in humans.

We are subject to the risks of failure inherent in the development of product candidates based on new technologies. The novel nature of our products creates significant challenges regarding product development and optimization, manufacturing, government regulation, third-party reimbursement, and market acceptance. For example, if regulatory agencies have limited experience or concerns in approving cellular and tissue-based therapies for commercialization, the development and commercialization pathway for our therapies may be subject to increased uncertainty, as compared to the pathway for new conventional drugs.

Further, when manufacturing autologous cell and tissue-based therapies, the number and the composition of the cell population varies from patient to patient, in part due to the age of the patient, since the therapy is dependent on patient-specific physiology. Such variability in the number and composition of these cells could adversely affect our ability to manufacture autologous cell and tissue-based therapies in a cost-effective manner and meet acceptable product release specifications for use in a clinical trial or, if approved or registered, for commercial sale. Consequently, the development and regulatory approval or registration process for autologous cell and tissue-based product candidates could be delayed or may never be completed.

Our product candidates represent new classes of therapy that the marketplace may not understand or accept. Furthermore, the success of our product candidates is dependent on wider acceptance by the medical community.

The market may not understand or accept our product candidates. Our product candidates represent new treatments or therapies and compete with a number of more conventional products and therapies manufactured and marketed by others. The new nature of our product candidates creates significant challenges regarding product development and optimization, manufacturing, government regulation, and third-party reimbursement.

As a result, the development pathway for our product candidates and the commercialization of our potential products may be subject to increased scrutiny, as compared to the pathway(s) for more conventional products.

The degree of market acceptance of any of our potential products will depend on a number of factors, including:

If patients or the medical community do not accept our potential products as safe and effective for any of the foregoing reasons, or for any other reason, it could affect our sales, having a material adverse effect on our business, financial condition and results of operations.

Our revenues from our regenerative medicine business will depend upon adequate reimbursement from public and private insurers and health systems.

Our success will depend on the extent to which reimbursement for the costs of our treatments will be available from third-party payers, such as public and private insurers and health systems, as well as the amounts that they will agree to reimburse. Government and other third-party payers attempt to contain healthcare costs by limiting both coverage and the level of reimbursement, and the amount of reimbursement for new treatments. Therefore, significant uncertainty usually exists as to the reimbursement status of new healthcare treatments. If we are not successful in obtaining adequate reimbursement for our treatments from these third-party payers, the market’s acceptance of our treatments could be adversely affected. Inadequate reimbursement levels also likely would create downward price pressure on our treatments. Even if we succeed in obtaining widespread reimbursement for our treatments at adequate pricing, future changes in reimbursement policies could have a negative impact on our business, financial condition and results of operations.

Commercial third-party payers and government payers are increasingly attempting to contain healthcare costs by demanding price discounts, including by limiting coverage on which products they will pay for and the amounts that they will pay for new products, and by creating conditions to reimbursement, such as coverage eligibility requirements based upon clinical evidence development involving research studies and the collection of physician decision impact and patient outcomes data. Because of these cost-containment trends, commercial third-party payers and government payers that currently provide or in the future may provide reimbursement for one or more of our product candidates may reduce, suspend, revoke, or discontinue payments or coverage at any time, including those payers that designate one or more of our product candidates as experimental and investigational. Payers may also create conditions to coverage or contract with third-party vendors to manage laboratory benefit coverage, in both cases creating burdens for ordering by physicians and patients that may make our product candidates more difficult to sell. The percentage of submitted claims that are ultimately paid, the length of time to receive payment on claims, and the average reimbursement of those paid claims, is likely to vary from period to period. Finally, payers may demand discounts or offer reimbursement that minimizes our ability to sell our products profitably, or simply choose to not cover or reimburse our products at all.

As a result, there is significant uncertainty surrounding whether the use of products that incorporate new technology, such as our product candidates, will be eligible for coverage by commercial third-party payers and government payers or, if eligible for coverage, what the reimbursement rates will be for these product candidates. The fact that a product has been approved for reimbursement in the past, or has received FDA approval for any particular indicationSkinTE or in any particular jurisdiction, does not guarantee that such product will remain approved for reimbursement or that similar or additional products will be approved in the future. Reimbursement of our existing and future products by commercial third-party payers and government payers may depend on a number of factors, including a payer’s determination that our existing and future products are:

Market acceptance, sales of products based upon our platform technology, and our profitability may depend on reimbursement policies and healthcare reform measures. Several entities conduct technology assessments and provide the results of their assessments for informational purposes to other parties. These assessments may be used by third-party payers and healthcare providers as grounds to deny coverage for a product. The levels at which government authorities and third-party payers, such as private health insurers and health maintenance organizations, may reimburse the price patients pay for such products could affect whether we are able to commercialize our product candidates. Our product candidates may receive negative assessments that may impact our ability to receive reimbursement of the test. Since each payer makes its own decision as to whether to establish a policy to reimburse our test, seeking these approvals may be a time-consuming and costly process. We cannot be sure that reimbursement in the United States or elsewhere will be available for any of our product candidates in the future. If reimbursement is not available or is limited, we may not be able to commercialize our product candidates.

The United States and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare. We expect that there will continue to be federal and state proposals to implement governmental controls or impose healthcare requirements. In addition, the Medicare program and increasing emphasis on managed or accountable care in the United States will continue to put pressure on product utilization and pricing. Utilization and cost control initiatives could decrease the volume of orders and payment that we would receive for any products in the future, which would limit our revenue and profitability. If we are unable to obtain reimbursement approval from commercial third-party payers and Medicare and Medicaid programs for our product candidates, or if the amount reimbursed is inadequate, our ability to generate revenues could be limited.

We are subject to numerous federal and state healthcare laws and regulations, and a failure to comply with such laws and regulations could have an adverse effect on our business and our ability to compete in the marketplace.

There are numerous laws and regulations that govern the means by which companies in the healthcare industry may market their treatments to healthcare professionals and may compete by discounting the prices of their treatments, including for example, the federal Anti-Kickback Statute, the federal False Claims Act (“FCA”), and state law equivalents to these federal laws that are meant to protect against fraud and abuse and analogous laws in foreign countries. Violations of these laws are punishable by criminal and civil sanctions, including, but not limited to, in some instances civil and criminal penalties, damages, fines, and exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid. In addition, federal and state laws are also sometimes open to interpretation. Accordingly, we could potentially face legal risks if our interpretation differs from those of enforcement authorities. Further, from time to time we may find ourselves at a competitive disadvantage if our interpretation differs from that of our competitors.

Specifically, anti-kickback laws and regulations prohibit any knowing and willful offer, payment, solicitation or receipt of any form of remuneration (direct or indirect, in cash or in kind) in return for the referral, use, ordering, or recommending of the use of a product or service for which payment may be made by Medicare, Medicaid or other Government-sponsored healthcare programs. We have entered into consulting agreements, research agreements and product development agreements with physicians, including some who may order our products or make decisions to use them. In addition, some of these physicians own our stock, which they purchased in arm’s length transactions on terms identical to those offered to non-physicians, or received stock awards from us as consideration for services performed by them. While these transactions were structured with the intention of complying with all applicable laws, including state anti-referral laws and other applicable anti-kickback laws, it is possible that regulatory or enforcement agencies or courts may in the future view these transactions as prohibited arrangements that must be restructured or for which we would be subject to other significant civil or criminal penalties. There can be no assurance that regulatory or enforcement authorities will view these arrangements as following applicable laws or that one or more of our employees or agents will not disregard the rules we have established. Because our strategy relies on the involvement of physicians who consult with us on the design of our potential products, perform clinical research on our behalf, or educate the market about the efficacy and uses of our potential products, we could be materially impacted if regulatory or enforcement agencies or courts interpret our financial relationships with physicians who refer or order our potential products to be in violation of applicable laws and determine that we would be unable to achieve compliance with such applicable laws. This could harm our reputation and the reputationscontinue operations over a longer term, any of the physicians we engage to provide services on our behalf. In addition, the cost of noncompliance with these laws could be substantial since we could be subject to monetary fines and civil or criminal penalties, and we could also be excluded from federally-funded healthcare programs, including Medicare and Medicaid, for non-compliance. Further, even the costs of defending investigations of noncompliance could be substantial.

Also, the FCA imposes civil liability on any person or entity that submits, or causes the submission of, a false or fraudulent claim to the federal government. Damages under the FCA can be significant and consist of the imposition of fines and penalties. The FCA also allows a private individual or entity (i.e., a whistleblower) with knowledge of past or present fraud against the federal government to sue on behalf of the government and to be paid a portion of the government’s recovery, which can include both civil penalties and up to three times the amount of the government’s damages (usually the amount reimbursed by federal healthcare programs). The U.S. Department of Justice on behalf of the government takes the position that the marketing and promotional practices of life sciences product manufacturers, including the off-label promotion of products, the provision of inaccurate or misleading reimbursement guidance, or the payment of prohibited kickbacks to doctors or other referral sources may cause the submission of improper claims to federal and state healthcare entitlement programs, such as Medicare and Medicaid, by health care providers that use the manufacturer’s products, which results in a violation of the FCA. In certain cases, manufacturers have entered into criminal and civil settlements with the federal government under which they entered into plea agreements, paid substantial monetary amounts, and entered into corporate integrity agreements that require, among other things, substantial reporting and remedial actions going forward.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and other health care providers. In addition to federal laws, some states, such as California, Massachusetts, and Vermont, mandate implementation of commercial compliance programs, along with the tracking and reporting of gifts, compensation, and other remuneration to physicians. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may run afoul of one or more of the requirements.

The scope and enforcement of all these laws is uncertain and subject to rapid change, especially considering the lack of applicable precedent and regulations. There can be no assurance that federal or state regulatory or enforcement authorities will not investigate or challenge our current or future activities under these laws. Any investigation or challenge couldwould have a material adverse effect on our business, financial condition, and results of operations. Any state or federal regulatory or enforcement review of us, regardless of the outcome, would be costly and time consuming. Additionally, we cannot predict the impact of any changes in these laws, whether these changes are retroactive or will have effect on a going-forward basis only.operation.

We operatediscontinued sales of SkinTE and COVID-19 testing, and may make a disposition of IBEX, so we will be entirely dependent on capital obtained from outside sources to fund our operations.

We discontinued sales of SkinTE as a 361 HCT/P product at the end of May 2021 and discontinued COVID-19 testing through Arches in August 2021, and it is likely there will be some disposition of IBEX in 2022. As a highly competitive and evolving field and face competitionresult of these developments, in the near term we may not be engaged in any revenue generating activity that would contribute to defraying our operating costs, which will make us entirely dependent on capital obtained from regenerative medicine, biotech, and pharmaceutical companies, tissue engineering entities, tissue processors and medical device manufacturers,external sources to fund our operations. The inability to obtain capital as well as new market entrants.

We operateneeded to fund our operations could result in a very competitive and continually evolving field. Competition from other regenerative medicine, biotech, and pharmaceutical companies, tissue engineering entities, tissue processors, medical device companies and from research and academic institutions is intense, expected to increase, subject to rapid change, and could be significantly affected by new product introductions. Our failure to compete effectivelyus curtailing or ceasing operations, which would have a material and adverse effect on our business, financial condition, results of operation, and the value of an investment in us.

Our wholly owned subsidiary accepted a loan under the CARES Act pursuant to the Paycheck Protection Program (“PPP”), and the loan may subject us to challenges, audits, or investigations regarding qualification for the loan, any of which could reduce our liquidity and have a material adverse effect on our business, financial condition, and results of operations.

On April 12, 2020, our subsidiary PolarityTE MD, Inc. (the “PTE-MD”) entered into a promissory note offered by a bank (the “Lender”) evidencing an unsecured loan in the amount of $3,576,145 made to PTE-MD under the PPP (the “Loan”). On October 15, 2020, PTE-MD applied to the Lender for forgiveness of the PPP Loan in its entirety (as provided for in the CARES Act) based on PTE-MD’s use of the PPP Loan for payroll costs, rent, and utilities. On October 26, 2020, PTE-MD was advised that the Lender approved the application, and that the Lender was submitting the application to the Small Business Administration (“SBA”) for a final decision. The SBA subsequently approved PTE-MD’s application for forgiveness of the PPP Loan, and the principal and interest of $3,612,376 was fully paid by the SBA on June 12, 2021.

Pursuant to the requirements under the CARES Act, in connection with the PPP Loan PTE-MD certified that current economic uncertainty made the Loan request necessary to support the ongoing operations of PTE-MD. We believe that certification was made in a manner consistent with SBA guidance that borrowers must make the certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. In connection with PTE-MD’s application for forgiveness of the PPP Loan, it provided information on the use of the PPP Loan proceeds for payroll costs, rent, and utilities, which are permitted uses to qualify for forgiveness of the loan.

Under the CARES Act, the SBA may review any PPP loan of any size at any time at its discretion. On September 17, 2021, PTE-MD received notice from the Lender that the SBA is continuing to review the PPP Loan. As part of this review, the SBA requested that PTE-MD provide documents that it is required to maintain but may not have been required to submit with its application for the PPP Loan. These documents included an affiliation worksheet showing the relationship between PolarityTE and PTE-MD and affiliated subsidiaries, documents showing the use of the PPP Loan proceeds, documents showing PTE-MD’s calculation of the loan amount it requested in its loan application, its federal tax returns, and documents showing employee compensation information. PTE-MD submitted the documents to the SBA through the Lender on September 28, 2021.

