HUMAW - Humacyte Inc. (HUMA) Q1 2023 Earnings Call Transcript
2023-05-12 11:27:02 ET
Humacyte Inc. (HUMA)
Q1 2023 Results Conference Call
May 12, 2023 08:00 AM ET
Company Participants
Lauren Marek - LifeSci Advisors
Laura Niklason - Founder, President, CEO and Director
Dale Sander - CFO, Chief Corporate Development Officer and Treasurer
Conference Call Participants
Phil Dantoin - Piper Sandler
Ryan Zimmerman - BTIG
Joshua Jennings - TD Cowen
Suraj Kalia - Oppenheimer & Company
Bruce Jackson - Benchmark Company
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the Humacyte First Quarter Results Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded.
I'll now turn the call over to Lauren Marek with LifeSci Advisors. Please go ahead.
Lauren Marek
Thank you, operator. Before we proceed with the call, I would like to remind everyone that certain statements made during this call are forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. Additional information concerning factors that could cause actual results to differ from statements made on this call is contained in our periodic reports filed with the SEC.
The forward-looking statements made during this call speak only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, except as required by law. Information presented on this call is contained in the press release we issued this morning and in our Form 10-Q, which after filing may be accessed from the Investors page of the Humacyte website.
Joining me on today's call from Humacyte are Dr. Laura Niklason, President and Chief Executive Officer; Dale Sander, Chief Financial Officer and Chief Corporate Development Officer and Dr. Heather Prichard, Chief Operating Officer. Dr. Niklason will provide a summary of the company's progress during the quarter and recent weeks, and Dale will review the company's financial results for the quarter ended March 31, 2023. Following their prepared remarks, the management team will be available for your questions.
I will now turn the call over to Dr. Niklason.
Laura Niklason
Thank you, Lauren. Good morning, everyone, and thank you for joining us for our first quarter 2023 financial results and business update call. This quarter was highly productive for Humacyte as we continued to advance our universally implantable bioengineered human tissue product candidate or the Human Acellular Vessel, or HAV, in multiple indications. We completed enrollment of our Phase III HAV trial and arteriovenous access in late March, and we're very close to completing enrollment of our Phase III trial in vascular trauma.
We also recently received the Regenerative Medicine Advanced Therapy designation from the FDA for the HAV and arterial repair following extremity vascular trauma. This makes the second indication for which the HAV has received the RMAT designation from the FDA. In addition, we continue to add to the growing body of scientific publications highlighting the clinical potential of the HAV.
And lastly, we recently announced our collaboration with the Juvenile Diabetes Research Foundation, or JDRF to advance our biovascular pancreas product candidate. During this call, I'll review these recent highlights in more detail before turning the call over to Dale for a review of our financial results. Then we'll be happy to open up the call for your questions.
I'll begin with our HAV program in vascular trauma. We're excited to have recently received the FDA's Regenerative Medicine Advanced Therapy, or RMAT designation for the HAV for urgent arterial repair following extremity vascular trauma. This is Humacyte's second RMAT designation for the HAV, the first being for arteriovenous access for hemodialysis.
With the RMAT designation in extremity vascular trauma as well as our previously received priority designation from the defense department, we anticipate a higher potential for priority review of our planned BLA filing in the trauma indication. Regarding our Phase II/III V005 trial in vascular trauma, we're very close to enrollment completion. As you may recall from our discussion last quarter, the efficacy endpoint of the HAV in the V005 trial will be based on 30-day patency in 50 patients who suffered vascular trauma of an extremity, either the arm or the leg. To date, we currently have a total of 66 patients who have received the HAV in the V005 trial, 49 of which comprise the primary endpoint population of extremity injuries.
We plan to file a BLA with the FDA later in 2023 after we have enrolled 50 or more patients with extremity injuries. This BLA will be for the treatment of extremity vascular trauma when synthetic graft is not indicated and when autologous vein is not feasible. We believe that our plans for the BLA filing, including the primary efficacy analysis in extremity patients, are consistent with the pre-BLA meeting and with other discussions that we've had with the FDA over the past several months.
The potential of the HAV and vascular trauma was further highlighted in 2 recent peer-reviewed publications. In April of 2023, a preclinical study of the HAV compared ePTFE graphs, which are Teflon grafts in vascular repair following arterial trauma in a porcine model that was published in the Journal of Trauma and acute care surgery. Results from this study suggested that the HAV is potentially superior to ePTFE across multiple metrics, including recovery of limb function after prolonged ischemia, conduit patency and host recellularization.
