PolyPid Ltd. (PYPD) Earnings Call Transcript & Summary

Good morning, and welcome to the PolyPid KOL webinar. [Operator Instructions] As a reminder, this call is being recorded, and a replay will be made available on the PolyPid website following the conclusion of the event. I'd now like to turn the call over to Bob Yedid of LifeSci Advisors. Please go ahead, Bob.

Thank you all for participating in PolyPid's KOL webinar on D-PLEX100. I'd like to remind you that on this call, management will make forward-looking statements within the meaning of federal securities laws. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks described from time to time in our SEC filings. Our results may differ materially from those projections. These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. I encourage you to review the company's filings with the SEC, including, without limitation, the company's Form 20-F, which identifies specific risk factors that may cause actual results or events to differ materially from those described in the forward-looking statements. And with that, I'll turn the call over to Ori Warshavsky, Chief Operating Officer of the U.S. operations. Ori?

Thank you, Bob. And next slide, please. One more. So good morning, everyone, and thank you for joining us for our KOL event focused on the cost of managing surgical site infections with 2 very distinguished guests with us today to share their views and some of their data on this very important topic. Let me briefly take you all through the agenda, then I'll let the speaker take the stage. So I'll spend really 1, 2 minutes just setting up the KOL, why are we talking about this topic and introduce our speakers. Dr. Cologne will give the surgeon -- the practicing surgeon point of view on managing cost of SSI. Dr. Goodman will give us the network, the IDN view of the activities and efforts that happen on the network level or -- to manage these costs. And then finally, I will try to tie this all up to PolyPid and to D-PLEX, and we will leave enough time for Q&A at the end. Next slide, please. Okay. So the purpose of this call. We have been talking to doctors, to hospital administrators to hospital CEOs, board members of IDNs regularly asking about SSI. And we hear across the board that SSI is an issue. It's a known issue. And depending on the level in -- or your function in the hospital, they are KPIs involved in this. People are measured on their -- how they fight a -- and prevent SSI. We know that every surgeon knows their own SSI rate. The hotel knows different rates of the different departments. They know how they benchmark compared to other hospitals, so this is a constant daily activity in the hospital. We also know that when an infection occurs, there's quite a significant impact on the patient. [ A necessary ] event can cause additional pay, cause additional days in the hospital, increased morbidity and mortality, delayed wound healing and readmissions. And all these costs translates immediately into an economic impact on the hospital. The cost of preventing SSI in hospitals have bundled and procedures and products that they used to try to prevent SSI and follow if there is an infection, the direct cost of treatment. There's also external forces that play here through CMS programs and penalties, rankings that are impacted by infections and overall reputation, which is a key driver where we're talking about elective surgeries. So in the past day events, we spoke about the left side of this page. We spoke about what does it mean from a patient perspective to have an SSI. We also discussed how can surgery evolve if we reduce or eliminate the SSI. And today, we will focus on this right side of the page, translate into dollars, what does it mean, what type of effort it's taken to reduce this economic burden. Next slide, please. So let me quickly introduce our speakers for today. Our first speaker is Dr. Kyle Cologne. Dr. Cologne completed his general surgery training in Chicago at Rush University and Cook County Medical Centers, followed by a fellowship in Colon and Rectal Surgery at the University of Southern California, where he joined the faculty in 2012. He is the current Fellowship Director for the colorectal training program. Dr. Cologne is double board certified in general and colorectal surgery. He is the recipient of several awards including the Castle Connolly, Pasadena and Los Angeles Top Doctors distinction. He is performing more than 1,000 major colorectal procedures. Dr. Cologne serves as the Vice Chair of the Quality Committee in the Department of Surgery and is the physician champion for colorectal surgery site infection. And he's with -- he serves as a Section Editor for the Diseases of the Colon and Rectum Journal, where he is the host of the podcast and he is the Immediate Past President of the Southern California Chapter of the American Society of Colon and Rectal Surgeons. Next slide, please. Our second speaker today will be Dr. Elliot Goodman. Dr. Goodman was born in London and educated in the University of Cambridge. After 1 year of postgraduate training in Cambridge and London, he moved to the United States in 1990 and trained as a general surgeon at the Maimonides Medical Center in Brooklyn, New York. During this period of training, he spent 2 years as a research fellow at Columbia University. After spending time as a trauma fellow at Coney Island Hospital in Brooklyn, Dr. Goodman joined the faculty of the New Jersey Medical School. After 2.5 years in New Jersey, Dr. Goodman moved to Montefiore Medical Center, where he became Chief of Bariatric Surgery. After a successful 4.5-year tenure at Montefiore, Dr. Goodman was recruited by Beth Israel Medical Center to become their Chief of Bariatric Surgery in 2004. After engagements at the new Mount Sinai Beth Israel and Mount Sinai Brooklyn hospital as Head of House Staff, Associate Chief of Surgery and Vice Chair of Surgical Quality, he was appointed in January 2022, as Associate Director of Systems Quality and Performance in Surgery for the entire 8-hospital Mount Sinai Health System. Dr. Goodman is on the faculty of the Icahn School of Medicine at Mount Sinai. He's a visiting professor at Ben-Gurion University, Bar Ilan University, both in Israel, and EDU in Malta. He is the North American coordinator for the global surgical community of The Upper Gastro-intestinal Surgeons society. Both Dr. Goodman and Dr. Cologne are paid advisers for PolyPid. Next slide, please. With that, I will hand it over to Dr. Cologne. Dr. Cologne, please.