There is no assurance the SBA will conclude PTE-MD properly applied for, and used the proceeds of, the PPP Loan. If there is any adverse finding in the SBA review or if PTE-MD were alleged, or determined, not to qualify for the Loan or alleged, or found, to have made false certifications in connection with the PPP Loan and its forgiveness, PTE-MD could be required to return the full amount of the Loan, which would reduce its liquidity, and could subject it to fines and penalties, and exclusion from government contracts. In particular, PTE-MD may become subject to actions under the FCA, including its qui tam provisions, which, among other things, prohibits persons from knowingly filing, or knowingly causing to be filed, a false statement, or knowingly using a false statement, to obtain payment from the federal government. Violations of the FCA are subject to treble damages and penalties. In the case of an SBA loan, the government could allege that single damages are the amount of the loan and interest thereon (or more), which under the FCA could then be trebled. Substantial penalties must also be imposed for each submitted false statement when a defendant loses an FCA trial. FCA cases may be initiated by the U.S. Department of Justice or by private persons or entities, often called “whistleblowers,” who bring the action on behalf of the U.S. PTE-MD may also face enforcement arising under other federal statutes, including criminal laws, and administrative actions and investigations initiated by SBA or other governmental entities. Furthermore, if PTE-MD is identified as an entity that the media, government officials, or others seek to portray as a business that should not have availed itself of PPP funding, PTE-MD may face negative publicity, which could have a materially adverse impact on its business and operations and on PolarityTE’s business and operations as its parent. Generally, the cost of defending claims under the FCA, regardless of merit, could be substantial, even as much as the PPP loan proceeds.

Risks Related to our Research & Development, Clinical, and Commercialization Activities

Our product is subject to extensive regulation by the FDA or comparable foreign regulatory authorities, which can be costly and time consuming, cause unanticipated delays or prevent the receipt of the required licensures and approvals to commercialize our product.

The preclinical and clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing, and distribution of SkinTE is subject to extensive regulation by the FDA and other U.S. regulatory agencies, or comparable authorities in foreign markets. In the U.S., we are not permitted, directly or through others, to market our product until the FDA approves a BLA for SkinTE and licenses the product. Similar approval is required in foreign jurisdictions. The process of obtaining these approvals is uncertain, dependent on future clinical trial results, expensive, often takes many years, and can vary substantially based upon the type, complexity, and novelty of the product candidate involved. Approval policies or regulations may change and may be influenced by the results of other similar or competitive products, making it more difficult for us to achieve such approval in a timely manner or at all. Any guidance that may result from FDA advisory committee discussions may make it more difficult or expensive to develop and commercialize SkinTE. In addition, as a company, we have not previously filed a BLA with the FDA or filed a similar application with other foreign regulatory agencies. This lack of experience may impede our ability to obtain FDA or other foreign regulatory agency licensure or approval in a timely manner, if at all, for our product.

Despite the time and expense invested, regulatory approval is never guaranteed. The FDA or comparable foreign authorities can delay, limit, or deny approval or licensure of a product candidate for many reasons, including:

Our inability to obtain these approvals would prevent us from commercializing our product.

The FDA regulatory approval process is lengthy and time-consuming, and PolarityTE could experience significant delays or other challenges in the clinical development and regulatory licensures or approval of its product.

We may experience delays or other challenges in commencing and completing clinical trials for SkinTE that would be necessary for product licensure or approval. We do not know whether planned clinical trials will begin on time, need to be redesigned, enroll trial subjects on time or in sufficient numbers, or be completed on schedule, if at all. Any of our future clinical trials may be delayed or precluded for a variety of reasons, including issues related to:

Trial subject enrollment, a significant factor in the timing and success of clinical trials, is affected by many factors including the size and nature of the trial subject population, the proximity of trial subjects to clinical sites, the eligibility criteria for the clinical trial, the potential impact of COVID-19 or other pandemic, the design of the clinical trial, competing clinical trials and clinicians, and trial subjects’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any therapies that may be approved for the indications we are investigating. In addition, significant numbers of trial subjects who enroll in our clinical trials may drop out during the clinical trials for various reasons. We endeavor to account for dropout rates in our trials when determining expected clinical trial timelines, but we cannot assure you that our assumptions are correct, or that trials will not experience higher numbers of dropouts than anticipated, which would result in the delay of completion of such trials beyond our expected timelines, if at all.

We could encounter delays if physicians encounter unresolved ethical issues associated with enrolling trial subjects in clinical trials of our product candidate in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be delayed, suspended, or terminated by us, any reviewing IRB, the institutions in which such trial is conducted, the data monitoring committee for such trial, or by the FDA or other regulatory authorities due to a number of factors, including inadequate protocols or other information supporting an IND, failure to conduct the clinical trial in accordance with regulatory requirements, GCP, or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations, or administrative actions or lack of adequate funding to continue the clinical trial. Furthermore, many of the factors that cause, or lead to, a termination or delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory licensure or approval of a product. In connection with clinical trials, we face additional risks that:

We cannot assure you that any future clinical trial for our product will be started or completed successfully, on schedule, or at all. If we experience suspension or termination of, or delays in the completion of, any clinical trial for our product, the commercial prospects for the product will be harmed, and our ability to generate product revenues will be delayed or diminished. In addition, any delays in initiating or completing our clinical trials will increase our costs, slow down our product development and approval process, and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, prospects, financial condition, and results of operations significantly.

Changes in funding for the FDA and financial condition.other government agencies could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business.

Specifically, we face significant competitionThe ability of the FDA to review and approve or license new products can be affected by a variety of factors, including (i) government budget and funding levels, as well as government shutdowns, (ii) the ability to hire and retain key personnel and accept the payment of user fees, and (iii) statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in both the regenerative medicinerecent years as a result. In addition, government funding of other government agencies that fund research and wound care space from multiple products, including ReCell, Integra Bilayer Wound Matrix, EpiFix, Apligraf, Dermagraft, Grafix, Epicel, and others. The availability and price of our competitors’ products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products, or choose to reserve our product candidates for use in limited circumstances.

Our access to sensitive patient informationdevelopment activities is subject to complex regulationsthe political process, which is inherently fluid and unpredictable.

Disruptions at multiple levels and we would be adversely affected if we fail to adequately protect this information.

We receive, maintain and utilize personal healththe FDA and other confidentialagencies may also slow the time necessary for new products to be reviewed or licensed or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and sensitive data as part of the treatments we provide. We have developed a web and mobile application through which our customers can communicate with physicians and others, which may involve sharing patient identifiable health information. The use and disclosure of such information is regulated at the federal, state and international levels, and these laws, rules and regulations are subject to change and increased enforcement activity,certain regulatory agencies, such as the audit program implemented by HHS under HIPAA. International laws, rulesFDA, have had to furlough critical FDA employees and regulations governingstop critical activities. If a prolonged government shutdown occurs, it could significantly impact the useability of the FDA to timely review and disclosure of such information are generally more stringent than in the United States, and they vary from jurisdiction to jurisdiction. Noncompliance with any privacy or security laws or regulations, or any security breach, cyber-attack or cybersecurity breach, and any incident involving the theft, misappropriation, loss, or other unauthorized disclosure of, or access to, sensitive or confidential information, whether by us or by a third party, could require us to expend significant resources to remediate any damage, interruptprocess our operations, and damage our brand and reputation, and could also result in investigations, regulatory enforcement actions, material fines and penalties, loss of customers, litigation, or other actionssubmissions, which could have a material adverse effect on our business, brand, reputation, cash flows,business. Additionally, over the last several years, the COVID-19 pandemic has caused unexpected increases in the FDA’s workload and operating results.has degraded the timeliness of many agency activities, including pre-submission interactions, product reviews, and pre-license inspections.

Our business depends on providerEven if we obtain and patient willingness to entrust us with health relatedmaintain regulatory licensure or approval for our product in one jurisdiction, it may never obtain regulatory licensure or approval for the product in any other jurisdiction, which would limit our market opportunities and other sensitive personal information. Events that negatively affect that trust, including incorrect or incomplete disclosure of our uses of their information, or failing to keep our information technology systems and sensitive information secure from significant attack, theft, damage, loss, or unauthorized disclosure or access, whether as a result of our action or inaction or that of third parties, could adversely affect our brand, reputation,business.

Obtaining and revenues,maintaining regulatory licensure or approval for our product in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory licensure or approval in other jurisdictions. For example, even if the FDA grants marketing approval for SkinTE, comparable regulatory authorities in foreign countries must also approve the manufacturing, marketing, and promotion of the product in those countries. Approval procedures vary amongst jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the U.S., including additional preclinical studies or clinical trials. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties, and costs for us and could delay or prevent the introduction of our product in certain countries. In many countries outside the U.S., a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our product is also expose ussubject to mandatory disclosureapproval. If we fail to comply with the media, litigation (including class action litigation),regulatory requirements in international markets or fail to receive applicable marketing approvals, our target market will be reduced and other enforcement proceedings, material fines, penalties or remediation costs, and compensatory, special, punitive, and statutory damages, consent orders, or injunctive relief, anyour ability to realize the full market potential of our product will be harmed, which couldwould adversely affect our business, prospects, financial condition, and results of operations.

Even if our product candidate receives regulatory licensure or approval, our product candidate may still face future development and regulatory difficulties.

If our product receives regulatory approval, the FDA or comparable foreign regulatory authorities may still impose significant restrictions on the indicated uses or marketing of the product or impose ongoing requirements for potentially costly post-approval studies and trials or other risk mitigation measures. In addition, regulatory agencies subject a product, its manufacturer, and the manufacturer’s facilities to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, including adverse events of unanticipated nature, severity or frequency, or problems with the facility where the product is manufactured, stored, tested, or released, a regulatory agency may impose restrictions on that product or PolarityTE, including narrowing product indications, requiring labeled warnings, or requiring withdrawal of the product from the market. Our product candidate will also be subject to ongoing FDA or comparable foreign regulatory authorities’ requirements for labeling, packaging, storage, advertising, promotion, record-keeping, import, export, clinical trial registration and results disclosure for post-market as well as pre-market trials, and submission of safety and other post-market information. If our product fails to comply with applicable regulatory requirements, a regulatory agency may:

The FDA and comparable foreign authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses and other unlawful promotion.

The FDA and comparable foreign authorities strictly regulate the promotional claims that may be made about products, such as SkinTE, if licensed or approved. In particular, a product may not be promoted for uses that are not approved by the FDA or comparable foreign authorities as reflected in the product’s approved labeling and may not be promoted with claims that are false, misleading, or inadequately substantiated. If we receive marketing approval for our product for its proposed indications, physicians may nevertheless use our product for their patients in a manner that is inconsistent with the approved label, if the physicians believe in their professional medical judgment that our product could be used in such manner.

However, if we are found to have promoted our product for any off-label uses, or with claims that are false, misleading, or not adequately substantiated, the federal government could levy civil, criminal, or administrative penalties, and seek to impose fines on us. Such enforcement has become more common in the industry. The FDA or comparable foreign authorities could also request that we enter into a consent decree or a corporate integrity agreement or seek a permanent injunction against us under which specified promotional conduct is monitored, changed, or curtailed. If we cannot successfully manage the promotion of our product, if licensed or approved, we could become subject to significant liability, which would materially adversely affect our business, financial condition, and results of operations.

PolarityTE, and any contract manufacturer it may engage in the future, are subject to significant regulation with respect to manufacturing PolarityTE’s product. Even once cGMP compliance is initially achieved, the manufacturing facility on which PolarityTE relies may not continue to meet regulatory requirements.

Entities involved in the preparation of products subject to BLA approval for clinical trials or commercial sale, including us and any contract manufacturer we may engage in the future, are subject to extensive regulation. Products sold commercially after BLA approval or used in clinical trials must be manufactured in accordance with cGMP. cGMP laws and regulations govern manufacturing facilities, processes, and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes or facilities can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidate that may not be detectable in final product testing. We, or our contract manufacturers, must supply all necessary documentation on a timely basis in support of a BLA or a change in manufacturing site after a BLA is issued on a timely basis and must adhere to cGMP statutory requirements and regulations enforced by the FDA or comparable foreign authorities through their facilities inspection program. The facilities and quality systems of our facility where we will manufacture SkinTE must pass a pre-license inspection for compliance with the applicable statutory and regulatory requirements as a condition of regulatory licensure or approval of our product. In addition, the regulatory authorities may, at any time, with or without cause, audit, inspect, or conduct a remote review of records or information about a manufacturing facility involved with the preparation of our product or the associated quality systems for compliance with the statute or regulations applicable to the activities being conducted. If our facility does not pass a pre-license plant inspection, regulatory licensure or approval of our product may not be granted or may be substantially delayed until any deficiencies are corrected to the satisfaction of the regulatory authority, if ever. If we engage contract manufacturers in the future, we intend to oversee the contract manufacturers, but we cannot control the manufacturing process and will be completely dependent on our contract manufacturing partners for compliance with the regulatory requirements.

The regulatory authorities also may, at any time following approval of a product for sale, audit, inspect, or remotely review records regarding our facility or the manufacturing facilities of our third-party contractors. If any such inspection, audit, or review identifies a failure to comply with applicable statute or regulations or if a violation of our product specifications or applicable statute or regulations occurs independent of such an inspection, audit, or review, we or the relevant regulatory authority may require remedial measures that may be costly or time consuming for us or a third party to implement, and may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business, financial condition, and results of operations.

If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or comparable foreign authorities can impose regulatory sanctions including, among other things, refusal to approve a pending application for a product candidate, withdrawal of an approval, or suspension of production. As a result, our business, financial condition, and results of operations may be materially and adversely affected.