Importantly, the HAV showed no evidence of infection, degradation, aneurysm or mechanical failure in the study. In addition, as announced earlier this week, a letter describing the use of the HAV to treat battlefield and other vascular trauma injuries in Ukraine was published in the Lancet Regional Health Europe. This publication describes how Ukrainian surgeons are using the HAV to save life and limb in a war time setting and also reports clinical outcomes of the first 9 patients treated with the HAV in Ukraine.
Since June of 2022, a total of 19 patients have been treated with the HAV under our humanitarian program with most patients sustaining vascular injuries from blast and shrapnel and with overall excellent outcomes to date. We continue to be grateful to our Ukrainian colleagues and to all of those involved in the humanitarian program for their support, and we're proud to help these medical professionals save lives during this conflict.
Turning now to our trial of the HAV in arteriovenous access in hemodialysis patients. We recently announced completion of enrollment of our Phase III V007 trial. We're pleased to have reached this milestone that brings us closer to a planned BLA filing in this indication. As a reminder, the V007 trial is designed to compare the HAV to an arteriovenous fistula in 240 hemodialysis patients suffering from end-stage renal disease. This trial will evaluate the usability of the conduit for dialysis during the first year with top line results that are anticipated to be available in 2024.
Finally, we're happy to announce our collaboration with the Juvenile Diabetes Research Foundation, or JDRF, which is the world's largest nonprofit funder of type 1 diabetes research. Humacyte and the JDRF will collaborate on the development of Humacyte biovascular pancreas or BVP, which is our product candidate for the treatment of patients with type 1 diabetes. The BVP is designed to enable the delivery and survival of insulin-producing islets, using the HAV as a carrier for delivery into the patient.
We believe that the BVP has the potential to transform the treatment of type 1 diabetes, and we're thrilled to have JDRF support in advancing this technology.
And with that, I'll now turn it over to Dale for a review of our financial results and other business developments.
Dale Sander
Thank you, Laura. As of March 31, 2023, we reported cash, cash equivalents and short-term investments of $131.7 million. We are pleased to report the completion of an up to $160 million funding arrangement with Oberland Capital, the details of which were in today's press release. The agreement allows us to extend our cash runway while ensuring adequate resources for the planned commercial launch of the HAV in vascular trauma.
We believe that our cash equivalents and short-term investments and planned funding from the agreement are adequate to fund operations well past our expected time lines for potential approval of the HAV in vascular trauma. Regarding the quarterly financial results, there was no revenue for the first quarter of 2023 compared to $0.2 million for the first quarter of 2022.
Revenue for 2022 was related to a grant supporting development of the HAV. Research and development expenses were $17.3 million for the first quarter of 2023 compared to $16.3 million for the first quarter of 2022. The current period increase resulted primarily from increased personnel expenses to support our expanded research and development initiatives and support of clinical trials.
General and administrative expenses were $5.2 million for the first quarter of 2023 compared to $5.7 million for the first quarter of 2022. The current year decrease resulted primarily from reduced professional fees in 2023.
Other net expense totaled $14.5 million for the first quarter of 2023 compared to other net income of $1.9 million for the first quarter of 2022. The current period increase in other net expense resulted primarily from the remeasurement of the contingent earn-out liability associated with our August 2021 merger with Alpha Healthcare Acquisition Corp. Net loss was $37 million for the first quarter of 2023 and compared to $19.8 million for the first quarter of 2022. The current period increase in net loss resulted from the increase in other net expenses described previously.
Net cash used in operations was $18.6 million for the first quarter of 2023 compared to $18.8 million for the first quarter of 2022. Total net cash used was $20.2 million for the first quarter of 2023 compared to $19.3 million for the first quarter of 2022, with the current year increase related to purchases of property and equipment to prepare for the planned commercial launch of HAV.
With that, I'll turn it back over to Laura for concluding remarks.
Laura Niklason
Thank you, Dale. And to conclude, we've already made significant progress in 2023 in our late-stage HAV programs in vascular trauma NAV access. We're excited to be moving closer to BLA filings in both indications, all while continuing to make progress in our earlier stage HAV programs like the BVP. We look forward to continued momentum throughout the remainder of the year, and I'll keep you apprised of further updates as we approach clinical and regulatory milestones.
Operator, we are ready to take questions.
Question-and-Answer Session
Operator
[Operator Instructions]. And our first question comes from the line of Matthew O'Brien with Piper Sandler. Please proceed with your question.