Thank you, Ori. So I'm just going to go through a little bit more of the specifics that you briefly heard Ori talk about. So next slide, please. So by the end of my portion, I hope that you all understand the financial implications of the surgical site infection and some of the opportunities for improvement on where we can intervene with these things. Next slide. So here's the problem. This is what a surgical site infection looks like. While I am on the West Coast, I realized it's a little early for these slides, but this is really what we're trying to prevent. Next slide. And so how bad are these surgical site infections? So if you look at the -- how frequently they occur, the outliers at the good end are about 6% of the time, at the bad end, about 26% of the time. You can expect to have a surgical site infection after surgery. And the bad news is also that it's getting worse. If you look at some of the national data and trends, they're seeing upticks in the frequency of which we're seeing SSI. So that's the impetus where we -- behind us trying to intervene on these things and prevent them. Next slide. So why it matters is -- I think you heard from Ori a little bit that there are a lot of cost implications on these, and it's a double whammy. So you get it both on the front end as the patients in the hospital, they have a longer length of stay. It costs more in the way of supplies to take care of these things. And you get another hit on the back end because the reimbursement for these things are less. Next slide. So you get hit from both ends. Next slide. So how much does it actually cost? If you look at the numbers behind it, it is estimated that the 12-month increased cost of having a surgical site infection rate varies from anywhere on the low end of $36,000 to $144,000. The reason why you start to see some of these variabilities is there's a difference between where the surgical site infection occurs and what length of the incision it occurs in, so that you have different cost differences depending on how -- what it takes to treat these things. There's also a little bit of a difference between whether you have commercial insurance or Medicare insurance, but you can see the numbers are quite staggering for both of these. Next slide. And if you add all these up, the estimated total cost of surgical site infections in this health care system is about $10 billion a year. So there's significant financial implications to -- if you have these things. Next slide. So if you look at the 2 biggest cost drivers in health care, 1 is the length of stay and the second is complications. Next slide. And both of these are going to be increased if you have a surgical site infection. So it's a very costly problem to have. Next slide. We looked at our own data at USC, and we found that the occurrence of a surgical site infection was the #2 driver of an increased length of stay after surgery. So it's again, a big problem. Next slide. So exactly how much does it cost? If you have a prolonged length of stay, that's going to cost you an extra $1,500 to $3,800 per day. And if you have a complication, that, on average, is going to increase your expenditures by $19,000. Next slide. So if you look at the bottom line, which is really what you want to know at the end of the day, your profit margin, if you don't have complications, it's going to be about $3,288, and this is for surgeries that you do. Versus if you have complications, the extra expenditures are going to eat away at your profit margin. So you're going to only make $755, which is a very slim margin to have. Next slide. Because you're going to lose out on that extra $2,533. Next slide. So the CMS, which is the -- one of the major reimbursement drivers for this. When we first started off on this, they gave you credit for doing anything to try to prevent this problem. But as the system has become more and more sophisticated, you can see in these bars down here on the bottom, the blue line is the credit that you get for having a bundle in place and the purple is basically the efficiency and the outcomes of whatever's in your bundle. And so if you have an outlier, those 26% of people that have SSIs, CMS is going to drop your reimbursement rates by up to 6%. So that's the back-end double whammy that we've talked about earlier. Next slide. So obviously, this is something we want to avoid. Everyone in the surgical community kind of put our heads together and just trying to figure out what can we need to prevent this. Next slide. This is what some of the bundles that Ori mentioned earlier look like. We try to throw anything and everything at these things to try to decrease the rates of surgical site infections. They're divided into things we do before surgery, during surgery and after surgery. When we started making these bundles, we didn't really have a good sense of how well these things worked, what their efficacy was. But again, we were just trying to throw everything at it and see if it stuck. Next slide. The -- this is an interesting technology. It's something similar to what you'll hear about with PolyPid. It's an antibiotic-coated suture, and they did a cost analysis of the effect of using those antibiotic-coated sutures. And it was estimated -- so remember earlier, the cost of an SSI was anywhere between $30,000 and $100,000 ballpark. And by using the antibiotic-coated sutures, you were able to save the hospital system between $800 and $1,100 just by avoiding those surgical site infections. So this type of technology, I think, does have a significant impact on reducing the rates of surgical site infection. Next slide. So again, this is what we're trying to prevent the occurrence of these surgical site infections. Next slide. And if you look, that's going to cost the health care system about $10 billion. And if we can save even any of that, that's going to be beneficial. So I'm going to turn things over to Dr. Goodman, who's going to talk about the hospital side of things.

Okay. Thank you, Kyle. [ I start with me being ] the second speaker, so there's quite a bit of overlap. I just think the great minds think alike. Can I have my first slide, please. Okay.

One more slide?