Additionally, if supply from our facility or the facility of a future contract manufacturer is interrupted, an alternative manufacturer would need to be qualified through a BLA supplement, or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies or trials if a new manufacturer is relied upon for commercial production. Switching manufacturing facilities may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause us to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our product. Furthermore, if our facility or future contract manufacturers fail to meet production requirements and we is unable to secure one or more replacement manufacturing facilities capable of production at a substantially equivalent cost or at all, our clinical trials may be delayed, or we could lose potential revenue.

If we fail to obtain and sustain an adequate level of reimbursement for our product by third-party payors, potential future sales would be materially adversely affected.

There will be no viable commercial market for our product, if approved, without reimbursement from third-party payors. Reimbursement policies may be affected by future healthcare reform measures. We cannot be certain that reimbursement will be available for our product. Additionally, even if there is a viable commercial market, if the level of reimbursement is below our expectations, our anticipated revenue and gross margins will be adversely affected. Third-party payors, such as government or private healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan, and other factors. Reimbursement rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. There is a current trend in the U.S. healthcare industry toward cost containment.

Large public and private payors, managed care organizations, group purchasing organizations, and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might establish for products, which could result in product revenues being lower than anticipated. If we are unable to show a significant benefit relative to existing therapies, Medicare, Medicaid, and private payors may not be willing to provide reimbursement for our product, which would significantly reduce the likelihood of our product gaining market acceptance.

We expect that private insurers will consider the efficacy, cost-effectiveness, safety, and tolerability of our product in determining whether to approve reimbursement and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business, financial condition, and results of operations would be materially adversely affected if we do not receive approval for reimbursement of our product from private insurers on a timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries. Medicare Part D, which provides a pharmacy benefit to Medicare patients as discussed below, does not require participating prescription drug plans to cover all drugs within a class of products. Our business, financial condition, and results of operations could be materially adversely affected if Part D prescription drug plans were to limit access to, or deny or limit reimbursement of, our product.

Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries, the product cannot be commercially launched until reimbursement is approved. In some foreign markets, prescription drug pricing remains subject to continuing governmental control even after initial approval is granted. The negotiation process in some countries can be very long. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our products to other available therapies.

If the prices for our product are reduced or if governmental and other third-party payors do not provide adequate coverage and reimbursement of our product, our future revenue, cash flows, operating results,and prospects for profitability will suffer.

Current and future legislation may increase the difficulty and cost of commercializing our product and may affect the prices we may obtain if our product is approved for commercialization.

In the U.S. and some foreign jurisdictions, there have been a number of adopted and proposed legislative and regulatory changes regarding the healthcare system that could prevent or financial position. There can be no assurance that any such failure will not occur,delay regulatory licensure or if any does occur, that we will detect it or that it can be sufficiently remediated.

Manyapproval of our competitors have substantially greater resources than we do,product, restrict or regulate post-marketing activities, and we expect that all our product candidates will face intense competition from existing or future products.

All our product candidates face intense competition from existing and future products marketed by large, well-established companies (including but not limited to Avita Medical, Integra LifeSciences, Wright Medical Group, MiMedx, Osiris, Organogenesis, Allosource, MTF Biologics and Vericel). These competitors may successfully market products that compete with our product candidates, successfully identify product candidates or develop products earlier than we do, or develop products that are more effective or cost less than our products. These competitive factors could require us to conduct additional new research and development activities to establish new competitive product targets, which would be costly and time consuming. These activities would adversely affect our ability to effectively commercializeprofitably sell our product.

In the U.S., the Medicare Modernization Act of 2003 (“MMA”) changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could limit the coverage and reimbursement rate that we receive for our product. While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

The Patient Protection and Affordable Care Act (“PPACA”) was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry, and impose additional health policy reforms. The PPACA increased manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of Average Manufacturer Price, which may also increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation also expanded Medicaid drug rebates and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the rebates due on those drugs. The Centers for Medicare & Medicaid Services, which administer the Medicaid Drug Rebate Program, also proposed to expand Medicaid rebates to the utilization that occurs in the territories of the U.S., such as Puerto Rico and the Virgin Islands. Further, beginning in 2011, the PPACA imposed a significant annual fee on companies that manufacture or import branded prescription drug products and achieve revenuerequired manufacturers to provide a 50% discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to as the “donut hole.” Legislative and profits.regulatory proposals have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.

There have been prior public announcements by members of the federal government regarding their plans to repeal and replace the PPACA and Medicare. For example, the Tax Cuts and Jobs Act of 2017 eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance, or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing approval testing and other requirements.

We depend heavily on our senior managementare subject to “fraud and we may be unableabuse” and similar laws and regulations, and a failure to replace key executives if they leave.

The loss of the services of onecomply with such regulations or more members of our senior management teamprevail in any adverse claim or our inabilityproceeding related to attract, retain and maintain additional senior management personnelnoncompliance could harm our business, financial condition, and results of operations.

In the U.S., we are subject to various federal and state healthcare “fraud and abuse” laws, including anti-kickback laws, false claims laws, and other laws intended, among other things, to reduce fraud and abuse in federal and state healthcare programs. The federal Anti-Kickback Statute makes it illegal for any person, including a drug or biologics manufacturer, or a party acting on its behalf, to knowingly and willfully solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchase, order, or prescription of a particular drug or biologic, or other good or service, for which payment in whole or in part may be made under a federal healthcare program, such as Medicare or Medicaid. Although we seek to structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under the federal Anti-Kickback Statute.

The federal False Claims Act prohibits anyone from, among other things, knowingly presenting or causing to be presented for payment to the government, including the federal healthcare programs, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or claims for medically unnecessary items or services. Under the Health Insurance Portability and Accountability Act of 1996, we are prohibited from knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors, or knowingly and willfully falsifying, concealing or covering up a material fact, or making any materially false, fictitious, or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items, or services to obtain money or property of any healthcare benefit program. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including penalties, fines, or exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid, and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of several states.

Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental payors. In addition, some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers or the Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement, we could be subject to penalties.

Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that as we pursue our business we may be challenged under these laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. If we are found in violation of one of these laws, we could be subject to significant civil, criminal, and administrative penalties, damages, fines, exclusion from governmental funded federal or state healthcare programs, and the curtailment or restructuring of our operations. If this occurs, our business, financial condition, and results of operations may be materially adversely affected.

If we face allegations of noncompliance with the law and prospects. Our operationsencounter sanctions, our reputation, revenues, and prospects depend in large part on the performance ofliquidity may suffer, and our senior management team, particularly Dr. Denver Lough, our Chief Executive Officer and Chief R&D Officer. In addition, we may notproduct, if approved for commercialization, could be able to find qualified replacements if his services are no longer available. We do not presently maintain “key-man” life insurance on any of our executives or key employees.

Many executive officers and employees in the regenerative medicine business are subject to strict non-competerestrictions or confidentiality agreementswithdrawal from the market.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with their employers, which would limitongoing regulatory requirements may significantly and adversely affect our ability to recruit them to join our company. In addition, some of our existing and future employees are or may be subject to confidentiality agreements with previous employers. Our competitors may allege breaches of and seek to enforce such non-compete agreements or initiate litigation based on such confidentiality agreements. Such litigation, whether or not meritorious, may impede our ability to hire executive officers and other key employees who have been employed by our competitors and may result in intellectual property claims against us.

If serious adverse or inappropriate side effects are identified during the development or use ofgenerate revenues from our product, candidatesif approved. If regulatory sanctions are applied or with any procedures with which our product candidates are used, we may need to abandon or limit our development of those product candidates.

If our product candidates are associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon their use or development or limit them to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In addition, if any of the procedures with which our product candidates are used is determined to be unsafe, we may be required to delay, alter, or abandon our product development or commercialization.

We intend to, but may not be successful in, establishing and maintaining strategic partnerships.

We intend to enter into strategic partnerships in the future to enhance and accelerate the development and commercialization of our proposed products. We may rely on such partnerships to assist in launching, marketing, and developing our product candidates. However, we may face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for any future proposed products and programs because our research and development pipeline may be insufficient, our proposed products and programs may be deemed to be at too early of a stage of development for collaborative effort, or third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy or other requirements or goals that potential strategic partners may seek. Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such strategic partnerships if, for example, developmentregulatory licensure or approval of a product candidate is delayednot granted or sales of an approved or registered product are disappointing.

Rapid technological change could causeis withdrawn, our business, to become obsolete.

The technologies underlying our product candidates are subject to rapidfinancial condition, and profound technological change. Competition intensifies as technical advances in each field are made and become more widely known. There is no assurance that others will not develop services, products, or processes with significant advantages over the products, services, and processes that we offer or are seeking to develop. Any such occurrence could have a material and adverse effect on our business, results of operations, and financial condition.

The success of any of our product candidates or enhancements to an existing product will depend on numerous factors, including our ability to:

If we do not develop and, when necessary, obtain regulatory clearance, registration, or approval for product candidates or product enhancements in time to meet market demand, or if there is insufficient demand for these products or enhancements, our results of operations will suffer. Our research and development efforts may require a substantial investment of time and resources before we are able to determine the commercial viability of a new product, technology, material, or other innovation. In addition, evenbe adversely affected. Additionally, if we can successfully develop enhancements or new generations of our product candidates, these enhancements or new generations of product candidates may not produce sales more than the costs of development, and they may be quickly rendered obsolete by changing customer preferences or the introduction by our competitors of product candidates embodying new technologies or features.

To be commercially successful, we must convince physicians that our treatments are safe and effective alternatives to existing treatments and that our treatments should be accepted and used.

We believe physicians will only adopt our treatment if they determine, based on experience, clinical data and published peer reviewed journal articles, that the use of our treatment is a favorable alternative to existing and conventional methods, such as adopting the use of SkinTE as a substitute for skin grafting. Physicians may be slow to change their medical treatment practices for the following reasons, among others:

In addition, while acceptance by the medical community may be fostered by broad evaluation via peer-reviewed literature, we may not have the resources to facilitate sufficient publication. We also believe that recommendations for, and support of our treatments by, influential physicians are essential for market acceptance and adoption. If we do not obtain this support or are unable to demonstrate favorable long-term clinical data, physicians and hospitals may not use our treatments, which would have a material and adverse effect on our result of operations and prospects.

If we are unable to establishgenerate revenues from product sales, and marketing capabilities or enter into agreements with third parties to sell and market our product candidates, we may notpotential for achieving profitability will be successful in commercializing them.

We recently formed a sales and marketing team for SkinTE, which we intend to further develop. Nevertheless, our experience in the sale and marketing of SkinTE and other potential products is very limited, and we cannot predict whether or to what extent our internal sales effort may be successful. To achieve commercial success for any product candidate, we must either develop an effective internal sales and marketing team or outsource these functions to third parties.

There are risks involved both with establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of SkinTE, OsteoTE, or another product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly,diminished and our investment would be lost if we cannot retain or repositionneed to raise capital to fund our sales and marketing personnel.operations will increase.

If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product revenues to us are likely to be lower than if we were to market and sell any products ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our potential products or may be unable to do so on terms that are favorable to us. We likely will have limited control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our potential products effectively and in compliance with applicable laws.

Significant disruptions of information technology systems or breaches of information security could adversely affect our business.

We rely to a large extent upon information technology systems to protect our intellectual property and to operate our business. In the ordinary course of business, we collect, store, and transmit large amounts of confidential information, including, but not limited to, our trade secrets and data, personal information, and intellectual property. The size and complexity of our information technology and information security systems make such systems potentially vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees or vendors, or from malicious attacks by third parties. Such attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives (including, but not limited to, industrial espionage and market manipulation) and expertise. There can be no assurance that our efforts to protect our data and related information technology and intellectual property will prevent service interruptions or security breaches. Any interruption or breach in our systems could adversely affect our business operations or result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal, business, and reputational harm to us or allow third parties to gain material, inside information that they use to trade in our securities.

We face the risk of product liability claims and may not be able to obtain or maintain adequate product liability insurance.

Our business exposes us to the risk of product liability claims that are inherent in the manufacturing, processing, and marketing of human cellular and tissue-based products. We may be subject to such claims if our product candidates cause, or appear to have caused, an injury during clinical trials or after commercialization. Claims may be made by patients, healthcare providers, or others selling our product candidates. Defending a lawsuit, regardless of merit, could be costly, divert management attention, and result in adverse publicity, which could result in the withdrawal of, or reduced acceptance of, our product candidates in the market.

Although we have obtained product liability insurance, such insurance is subject to deductibles and coverage limitations and we may not be able to maintain this insurance. Also, it is possible that claims could exceed the limits of our coverage. If we are unable to obtain or maintain product liability insurance at an acceptable cost or on acceptable terms with adequate coverage, or otherwise protect ourselves against potential product liability claims or we underestimate the amount of insurance we need, we could be exposed to significant liabilities, which may harm our business. A product liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could result in significant costs and significant harm to our business.

We may implement a product recall or voluntary market withdrawal, which could significantly increase our costs, damage our reputation and disrupt our business.

The manufacturing, marketing, and processing of our product candidates involves an inherent risk that our tissue products or processes do not meet applicable quality standards and requirements. In that event, we may voluntarily implement a recall or market withdrawal or may be required to do so by a regulatory authority. A recall or market withdrawal of one of our product candidates would be costly and would divert management resources. A recall or withdrawal of one of our product candidates, or a similar product processed by another entity, also could impair sales of our product candidates because of confusion concerning the scope of the recall or withdrawal, or because of the damage to our reputation for quality and safety.