Phil Dantoin
This is Phil on for Matt. Happy Friday. Congrats on the recent financing, I was just curious on the mechanics as it relates to their future royalties of the HAV. Are these royalties for all indications or just trauma? And is it a flat rate or per HAV or a percentage of revenues?
Dale Sander
Yes. Paul, happy to answer that. The full details or more details of the arrangement will be in our 10-Q filing that comes out later today. But essentially, it's a royalty on revenues during the period of the repayment. Yes, I think there'll be -- it's a single-digit royalty that when we compared it to debt arrangements that were available to us, it's very similar from a net present value, but tends to shift the payments to those periods where we can best repay what is essentially a debt arrangement by matching our revenues with the repayment obligation, but the full mechanics will be outlined in the 10-Q today.
Phil Dantoin
And then just one on the V005 enrollment. I just wanted to confirm if 52 extremity patients is still the goal here given you wanted to enroll 6 more patients during the last quarterly call. And I was just wondering if you were still tracking to about 1 patient per month. And is there any update on getting the Ukrainian sites up and running?
Laura Niklason
Right. So the Ukrainian sites are still enrolling in the humanitarian effort. They're not up and running yet as part of V005. We have had an uptick in enrollment. We enrolled 3 patients in April, and we had been tracking around 1 patient per month. So we have had a recent uptick. We're still aiming to go perhaps 1 or 2 patients past 50, as we had said earlier, in order just to give us a little cushion, but right now, we're at 49.
Operator
Our next question is from the line of Ryan Zimmerman with BTIG. Please proceed with your question.
Ryan Zimmerman
Congrats on all the progress. Laura and Dale, it's nice to see. On the recent financing agreement, and this is more directed for Laura, but with the additional capital, understand that the vascular trauma in the AV access trials are enrolling and those milestones are on track. Do you anticipate pulling forward any of your other pipeline programs with the additional capital now?
Laura Niklason
Yes, Ryan, that's an interesting question. right now, our pipeline programs as far as the BVP and our CABG program are proceeding on track because these are still preclinical programs, even though we're in primates, the actual spend there is really pretty minor, certainly less than 10% of our budget. So I don't see huge changes in those long-term programs over the next couple of years, although it depends on what we find in terms of our results. If things are really encouraging and exciting, then yes, we might do further investments in those.
Ryan Zimmerman
Makes sense, Laura. And then with the financing agreement today, is there any change in how you think about your commercial strategy or any impact related to your existing agreements with Fresenius. Just curious kind of how this dynamic may shift your thinking commercially.
Laura Niklason
Well, certainly, we had always felt and we have communicated previously that the cash that we had on hand even before this financing was certainly sufficient to do the commercial launch and get us into the market in vascular trauma. We see this debt facility which is really an optional facility, most of this debt, we can pull down sort of at our option. This really gives us optionality going forward, especially in the out years like 2025 and 2026. It also, in our mind, removes any concern in the near term about having to raise equity in this current market environment, which is not exactly helpful for most companies at our stage.
So we view this as optionality in the future, but we -- our commercialization plans, which were facilitated by the original amount of money that we have in hand, are still in place and not really changed. But Dale, I'd like you to comment as well.
Dale Sander
No. Ryan, I think this complements the strategy that was already in place. Our intent has been to market directly in the United States, the HAV, particularly in its initial indications and really all indications that are planned for right now and certainly doesn't impact the relationship we have with Fresenius, where they have rights to market the HAV outside the United States and then they cooperate with our efforts with regards to AV access within the United States.
Ryan Zimmerman
And then just last one for me. I'll hop back in queue. The existing debt from SVB, anything -- are you paying that back with these agreements?
Dale Sander
Yes, that is paid back and then we benefit from not having the interest in principal payments associated with that going forward. But yes, the SVB debt no longer exists and our relationship. And technically, this is a royalty purchase arrangement with Oberland. We're very pleased to be working with Oberland. It's a great team. And so this is our only hybrid debt instruments associated with the company going forward.
Operator
The next question is coming from the line of Joshua Jennings with TD Cowen. Please proceed with your question.
Joshua Jennings
Wanted to just follow up on the Fresenius Medical agreement and partnership. I think it's my understanding, taking in your filings, you talked about how Fresenius will adopt HAV and standard of care for their patients, if it's supported by clinical results and health economic analysis. Can you just -- is it clinical results, should we just be thinking about if you guys hit the primary end points, particularly on the HAV for AV access trial that would check that box. And then on the health economic analysis part, what would be required and what are the plans to develop the cost-effectiveness data.