Now it's perfect. I'm going to talk a little bit about the economic effect of a surgical site infection, although there's some clinical data as well in Mount Sinai in New York City. Next slide. So just to go over a few basic facts, Kyle has already mentioned a lot of this, but if you look at surgical site infections from all surgical procedures, not just colorectal but vascular, cardiac, thoracic operations. You're talking about [ 160,000-odd patients ] each year get a post-op surgical site infection. And as Kyle mentioned, this leads to a significant increase in the cost of delivering health care to these patients. It's about $20,000 per patient. Obviously, this is an approximation, depends on lots of other factors such as the severity of the infection. And when you add it up, it's a multibillion dollar cost each year to the health care system. If you look at colorectal procedures, specifically, there are approximately 300,000 of these procedures performed in the U.S.A. each year. And then if you look at the incidents in the literature of an SSI after these colorectal operations, you see there's a very, very wide range in the literature, reported anywhere between single digits, 9-odd percent, anything up to 41%. And when a patient has a surgical site infection after colorectal surgery, as Kyle has already mentioned, it increases the length of stay. If it's a severe infection leading to sepsis and organ failure, it can lead to a long stay in the intensive care unit. Patients often get readmitted for surgical site infections. In fact, about 50% of SSIs are actually diagnosed after the patient has already gone home after the first operation, so it leads to readmission. And overall, as we said before, the total cost of care on a national level increases by many billion dollars every year in the States. Next slide. So just to go over some basic things and definitions, the CDC and the NHSN, which stands for the National Healthcare Safety Network, these are governmental organizations, have come up with fairly standard definitions of what a surgical site infection is. And if you have a look, a surgical site infection could be superficial within the superficial layers of the wound, either the skin or the fat underneath. It could be deep, which means somewhere within the [ fat ] or the muscles, just outside of the abdominal cavity [ to deal with ] colorectal surgery. And then it can be something within the abdominal cavity itself. That would be an organ or a space SSI. These are often associated with the greater severity, the greater mobility and the greater likelihood or instance of death after these SSIs. Next slide. Next slide. So when we're looking at SSIs, we're monitored, right? There are lots of stakeholders in monitoring SSIs and paying for SSIs and treating SSIs. So who are these stakeholders who are looking over our shoulders as surgeons? So it is a KPI, it's a key performance indicator of how surgeons and how hospitals are delivering care. It is publicly available data. And this data could be tracked, reported and publicized by various stakeholders, by hospitals themselves, by state departments of health, by payers including Medicare and other commercial carriers such as the various Blue Crosses and by third-party watchdogs such as Leapfrog and Healthgrades, which use the data, let's say, from Medicare as part of an objective evaluation of hospitals which then becomes publicly available to patients and families so that patients and family members can make a decision as to where they would like to have the health care. Next slide. So hospitals themselves will use data regarding the incidence of SSIs for internal quality improvement purposes, and they'll get that from the electronic medical record, from billing codes, et cetera. Government will use this information, and we're talking about agencies such as the NHSN and a similar organization, the Agency for Healthcare Research and Quality. And they'll gather this data directly from hospitals and then report the incidence of SSIs to Medicare. And as Kyle has already touched upon, Medicare will use this or can use this data, has been using this data for making value-based purchasing decisions. As I said before, third-party patient safety watchdogs, such as Leapfrog and Healthgrades, use the incidence of SSI and other complications to grade hospitals. And if you can look on the right-hand side of the screen, you'll see the dashboard from the Leapfrog website. If you go on to Leapfrog, you can actually type in the name of a hospital, and it will bring up a whole host of information. And it will give a grading to the hospital, A through F, in the same way as your kid's teacher will grade an essay in middle school or high school. And the grading will depend on a whole host of trackable KPIs. And even though it's not very clear on the slide, the gray highlighted metric is actually surgical site infections after colorectal surgery. And what else Leapfrog and Healthgrades will do is come up with a range of incidents, from the best to the worst. It will come up with an average, and then it will give an individual hospital its own score for SSIs. As you can see on the slide, this hospital has a 2.867 hospital score, which is actually almost at the upper range of norm. So this is publicly available information regarding SSI that can be accessed by patients when they decide whether to have their colorectal surgery at hospital A or hospital B. There's also, at the bottom of the slide, you can see NSQIP. This stands for the National Surgical QI or Quality Improvement Program. It is a program with the American College of Surgeons. It is a program offered to hospitals in the United States, and more nowadays to hospitals outside of the United States. [ So by -- it literally ] costs about $50,000 a year to participate in the program. And it is a trackable database for all perioperative complications after surgery so that hospitals can figure out how well they're doing in terms of the incidence of post-opted complications, SSI, cardiac events, blood clots, prolonged period of time of the patient on a ventilator. And then it enables the hospital to benchmark and compare the old particular performance in reference to the whole database and the natural benchmark. Next slide. So all of these various databases are imperfect. If you look at the governmental databases, NHSN and the AHRQ, they're not risk-adjusted, meaning patients who are sick and have a lot of other medical problems show up in a similar fashion to younger, healthier patients. They only report inpatient SSIs. And as I said, 50% of the time the infection is actually [ discharge -- time is after ] discharge. And they don't include superficial incisional SSI. So these databases are not perfect. The NSQIP, the American College of Surgeons [ NSQIP, it is a little better ] in certain respects. It is risk adjusted for patient acuity and comorbidities. It does include in- and outpatient diagnoses. But the data captured by nurse reviewers employed by the hospital to run the program is manual, it's labor-intensive. And unless you have got a huge team of nurse reviewers, you're going to miss [ 60 to 80% ] of all surgical cases. Only a fraction, only a minority of all data is actually kept and captured on NSQIP. So again, not perfect. Next slide. So this is the sort of data that we get back every 6 months from the American College of Surgeons as a member of the NSQIP database. It's a whole host of complications. It's a small, busy slide, but you can see things like instance of urinary tract infection, [indiscernible], sepsis, readmission, prolonged intubation and SSI. And on this slide, you can see SSI for colectomy and proctectomy, which is rectal surgery. And what the database does is to calculate for each hospital -- and this is privately available information to the -- each hospital. What the observed incidence was, for instance, for an SSI after a colon operation or a rectal operation. What the expected rate is within the national cohort, the 700 hospitals. And then on the right-hand side of the screen, you can see that there's an assessment for each KPI, meaning for surgical site infections for your hospital, for colectomy or proctectomy, do you fall within the normal expected range of complication? Do you have a lower incidence, meaning you're actually outperforming the benchmark? Or do you have a higher-than-expected incidence of SSI and you need to improve? Next slide. The New York State Department of Health has been tracking SSIs for many years, for the last 15-odd years. And this is mandated data, meaning hospitals if their infection control team identify a postoperative SSI, the hospital has to report this occurrence to the database within the Department of Health. And then the Department of Health gathers all of this information and publicly disseminates these -- the information on their website. On the left-hand side of the screen, just look at where the arrow shows. It just again proves the point that 50% of SSIs actually occur after discharge. Whether the patient gets readmitted to same hospital, a different hospital or whether the infection is identified in the clinic, which again means that tracking these SSIs can be a little bit of a challenge. But over time, as you can see on the right, the reported incidence of SSIs within New York state [ for recovery -- surgery ] has somewhat come down over the last few years. Next slide. This is publicly available information. What it allows the public to do is actually look at each individual hospital and see how well that particular hospital is doing. So this is data from 2019. It's publicly available. And you can see on the right-hand side of the screen, there's that dotted vertical line. That is the state average. And then each bar corresponds to how well a particular hospital is doing relative to the state benchmark. And if a hospital shows up on red, as you can see here in a couple of hospitals, that means that the incident of SSI for those particular hospitals is higher than the expected state average. And it means that, that hospital should be looking at their performance and trying to figure out how they can do better. And the Department of Health, will actually come back to the hospital and say, "Based on that data, you're an outlier. You have a higher-than-expected rate of infection. Please tell us what you're going to do in the future to bring down the SSI rate back into the normal range." Next slide. So Kyle has already mentioned this, [ as said, what ] have you done to reduce the risk of colorectal SSI? Medicare, about 20-odd years ago, developed the SCIP program, the Surgical Care Improvement Program, a whole checklist of certain maneuvers and procedures designed to reduce the risk of perioperative complications. And Medicare used that to align quality and performance to reimbursement. Kyle has already mentioned surgical care bundles, such as the use of antibiotics, skin preparation, making sure that the patient is not hypothermic or cold after surgery in the recovery room, making sure that the blood glucose levels of diabetics are well controlled. Again, all of these individual maneuvers are thought somehow, even though we're not quite sure, perhaps which [ better than this, but they all ] go towards reducing the risk of an SSI. We also have something called a surgical checklist, which is, I'd say, similar to checklists used by airline pilots for making sure that before they take off that they've done everything they need to do to make it a safe flight. This was initially developed by the World Health Organization. All of these measures have had actually reduced the instance of SSI by anything up to 50%, and this is shown throughout the literature. Now since 50% of SSIs occur during the [ index submission ] after surgery, by reducing the incidence of SSI, reducing the length of stay, we can reduce the cost of admission quite significantly. And there's certain data showing that you can actually reduce the cost of admission for colorectal surgery from $32,000 per patient down to $22,000 a patient. So again, a significant reduction in cost when you reduce the risk of an SSI. Next slide. This just shows what a circular safety checklist looks like. Again, initially provided by the World Health Organization. Very briefly, the team, the nurse, the surgeon, the anesthesiologist before induction of general anesthetic, before skin incision and after the operation, but before the patient leaves the operating room to go to the recovery, certain aspects of the care are checked off of the checklist to make sure that everything has been followed according to the protocol. And this will include, for instance, the appropriate use of antibiotics. And it makes a difference, as you can see on the right-hand side of the screen. These are quite large studies, almost 4,000 patients per study, looking at the incidence of certain perioperative complications such as surgical site infection before and after the adoption of this surgical safety checklist. And you can see that the incidence of SSI after colorectal surgery went down from 6.2% in this study, published in the New England Journal of Medicine, down to 3.4%. So the use of surgical safety checklists does make a difference in terms of reducing perioperative complication rate. Next slide. Okay. What do we think about the economic cost? There's a large study published a couple of years ago. Kyle already referenced it from [ Leapfrog ], looking at 108,000 patients undergoing colorectal surgery in a 4-year period across the states. This study follows the patients for 24 months after surgery and found quite a high incidence of superficial and the incisional SSI, 20% for deep and 4% incidence of superficial SSI. And as Kyle has already referenced, this made a significant difference to the total care of the patients in terms of the cost. If a patient had commercial insurance, Blue Cross Blue Shield, Aetna, et cetera, it added between $36,000 and $144,000 per patient. If they had Medicare, it added $18,000 to $122,000 per patient. The cost obviously dependent on the severity of the infection. If it's a mild infection treated as an outpatient with antibiotic, obviously, it's going to cost much less than if it's a serious deep infection [ also needing ] reoperation, prolonged length of stay, intensive care unit care, et cetera. And it was interesting to note that this extra cost of care was not just seen in the first month or so after the operation and the diagnosis of SSI, but the extra cost of care continued for the full 24 months of the study. Next slide. This was a large study, long study, longitudinal study, and I think it added significantly to our understanding of the clinical and economic cost of SSI after colorectal surgery, much better than previous studies which tended to be much smaller and a shorter duration. Caveat is, of course, like anything, the data capture of the study was not perfect. And some of the cost's differentials could be attributed to the fact that over time, the cost of care in general has increased. But still, this has added significantly to our understanding of the clinical and economic cost of SSI after colorectal surgery. Next slide. Looking at the concept of value-based purchasing, the idea that nowadays we get paid not just for the quantity of service, but the quality of service we provide these hospitals and surgeons, quality makes a difference to reimbursement. Next slide. So payers such as Medicaid use key performance indicators such as the risk of -- or the incidence of surgical site infections and other hospital-acquired infections to make value-based purchasing decisions. In other words, if a hospital has a -- incidents of SSI outside of the expected range, let's say, a higher incidence, if they are within the lowest quartile for hospital-acquired infections, then Medicare can actually call back and demand that up to 6% of reimbursement over a period of time has to be paid back to the government. And it's this concept that if suboptimal care costs the hospital money, it can be an incentive to improve the quality of care by reducing the rate and incidence of hospital-acquired infections, not just SSI but urinary tract infections, C. diff infections, et cetera. And most of the time, it appears from the data that penalties actually work better than rewards and incentives, the fear or being asked to pay money back is actually a better incentive for better quality of care than the prospect of a small reward at the end of the year -- financial year. Next slide. [ So let's conclude. ] Surgical sites -- the infections after colorectal surgery are quite commonly [ a percentage -- anything ] up 24%. And these SSIs could cause significant post-op immobility. They add greatly to the cost and the length of care. As Kyle said, at the front end and at the back end, they could reduce payer reimbursement and they can actually lead to the Feds, the government asking for money. The rates of incidence of SSI after colorectal surgery are [ reportable events ]. They become publicly available. They're put on publicly available websites. And therefore, a higher than normal incidence of SSI can have a deleterious effect on hospital reputation. Anything, therefore, that we can do as health care providers, as surgeons, [ administrators of hospitals ] to reduce the incidence of SSI after colorectal surgery will have a significant clinical, economic and reputational benefit to hospitals and surgeons alike. And it's clear that the senior leadership team of any particular hospital is -- are truly aware of the clinical, economic and reputational implications of SSI and therefore, hold providers, such as Kyle and myself and clinical managers, accountable for their recurrence because a higher-than-normal incidence of SSI adversely affects the bottom line of the hospital. So I'm done. I'm going to hold -- I'm going to then pass it back on -- back to Ori. Thank you very much.