We may not be able to effectively control and manage our growth.

Our strategy envisions a period of rapid growth. Our expected growth may impose a significant burden on our future planned administrative and operational resources. The growth of our business may require significant investments of capital and increased demands on our management, workforce, and facilities. We will be required to substantially expand our administrative and operational resources and attract, train, manage, and retain qualified management and other personnel. Failure to do so or to satisfy such increased demands would interrupt or would have a material adverse effect on our business and results of operations.

We may increasingly become a target for public scrutiny, including complaints to regulatory agencies, negative media coverage, including social media and malicious reports, all of which could severely damage our reputation and materially and adversely affect our business and prospects.

We focus on the research and development (including through preclinical, animal testing) of therapies used in the regenerative medicine and wound care space, and such therapies may be the subject of regulatory, watchdog, and media scrutiny and coverage, which also raise the possibility of heightened attention from the public, the media and other stakeholders. From time to time, these objections or allegations, regardless of their veracity, may result in public protests or negative publicity, which could result in government inquiry or harm our reputation. Corporate transactions we or related parties undertake may also subject us to increased media exposure and public scrutiny. There is no assurance that we would not become a target for public scrutiny in the future or such scrutiny and public exposure would not severely damage our reputation as well as our business and prospects.

Risks Related to Our Intellectual Property

We do not currently own any issued patents and ourOur ability to protect our intellectual property and proprietary technology through patents and other means is uncertain and may be inadequate, which could have a material and adverse effect on us.

Our success depends significantly on our ability to protect our proprietary rights in technologies that presently consist of trade secrets, patents, and patent applications. We currently have nothree issued patents and one allowed patent application in the U.S. relating to any of our product candidates.minimally polarized functional unit (“MPFU”) technology. We intend to expandcontinue our patenting activities and rely on patent protection, as well as a combination of copyright, trade secret, and trademark laws and nondisclosure, confidentiality, and other contractual restrictions to protect our proprietary technology, and there can be no assurance these methods of protection will be effective. These legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. In addition, our presently pending patent applications include claims to material aspects of our activities that are not currently protected by issued patents.benefit. The patent application process can be time consuming and expensive. We cannot ensure that any of the pending patent applications we acquire, havealready filed or that may be filed or acquired or may file will result in issued patents. Competitors may be able to design around our patents or develop procedures that provide outcomes that are comparable or even superior to ours. There is no assurance that the inventors of the patents and applications that we expect to own or license were the first-to-invent or the first-inventor-to-file on the inventions, or that a third party will not claim ownership in one of our patents or patent applications. We cannot assure you that a third party does not have or will not obtain patents that could preclude us from practicing the patents we own or license now or in the future.

The failure to obtain and maintain patents or protect our intellectual property rights could have a material and adverse effect on our business, results of operations, and financial condition. We cannot be certain that, if challenged, any patents we have obtained or ultimately obtain would be upheld because a determination of the validity and enforceability of a patent involves complex issues of fact and law. If one or more of any patents we have obtained or ultimately obtain is invalidated or held unenforceable, such an outcome could reduce or eliminate any competitive advantagebenefit we might otherwise have had.

In the event a competitor infringes upon any patent we have obtained or ultimately obtain, or a third party including but not limited to a university or other research institution, makes a claim of ownership over our patents or other intellectual property rights, confirming, defending, or enforcing those rights may be costly, uncertain, difficult, and time consuming.

There can be no assurance that a third party, including, but not limited to, a university or other research institution that our founders were associated with in the past, will not make claims to ownership or other claims related to our technology.

There can be no assurance that a third party, including but not limited to, a university or other research institution that our founders were associated with in the past, will not make claims to ownership or other claims related to our technology. We believe we have developed our technology outside of any institutions, but we cannot guarantee such institutions would not assert a claim to the contrary. Even if successful, litigation to enforce or defend our intellectual property rights could be expensive and time consuming and could divert our management’s attention. Further, bringing litigation to enforce our future patent(s)for patent enforcement subjects us to the potential for counterclaims. If one or more of our current or future patents is challenged in U.S. or foreign courts or the United StatesU.S. Patent and Trademark Office (“USPTO”) or foreign patent offices, the patent(s) may be found invalid or unenforceable, which could harm our competitive position. If any court or any patent office ultimately cancels or narrows the claims in any of our future patents through any pre- or post-grant patent proceedings, such an outcome could prevent or hinder us from being able to enforce the patent against competitors. Such adverse decisions could negatively affect our future revenue and results of operations.

We may be subject to claims that our employees have wrongfully appropriated, used, or disclosed intellectual property of their former employers.

We employ individuals who were previously employed by other companies, universities, or academic institutions. We may be subject to claims that we or our employees have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a prior employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have an adverse impact on our business, financial condition, results of operations, and cash flows.

We may be subject to claims that former or current employees, collaborators, or other third parties have an interest in our patents, patent applications, or other intellectual property as an inventor or co-inventor. Litigation may be necessary to defend against any claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

If we are unable to protect the confidentiality of our proprietary information and know-how related to SkinTE or any of our product candidates, our competitive position would be impaired and our business, financial condition, and results of operations could be adversely affected.

Some of our technology, including our knowledge regarding certain aspects of the processingmanufacture of ourSkinTE and potential product candidates, is unpatented and is maintained by us as trade secrets. To protect these trade secrets, the information is restricted to our employees, consultants, collaborators, and advisors on a need-to-know basis. In addition, we require our employees, consultants, collaborators, and advisors to execute confidentiality agreements upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements, however, do not ensure protection against improper use or disclosure of confidential information, and these agreements may be breached. A breach of confidentiality could affect our competitive position. In addition, in some situations, these agreements and other obligations of our employees to assign intellectual property to the Companyus may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators, or advisors have previous employment or consulting relationships. Also, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.

Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets could impair our competitive position and have a material adverse effect on our business, financial condition, and results of operations.

We may become subject to claims of infringement of the intellectual property rights of others, which could prohibit us from developing our treatment,product, require us to obtain licenses from third parties, orrequire us to develop non-infringing alternatives, andor subject us to substantial monetary damages. We have not obtained and do not intend to obtain any legal opinion regarding our freedom to practice our technology.

Third parties could assert that our processes, SkinTE, product candidates, or technology infringe their patents or other intellectual property rights. Whether a process, product, or technology infringes a patent or other intellectual property involves complex legal and factual issues, the determination of which is often uncertain. We cannot be certain that we will not be found to have infringed the intellectual property rights of others. Because patent applications may remain unpublished for certain periods of time and may take years to be issued as patents, there may be applications now pending of which we are unaware or that do not currently contain claims of concern that may later result in issued patents that SkinTE, our product candidates, procedures, or processes will infringe. There may be existing patents that SkinTE, our product candidates, procedures, or processes infringe, of which infringement we are not aware. Third parties could also assert ownership over our intellectual property. Such an ownership claim could cause us to incur significant costs to litigate the ownership issues. If an ownership claim by a third party were upheld as valid, we may be unable to obtain a license from the third party on acceptable terms to continue to make, use, or sell technology free from claims by that third party of infringement of the third party’s intellectual property. We have not obtained, and do not have a present intention to obtain, any legal opinion regarding our freedom to practice our technology.

If we are unsuccessful in actions we bring against the patents of other parties, and it is determined that we infringe upon the patents of third parties, we may be subject to injunctions, or otherwise prevented from commercializing potential products or services in the relevant jurisdiction or may be required to obtain licenses to those patents or develop or obtain alternative technologies, any of which could harm our business. Furthermore, if such challenges to our patent rights are not resolved in our favor, we could be delayed or prevented from entering into new collaborations or from commercializing certain product candidates, or services, which could adversely affect our business and results of operations.

If we are successful in obtaining patent protection, we may not be able to enforce those patent rights against third parties.

Successful challenge of any future patents such as through opposition, reexamination,inter partes review, interference, or derivation proceedings could result in a loss of patent rights in the relevant jurisdiction. Furthermore, because of the substantial amount of discovery required relating to intellectual property litigation, there is a risk that some of our confidential or sensitive information could be compromised by disclosure in the event of litigation. In addition, during litigation there could be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

We may not be able to protect our intellectual property in countries outside of the United States.U.S.

Intellectual property law outside the United StatesU.S. is uncertain and, in many countries, is currently undergoing review and revisions. The laws of some countries do not protect patent and other intellectual property rights to the same extent as United StatesU.S. laws. Third parties may challenge our patents or applications in foreign countries by initiating pre- and post-grant oppositions or invalidation proceedings. Developments during opposition or invalidation proceedings in one country may directly or indirectly affect a corresponding patent or patent application in another country in an adverse manner. It may be necessary or useful for us to participate in proceedings to determine the validity of our patents or our competitors’ patents that have been issued in countries other than the United States.U.S. This could result in substantial costs, divert our efforts and attention from other aspects of our business, and could have a material adverse effect on our results of operations and financial condition.

General Risks Related to Registration or Regulatory Approval

We have one facility for the production of Our Product Candidates and Other Government Regulations

Our business is subject to continuing regulatory oversight by the FDA and other authorities, whose requirements are costly to comply with, andSkinTE for our failure to comply could result in negative effects on our business.

The FDA has specific regulations governing human cell, tissue, and cellular and tissue-based products, commonly known as “HCT/Ps”. The FDA has broad post-market and regulatory and enforcement powers. The FDA’s regulation of HCT/Ps includes requirements for registration and listing of products, donor screening and testing, processing and distribution (“Current Good Tissue Practices”), labeling, record keeping, adverse-reaction reporting, inspection, and enforcement.

We believe SkinTE and OsteoTE are appropriately regulated under Section 361 of the Public Health Service Act (so-called “361 HCT/Ps”) and that, as a result, no premarket review or approval by the FDA is required. If the FDA does not agree that one or more of our HCT/P products meet its regulatory criteria for regulation solely as 361 HCT/Ps, our product candidates will be regulated as drugs, devices, or biological products, and we could be required to withdraw those products from the market until the required clinical trials, are complete and the applicable premarket regulatory clearances or approvals are obtained.

Other products we develop may not be 361 HCT/Ps. As result, those product candidates would be subject to additional regulatory requirements, including premarket approval or clearance. Evenso if pre-market clearance or approval is obtained, the approval or clearance may place substantial restrictions on the indications for which the products may be marketed or to whom the products may be marketed, and may require warnings to accompany the product or impose additional restrictions on the sale or use of the product. In addition, regulatory approval is subject to continuing compliance with regulatory standards, including the FDA’s current good manufacturing practice (cGMP) or quality system regulations and adverse event reporting regulations.

If we fail to comply with the FDA regulations regarding our products and manufacturing processes, the FDA could take enforcement action, including, without limitation, any of the following sanctions:

It is likely that the FDA’s regulation of 361 HCT/Ps and other types of products (e.g., drugs, devices, or biologics) will continue to evolve in the future. Complying with any such new regulatory requirements, guidance or statutes may entail significant time delays and expense, which could have a material adverse effect on our business. While the FDA may issue new or revised guidance or regulations for 361 HCT/Ps, we do not know whether or when such revised draft or final guidance or regulations (if any) will be issued, the scope of such guidance, any new rules or regulations, whether they will apply to our technologies or products, or whether they will be advantageous or disadvantageous to us. In addition, even if it does not issue new regulations or guidance, the FDA could in the future adopt more restrictive interpretations of existing regulations or increase its enforcement activity, which may adversely affect our business.

We believe our FDA-registered SkinTE and OsteoTE products satisfy applicable criteria for regulation as a 361 HCT/P and are therefore exempt from FDA requirements for premarket approval or clinical studies. If the FDA disagrees with our interpretation of the relevant laws and regulations as they apply to these product candidates, and requires an Investigational New Drug application (“IND”) or Investigational Device Exemption application (“IDE”) for any of our product candidates, we may need to delay, abandon, or revise our current development plans, discontinue ongoing marketing, or recall products. The submission of an IND, Biologics License Applications (“BLA”), New Drug Application (“NDA”), or other medical device clearance or approval application would require us to compile significant amounts of data related to that regulatory process, as well as data from preclinical or clinical testing. We cannot guarantee that we will ever be able to secure such approvals, if required. Even if such approvals are obtained, regulation as a drug, biologic, or medical device would subject us to additional FDA post marketing requirements that are complex and involve substantial expense, such as compliance with drug, biologic, or medical device current Good Manufacturing Practice or quality system requirements.

The FDA regulates HCT/Ps under a two-tiered framework. Certain higher risk HCT/Ps are regulated as new drugs, biologics, or medical devices. Manufacturers of new drugs, biologics, and some medical devices must complete extensive clinical trials, which must be conducted pursuant to an effective IND or IDE. In addition, the FDA must review and approve a BLA or NDA before a new drug or biologic may be marketed. For most medical devices, including novel or high-risk medical devices, the FDA must approve a premarket approval application (“PMA”) or grant clearance to a premarket notification (“510(k)”) application prior to marketing of the device.

By contrast, the FDA exempts 361 HCT/Ps from these requirements if they meet certain specified criteria. We believe that SkinTE and OsteoTE, meet the criteria for regulation as a 361 HCT/P rather than as a new drug or biologic or medical device and, therefore, we do not currently expect that these products will be subject to the requirement for an IND or IDE or FDA premarket review and approval. Thus, our financial and business plans assume that we will not need to seek or obtain premarket FDA approval or clearance for SkinTE or OsteoTE. Rather, we will have to comply with the requirements for 361 HCT/Ps set forth in FDA regulations and develop adequate substantiation to support marketing claims we plan to make. The FDA could disagree with our belief that our product candidates, including but not limited to SkinTE and OsteoTE, are 361 HCT/Ps. The FDA conducted an inspection of our Salt Lake City, UT manufacturing facility in July 2018, and issued certain inspectional observations on Form FDA 483. We responded to those observations and are continuing a productive dialog with the FDA.