Laura Niklason
Josh, that's a very timely question. So yes, it would be a combination of hitting the endpoints for the broad population and also looking at endpoints for specific subsets in the dialysis population that we know are at higher risk for fistula failure. So that might be women, that might be elderly diabetics, whatever, but we have been undertaking and continue to work on a very strategic partnership with Fresenius, where we're diving into their data on cost of care.
As you may know, Fresenius in addition to providing dialysis services also provides sort of comprehensive care to a fraction of dialysis patients in the U.S. and through some of their subsidiaries are able to track the total spend for these patients for different complications, including access complications. So we're drilling into that database right now. In fact, we had a call with the Fresenius leadership yesterday on this. So the goal here is really to have the clinical results and then the health economic analysis in hand by the time we get top line results next year so that we have a complete picture for Fresenius and ourselves and also for payers.
Joshua Jennings
And then just with Fresenius having -- you guys have an agreement for them to be able to run with HAV in some international markets. Have they started any work to move forward there to open up those international regions? Or is that TBD?
Laura Niklason
Well, as part of our agreement with Fresenius, and again, I'd like Dale to comment further on this if I'm missing anything. But as part of that agreement, Humacyte is responsible for obtaining regulatory approval, for example, in the European geographies. And we would work with Fresenius on that, and then they would follow with commercialization efforts.
So I would say that Humacyte has been, over the past year, kind of laser-focused in the U.S. as far as our regulatory strategy and our efforts have been focused there. However, in 2023, we are going to begin additional conversations in Europe about some of these early indications, including trauma and dialysis access. And based on the outcomes of those conversations, we would expect to work with Fresenius to begin the appropriate commercial preparedness?
Dale Sander
And Josh, the only thing I would add is that at this stage, and Fresenius has been undertaking kind of the normal planning activities, third-party market research and other activities, not only in Europe but in certain other regions of the world that you would expect to be going on at this stage of a product's life cycle.
Joshua Jennings
Excellent. I understand you have a lot in front of you in the U.S. to get a little bit ahead of myself there. Last question, just on the Department of Defense, they provided funding for HAV and a lot of support over the years. I just wanted to -- and prior to review status, can you just help us think about the combination of DOD priority review as well as RMAT for vascular trauma. And then also, does the -- is there a potential supply agreement that could kick in upon approval with the DOD?
Laura Niklason
Dale, do you want to talk about supply and then maybe I'll touch on regulatory.
Dale Sander
Yes, Josh -- Yes Laura, certainly happy to do that. Josh, we'd certainly expect customer for the HAV would include Department of Defense, other agencies, even other international agencies. I think certainly, the work that's been done in Ukraine with 19 patients treated with the HAV that were insured in that conflict are highly supportive. I can tell you that as of today, there is no contract in place with any government agency to purchase the HAV, but certainly, as we move closer to market, we have been undertaking those conversations.
There's obviously been a great deal of interest expressed in the HAV. The Department of Defense had selected this as one of their top 5 priority products that they indicated to the FDA that they wanted approved. And so we fully expect that government procurement of this for forward deployment in the event of future conflicts will be part of our commercial picture going forward.
Laura Niklason
And with respect to the regulatory trajectory, you're right, we have a priority designation, and now we have the RMAT designation in trauma. As you'll remember, we are regulated as a biologic through the Center for Biologics. And so our regulatory path is a BLA filing. Having both the priority designation and the RMAT, we believe makes it more likely that we'll receive a priority review from the FDA, which will likely speed up our time lines. Again, it's the FDA's decision to grant the priority review as always, but having these 2 designations certainly helps with that.
Operator
[Operator Instructions] The next question is from the line of Suraj Kalia with Oppenheimer & Company. Please proceed with your question.
Suraj Kalia
Laura, Dale, can you hear me all right?
Laura Niklason
Yes. we can.
Suraj Kalia
Perfect. So congrats on all the progress. Dale, your comments about the Oberland deal, forgive me, I'm a little -- still a little confused. So do you classify this as a debt deal? Or is a royalty sharing agreement? And the reason I ask is let's say, you do a 5% royalty on total revenues, right? But this is still structured as a debt. Well, we are talking about a pretty -- the math becomes pretty dense in terms of paying back all this debt. Maybe if you could just kind of -- we'll wait for the 10-Q, but if you could kindly articulate some of the -- I couldn't follow your comments about the debt deal as well as the royalty sharing agreement.
Dale Sander
Yes, Suraj, happy to address. So technically, what the arrangement is, is the purchase of a royalty interest by Oberland. From a financial reporting point of view and from a underlying economic point of view, it essentially has debt type characteristics, where this is a liability on the books of the company and the repayment rather than through interest and principles through the payment of our royalty interest. We have to think about the overall potential funding here in segments.