Thank you, Dr. Goodman. Next slide, please. One more. Okay. So how does this, what we heard from Dr. Cologne and Dr. Goodman, ties into the PolyPid and D-PLEX's story. We heard quite a lot of -- a big range of costs, both direct costs, penalties, reputations. We heard a wide range of infection rates, somewhere between 6% to 26% infection rate, maybe even higher depending on the population. So now as we think of our launch plan and how we position the product at launch, we went out and we asked surgeons, where would you start given this burden, given this -- both the patient burden and economic burden, where would you start? Which type of patient population would you try D-PLEX first? Next slide, please. So I'm just going to share one page from a recent market research that we completed. We asked doctors -- we heard from doctors, when we asked where would you start, they said the high-risk patients. So then we asked them, "Okay, what does that mean from your day-to-day high-risk patients?" And we ask doctors in this case, the colorectal surgeons, to look back at their past 100 surgeries and then trying to quantify how many outpatient and -- versus inpatient, how many open versus minimal invasive and how many high risk versus low risk. So as expected, the majority of [ resection ] surgeries are inpatient, but 30% to 40% of infect -- of surgeries are open versus minimally invasive. This was all kind of in line with what we were -- what we knew before. What was the interesting and new piece of information for us was the significant number of high-risk patients out of the total population. So overall, out of the total inpatient surgeries, 40% of them were defined by the doctor as a high-risk patient. Patients with multiple comorbidities, uncontrolled diabetes, smokers, high BMI, et cetera. The doctors we heard now, these are the patients that keep them up at night. These are the patients that they -- cause the majority of infections and costs -- and drive the costs up. And this is where -- coming out from the research, this is where we would want to focus D-PLEX at launch. So there's 40% of the population, right? So there's a quite large field for us to play in to introduce D-PLEX to. This is the view from the -- a colon bowel resection surgery. We went through the same process on hernia repair, on general abdominal surgeries, hysterectomies, other gynecological surgeries and so on. So we have -- the split in the numbers are -- vary depending on the surgery, but overall, the message that the high-risk patients are a big piece of this population kind of carries out throughout the different [indiscernible]. So this is really overall on the market research, maybe just to recap on our milestones and recent updates. Next slide, please. Yes. So we all heard that the DSMB recently recommended that we conclude our SHIELD I trial at 950 patients. Last patient in was announced on May 31. Overall, there were a total of 977 patients enrolled in the trial. This would be, as far as we know, the largest trial in colorectal surgery infection prevention in over a decade. Once the last patient in was operated on, we have to wait the 30 -- follow up for 30 days for efficacy, another 30 days for safety of the product. And then process and crunch the numbers. So we expect top line results by the end of third quarter this year, followed by a potential NDA submission that is targeted for the first half of 2023. Next slide, please. And with that, I think we have just enough time for Q&A. As a reminder, we have in addition to Dr. Cologne and Dr. Goodman, we have Dikla Czaczkes Akselbrad, our CFO and incoming CEO on the line; and with Dr. Tony Senagore, our Senior Director of Medical Affairs on the line. So Karen, passing it on to you for Q&A.