The Tissue Reference Group (“TRG”) is a body within the FDA designed to provide recommendations regarding whether a product candidate will be regulated as a 361 HCT/P. The Office of Combination Products (“OCP”) at FDA provides informal and formal opinions regarding the classification of products as 361 HCT/Ps or drugs, biologics, or medical devices. Product manufacturers are not required to consult with the TRG or OCP and instead can market their products based on their own conclusion that the product meets the 361 HCT/P criteria. We have not consulted the TRG or sought a formal opinion from the OCP.

The regulatory pathway for cell and tissue-based products is subject to significant uncertainty. The FDA’s criteria for regulation as a 361 HCT/P are complex, and the FDA has provided limited guidance on the meaning of certain terms used in the criteria, such as “minimal manipulation,” “homologous,” or “combination of the cells and tissues with another article.” In addition, SkinTE and OsteoTE, use new technology that may present a matter of first impression for the FDA in determining whether to require premarket authorization. Further, our product candidates may receive a high degree of scrutiny from the FDA. The FDA or Congress could change the relevant criteria or interpretations for determining which products qualify as 361 HCT/Ps or the regulatory requirements for HCT/Ps.

Additionally, it may be difficult to convince the courts to overturn any adverse decisions made against us by the FDA. Courts have recognized the longstanding principle that the FDA’s decisions on scientific matters, including the agency’s conclusion that a tissue processing procedure involves more than minimal manipulation, are entitled to substantial deference. This means that if the FDA disagrees with our conclusion that any of our product candidates should be regulated as a 361 HCT/P, and not as a new biologic, drug, or medical device, it may be very difficult to challenge the agency’s position in court.

Even if the FDA regulates our product candidates, including SkinTE or OsteoTE, as 361 HCT/Ps, we must still generate adequate substantiation for any claims we will make in our marketing. Failure to establish such adequate substantiation in the opinion of federal or state authorities could substantially impair our ability to generate revenue.

Although as 361 HCT/Ps, we may not need to submit certain products to the FDA for premarket approval or be subject to FDA requirements for labeling or promotion of new drugs, biologics, or medical devices, we still must generate adequate substantiation for claims we make in our marketing materials. Both the Federal Trade Commission (“FTC”) and the states retain jurisdiction over the marketing of 361 HCT/Ps (and other) products in commerce and require a reasonable basis for claims made in marketing materials. Through our planned preclinical and clinical studies, as well as other endeavors, we intend to generate such adequate substantiation for any claims we make about our products. If, however, after we commence marketing of any of our product candidates, including SkinTE or OsteoTE, the FTC or one or more states conclude that we lack adequate substantiation for our claims, we may be subject to significant penalties, or may be forced to alter our marketing of our product candidates in one or more jurisdictions. Any of this could materially harm our business. In addition, if our promotion of any of our product candidates suggests that the HCT/P is not intended for homologous use, the FDA might consider the product to be a new drug, biologic, or medical device. We will therefore be limited in the promotional claims that we can make about our product candidates.

Any changes in the governmental regulatory classifications of our product candidates could prevent, limit, or delay our ability to market or develop our product candidates.

The FDA establishes regulatory requirements based on the classification of a product. An HCT/P is a product containing or consisting of human cells or tissue intended for transplantation into a human patient. 361 HCT/Ps are not subject to any premarket clearance or approval requirements and are subject to less extensive post-market regulatory requirements. Because Several of our products are, or will be, designed to satisfy the standards applicable to 361 HCT/Ps, any change in the regulatory classification or designation of our products would affect our ability to obtain FDA approval or clearance for, and marketing of, those products.

If one of our products is deemed not to be a 361 HCT/P, FDA regulations will require premarket clearance or approval requirements that will involve significant time and cost investments by us. Further, there can be no assurance that the FDA will not, at some future point, change its position on current or future products’ 361 HCT/P status, and any regulatory reclassification could have adverse consequences for us and make it substantially more difficult or expensive for us to conduct our business by requiring extensive clinical trials, premarket clearance, or approval, and compliance with additional post-market regulatory requirements with respect to those products. Moreover, increased regulatory scrutiny within the industry in which we operate could lead to increased regulation of HCT/Ps, including 361 HCT/Ps. We also cannot assure you that the FDA will not impose more stringent interpretations, restrictions, or requirements with respect to products that qualify as 361 HCT/Ps.

Even if we successfully launch any product candidate, it will be subject to ongoing regulation. We could be subject to significant penalties if we fail to comply with these requirements, and we may be unable to commercialize our product candidates.

Even if the FDA does not object to the marketing of any of our product candidates as a 361 HCT/P and, therefore, without an NDA, BLA, PMA, or 510(k), we will still be subject to numerous post-market requirements, including those related to registration and listing, record keeping, labeling, current good tissue practices (“cGTPs”), donor eligibility, deviation and adverse event reporting, and other activities. HCT/Ps that do not meet the definition of a 361 HCT/P and, therefore, are required to be approved or cleared via an NDA, BLA, PMA, or 510(k) are also subject to these or additional obligations. If we fail to comply with these requirements, we could be subject to, without limitation, warning letters, product seizures, injunctions, or civil and criminal penalties. We have established our own processing facility, which we believe is cGTP compliant. Any failure by us to maintain cGTP compliance would require remedial actions, which could potentially include actions such as product recalls or delays in distribution and sales of our products, as well as enforcement actions.

We face significant uncertainty in the industry due to government healthcare reform.

There have been and continue to be proposals by the federal government, state governments, regulators and third-party payers to control healthcare costs (including but not limited to capitation – the generalized cap on annual fees for a type of service or procedure such as burn or wound care or rehabilitation), and generally, to reform the healthcare system in the United States. There are many programs and requirements for which the details have not yet been fully established or the consequences are not fully understood. These proposals may affect aspects of our business. We also cannot predict what further reform proposals, if any, will be adopted, when they will be adopted, or what impact they may have on us.

Risks Related to Our Manufacturing

Our failure to comply with the regulatory guidelines set forth by the FDA with respect to our product candidates could delay or prevent the completion of market entry, clinical trials, the approval or registration of any product candidates, or the commercialization of our product candidates.

We are subject to regulation and inspection by the FDA for cGTP, with respect to our 361 HCT/P products, and current Good Manufacturing Practice (“cGMP”), with respect to our product candidates that are not 361 HCT/Ps. Complying with cGTP or cGMP and will require that we expend time, money, and effort in production, recordkeeping, and quality control to assure that the product meets applicable specifications and other requirements. For any products for which we are required to obtain FDA pre-market approval, we, or our contracted manufacturing facility, must also pass a pre-approval inspection prior to FDA approval. Failure to pass a pre-approval inspection may significantly delay FDA approval of our product candidates. If we fail to comply with these requirements, we would be subject to possible regulatory action and may be limited in the jurisdictions in which we are permitted to sell our product candidates. As a result, our business, financial condition, and results of operations may be materially harmed.

We have limited experience in manufacturing products for commercial purposes and we cannot assure you that we will be able to successfully and efficiently manage the manufacturing of our product candidates, either ourselves or through third-party contractors with whom we may enter strategic relationships.

The manufacture of cell and tissue-based therapy products, such as our product candidates, is highly complex and is characterized by inherent risks and challenges such as autologous raw material inconsistencies, logistical challenges, significant quality control and assurance requirements, manufacturing complexity, and significant manual processing. Unlike products that rely on chemicals for efficacy, such as most pharmaceuticals, cell and tissue-based therapy products are difficult to characterize due to the inherent variability of biological input materials.

Additionally, we have limited experience in manufacturing products for commercial purposes and could experience difficulties in the continued manufacturing of our product candidates. Because our experience in manufacturing, sales, marketing, and distribution is limited, we may encounter unforeseen difficulties in our efforts to efficiently manage the manufacturing, sale, and distribution of our product candidates, or have to rely on third-party contractors, over which we may not have sole control, to manufacture our product candidates. Moreover, there can be no assurance that we or any third-party contractors with whom we enter strategic relationships will be successful in streamlining manufacturing operations and implementing efficient, low-cost manufacturing capabilities and processes that will enable us to meet the quality, price, and production standards or production volumes to achieve profitability. Our failure to develop these manufacturing processes and capabilities in a timely manner could prevent us from achieving positive results of operations and cash flows.

Our manufacturing operations in the U.S. depend primarily on one facility. If this facility is destroyed or we experienceit experiences any manufacturing or laboratory difficulties, disruptions, or delays, this could limit supply of our product or adversely affect our ability to sell products or conduct our clinical trials, and our business would be adversely impacted.trials.

All the manufacturingManufacturing of our product candidatesSkinTE takes place at our single U.S. facility. If regulatory, manufacturing, or other problems requirecause us to discontinue production operations at this facility, we willwould not be able to supply our product candidates to patients or have suppliesSkinTE for any clinical trials, which would adversely impact our business. If this facility or the equipment in it is significantly damaged or destroyed by fire, flood, power loss, or similar events, we may not be able to quickly or inexpensively replace our manufacturing capacity quickly or replace the facilityinexpensively, or at all. In the event of a temporary or protracted loss of this facility or equipment, we might not be able to quickly transfer manufacturing to anothera third party. Even if we could transfer manufacturing, from one facility to another, the shift would likely be expensive and time-consuming, particularly since an alternative facility would need to comply with the cGTP or cGMP (if applicable) regulatoryapplicable FDA manufacturing and quality standard requirements and, if applicable, FDA approval would be required before any products manufactured at that facility could be made commercially available.used.

Our success depends on members of our senior management team and the loss of one or more key employees or an inability to attract and retain skilled employees will negatively affect our business, financial condition, and results of operations.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and other personnel. We are highly dependent upon certain members of senior management and other key personnel. Although we have entered into employment agreements with our executive officers, each of them may impairterminate employment with us at any time. The replacement of any of our key personnel likely would involve significant time and costs and may significantly delay or prevent the achievement of our business objectives and could, therefore, negatively affect our business, financial condition, and results of operations. We do not carry any key person insurance policies that could offset potential loss of service under applicable circumstances.

We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we do. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees have or we have breached legal obligations, resulting in a diversion of our time and resources to disputes and litigation and, potentially, result in liability.

Job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If the perceived value of our stock awards decline, it may harm our ability to obtain credit termsrecruit and retain highly skilled employees.

The ongoing COVID-19 pandemic could materially affect our operations, as well as the business or operations of third parties with whom we conduct business.

The impact of COVID-19, including the impact of restrictions imposed to combat its spread, could result in businesses shutting down, additional work restrictions, and reduced capacity and access to healthcare facilities, in particular as new COVID-19 variants such as the Delta and Omicron and other new variants spread. Depending upon the length of COVID-19 surges and resulting work restrictions and limitations on healthcare facilities, our suppliers.

Our revenuesfuture clinical trials for SkinTE may be dependentadversely affected by: (i) delays or difficulties in enrolling patients in our clinical trials approved under our IND; (ii) delays or difficulties in clinical site activation, including difficulties in recruiting clinical site investigators and clinical site personnel; (iii) delays in clinical sites receiving the supplies and materials needed to conduct the clinical trials, including interruption in shipping that may affect the transport of our reimbursement arrangementclinical trial product; (iv) changes in local regulations as part of a response to the COVID-19 pandemic that may provide us with extended payment terms. However, our financial condition may make it difficult forrequire us to continuechange the ways in which our clinical trials are to receive payment termsbe conducted, which may result in unexpected costs or discontinuance of the clinical trials altogether; (v) diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our suppliersclinical trial sites and hospital staff supporting the conduct of our clinical trials; (vi) interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or vendors making demand for adequate assurance,recommended by federal or state governments, employers, and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could include a demand for payment-in-advance. If weaffect the integrity or reliability of clinical trial data; (vii) risk that participants enrolled in our clinical trials will acquire COVID-19 while clinical trials are unableongoing, which could impact the results of the clinical trials, including by increasing the number of observed adverse events; (viii) risk that clinical trial investigators or other site staff will acquire COVID-19 while the clinical trial is ongoing, which could impede the conduct or progress of the clinical trials; (ix) delays in necessary interactions with local regulators, ethics committees, and other important agencies and contractors due to obtain reasonable payment termslimitations in employee resources or if anyforced furlough of government employees; (x) limitations in employee resources that would otherwise be focused on the conduct of our material vendorsclinical trial because of sickness of employees or suppliers weretheir families or the desire of employees to successfully demand payment-in-advance,avoid contact with large groups of people; (xi) and interruption or delays to our clinical trial activities.

We may not be able to enforce our patent or intellectual property rights against third parties, which could adversely affect the trading price for our common stock.

Successful challenge of any patents or future patents or patent applications such as through opposition, reexamination, inter partes review, interference, or derivation proceedings could result in a loss of patent rights in the relevant jurisdiction. Unauthorized disclosure of our claims to our trade secrets could result in loss of those intellectual property rights. Furthermore, because of the substantial amount of discovery required relating to intellectual property litigation, there is a risk that some of our confidential or sensitive information could be compromised by disclosure in the event of litigation. In addition, during litigation there could be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive that we have lost rights to our intellectual property or the results of these disputes are negative, it could have a materialsubstantial adverse effect on the price of our liquidity.common stock.