$100 million of this is provided through the anticipated approval of the product. Other parts of the arrangement are sales-based milestones down the road, which we will see at that point in time whether the company would elect to take those down, but they are available under the arrangement.
From a purely financial reporting point of view, the expense associated with this flows through as interest expense to nonoperating income. In terms of the repayment of this over time, certainly, there are, as you'll see in the details of the footnotes, there are ultimately down the road deadlines by which the funding repayment has to be completed through royalty or other payments. But I think when you look at the overall cash flow over time associated with this, it's a very favorable arrangement.
Humacyte's profile, I think, is very attractive right now. We had a number of pure debt proposals that have been submitted to us. We strongly felt that the Oberland proposal and arrangement better fit our needs where we were and was strategically much, much better for us, but the primary obligation or method of repayment of this or return to Oberland from this is essentially through a royalty arrangement with future deadlines that are quite a few years in the future that would require supplemental payments that the royalties were not adequate by that point in time to give Oberland the return that's anticipated under the arrangement. Hopefully, that clarifies it for you.
Suraj Kalia
And Dale, forgive me for belaboring this, there would be a deferred period presumably a deferred period until revenues kick in, right? To whatever extent they are? And are there any minimums.
Dale Sander
There are no minimums other than down the road by certain dates, certain repayments after we made, and you'll see the details in the 10-Q, but the first minimum date that kicks in is December 31, 2028, so quite some years down the road. But the royalty payments would start on day 1 of revenue.
Suraj Kalia
Fair enough. And Laura, one question for you. I'll hop back in queue. For the U.S., you all at the doorstep of getting the regulatory approvals. Is the plan still to go direct? Or are you looking at partners? And how does this deal with Oberland mesh with any potential distribution or strategic partnership that you all might seek because presumably, the partner would also need to get a cut of the action.
Laura Niklason
Sure, Suraj. I think that's a good question. So again, I want to emphasize something that Dale said is that with regard to the Oberland facility, we have no repayment obligations until we start to bring in revenue. So there's no early interest payments that go along with that, which, in our view, makes it much more favorable as compared to a standard debt arrangement.
With regard to how we're going to bring the HAV to the market, as we've said before, and this is still our plan. And our first indication in trauma, where we're going to be marketing to level 1 trauma centers, but also importantly, vascular and trauma surgeons, we're going to take that indication to the market ourselves. We're building out our commercial and health economic and reimbursement teams right now, again because there are 200 Level 1 trauma centers in the U.S. that handle the vast majority of severe vascular trauma. It really makes it a very targetable and tractable set of call points for a very reasonable sized sales force, ultimately, 15 to 20 reps, for example.
Again, one of the advantages of starting with trauma and then being at these high-profile centers is that the users of the HAV and -- both in terms of the hospital and the surgeons, are all the same people, so that when we hopefully get a second indication in dialysis or whatever, these same surgeons and these same centers are already going to be using the HAV and having it on their shelves. And so from a subsequent launch, it's more about, for example, partnering with Fresenius in dialysis and going out to some of the more distributed smaller outpatient centers to look at expanding our reach.
So we believe that the combination of the partnership with Fresenius and the initial launch in trauma means that we do not have plans currently to partner with another distribution firm in the U.S., which would then potentially take a royalty off the top. So that's not part of our strategy right now.
Operator
The next question is from the line of Bruce Jackson with Benchmark Company. Please proceed with your question.
Bruce Jackson
With regard to the JDRF funding for the BVP, is it possible that they could maybe do some additional funding further down the road? It's always nice to get nondilutive funding. And is there the possibility of any other types of grant funding for that project?
Laura Niklason
Well, Humacyte is always trying to be opportunistic about nondilutive funding, not just for our pipeline, but frankly, even for our more advanced programs. So yes, absolutely we're excited about this initial partnership with the JDRF. But JDRF like many foundations does tend to identify partners who they believe in and then kind of stick with those partners.
So yes, pending encouraging results, I would expect to continue to try to work with them to obtain additional dilutive funding on the BVP project. But that said, I think there's also potential non-dilutive sources for some of our other even clinical programs as well that we're looking at.
Operator
I'm showing no further questions in the queue at this time. This concludes the Humacyte first quarter 2023 results conference call. Thank you all for participating.
Laura Niklason
Thank you very much.
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Humacyte Inc. (HUMA) Q1 2023 Earnings Call Transcript