Great. Thank you, Ori. [Operator Instructions] So our first question comes from Elliot Wilbur from Raymond James.

Can you hear me all right?

Yes.

Thanks to Dr. Cologne and Dr. Goodman for a very well thought out and informative presentation. I wanted to ask for each of the doctors -- or to each other doctors to just basically sort of what -- walk us through sort of what they believe are some of the potential sticking points to adoption of D-PLEX, obviously, assuming the successful Phase III results and FDA approval and thinking about sort of the potential weight of just the compelling data with respect to the cost of surgical site infections itself versus what seems to be sort of an evolving school of thought or evolving set of penalties around the HAIs, which are more systemic in terms of sort of how institutions are sort of placing -- what sort of relative weight they're placing on those 2 different aspects of the value proposition here. And then just as a quick follow-up [ for -- by the doctors, if just maybe ] more specifically describe some of the penalties associated with HAIs. How much of -- the reimbursement clawback, is that systemic across the institution? Is it specifically limited only to reimbursement for surgical site infections? I just want to get a little bit better sense of sort of how the direct and indirect costs there sort of fit into the P&T committee's ultimate decision?

Kyle, do you want to start?

Yes. So I can tell you that on a case-to-case basis, everyone is very acutely aware. So you heard that everyone's looking at the data very -- with a fine tooth comb. Everyone's comparing themselves to their competitors. So we actually review every single surgical site infection that occurs because even reducing it by one makes a huge difference. So I almost feel sometimes like we're getting called into the principal's offices when you have to review all the different things that you did during that case. So anything that you can add that distinguishes yourself from your competitors and even reduces by 1 or 2, I think that's a huge win for the system. As far as the reimbursement, it's a little bit hard to tell when you're actually in the trenches of this. Because as you heard from Dr. Goodman, the reimbursement penalties come much, much later. The cases that you had SSI eyes on, you're not going to see that reimbursement penalty until 18 months later. And so -- but it does start to do things. So like just recently, we're looking at adding on quality metrics. And the hospital system has told us, "Hey, we're a little bit in the gray zone. We don't have the money to do that because of some of the other things that happened before." So that's really the kind of things that we're looking at. And as we said, any little things that you can do, reduce it by 1 or 2 is going to have a huge impact on the system.

Yes. I'm going to just confirm everything Kyle said. The -- there's such a big time lag between when Medicare comes back and say, "You owe us X amount of money for a particular set of services so long ago," but it is difficult sometimes to tie in, in real time, the penalty as it were the slap on the wrist for the particular care rendered. It is much more in real time, as Kyle said, on an individual basis, let's say, internally because we have an infection control team, which will look at every single case, let's say, in the operating room on the schedule for colorectal and track these patients in real time and then look at the EMR during the hospitalization and afterwards. And I can tell you, if you had any sort of [indiscernible] of a surgical site infection, that will generate a whole trail of e-mails and then there will be this sort [ of -- I'm quite ] calling it a witch hunt but there's a definite sort of, inquisition and looking at exactly what might have contributed to that surgical site infection because it has to be reported to Department of Health. And the infection control team will go back to the record and see, was every aspect of the bowel preparation and other aspects of the surgery care bundle followed? Did the patient get the [indiscernible]? Did the patient get the appropriate antibiotics? Was it a long case? And was there a second dose during the case? So even though on a sort of a network level, it's sometimes difficult to track the effect. On a patient-by-patient level, it's very real and the hospitals are tracking. So as Kyle said, hospitals can track the performance of each surgeon. I don't know about USC but at Mount Sinai, every year, there's a faculty evaluation where -- he said it's like going into the headmaster's office. You go into the chairman's office, and he pulls out a piece of paper from a file and says, "These are your scores," right? And it could include surgical site infection rate, remission, return to the operating room. And if you're not meeting your benchmark standards, then there's a problem and that they actually started to publish internally everybody's metrics so that you can now see how you are stacking up against everybody else. And everybody else can see your data compared to their own. So we're under the microscope and anything that we could do to reduce SSI occurrences takes the heat off our backs.

Next slide -- next question, please, Karen.

Yes. One second, Ori. So our next question comes from Gary Nachman from BMO Capital Markets.

Okay. Great. You guys can hear me?

Yes. Hey, Gary.

