Humacyte, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The unaudited statements compare with the corresponding 2020 periods. On August 26, 2021, Humacyte completed its merger with Alpha Healthcare Acquisition Corp. (AHAC); the transaction was accounted for as a reverse recapitalization.
Business context and financial performance
Humacyte is developing off-the-shelf bioengineered human tissues, initially focusing on human acellular vessels (HAVs). It has generated no product revenue; reported revenue is from government and other grants.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Grant revenue | $0.2 million | $0.9 million | $1.1 million | $1.4 million |
| Research and development | $15.4 million | $14.7 million | $45.1 million | $40.9 million |
| General and administrative | $5.4 million | $3.4 million | $15.6 million | $9.4 million |
| Operating loss | $20.5 million | $17.2 million | $59.6 million | $48.9 million |
| Net loss | $31.6 million | $17.8 million | $69.1 million | $50.3 million |
| Net loss per share, basic and diluted | $0.72 | $3.07 | $3.69 | $8.74 |
| Cash used in operating activities | Not separately stated | Not separately stated | $59.7 million | $40.4 million |
No product gross margin is reported because the company has not generated product sales. The filing does not provide a meaningful operating margin measure for its grant-funded, pre-commercial business.
Liquidity, debt and capital structure
- Cash and cash equivalents were $240.4 million at September 30, 2021, versus $39.9 million at December 31, 2020. Working capital was $222.9 million, versus $30.2 million.
- Financing cash flow was $260.4 million for the first nine months, primarily from $242.4 million of merger and PIPE proceeds and $19.7 million of SVB loan proceeds. The company reported cash of $240.4 million at quarter-end.
- At September 30, $20.0 million principal was outstanding under the SVB facility, with a $17.9 million carrying amount after discounts and related adjustments. The facility permits up to $50.0 million, subject to milestone and other conditions; interest was 7.5% at quarter-end.
- On October 13, 2021, Humacyte drew another $10.0 million, bringing principal outstanding to $30.0 million and deferring principal repayment to no earlier than July 2023. The loan is secured by substantially all assets except intellectual property.
- Total liabilities were $227.5 million, including a $169.2 million contingent earnout liability. Finance lease obligations totaled approximately $23.5 million; contractual obligations also included $12.4 million of noncancelable purchase commitments.
- The merger and PIPE converted Legacy Humacyte preferred stock into common stock. Humacyte had 103.0 million common shares outstanding at September 30 and November 4, 2021.
Material changes versus prior comparable periods
- Q3 grant revenue declined 74% year over year, principally because an NIH grant program had ended and DoD reimbursement timing differed. Nine-month revenue declined 21% for the same NIH grant wind-down.
- Operating expenses rose 15% in Q3 and 21% for the first nine months. R&D growth reflected staffing and development activity; G&A increases included public-company, professional-services, insurance and stock-compensation costs.
- Net loss increased 78% in Q3 and 37% for the first nine months. Q3 included a $9.8 million noncash loss from remeasuring the contingent earnout liability and higher interest expense. Nine-month results also included a $3.3 million gain from PPP loan forgiveness.
- Operating cash use increased to $59.7 million from $40.4 million for the first nine months, including $12.4 million of payments for liabilities assumed in the merger.
Outlook, commentary and risks
- Management expects substantial operating losses and negative operating cash flows for the foreseeable future. It believes quarter-end cash is sufficient to fund operations, clinical trials and capital needs for at least 12 months from the report date.
- R&D spending is expected to increase as the company advances clinical development and manufacturing capabilities. Management cites Phase III work on its 6 mm HAV and other development activities as key resource priorities; the filing gives no specific financial guidance or expected approval or launch date.
- Principal uncertainties include clinical-trial enrollment and outcomes, regulatory approval, manufacturing scale-up, market adoption and reimbursement, reliance on third parties and strategic partners, intellectual-property protection, and access to future capital. COVID-19-related supply-chain, facility, trial and regulatory disruption remains a risk, although the company reported no material financial impact to date.
- The $169.2 million earnout liability is a Level 3 fair-value estimate based on unobservable assumptions; its $9.8 million period increase was noncash. Up to 15 million earnout shares may be issued if specified stock-price thresholds are achieved.
- Humacyte reported no legal proceedings believed likely to have a material adverse effect. Management concluded disclosure controls were effective at September 30 and stated that the prior AHAC warrant-accounting material weakness did not exist post-merger.
Important facts for investors to verify
- Progress, enrollment, safety and results in the HAV clinical trials, and the regulatory path and timing for proposed indications.
- Cash burn and runway relative to planned clinical, manufacturing and commercialization spending; availability and conditions for remaining SVB loan tranches.
- Whether grant revenue continues to decline and how much future funding depends on grants, partners or additional capital.
- Terms and potential dilution from the contingent earnout, warrants, options and equity plans, as well as changes in the earnout fair-value estimate.
- Execution and economics of the Fresenius Medical Care distribution arrangement, including market-entry milestones, commercialization responsibilities and revenue sharing.