Risks RelatedIn the event that we fail to Our Common Stock

An active trading market forsatisfy any of the listing requirements of the Nasdaq Capital Market, our common stock may not continue to develop or be sustained.delisted, which could affect our market price and liquidity.

Although ourOur common stock is listed on the NASDAQNasdaq Capital Market. For continued listing on the Nasdaq Capital Market, we will be required to comply with the continued listing requirements, including the minimum market capitalization standard, the minimum stockholders’ equity requirement, the corporate governance requirements, and the minimum closing bid price requirement, among other requirements. On August 13, 2021, we received a deficiency letter from the staff of the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying us that we did not meet the $1.00 per share minimum bid price requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement, which ended February 9, 2022. On February 10, 2022, we received an additional notice from the Staff stating that, although we had not regained compliance with the Minimum Bid Price Rule by February 9, 2022, the Staff determined in accordance with Nasdaq Listing Rule 5810(c)(3)(A) that we are eligible for an additional 180 calendar days from the date of that notice, or NASDAQ, we cannot assure you that an active, liquid trading market for our shares will continueuntil August 8, 2022, to develop or be sustained. If an active market for our common stock does not continue to develop or is not sustained, it may be difficult for you to sell shares quickly or without depressingregain compliance with the marketMinimum Bid Price Rule. To regain compliance, the bid price for the shares or to sell your shares at all.

The trading price of the shares of ourCompany’s common stock has been andmust close at $1.00 per share or more for a minimum of 10 consecutive business days.

To resolve the noncompliance, we may continue to be volatile, and youconsider available options, including effecting a reverse stock split, which may not be able to resell some or all your shares atresult in a desired price.

Our stock price has been highly volatile during the fiscal year ended October 31, 2018, with closing stock prices ranging from a high of $38.97 per share to a low of $12.11 per share. The stock marketpermanent increase in general, and the market for biotech companies in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. Because of this volatility, investors in our stock may not be able to sell their common stock at or above the price paid for the shares. The market price for our common stock may be influenced by many factors, including:

In addition, in the past, stockholders have initiated class action lawsuits against biotechnology companies following periods of volatility in the market prices of these companies’ stock. We are currently a party to such litigation and may be in the future due to price volatility. Such litigation could cause us to incur substantial costs and divert management’s attention and resources from the operation of our business.

If equity research analysts do not continue to publish research or reports or publish unfavorable research or reports about us, our business or our industry, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that equity research analysts publish about us and our business. Presently we have only limited research coverage by equity research analysts. Equity research analysts may elect not to initiate or continue to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock. We have no control over the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

Sales of a substantial number of shares of our common stock could cause the market price of our common stock and is dependent on many factors, including general economic, market, and industry conditions, the timing and results of our clinical trials, regulatory developments, and other factors detailed from time to drop significantly, even if our businesstime in the reports we file with the SEC. It is doing well.

Salesnot uncommon for the market price of a substantial numbercompany’s shares to decline in the period following a reverse stock split. Furthermore, implementation of a reverse stock split requires approval of a majority of the outstanding voting power of our capital stock, and there is no assurance we can obtain that approval.

In the event that we fail to satisfy any of the listing requirements of the Nasdaq Capital Market our common stock may be delisted, and our current deficiency in meeting the Minimum Bid Price Requirement could result in our common stock being delisted in August 2022 if we are unable to resolve that deficiency. If our securities are delisted from trading on the Nasdaq Stock Market, and we are not able to list our securities on another exchange or to have them quoted on the Nasdaq Stock Market, our common stock could be quoted on the OTC Markets or on the Pink Open Market. As a result, we could face significant adverse consequences including:

We will need to issue additional equity securities in the future, which may result in dilution to existing investors and investors purchasing securities in this offering.

We expect to seek the additional capital necessary to fund our future operations through public or private equity offerings, debt financings, and collaborative and licensing arrangements. To the extent we raise additional capital by issuing equity securities, including in a debt financing where we issue convertible notes or notes with warrants and any shares of our common stock to be issued in the public market could occur at any time. Ifa private placement, our stockholders may experience substantial dilution. We expect to sell additional equity securities from time to time in one or more transactions at prices and in a manner we determine. If we sell additional equity securities, existing stockholders may be materially diluted. In addition, new investors could gain rights superior to existing stockholders, such as liquidation and other preferences.

In addition, the market perceives thatexercise or conversion of outstanding options or warrants to purchase shares of capital stock may result in dilution to our stockholders intend to sell, substantial amountsupon any such exercise or conversion. As of March 25, 2022, we had a significant number of securities convertible into, or allowing the purchase of, our common stock, in the public market, the market priceincluding 9,836,067 shares reserved for issuance upon conversion of our Series A Convertible Preferred Stock, 35,500,843 warrants to purchase shares of our common stock, could decline significantly.

In addition, we have filed registration statements on Form S-8 registering the issuance8,911,879 options and rights to acquire shares of our common stock that are outstanding under our equity incentive plans, and 4,097,401 shares of common stock subject to options or other equity awards issued or reserved for future issuance under our equity incentive plans. Shares registered under these registration statements on Form S-8 are available for sale in the public market subject to vesting arrangements and exercise of existing options, the grant of new options in the future, and the restrictions of Rule 144 in the case of our affiliates.

The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders.

Our amended and restated certificate of incorporation authorizes us to issue up to 250,000,000 shares of common stock and up to 25,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors (the “Board”). Subject to compliance with applicable rules and regulations, we may issue our shares of common stock or securities convertible into our common stock from time to time in connection with a financing, acquisition, investment, our stock incentive plans or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

Our executive officers and directors and their affiliates own a significant percentage of our issued and outstanding common stock and can exercise significant influence over matters submitted to stockholders for approval.

As of January 7, 2019, our executive officers and directors and their affiliates beneficially owned approximately 42.5% of our outstanding common stock. As a result, if these stockholders were to choose to act together, they could exert a significant degree of influence over matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, could have significant influence on the election of directors and approval of any merger, consolidation, or sale of all or substantially all our assets, including a transaction on terms that other stockholders may desire.

Our Restated Certificate of Incorporation, our Restated Bylaws, and Delaware law could deter a change of our management, which could discourage or delay offers to acquire us.

Certain provisions of Delaware law and of our Restated Certificate of Incorporation, as amended, and by-laws, could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or in our best interests. These provisions include:

In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions by prohibiting Delaware corporations from engaging in specified business combinations with particular stockholders of those companies. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.

A material weakness in internal control over financial reporting could have a material adverse effect on our business, results of operations, financial condition and liquidity.

As discussed in Item 9A -Controls and Procedures, we have identified material weaknesses in internal control over financial reporting through our evaluation of our controls at October 31, 2018. Our material weaknesses consist of:

A material weakness could result in a material misstatement of our annual or interim financial statements requiring a restatement of the affected financial statements. A material misstatement and resulting restatement entail numerous risks, including the following:

Each of these risks described above could have a material adverse effect on our business, results of operations, financial condition, and liquidity.

Because we do not anticipate paying anyexpect to declare cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.

You should notstockholders must rely on an investment inappreciation of the value of our common stock to provide dividend income. Wefor any return on their investment.

While we have notin the past declared orand paid cash dividends on our commoncapital stock, we currently anticipate that it will retain future earnings for the development, operation, and expansion of our business and do not expect to date and have no plans todeclare or pay any additional cash dividends in the foreseeable future. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, capitalonly appreciation if any,of the public trading price of our common stock, if any, will be your sole source of gain for the foreseeable future. Investors seeking cash dividends should not purchase our common stock.

We incur costs and demands upon management because of beingprovide a public company.

As a public company listed in the United States, we are incurring, and will continuereturn to incur, significant legal, accounting and other costs. These costs could negatively affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and stock exchanges, may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our business may be harmed.investors.

Failure to comply with these rules also might make it more difficult for us to obtain some types of insurance, including directors’ and officers’ liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Effective July 15, 2018, we entered intoPolarityTE is party to a commercial lease agreementCommercial Lease Agreement with Adcomp LLC (“Adcomp”) dated December 27, 2017 (the “Adcomp Lease”). The Adcomp Lease is for PolarityTE’s principal business facility and property located at 1960 S 4250 W, Salt Lake City, Corporation, pursuantUtah (the “Property”). The Adcomp Lease pertains to which we leased approximately 44,695 rentable square feet of office space at 123 Wright Brothers Drive in Salt Lake City, Utah. The initial term of the lease is two years, and may be extended for an additional term of five years by agreement of the parties. The base rent plus maintenance fees over the two-year term of the lease is $469,288 per year, or $39,108 per month.

On December 27, 2017, we entered into a commercial lease agreement with Adcomp LLC, a Utah limited liability company, pursuant to which we leased approximately 178,528 rentable square feet of warehouse, manufacturing, office, and lab space at 1960 S. 4250 West, Salt Lake City, UT.space. The initial term of the leaseAdcomp Lease is five years, and it expiresexpiring on November 30, 2022. We havePolarityTE has a one-time option to renew for an additional five years. The initial base rent under this lease is $98,190 per month ($0.55 per sq. ft.) for the first year of the initial lease term and increases 3.0%3% per annum thereafter. The current monthly base rent is $110,514. The initial lease rate on an extension of the lease is $113,830 per month with annual rent increases equal to 3% of the prior year’s lease rate.

Under the original terms of the Adcomp Lease, we have an option to purchase the Property at a purchase price of $17.5 million, which is waived unless we exercise such option on or before March 27, 2022. On December 16, 2021, we gave written notice of its election to exercise the purchase option to Adcomp. Once that notice was given, the Adcomp Lease states the Company and Adcomp are required to negotiate the terms of a purchase agreement covering property diligence, conditions of closing, the timing of closing, and other customary matters for a sale and purchase of improved real estate. In addition, as required by the Adcomp Lease we made an earnest money deposit of $150,000 that may be refunded if closing conditions or contingencies running in our favor are not satisfied or Adcomp defaults in its obligations under the Adcomp Lease or the purchase agreement for the Property. On March 14, 2022, the Company and Adcomp entered into a purchase and sale on the terms described above that provides for a closing of the transaction on November 15, 2022 (the “Adcomp Agreement”).

On October 25, 2021, we signed a Purchase and Sale Agreement, the terms of which were finalized on December 10, 2021, and subsequently amended by Amendment No. 1 thereto dated March 15, 2022 (the “BCG Agreement”), with BCG Acquisitions LLC (“BCG”). Under the BCG Agreement we agreed to sell the Property to BCG or its assigns after our purchase of the Property from Adcomp, if the parties could agree on the terms for BCG to demise the building located on the Property to establish a smaller space within the building for us to lease and agree on the terms of that lease (the “BCG Lease”). The BCG Lease and, therefore, the BCG Agreement, was finalized on December 10, 2021. On March 15, 2022, the parties agreed to amend the BCG Agreement to change the closing date of the transaction from March 2022 to November 2022.

Under the BCG Agreement the Company has agreed to sell the Property to BCG for $17.5 million, subject to the closing of our purchase of the Property from Adcomp. The BCG Agreement also provides for property diligence (which has been completed by BCG), conditions of closing, the timing of closing, and other customary matters for a sale and purchase of improved real estate. Under the BCG Agreement, BCG made an initial earnest money deposit totaling $200,000, which the parties subsequently agreed to reduce to $150,000, that will be refunded if we are unable to complete the purchase of the Property from Adcomp on a timely basis, closing conditions or contingencies running in favor of BCG are not satisfied, or we default in our obligations under the BCG Agreement for the Property. Under the BCG Lease, BCG will demise the building on the Property to create a space of approximately 62,500 square feet that the Company will lease for a term of 10 years with an option to extend for an additional 10 years. The parties may agree to increase the size of the space prior to commencement of the BCG Lease.

The closing of the transactions described above are subject to a number of risks and uncertainties including, but not limited to, the following: our completion of diligence and title review of the Property pursuant to the Adcomp Agreement; satisfaction of all closing conditions, including obtaining financing for the purchase, and closing on the purchase of the Property from Adcomp; and satisfaction of all closing conditions, including BCG obtaining financing for the purchase, and closing on the sale of the Property to BCG. Consequently, we may not be successful in closing the transactions described above. If the transactions fail for any reason we will continue to occupy the Property under an extension of the existing lease.

The foregoing description of the terms and conditions of the Adcomp Lease and the Purchase and Sale Agreement between us and BCG are not complete and are in all respects subject to the actual provisions of such agreements, copies of which are exhibits to this Annual Report.

In May 2018, we purchased two parcels of real property in Cache County, Utah, consisting of approximately 1.75 combined gross acres of land, together with the buildings, structures, fixtures, and personal property located at 1072 West RSI Drive, Logan, Utah. This facility is used for the operation of our pre-clinical contract services business.business, IBEX.

On October 19, 2018, we entered into an office lease with Lefrak SBN Limited Partnership, a Georgia limited partnership, covering approximately 7,250 square feet of space in the building located at 40 West 57^th Street, New York, New York City. The lease is for a term of three years. The annual lease rate is $60 per square foot. Initially we will occupy and pay for only 3,275 square feet of space, and we are not obligated under the lease to pay for the remaining 3,975 square feet covered by the lease unless we elect to occupy that additional space. We have a sublease with the affiliate of one of our directors pursuant to which said affiliate will sublease 1,220 square feet at the same lease rate we pay to the landlord, and an option to expand the space occupied to an additional 2,753 square feet, which means we would be leasing 6,028 square feet from the landlord and subleasing 3,972 square feet to the affiliate of our director.

