Business Context and Reporting Period
ProKidney Corp. filed this unaudited Form 10-Q for the quarter ended September 30, 2022. It is a clinical-stage biotechnology company developing REACT, an autologous renal cell therapy for chronic kidney disease. The company reported no product revenue. Its development program includes a Phase 3 program and multiple Phase 2 trials in diabetic kidney disease, and a Phase 1 trial in CAKUT.
The business combination with Social Capital Suvretta Holdings Corp. III closed on July 11, 2022. ProKidney is structured as an Up-C, consolidating ProKidney LP while outside holders retain a substantial economic interest. Because the transaction changed the capital structure, 2022 per-share results cover only the period after closing and are not directly comparable with prior-year per-share results.
Financial Results and Liquidity
Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
| Metric | Q3 2022 | Nine months 2022 | Comparison / context |
|---|---|---|---|
| Revenue | $0 | $0 | No product revenue since inception; none expected in the near term. |
| Research and development expense | $21.1 | $61.2 | Prior-year comparable periods: $14.7 and $35.6. |
| General and administrative expense | $14.4 | $61.6 | Prior-year comparable periods: $2.3 and $5.8. |
| Total operating expenses / operating loss | $35.6 | $122.8 | Prior-year operating loss: $17.1 and $41.4. |
| Net loss before noncontrolling interest | $33.9 | $123.6 | Includes $22.0 million of loss attributed to noncontrolling interests in the 2022 periods. |
| Loss attributable to Class A shareholders | $11.9 | $101.5 | Q3 basic and diluted loss per share was $0.13, based on the post-combination period only. |
| Operating cash used | Not separately presented | $61.3 | Prior-year nine-month use was $37.3. |
No gross margin or operating margin is meaningful because the company had no revenue. Q3 interest income was $1.6 million; nine-month income tax expense was $2.2 million, primarily associated with the requirement to capitalize and amortize specified R&D costs under the TCJA.
At September 30, cash and cash equivalents were $506.3 million, versus $20.6 million at December 31, 2021. Current assets were $519.4 million and current liabilities $9.8 million. Total liabilities were $11.9 million. Lease liabilities totaled $2.1 million; the $35.0 million of related-party notes borrowed during the first nine months was repaid at the business-combination closing. The balance sheet also reported $1,616.9 million of redeemable noncontrolling interest, reflecting exchangeable interests in ProKidney LP; this is not conventional funded debt. Shareholders’ deficit was $1,096.3 million, including an accumulated deficit of $1,097.8 million.
Nine-month investing cash use was $1.4 million, primarily for equipment and facility expansion. Financing provided $548.5 million, mainly from the business combination and PIPE. The transaction generated approximately $596.5 million in gross proceeds, including a $574.8 million PIPE; reported cash proceeds from the combination, net of associated costs, were $542.5 million. Equity-based compensation was $65.5 million for the nine months, a significant noncash expense.
Material Changes Versus Prior Comparable Period
- Nine-month operating expenses increased $81.4 million year over year. R&D increased $25.6 million, while G&A increased $55.8 million.
- R&D included a $14.1 million charge for equity issued to a service provider for prior-period services, plus higher compensation and manufacturing-related costs; lower clinical-trial spending partly offset the increase.
- G&A growth reflected equity compensation, including $33.0 million related to Class B-1 units sold below estimated fair value and $11.2 million from award modifications and additional grants, as well as public-company costs, insurance, and professional fees.
- Operating cash use rose by approximately $24.0 million. Noncash compensation materially widened the gap between reported net loss and operating cash use.
- Cash increased following the July 2022 business combination and PIPE financing; prior-year cash balances and financing were substantially lower.
Outlook, Risks, and Other Items
Management estimated that cash and business-combination proceeds would fund operating expenses and capital requirements through 2024, while also cautioning that assumptions could prove wrong and funds could be exhausted sooner. Management stated that liquidity was sufficient for more than 12 months after issuance of the financial statements and that substantial doubt about going concern had been alleviated. The company expects significant ongoing losses and increased R&D and public-company costs; it gave no product-sales or profitability guidance and cannot predict when, if ever, it will generate revenue or positive operating cash flow.
Key risks include clinical-trial execution and enrollment, regulatory approval, manufacturing and supply availability, pricing and market access, and the need for additional capital. Future equity or convertible-debt financing could dilute shareholders; collaboration financing could require concessions in rights or economics. The filing also identifies potential disruption from COVID-19, inflation, supply-chain constraints, rising interest rates, and the Russia-Ukraine conflict, although no material impact from these factors was reported to date. The company reported no material legal proceedings. Management said disclosure controls were effective and that a previously identified material weakness in accounting for complex financial instruments had been remediated.
Other items to monitor include the tax receivable agreement, under which eligible former ProKidney unitholders may receive 85% of certain realized tax savings; no related liability was recorded at quarter-end. Approximately 73.6% of ProKidney LP’s economic interest was held by noncontrolling holders. Subsequent to quarter-end, the company granted employee options and CEO performance-based options tied to share-price thresholds.
Important Facts for Investors to Verify
- Clinical progress, enrollment, safety and efficacy outcomes, and timing for REACT’s Phase 3 and other trials.
- Whether the stated cash runway through 2024 remains achievable as trial, manufacturing, and public-company spending grows.
- Cash-burn trends excluding large noncash equity-compensation charges, and the size and timing of future equity awards.
- The terms and potential shareholder impact of exchange rights, earnout awards, lock-ups, the tax receivable agreement, and the noncontrolling interest.
- Any changes in regulatory requirements, manufacturing capacity, supply availability, or the company’s ability to secure future financing.