So Dr. Cologne and Dr. Goodman, my thanks as well for the presentation, and thank you, PolyPid for hosting. So for the doctors, why are SSI rates getting worse over time? What are the dynamics driving that? Why shouldn't they be getting better maybe with better awareness and tools? And also, why such a big difference in the rates, 6% to 26%. I think in colorectal, you said 9% to 41%. And is some of that potentially from inaccuracies of the data? So that's the first question. And then secondly, what's the magnitude of difference in SSI rates you hope to see from SHIELD I, the improvement from D-PLEX that you think would be considered compelling enough? Is 50% reduction the bogey, and especially if you're sitting at the lower end of the SSI rates?

I think in part, it's how accurate we are in terms of identifying them. If you think the 50% are diagnosed after the patient gets discharged and you're not really adequately documenting this in the chart, particularly if it's a mild infection. So I think that if rates are going up, it's probably reportable rates because we're being more accurate and being more honest. And maybe again, it's because somebody is looking over our shoulders as surgeons and we realize that we have to be more honest in terms of our reporting of -- the accuracy of reporting infection. So it may not be that it truly is becoming more of a problem, it's just -- we're just more honestly and accurately recording the incidents.

Yes, I would agree with that. And part of it was some of the data value, she was a little bit earlier. And so there definitely was a trend that was increasing. People started looking at it. You get the Hawthorne effect of looking at your data and started to signal up and then you start to put in place all these bundles and it's probably going to start to come down. So where exactly the true number falls in that range is very difficult to determine. I'll defer to some of the probably good people to answer the question of the number that we're looking for. But I think if you have one reduction particularly in these high-risk patients. For my practice, I only operate on high-risk patients in a tertiary coronary referral centers. All these patients are high BMI, over obese, big tumors in the pelvis, it's a setup for infection. So in some patients, you almost got them a 100% risk of an infection.

Gary, did that answer your question on the effect.

Yes. Maybe just a little bit more or just in terms of the bogey that you're hoping to achieve in SHIELD I. And then just back to the physicians, if at the lower end of the range, if you're at a 6% SSI rate if taking that down 50% is considered compelling enough from a cost standpoint?

So maybe, Dr. Cologne, you can answer the second part of the question, and then I'll ask Dr. Senagore to talk about kind of expectations from D-PLEX from the trial.

Yes. I shared in some of my slides that if you avoid the complication, you're -- you get to keep more money. And so in -- as the screws are being tightened and you get more and more your profit margin goes and gets shorter and shorter. Those 700,000, $2,500 are going to start to add up. And so yes, even if you are an outlier, reducing it by 50% is going to be key. The other thing is remember that everyone is doing it. So even the hospitals that are the best, if they don't do anything, they're going to become the middle of the pack and then the high outliers from a negative standpoint. So you have to keep always trying to drive that needle.

This is become maybe before and Tony add today that I would remind everyone that trial is designed to show 50% reduction of infections. So we are targeting 50%. We heard here that even 1% [Technical Difficulty] starting from 2%, but much higher. The high single digit to the double digit... [Technical Difficulty]

Dikla, we're having some trouble hearing you. Maybe Ori or Dr. Senagore could address it....

Yes. I'll let my surgical...

Can you hear me now?

Yes. We're having some trouble hearing you. Maybe Dr. Senagore could address it.

Thank you. I'll let my surgical colleagues fact check me, but I think we have to distinguish 2 issues. One, SHIELD I is designed methodologically to demonstrate a 50% reduction that is for a variety of reasons inherent to the study protocol. But I think it would be fair to say that meaningful clinical reductions could be really as small as 10% for in cost of additional therapeutic antibiotics, open wound management care for some period of time, loss of productivity for the patient who might not be able to go back to work, requires home care assistance. The costs really pile up, both on the inpatient and outpatient side. So a nominal percentage rate has a much higher economic impact than simply a percentage-based analysis.

Yes, and I would agree. Just thinking if each SSI costs in the tens of thousands of dollars, right, the patient to withstand and let's say 40-something thousand patients a year undergoing colorectal surgery had some form of SSI, right? You've 40,000x, 10%. That's 4,000 difference, 4,000x 20,000 do add millions of dollars when it's all aggregated across the country each year. So a 10% reduction in terms of dollars nationally each year, we're talking about millions and millions of dollars.

One of the concepts that I can add is that for certain operations, where the inherent risk may be lower like breast surgery, if you get an infection, it delays your ability to start the oncologic therapy. So that has significant long term [Technical Difficulty] for a patient who has to not start for chemotherapy or radiation therapy for 6 or 8 weeks. So there are a variety of important measures just beyond the nominal rate of infection that trouble or have multiples to the negative outcome.

Our next question comes from Brandon Folkes from Cantor Fitzgerald.

It's very helpful. Maybe just following along the lines of the earlier questions. I'd love to just get, I guess PolyPid and these surgeons inside into how willing do you think hospitals are to adopt this new technology outright, an approval versus perhaps wanting to run their own experienced trials within their hospitals post approval? And then maybe I'll ask my second question because it may go within those. What are some of the reasons that hospitals ratings vary so much? Do these correlate with budget constraints, putting this to adopt new technologies? Just any color there would be great. And then if you had to speculate, do you think that faster doctors are going to be the low-performing hospitals to improve their ratings? Or do you think it's going to be the high-performing hospitals not to become middle of the facts as I think Dr. Cologne mentioned.

Yes. So I can say that hospitals are very keenly aware of their ranking. So I would say to start with the last question first. The hospitals that tend to be the high performing hospitals, they're looking at this stay or they're going to be the first ones to see -- do an analysis of this is something that can help us even more. So I think you're going to see the biggest improvement in those folks. It tends to be a little bit reactive of some of the poorer performing hospitals, it's almost something not until the health department comes in and says, "Hey, your SSI rates are terrible, you need to do something." And then they start scrambling and looking because they don't want to avoid that 6% penalty because that has some big tea to be able to stick into things. As far as the hospital's willingness to adopt this technology, I think if you come to them and share with them, "Hey, this is the largest SSI trial in the last decade, with good results." The hospitals are much more likely to bring that in. It also has to do with the cost of the individual products. So if you say, "Hey, I've got this great product, it's going to cost $50,000 to do." The hospital is not going to be so excited about that. But on a per use basis, it's a reasonable cost. And by doing so, you avoid a big cost of the SSI, that's where I think hospitals are going to latch on to this.