We lease office space in Hazlet, New Jersey at a cost of approximately $1,100 per month under a month to month lease agreement.

We expect that we will require additional facilities to continue our research and development program and commercialization efforts, and are actively seeking suitable locations.

Item 3. Legal Proceedings.

On June 26, 2018,September 24, 2021, a class action complaint alleging violations of the Federal securities laws was filed in the United States District Court, District of Utah, by Jose MorenoMarc Richfield against the Company and two directorscertain officers of the Company, Case No. 2:18-cv-00510-JNP21-cv-00561-BSJ. The Court subsequently appointed a Lead Plaintiff and ordered the Lead Plaintiff to file an amended Complaint by February 7, 2022, which was extended to February 21, 2022. The Lead Plaintiff filed an amended complaint on February 21, 2022, against the Company, two current officers of the Company, and three former officers of the Company (the “Moreno Complaint”“Complaint”). The Complaint alleges that during the period from January 30, 2018, through November 9, 2021, the defendants made or were responsible for, disseminating information to the public through reports filed with the Securities and Exchange Commission and other channels that contained material misstatements or omissions in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 adopted thereunder. Specifically, the Complaint alleges that the defendants misrepresented or failed to disclose that: (i) the Company’s product, SkinTE, was improperly registered as a 361 HCT/P under Section 361 of the Public Health Service Act and that, as a result, the Company’s ability to commercialize SkinTE as a 361 HCT/P was not sustainable because it was inevitable SkinTE would need to be registered under Section 351 of the Public Health Service Act; (ii) the Company characterized itself as a commercial stage company when it knew sales of SkinTE as a 361 HCT/P were unsustainable and that, as a result, it would need to file an IND and become a development stage company; (iii) issues arising from an FDA inspection of the Company’s facility in July 2018, were not resolved even though the Company stated they were resolved; and (iv) the IND for SkinTE was deficient with respect to certain chemistry, manufacturing, and control items, including items identified by the FDA in July 2018, and as a result it was unlikely that the FDA would approve the IND in the form it was originally filed. The Company believes the allegations in the Complaint are without merit, and intends to defend the litigation, vigorously. At this early stage of the proceedings, we are unable to make any prediction regarding the outcome of the litigation.

On July 6, 2018,October 25, 2021, a similarstockholder derivative complaint alleging violations of the Federal securities laws was filed in the same courtUnited States District Court, District of Utah, by Steven Battams against the same defendants by Yedid Lawi,Company, each member of the Board of directors, and two officers of the Company, Case No. 2:18-cv-00541-PMW21-cv-00632-DBB (the “Lawi“Stockholder Derivative Complaint”). Both the MorenoThe Stockholder Derivative Complaint and Lawi Complaint allegealleges that the defendants made, or were responsible for, disseminating information to the public through reports filed with the Securities and Exchange Commission and other channels that contained material misstatements or omissions in violation of Sections 1010(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 adopted thereunder. Specifically, both complaints allegethe Stockholder Derivative Complaint alleges that the defendants misrepresented or failed to disclose that: (i) the status of oneIND for the Company’s product, SkinTE, filed with the FDA was deficient with respect to certain chemistry, manufacturing, and control items; (ii) as a result, it was unlikely that the FDA would approve the IND in its current form; (iii) accordingly, the Company had materially overstated the likelihood that the SkinTE IND would obtain FDA approval; and (iv) as a result, the public statements regarding the IND were materially false and misleading. The parties stipulated to a stay of the Company’s patent applications while toutingStockholder Derivative Complaint until (1) the unique naturedismissal of the Company’s technology and its effectiveness. Plaintiffs are seeking damages suffered by them and the class consistingComplaint described above, (2) denial of the persons who acquired the publicly-traded securities of the Company between March 31, 2017, and June 22, 2018. Plaintiffs have filed motions to consolidate and for appointment as lead plaintiff. On November 28, 2018, the Court consolidated theMoreno andLawi cases under the captionIn re PolarityTE, Inc. Securities Litigation(the “Consolidated Securities Litigation”), and requested the appointment of the plaintiff inLawi as the lead plaintiff. An order for appointment of the lead plaintiff has not been entered. After the lead plaintiff is appointed, the plaintiff will have 60 days to file an amended complaint. The Company believes the allegations in the Moreno Complaint and Lawi Complaint are without merit, and intends to defend the litigation, vigorously. The Company expects its first response will be to file a motion to dismiss after the firstComplaint, or (3) notice is given that any party is withdrawing its consent to occurthe stipulated stay of the plaintiff filing an amended complaint or the period for filing an amended complaint expires.Stockholder Derivative Complaint proceeding. At this early stage of the proceedings, the Company iswe are unable to make any prediction regarding the outcome of the litigation.

In November 2018, a shareholder derivative lawsuit was filed in the United States District Court, District of Utah, with the captionMonther v. Lough, et al., case no. 2:18-cv-00791-TC, alleging violations of the Exchange Act, breach of fiduciary duty, and unjust enrichment on the part of certain officers and directors based on the facts and circumstances recited in the Consolidated Securities Litigation. On November 26, 2018, the court issued an order staying all proceedings until after the disposition of motions to dismiss the Consolidated Securities Litigation.

On February 26, 2015, a complaint for patent infringement was filed in the United States District Court for the Eastern District of Texas by Richard Baker, an individual residing in Australia, against Microsoft, Nintendo, a former subsidiary of the Company, and a number of other game publisher defendants. The complaint alleged that the Zumba Fitness Kinect game infringed plaintiff’s patents in motion tracking technology. The plaintiff represented himself pro se in the litigation and sought monetary damages in the amount of $1.3 million. The case was subsequently transferred to the Western District of Washington. On June 16, 2017, final judgment was entered in favor of the defendants finding that the accused products did not literally infringe the asserted patent and that plaintiff was barred from pursing infringement under the doctrine of equivalents due to prosecution history estoppel. The plaintiff appealed that decision to the Court of Appeals for the Federal Circuit. On April 9, 2018, the Court of Appeals for the Federal Circuit affirmed the judgment of the District Court for the Western District of Washington. On May 7, 2018, the plaintiff filed a petition for panel rehearing and rehearing en banc by the Court of Appeals. The petition for rehearing was denied on June 8, 2018. The plaintiff subsequently filed a petition for a writ of certiorari with the Supreme Court of the United States, which was denied in November 2018. Consequently, this matter has been resolved without liability to the Company.

In the ordinary course of business, we may become involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements, employment, regulatory compliance, and other matters. Except as noteddescribed above, at OctoberDecember 31, 2018,2021, we were not party to any legal or arbitration proceedings that may have significant effects on our financial position or results of operations. No governmental proceedings are pending or, to our knowledge, contemplated against us. We are not a party to any material proceedings in which any director, member of senior management, or affiliate of ours is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed for trading on the Nasdaq Capital Market under the symbol “PTE.” On August 13, 2021, we received a deficiency letter from the Staff of Nasdaq notifying us that we did not meet the $1.00 per share minimum bid price requirement for continued inclusion on the Nasdaq Capital Market pursuant to the Minimum Bid Price Requirement. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement, which ended February 9, 2022. On February 10, 2022, we received an additional notice from the Staff stating that, although we had not regained compliance with the Minimum Bid Price Rule by February 9, 2022, the Staff determined in accordance with Nasdaq Listing Rule 5810(c)(3)(A) that we are eligible for an additional 180 calendar days from the date of that notice, or until August 8, 2022, to regain compliance with the Minimum Bid Price Rule. To regain compliance, the bid price for the Company’s common stock must close at $1.00 per share or more for a minimum of 10 consecutive business days. To resolve the noncompliance, we may consider available options, including effecting a reverse stock split.

At March 25, 2022, there were approximately 98 holders of record of our common stock.

The following table provides information on our compensation plans at December 31, 2021, under which equity securities are authorized for issuance.

Item 6. Selected Financial Data[Reserved]

As a smaller reporting company, we are not required to provide the information under this item, pursuant to Regulation S-K Item 301(c).

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K.

In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties that may cause our actual results to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. “Risk Factors” and “Forward-Looking Statements” included at the beginning ofabove in this Annual Report on Form 10-K. The risks and uncertainties can cause actual results to differ significantly from those in our forward-looking statements or implied in historical results and trends. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Overview

We arePolarityTE is a commercial-stageclinical stage biotechnology and regenerative biomaterials company focused on transforming the lives of patients by discovering, designing and developing a range of regenerative tissue products and biomaterialsbiomaterials. PolarityTE also operates a pre-clinical research business. PolarityTE’s first regenerative tissue product is SkinTE, which is intended for the fieldsrepair, reconstruction, replacement, and supplementation of medicine, biomedical engineeringskin in patients who have a need for treatment of acute or chronic wounds, burns, surgical reconstruction events, scar revision, or removal of dysfunctional skin grafts.

Since the beginning of 2017, PolarityTE has incurred substantial operating losses and material sciences. We operate two segments; the regenerative medicine business segmentits operations have been financed primarily by public equity financings. The clinical trials for SkinTE and the contract research segment.

Segment Reporting

The regenerative medicine business segmentregulatory process will likely result in an increase in PolarityTE’s expenses. PolarityTE will continue to incur substantial operating losses as we pursue an IND and BLA, and PolarityTE expects to seek financing from external sources over the last year has establishedforeseeable future to fund its operations.

Regenerative Tissue Product

Our first regenerative tissue product is SkinTE. On July 23, 2021, we submitted an IND for SkinTE to the FDA through our subsidiary, PTE-MD, as the first step in the regulatory process for obtaining licensure for SkinTE under Section 351 of the Public Health Service Act. The FDA subsequently issued clinical hold correspondence to us identifying certain issues that needed to be addressed before the IND could be approved. We provided responses to the FDA, and advanced our core “TE” program, which includes ouron January 14, 2022, the FDA sent correspondence informing us that the clinical hold had been removed. The IND approval enables us to commence the first commercial product,of two expected pivotal studies needed to support a BLA seeking a chronic cutaneous ulcer indication for SkinTE. The commercial launchfirst planned pivotal study is the COVER DFUs Trial, which is a multi-center, randomized controlled trial evaluating SkinTE in the treatment of Wagner 2 DFUs. We plan to enroll up to 100 patients at up to 20 sites in the U.S. in the COVER DFUs Trial, which will compare treatment with SkinTE has includedplus the build outstandard-of-care to the standard-of-care alone. The primary endpoint is the incidence of commercial, manufacturing,DFUs closed at 24 weeks. Secondary endpoints include PAR at 4, 8, 12, 16, and corporate structure24 weeks, improved quality of life, and new onset of infection of the DFU being evaluated. As we pursue the first study, we plan to supportengage in discussions with the expected,FDA regarding the design and implementation of the second pivotal study.

We expect to incur significant growthoperating costs in the next three to four calendar years as we pursue the regulatory process for SkinTE with the FDA, conduct clinical trials and studies, and pursue product research, all while operating our business and incurring continuing fixed costs related to the maintenance of SkinTE revenueour assets and deploymentsbusiness. We expect to incur significant losses in 2019the future, and beyond. This includes equipment, personnel, systems,those losses could be more severe as a result of unforeseen expenses, difficulties, complications, delays, and leased properties.other unknown events. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending upon the timing of our clinical trials and our expenditures for satisfying all the conditions of obtaining FDA licensure for SkinTE.

Testing and Research Services

Beginning in 2017, we developed internally a laboratory and development continues to expandresearch capability to advance the product development pipeline.

Inof SkinTE and related technologies, which we operate through our subsidiary, Arches. At the beginning of May 2018, we acquired assets of a preclinical research and veterinary sciences business and related real estate,to be used, in part, for preclinical studies on its regenerative tissue products, which we now operate through our subsidiary Ibex Preclinical Research, Inc. The aggregate purchase price was $3.8 million, of which $2.3 million was paid at closingIBEX. Through Arches and the balance satisfied by a promissory note payable to the Seller with an initial fair value of $1.22 millionIBEX, we also offered research and contingent consideration with an initial fair value of approximately $0.3 million. As a result, we have significant research facilities and a well-educated and skilled team of scientists and researchers that comprise the contract research segment of our business. These resources are highly beneficial to the work we are doing on our TE products and in RTD and ARC. We also offer researchlaboratory testing services to unrelated third parties on a contract basis,basis. As noted above, Arches offered COVID-19 testing from the end of May 2020 to August 2021, when it discontinued the service, and since then Arches has been engaged in supporting our IND and clinical trial effort and has not offered services to outside third parties. IBEX continues to offer pre-clinical research services to third parties, which generates positive cash flow to defray our operating expenses, but we offerdo not believe this positive cash flow will be a significant contributor to defraying our costs associated with obtaining regulatory licensure or approval of SkinTE.

PPP Loan

As described above, PTE-MD entered into a promissory note evidencing an unsecured loan in the amount of $3,576,145 made to PTE-MD under the trademark POLARITYRD. Contract researchPaycheck Protection Program. On October 15, 2020, PTE-MD applied to the Lender for forgiveness of the PPP Loan in its entirety (as provided for in the CARES Act) based on PTE-MD’s use of the PPP Loan for payroll costs, rent, and utilities. On October 26, 2020, PTE-MD was advised that the Lender approved the application, and that the Lender was submitting the application to the SBA for a final decision. The SBA subsequently approved PTE-MD’s application for forgiveness of the PPP Loan, and the principal and interest of $3,612,376 was fully paid by the SBA on June 12, 2021.

