Humacyte, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; filed November 10, 2022. Humacyte is a clinical-stage biotechnology company developing bioengineered human acellular vessels (HAVs). It has not generated product revenue; reported revenue is grant revenue, entirely from a Department of Defense award during the periods presented.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Grant revenue | $31,000 | $241,000 | $1.565 million | $1.086 million |
| Research and development expense | $17.337 million | $15.386 million | $48.303 million | $45.091 million |
| General and administrative expense | $6.188 million | $5.398 million | $17.050 million | $15.576 million |
| Operating loss | $23.494 million | $20.543 million | $63.788 million | $59.581 million |
| Net loss | $25.281 million | $31.563 million | $8.245 million | $69.062 million |
| Basic and diluted loss per share | $0.25 | $0.72 | $0.08 | $3.69 |
Gross margin is not meaningful because the company has no product sales. For the nine months, operating cash flow was negative $52.170 million, versus negative $59.742 million in 2021. Investing cash flow was negative $0.367 million; financing cash flow was negative $1.234 million, compared with positive $260.437 million in 2021, which included merger and PIPE proceeds. Cash and cash equivalents were $163.731 million at September 30, 2022; including $8.0 million of short-term investments, total cash and investments were $171.731 million. The company reported working capital of $156.7 million.
At September 30, 2022, total assets were $226.219 million, total liabilities $107.547 million, and stockholders’ equity $118.672 million. SVB loan principal outstanding was $30.0 million (carrying amount, net, $28.572 million); the stated interest rate was 10.50%. The loan matures March 2025, with principal repayment beginning as early as July 2023. The company also had finance-lease obligations, including $30.107 million of future contractual payments.
Material changes versus the prior comparable period
- Q3 operating loss increased $2.951 million year over year as R&D and G&A spending rose; grant revenue declined by $210,000.
- Q3 net loss narrowed by $6.282 million, primarily because the non-cash loss from remeasuring the contingent earnout liability was smaller than in Q3 2021.
- Nine-month net loss fell sharply year over year, but this does not indicate improved operating performance: 2022 included a $58.649 million non-cash gain from the earnout liability’s fair-value remeasurement. Operating loss increased $4.207 million. The 2021 comparison also included a $3.284 million PPP-loan forgiveness gain.
- Cash and short-term investments declined from $225.502 million at December 31, 2021 to $171.731 million at September 30, 2022. Management attributed lower operating cash use versus 2021 partly to $12.4 million of merger-assumed liabilities paid in 2021.
Outlook, risks and unusual items
- Management expects substantial operating losses and negative operating cash flows for the foreseeable future. It believes cash and short-term investments will fund operations, clinical-trial expenses and capital expenditures for at least 12 months from the filing date.
- The company is conducting Phase II/III and Phase III trials of its 6 mm HAV for vascular trauma and hemodialysis AV access, and continuing long-term follow-up in Phase II PAD studies. It said it intended to submit a BLA for vascular trauma in mid-2023 after completing Phase III trials.
- On September 1, 2022, Humacyte established an at-the-market facility to sell up to $80 million of common stock; it had made no sales under the facility as of September 30. Future funding needs may require equity or debt financing, collaborations, or grants; additional capital may be unavailable or dilutive.
- Two additional $10 million SVB loan tranches were potentially available subject to conditions, including BLA submission and approval milestones. The loan is secured by substantially all assets except intellectual property; the company reported covenant compliance at quarter-end.
- Non-cancellable purchase commitments for supplies and services, primarily R&D, totaled $16.8 million. The company reported no known legal proceedings it believed would materially adversely affect it. It reported no material change to the risk factors in its 2021 Form 10-K and said disclosure controls were effective.
- The $45.011 million contingent earnout liability is a Level 3 fair-value estimate tied to share-price milestones; its $58.649 million nine-month remeasurement gain was non-cash. Up to 15 million additional shares may be issued if specified stock-price thresholds are met.
- Management identified potential clinical, regulatory, manufacturing, supply-chain, reimbursement, intellectual-property and financing risks. COVID-19 had disrupted supply chains and facilities historically; the company reported no material financial impact or asset impairment from the pandemic to date.
Important facts for investors to verify
- Progress, enrollment, outcomes and FDA feedback for the HAV trials, including whether the planned vascular-trauma BLA timing remains achievable.
- Cash burn, expected runway and capital needs relative to clinical, manufacturing and commercialization spending; any ATM sales or other financing.
- Whether conditions for the remaining SVB loan tranches can be met, and the impact of the variable interest rate and scheduled principal repayments.
- The assumptions behind the contingent earnout and warrant valuations, and potential dilution from earnout shares, options and warrants.
- Manufacturing scale-up, supply continuity, and the terms and execution of the Fresenius Medical Care distribution relationship.