I could add a couple of things. I tend to find that you probably have a good chance of getting a new technology in civil hospital. If it doesn't add more than about 15% to the cost of, let's say, a procedure as soon as it gets above 15%, they start to sort of scratch their heads and count the dollars in the sense more than looking at the clinical benefits. And in terms of which of the hospitals that want to do more to improve their reputations, et cetera. It's sort of a self-fulfilling prophecy. I think that a lot of the more, let's say, financially challenged hospitals just don't have the financial resources to employ people to look at quality improvement, quality improvement, it's all very well if, for instance, you track the incidence of SSIs, you pay the $50,000 a year to join the NSQIP database. But once identified probably you then have to act upon it and look into how you can improve it and then execute a plan to make the improvement. And that's expensive. So if you have a financially challenged hospital, they might with all the best within the world, want to make improvements, but they might not be able to afford it because to do so takes manpower and manpower costs money. On the other hand, you've got the high performers who perhaps are more financially robust, and they have the money to spend on this extra level of infrastructure to push through QI improvement processes. But it is a -- there's a lot about bragging rights. I mean if you look at New York City, you go up and down the highway, so all these huge billboards from Mount Sinai from NYU from NewYork-Presbyterian, we are the #1 or whatever in the state for so and so in particular specialty. So they really use these data publicly available data for the purposes of bragging rights. And the idea is, obviously, that if you've got something good to say about the hospital, you say it because it's going to build the reputation and it's going to bring in new business.

And I think just to finish out that point, there is a sort of war of attrition. So the poor performing hospitals is just not sustainable to have a 6% cut in your reimbursement to have these high-cost events that happen. Those hospitals are starting to go out of business. And so more and more, the patients are being taken care of at the high-performing hospitals. So as a percentage, that's where the patients are going now.

All they come in, right? Do you have a local hospital not doing well. And then the big academic network comes in and says, we'll acquire you and add you to our network because on your own in 2 years' time, you're going to be out of business. So there's a lot of sort of rationalization of care and within the opportunity, there are only a handful of networks because everything is being centralized and consolidated into a few networks. And the small hospitals come. They can't sustain themselves.

Our next question comes from Roy Buchanan from JMP Securities.

I guess the first one for Dr. Goodman. So wondering, you mentioned sometimes infections get lost because they happen after discharge. Maybe can you kind of benchmark what percentage of infections, I think you said maybe half get reported after discharge. What percentage actually do get attributed to the surgery eventually? And then you were describing a case in New York. Any sense you can give us about other states? Are they also generally required to report to the State Department? How does that work, if you know?

Second one, I'm pretty sure that most states require that sort of tracking. In terms of percentages for -- no, I'm sorry, the question was the percentage of infection, which perhaps are not getting reported as infections.

You said to think about half the surgeries generally get reported after discharge. How many of those are eventually attributed to the surgery or how many are lost, I guess.

Well, I think look, if you have an incision and there's redness of the skin and pus is draining out of the wound that, that is going to be attributed to the infection. Just one sort of related content. There's something called PATOS present at the time of surgery. That's in the other end, meaning sometimes patient comes in with an acute emergency, a perforation or a hole in the colon or the stomach, et cetera, and they develop a postoperative infection. The hospital there will make every effort to document that the reason that, that patient developed that postoperative SSI was because they came in with a belly full of infection, and it was PATOS present at the time of surgery because that SSI does not get sort of held against the hospital in terms of quality metrics, possible chlorine back on reimbursement. So I don't know necessarily about sort of misidentification of postoperative infections, but there's a significant effort taken by the hospital, the infection control team that if a patient comes in with an infection because of a perforation. That's not held against us. So they don't have to report it as a postoperative infection because it was present at the time of surgery, and it won't be held against the hospital in terms of metrics and dollars.

And if you take the methods for finding out if you had one after discharge, like NSQIP, for example, mandates a phone call to the patient with a series of questions. I said, did you have to go back to a hospital back to somewhere related to the surgery. And if they answer yes to that then there's another series of questions that happened to say, did you have an infection. So you're looking under rocks basically everywhere after surgery.

This is what stopped you looking over your shoulder.

Okay. Great. And I had a question kind of maybe related to pricing, we have a price of $600 for an open colorectal surgery. In our model, we're looking at numbers $1,000 to $3,000 maybe profit impact for the surgery itself up to $150,000 all-in, total costs pretty wide range. I guess, the question is on the higher end of that cost is coming more impacting the hospital, not direct to the surgeons say, I guess, how much power is the hospital is going to have to push on the surgeon and say, you need to use this product to get the cost down.

It's sort of difficult. But I'll say in the following that when we added and Tom mentioned this in his presentation, we added the antimicrobial suture that antibiotics sort of coated suture for closure of colorectal surgery, the hospital took great efforts to make sure that every surgeon was using it because it was found based on the data to make an impact on the reduction of size. So new technology, I don't know. But if something becomes the standard of care then the hospital will make sure that the standard of care is met by everybody and that each surgeon adheres to what the hospital places the stand.

Yes. So Elliot also mentioned the scorecards. So we have our bundle that we have. We have each surgeons rating in the bundle, and we distribute that to all of our surgeons. So if you see that you're green, you're using the elements of the bundle very well and your colleagues are red, you're good. But if you're one of those people that you're in the red and everybody else is in the green, you're like, "Oh my gosh, I'm going to be called into the principal's office. They're going to tell me, I can't operate anymore." Those are the types of things that do drive surgeon behavior because we're very competitive people.

Okay. Great. That's helpful. And one last question about the standard of care these sutures you're talking about and oral antibiotics. I guess, what -- in your experience or estimation, what's the utilization of those products?

I don't know other than just echo what Kyle said, every 3 months, we do at our QI, quality improvement committee, we look at the internal data for, let's say, colorectal surgery and the adherence of these protocols, these surgical care bundles. And if a particular site, for instance, is not meeting pretty high incidents of anybody following it, then an investigation is triggered, and it will drill down to individual surgeons, why is that surgeon, why is some other surgeon not following the protocol and including all of the various aspects of the bundle on all cases. So okay, it's tracked. And if you fall out of the normal range and you are suboptimal in your adherence, then you got to wrap on the knuckles.

So we started our bundle tracking with an ideal performance at 80%. And if you were above 80%, you are in the green. As more and more people got in the green, we upped that to make the ideal performance 90%. And then for antibiotics, we actually made it 95%, so the needle kept moving your target to be a high-performing surgeon. And so that's the kind of behavior the way you drive behavior is doing those types of quality reporting.

