ProKidney Corp. — Q1 2023 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2023. ProKidney is a clinical-stage biotechnology company developing REACT, an autologous renal cell therapy for chronic kidney disease. It reported no product revenue and remains dependent on external capital. The consolidated results include PKLP, in which ProKidney held a 26.2% economic interest; other holders’ 73.8% interest is presented as redeemable noncontrolling interest.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $25.6 million | $28.5 million |
| General and administrative expense | $15.3 million | $38.0 million |
| Total operating expense / operating loss | $40.9 million | $66.5 million |
| Interest income | $5.3 million | None |
| Net loss before noncontrolling interest | $36.9 million | $67.5 million |
| Net loss attributable to Class A shareholders | $9.7 million; $0.16 per share | Per-share comparison not presented; capital structure changed after the July 2022 business combination |
| Cash used in operating activities | $26.0 million | $15.5 million |
At March 31, cash and cash equivalents were $271.6 million and marketable securities were $192.0 million, totaling $463.7 million. Total current assets were $480.1 million and total current liabilities were $11.3 million. The company reported $14.2 million of total liabilities, including approximately $3.1 million of lease liabilities; no borrowings were reported at quarter-end. Q1 investing cash outflow was $192.6 million, primarily purchases of marketable securities, and financing cash outflow was negligible. Management said existing cash, cash equivalents and marketable securities should fund operating expenses and capital requirements through 2024, subject to assumptions that could prove incorrect.
Material changes and unusual items
- Operating expenses fell $25.6 million year over year. R&D decreased $2.9 million, while G&A decreased $22.7 million. Management attributed much of the decline to lower equity-based compensation: Q1 2022 included substantial noncash charges, including a third-party award adjustment and unit sales below fair value.
- Q1 2023 equity-based compensation was $13.0 million, versus $52.7 million in Q1 2022. Q1 2023 included a $3.0 million expense from modifying separated employees’ stock-option vesting terms.
- Operating cash use increased by about $10.5 million year over year, in part because Q1 2022 noncash stock compensation was substantially higher.
- Redeemable noncontrolling interest rose to $2.08 billion from $1.60 billion, including a $509.5 million increase in redemption value. It is measured at the higher of specified carrying-value and redemption-value measures; this accounting balance substantially exceeds reported liabilities and drives the shareholders’ deficit presentation.
Outlook, risks and contingencies
- REGEN-007 Phase 2 enrollment was completed at 53 subjects; interim data was anticipated in late 2023. REGEN-006 (proact 1) Phase 3 continued enrolling, with initial interim data expected at the end of 2024 and planned enrollment of 600. Enrollment in planned REGEN-016 (proact 2) Phase 3 was expected to begin in the second half of 2023; interim data was planned for late 2025. The company described potential conditional FDA approval in late 2026 as an anticipated possibility, not an assured outcome.
- Management expects R&D and G&A expenses to increase significantly as clinical development advances and the company expands operations. It anticipates needing substantial additional funding; future equity or convertible financing could dilute shareholders, while debt or collaborations could impose restrictions or require rights concessions.
- Key uncertainties include clinical-trial timing, enrollment, safety and efficacy, regulatory approval, manufacturing, and the ability to obtain financing. The filing also discusses possible disruption from COVID-19, though no significant financial or operational impact had occurred to date.
- No material legal proceedings or off-balance-sheet arrangements were reported. The company disclosed a tax receivable agreement requiring payment to certain former unitholders of 85% of qualifying tax savings, if realized; no liability was recorded because no triggering transactions had occurred.
- Management stated disclosure controls were effective as of March 31, 2023 and that the previously reported material weakness related to complex financial instruments had been remediated.
Important facts for investors to verify
- Whether clinical-trial enrollment, interim-data timelines and anticipated regulatory milestones remain on schedule.
- Whether the stated runway through 2024 remains supported by updated cash forecasts and development spending.
- How the redeemable noncontrolling interest and exchange rights affect ProKidney shareholders’ economic interest and potential cash or share dilution.
- Expected future stock-based compensation expense and the implications of the substantial unrecognized award compensation disclosed in the filing.
- Potential future obligations under the tax receivable agreement and any material changes to financing needs or risk disclosures.