Humacyte, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; filed August 14, 2023. Humacyte is a clinical-stage biotechnology company developing bioengineered human acellular vessels (HAVs) and other tissue products. It has not generated product revenue and continues to fund research, clinical development, and commercial preparation.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $1.3 million | $0 | $1.5 million |
| Research and development expense | $20.5 million | $14.7 million | $37.8 million | $31.0 million |
| General and administrative expense | $6.2 million | $5.2 million | $11.4 million | $10.9 million |
| Operating loss | $26.7 million | $18.5 million | $49.2 million | $40.3 million |
| Net income (loss) | $(22.7) million | $36.9 million | $(59.7) million | $17.0 million |
| Operating cash used | Not stated quarterly | Not stated quarterly | $41.2 million | $35.4 million |
- Margins: No product sales were reported, so product gross margin is not meaningful; the filing does not provide a clear gross-margin measure.
- Cash and liquidity: Cash and cash equivalents were $114.6 million at June 30, 2023, down from $149.8 million at December 31, 2022. Working capital was $109.2 million, versus $134.6 million at year-end 2022. Management believes available cash will fund operations, including clinical trials and capital expenditures, for at least 12 months from the report date.
- Cash flow: Six-month investing cash flow was positive $0.5 million, mainly reflecting matured certificates of deposit, partly offset by $1.6 million of property and equipment purchases. Financing cash flow was positive $5.6 million, including revenue-interest financing proceeds and repayment of the SVB loan. Cash declined by $35.2 million over the six months.
- Debt and obligations: The SVB loan was repaid in full in May. At June 30, the company reported a $36.2 million revenue interest liability, $20.0 million in finance lease obligations, and $38.5 million in contingent earnout liability. The revenue-interest liability’s estimated effective annual interest rate was 15.3%.
Material changes versus the prior period
- No grant revenue was recognized in the first half of 2023, compared with $1.5 million in the first half of 2022. The prior-year revenue came from a Department of Defense grant program that ended in November 2022.
- Six-month R&D expense rose 22%, primarily due to increased clinical-development, external-service, and personnel costs. Management linked spending to vascular-trauma trial completion and planned BLA preparation, as well as expanded hemodialysis AV-access development.
- Six-month net results shifted from $17.0 million income to a $59.7 million loss. The comparison is heavily affected by non-cash fair-value movements in the contingent earnout liability: a $10.6 million loss in 2023 versus a $59.6 million gain in 2022. The 2023 period also included a $2.4 million debt-extinguishment loss and a $3.1 million employee retention credit.
- Operating cash use increased by $5.9 million year over year, which management attributed mainly to greater clinical, preclinical, pre-commercial, and personnel spending.
Financing, outlook, and risks
- In May 2023, Humacyte entered a revenue-interest purchase agreement for up to $150 million. It received an initial $40 million gross payment, less transaction expenses, and used it to repay the SVB facility. Up to a further $110 million is conditional: $20 million upon acceptance of a vascular-trauma BLA by March 31, 2024; $40 million, at the company’s option, upon FDA approval by December 31, 2024; and $50 million, at its option, upon reaching specified sales by December 31, 2025. Later tranches depend on prior conditions and funding.
- The agreement initially provides purchasers a 7.5% royalty on global net sales, subject to specified terms and possible rate adjustments. It also restricts additional indebtedness without purchaser consent; the obligations are secured by substantially all company and subsidiary assets. The company reported covenant compliance at June 30.
- Management expects substantial operating losses and negative operating cash flows for the foreseeable future, with spending expected to increase for trials, regulatory submissions, manufacturing scale-up, and potential commercialization. The filing says no additional committed external funding source exists beyond the purchase agreement. Future capital may be unavailable or dilutive, and inability to raise funds could require delaying or reducing programs.
- Clinical milestones: the Phase 3 hemodialysis AV-access trial had completed enrollment in March; results were expected in 2024 after one-year follow-up. The filing reports that in July 2023 the company announced completion of enrollment in its extremity vascular-trauma Phase 2/3 trial and planned to release results, subject to primary analysis, and submit a BLA before year-end 2023. The HAV had received FDA RMAT designation for urgent arterial repair following extremity vascular trauma in May 2023.
- Other risks include clinical and regulatory uncertainty, manufacturing scale-up, market acceptance and reimbursement, reliance on third parties and strategic partners, and possible future equity dilution. No legal proceedings were identified as expected to have a material adverse effect. Management reported disclosure controls were effective as of June 30, 2023.
Important facts for investors to verify
- Whether the vascular-trauma trial results support the planned BLA timeline, and whether the FDA accepts and approves the application.
- Whether the hemodialysis AV-access trial produces results in 2024 that support regulatory progress.
- Availability and conditions of the remaining revenue-interest financing tranches, including the BLA, approval, and sales triggers.
- Cash burn, liquidity runway, and the impact of the 15.3% estimated effective financing rate and sales-linked repayment terms.
- Potential dilution from 5.6 million outstanding warrants, 7.3 million options, the up-to-$10 million share option, and other reserved shares.