On September 17, 2021, PTE-MD received notice from the Lender that the SBA is reviewing the PPP Loan. As part of this review, the SBA requested that PTE-MD provide documents that it is required to maintain but may not have been required to submit with its application for the PPP Loan. These documents included an affiliation worksheet showing the relationship between PolarityTE and PTE-MD and affiliated subsidiaries, documents showing the use of the PPP Loan proceeds, documents showing PTE-MD’s calculation of the loan amount it requested in its loan application, our federal tax returns, and documents showing employee compensation information. PTE-MD submitted the documents to the SBA through the Lender on September 28, 2021, and there has been no further communication from the SBA since that date.

Business Effects of COVID-19

The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, clinicians, communities, and business operations, as well as the U.S. economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact the timing and cost of pursuing FDA licensure of SkinTE under a BLA is highly uncertain and cannot be accurately predicted. We have engaged and will need to continue to engage CROs for our future clinical trials and the COVID-19 pandemic and response efforts may have an impact on the ability of CROs to timely perform the trials we need for SkinTE.

Recent Developments

On March 16, 2022, we completed a registered direct offering of (i) 3,000.000435 shares of Series A Convertible Preferred Stock, par value $0.001 per share (“Series A”); (ii) 2,000.00029 shares of Series B Convertible Preferred Stock, par value $0.001 per share (“Series B,” and together with the Series A, the “Preferred Stock”); and (iii) warrants to purchase up to 16,393,445 shares of common stock (“Common Warrants”). The shares of Preferred Stock have a stated value of $1,000 per share and are convertible, following the date of the issuance thereof, into an aggregate of 9,836,067 shares of our common stock upon the conversion of Series A and into an aggregate of 6,557,378 shares of our common stock upon the conversion of Series B, at a conversion price of $0.305 per share each. Each Common Warrant has an exercise price of $0.35 per share and will become exercisable six months after the original issuance date and will expire two years following the original issuance. We also issued to designees of the placement agent for the registered direct offering as part of the placement agent’s compensation warrants to purchase up to 819,672 shares of common stock at an exercise price of $0.38125 per share. We expect to realize net proceeds of approximately $4,485,000 from the offering after deducting offering expenses. On March 17, 2022, the holder of the Series B converted the shares to 6,557,378 shares of our common stock.

The investor in this offering is a holder of warrants to purchase up to 9,090,901 shares of common stock at an exercise price of $1.20 per share issued on January 14, 2021, and warrants to purchase up to 8,016,033 shares of common stock at an exercise price of $1.20 per share issued on January 25, 2021 (collectively, the “Existing Warrants”). Concurrent with the offering, we entered into a Warrant Amendment Agreement (the “Warrant Amendment Agreement”) with the investor pursuant to which, in consideration for the investor’s purchase of $5 million of securities in the offering (the “Purchase Commitment”), we agreed to reduce the exercise price of the Existing Warrants to $0.35 per share, effective upon the consummation of the offering, and confirmation by the placement agent that the investor satisfied the Purchase Commitment. Pursuant to the Warrant Amendment Agreement, the Existing Warrants will not be exercisable at the adjusted price until the date that is six months after the consummation of this offering. Except for these amendments, no other changes have been made to the Existing Warrants. We are currently assessing the impact of the Existing Warrant exercise price reduction to our consolidated financial statements.

On March 30, 2021, we entered into a sales agreement (“Sales Agreement”) with an investment banking firm to sell shares of common stock having aggregate sales proceeds of up to $50.0 million, from time to time, through an “at the market” equity offering program under which the investment banking firm would act as sales agent. By written notice given by us to the investment banking company on February 28, 2022, we exercised our right to terminate the Sales Agreement and the “at the market” equity offering program. As of the date of termination, no common stock had been sold under the Sales Agreement. Upon such termination we were obligated to make a one-time payment to the investment banking firm of $400,000.

Liquidity and Capital Resources

As of December 31, 2021, we had $19.4 million in cash and cash equivalents and working capital of approximately $17.7 million. As of December 31, 2020, we had $25.5 million in cash and cash equivalents, and working capital of approximately $22.7 million.

We believe cash and cash equivalents on our balance sheet will fund our business activities into the fourth calendar quarter of 2022. For the year ended December 31, 2021, cash used in operating activities was $22.6 million, or an average of $1.9 million per month, compared to $37.8 million of cash used in operating activities, or an average of $3.2 million per month, for the year ended December 31, 2020.

As noted above, we are focused primarily on the advancement of our IND and subsequent BLA to attain a license to manufacture and distribute SkinTE. To that end, in June 2021, we engaged a CRO to provide services helpfor the COVER DFUs Trial at a cost of approximately $6.5 million consisting of $3.1 million of service fees and $3.4 million of estimated costs. In July 2021, we prepaid 10% of the total cost of the original work order, or $0.5 million, which will be applied to payment of the final invoice under the work order. Over the approximately three-year term of the DFU Trial the service provider will submit to us defrayfor payment invoices on a monthly basis for units of work stated in the work order that are completed and billable expenses incurred. Our expectation is that the second clinical trial will be similar to the COVER DFUs Trial with respect to size, length of time to complete, and cost. In the course of advancing our IND and subsequent BLA, we may propose additional clinical trials to advance our application or broaden the therapeutic indications of use for SkinTE. Clinical trials are the major expense we see in the near and long term, and while we are pursuing clinical trials, we will continue to incur the costs of maintaining a first-rate research facilityour business. In addition to clinical trials, our most significant uses of cash to maintain our business going forward are expected to be compensation, costs of occupying, operating, and allow us to meet companies pursuing new technologies that may be opportunities for collaborative or strategic relationships going forward.

Researchmaintaining our facilities, and Development Expenses. Research and development expenses primarily represent employee relatedthe costs including stock compensation, for research and development executives and staff, lab and office expenses and other overhead charges.

General and Administrative Expenses. General and administrative expenses primarily represent employee related costs, including stock compensation, for corporate executive and support staff, general office expenses, professional fees and various other overhead charges. Professional fees, including legal and accounting expenses, typically represent one of the largest components ofassociated with maintaining our general and administrative expenses. These fees are partially attributable to our required activitiesstatus as a publicly traded company listed on Nasdaq.

For the year ended December 31, 2021, the gross profit on sales of SkinTE was $2.6 million, which partially contributed to covering our operating costs for the period. As discussed above in this Annual Report, we ceased our SkinTE sales activity at the end of May 2021, so SkinTE sales will not contribute to defraying our operating costs in 2022. To mitigate the effect of this lost revenue, we eliminated some staff and resources that supported the SkinTE commercial effort, but we did not see the benefit of these cost reductions until the fourth quarter of 2021 because of severance and other costs associated with winding down our SkinTE commercial activity. In 2022 our plan is to preserve the facilities, equipment, and staff we need to advance the COVER DFUs Trial and other work necessary for advancing the process for obtaining regulatory approval of SkinTE.

During 2021, we engaged in discussions with certain third parties regarding potential M&A and strategic initiatives. In the fourth quarter of 2021 we recognized $1.2 million one-time costs for professional services associated with such M&A and strategic initiatives and estimate we will recognize an additional $1.4 million of such costs in the first quarter of 2022.

As of the date of this Annual Report we do not expect that our cash and cash equivalents of $19.4 million as SEC filings,of December 31, 2021, would be sufficient to fund our current business plan including related operating expenses and corporate-capital expenditure requirements beyond the fourth calendar quarter of 2022. Accordingly, there is substantial doubt about our ability to continue as a going concern, as we do not believe that our cash and business-development initiatives.

Income Taxes. Income taxes consistcash equivalents will be sufficient to fund our business plan for at least twelve months from the date of issuance of our provisions for income taxes,annual financial statements. We plan to address this condition by raising additional capital to finance our operations. Although we have been successful in raising capital in the past, financing may not be available on terms favorable to us, if at all, so we may not be successful in obtaining additional financing. Therefore, it is not considered probable, as affecteddefined in applicable accounting standards, that our plan to raise additional capital will alleviate the substantial doubt regarding our ability to continue as a going concern.

To enhance our ability to do future financings, on February 11, 2022, we filed a registration statement on Form S-3 to register sales of our securities after our current registration statement on Form S-3 expires with the filing of this Annual Report. Pursuant to General Instruction I.B.6 of Form S-3, after this Annual Report and the new Form S-3 registration statement is effective the aggregate market value of securities sold by us during the period of 12 calendar months immediately prior to, and including, the sale is limited to one-third of the aggregate market value of the voting and non-voting common equity held by our net operating loss carryforwards. Future utilizationnon-affiliates so long as the aggregate market value of our net operating loss, or NOL, carryforwards may be subject to a substantial annual limitation duecommon stock held by non-affiliates is less than $75.0 million. In the event that subsequent to the “change in ownership” provisionseffective date of the Internal Revenue Code. The annualnew Form S-3 registration statement the aggregate market value of our outstanding common stock held by non-affiliates equals or exceeds $75.0 million, then the one-third limitation may resulton sales shall not apply to additional sales.

Our actual capital requirements will depend on many factors, including the cost and timing of advancing our IND and subsequent BLA for SkinTE, the cost and timing of clinical trials, the cost of establishing and maintaining our facilities in compliance with cGMP and cGTP (current good tissue practices) regulations, and the expirationcost and timing of NOL carryforwards before utilization. Dueadvancing our product development initiatives related to SkinTE. Our forecast of the period of time through which our history of losses, a valuation allowance sufficient to fully offset our NOL and other deferred tax assets has been established under current accounting pronouncements, and this valuation allowancefinancial resources will be maintained unless sufficient positive evidence developsadequate to support its reversal.operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Critical Accounting Estimates

We will need to raise additional capital in the future to fund our effort to obtain FDA approval of SkinTE and maintain our operations. Any additional equity financing including financings involving convertible securities, if able to be obtained, may be highly dilutive, on unfavorable terms, or otherwise disadvantageous, to existing stockholders, and debt financing, if available, may involve restrictive covenants or require us to grant a security interest in our assets. If we elect to pursue collaborative arrangements, the terms of such arrangements may require us to relinquish rights to certain of our technologies, products, or marketing territories. Our discussionfailure to raise additional capital when needed, and analysison acceptable terms, would require us to reduce our operating expenses and would limit our ability to continue operations, any of thewhich would have a material adverse effect on our business, financial condition, and results of operations is based upon our consolidated financial statements, whichoperation.

Results of Operations

Changes in Polarity’s Operations

There have been preparedsignificant changes in accordanceour operations affecting Polarity’s results of operations for the year ended December 31, 2021, compared to year ended December 31, 2020.

SkinTE was registered and listed with accounting principles generally acceptedthe FDA in August 2017 based on our 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. We proceeded to develop sales and manufacturing capabilities for SkinTE and focused on advancing commercialization of SkinTE. We began a regional commercial rollout of SkinTE in October 2018, and while SkinTE 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. Following informal, voluntary discussions with the FDA, we were 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, based on the FDA’s preliminary assessment, SkinTE should be regulated under Section 351 of the Public Health Service Act. We re-evaluated our regulatory approach and determined it was prudent to submit an IND for SkinTE and an eventual BLA rather than engage in a protracted dispute with the FDA. Accordingly, we ceased commercial sales of SkinTE at the end of May 2021.

On July 23, 2021, we submitted an IND for SkinTE to the FDA through our subsidiary, PTE-MD, as the first step in the United Statesregulatory process for obtaining licensure for SkinTE under Section 351 of America, or GAAP.the Public Health Service Act. The FDA subsequently issued clinical hold correspondence to us identifying certain issues that needed to be addressed before the IND could be approved. We provided responses to the FDA, and on January 14, 2022, the FDA sent correspondence informing us that the clinical hold had been removed. The IND approval enables us to commence the first of two expected pivotal studies needed to support a BLA seeking a chronic cutaneous ulcer indication for SkinTE. We 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, and we do not expect to be able to commercialize SkinTE until our BLA is approved, which we believe will take at least three to four years.

The preparation of financial statementsArches began offering COVID-19 testing services in conformityMay 2020 under 30-day renewable testing agreements with accounting principles generally acceptedmultiple nursing home and pharmacy facilities in the United Statesstate of America requires managementNew York controlled by a single company, which substantially added to make estimatesour services net revenues in the last seven months of 2020 and assumptions that affectfirst three months of 2021. When the reported amounts of assetsNew York nursing homes and liabilities or the disclosure of gain or loss contingenciespharmacies adopted on-site employee testing at the dateend of March 2021, our COVID-19 testing revenues declined substantially, and in August 2021, we decided to cease COVID-19 testing. Arches focused on supporting our IND and clinical trial efforts for the remainder of 2021, and we expect it will continue in that role in 2022 and not provide research services to third parties.

The COVID-19 pandemic had a significant adverse effect on the preclinical research services offered by IBEX in 2020, but there was a resurgence in that business in 2021. The increase in revenues from IBEX services helped to offset the loss of COVID-19 testing revenues in the last nine months of 2021. As a result, revenues from our services business were unchanged in 2021 compared to 2020 and we expect services revenues will be less in 2022 than 2021 since Arches will not be a contributor to services revenues in 2022.

In March 2022, the Company reached a non-binding understanding with an unrelated third party that contemplates the sale of IBEX and the real property used in the operation of IBEX. The potential sale is subject to a number of contingencies. Even though the proposed sale may not materialize, we are exploring our options with respect to IBEX, which is likely to result in curtailed operation of the financial statementsbusiness or some other disposition in 2022. Under the circumstance, we believe IBEX may not generate services revenues through the remainder of 2022 that would help defray our operating costs.

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

Comparison of the years ended December 31, 2021, and December 31, 2020.