Right. I know we're out of time. Maybe I know there's one more question. So maybe let's do that question, final question quickly, and then we can wrap it up.

Yes. This is just from our Q&A list. We have -- we've had a question from -- which is with your experience, Dr. Goodman, Dr. Cologne, have you -- I don't know if you were part of the trial with regards to D-PLEX100, but what's -- you've been your experience? And maybe Dr. Senagore wants to address it more broadly, what's your experience with D-PLEX100, and if it is -- if data is positive eventually approved, what percentage of your patients or cases would you envision using it in?

I'm going to differ. So to Kyle or Tony.

I'll let Kyle speak, but I think that we've already kind of addressed the -- I'll let Kyle speak to that specifically. The published data that we do have out there publicly available as the 310 trial or earlier Phase II really parallels SHIELD I . And there was a significant 67% reduction overall, 57% specifically to infection reduction. So these are pretty dramatic changes to current standard of care.

And I think in terms of the number of cases, certainly that 40% or 50% of the high-risk patients will be using it in all of those. For me, that's the vast majority of my practice, but I realize out in other settings, it's going to be about half of patients would, for sure, qualify potentially more.

Right. And , I don't know if there's any data I know you've -- you basically have done a lot of market research. I don't know if there's anything you can carry away from speaking with both a large number of surgeons and hospital administrators.

Sorry, I missed the initial question.

I guess the question is, as a percentage, how broadly the product will be used. And I don't know if your market research has got them.

So when we spoke in market research, it was really -- we're showing a PPP, a mock PPP of what the results could be for D-PLEX. It was, I would tell really easy conversation to say, these high-risk patients, just like I showed on the page, right, 40% of my high-risk patients, that's where I'll start. But they all we can see how this expands very quickly for the general population, if the product does what they expect it will be.

Right. So the potential will naturally be added to this broad list of this checklist, if I would. Yes, Dikla.

No, I just wanted to say that we will use one of the coming quarterly call to elaborate more on what we've learned from the recent market research.

Great. We have one more question from Elliot Wilbur at Raymond James.

Real quickly. Thank you for taking the follow-up questions here. Just quickly for Dr. Cologne and Dr. Goodman. So the Phase III SHIELD trials designed to show an additive benefit versus current standard of care. I'm assuming that you both use preoperative systemic antibiotic protocols. And correct me if I'm wrong, but the data on those is mixed to arguably not very supportive in terms of effectiveness. And just trying to understand that if the data for D-PLEX reads out as some are anticipating. Why would it not emerge as the current standard of care? And then how important are sort of the cost aspects associated with those currently used protocols in terms of thinking about the pharmaco-economic aspects of the product?

So just to clarify, you're saying that the use of oral antibiotics is not considered standard?

No. Well, I'm assuming that you are using primarily intravenous antibiotics, and I may be incorrect in that. I know the trial allows for a broad range of utilization or a broad definition of standard of care. So I'm not sure what protocols you both use, but it doesn't seem like any of the clinical data out there, frankly, is all that compelling, at least what we've read, what we've seen with D-PLEX. So trying to understand what you sort of need to see in terms of D-PLEX potentially moving to standard of care and maybe displacing some of these historical protocols?

Yes. So if you look at the -- it's very difficult to -- if you're using all the aspects of a bundle at a well-performing hospital who already has a low incidence of SSI, that's probably the wrong place to study your thing because you're going to need such a huge number of patients to see a reduction versus, on the other hand, if you have a high pretest probability of an SSI and you add in this, that's really probably giving you your best indication of this one particular intervention of what it does. And that's been the problem with the bundles all along is people are just throwing everything at it. And so when you add in the next thing to the bundle, how much extra does that give you. That's hard to tell in and of itself. It's actually easier to tell you the individual impact if you are not using the bundle, you're using one thing that shows a 50%, 60% reduction. Then if you add that into the bundle, you're going to take that already low incidents and lower it even more. So I don't think the individual numbers per se are so important, but the results of these kind of trials actually are very compelling to tell hospitals, "Hey, this is the effect of the drug you can in fact see. You should use it."

And I assume that's what PolyPid is identifying the high-risk patient because with a much higher incidence than an elective case, the ability to move the needle is much greater if you identify the higher-risk patients, obese, diabetics, maybe the emergency presentations because otherwise adding just one extra component to a pretty big laundry list already of what to do is not really going to be seen to have a statistically significant effect unless you've got huge, huge, huge numbers of patients.

And if you look at the overall effect of the hospitals most likely to use it are probably the ones that are the high outliers to begin with. So Dr. Goodman in Mount Sinai, they're using antibiotic suture. I would doubt that sort of sophistication exists in some of the lower hospitals.

And one quick follow-up, if I may. So the hack reduction program and the penalties associated with it, I think SSIs are 1 of 5 components of that. And obviously, it's not limited to just colorectal surgery, but all of our discussion, of course, is focused largely on colorectal because that's where the -- that's the indication of pivotal trials being conducted in. But just thinking about this more broadly, any thoughts based on sort of just the potential utility of the product to address a wide range of soft tissue infections of utilization in the hospital systems without necessarily having the clinical data or having a label indication for surgeries outside of the colorectal setting.

I mean maybe hysterectomy, entering the reproductive tract, thoracic surgery. There are certain vascular procedures. Obviously, a lot of stuff now it's all stenting, but big open procedures in ischemic MEGs, diabetic patients, cardiovascular, obviously, high risk of infection there, and that would be perhaps another possible avenue of investigation. So I think a few other potential patients.

Yes, urology as well, opening the urinary tract actually gets you a higher PATOS, probably the surgical site infection than opening the colon.

Okay. Thank you, Elliot, and I think we're quite a lot over time. I want to thank everyone who joined the call. Our 2 speakers, Dr. Goodman, Dr. Cologne. Thank you for all the very detailed answers. I know there are a few questions that we didn't get a chance to get to. We will try to respond in writing to these questions. Thank you again, and we appreciate everyone joining this call.

All right, guys. Have fun.

Thank you, everyone.

Thank you, everyone.

Ori, Dr. Cologne, Dr. Goodman, thanks very much. Bye-bye.

Thank you, Bob.