HUMA - Humacyte: Upcoming BLA Pivotal Data Decent Cash Excellent Opportunity

2023-11-20 19:28:16 ET

Summary

• Humacyte is a developer of implantable regenerative human tissue for trauma and other uses.
• Their core technology, Human Acellular Vessel, has shown higher rates of patency, lower amputation rates, and lower infection rates compared to synthetic grafts.
• The company has upcoming BLA submissions and a pivotal trial in progress, with potential approvals expected in the next year.

Humacyte's ( HUMA ) major updates in the months since I last covered it in August include a major data release in September, which is leading to a BLA, to be submitted by year-end 2023. This is its major catalyst. The other major news is that they will release data from their second lead program by August 2024. Thus, they have a set of catalysts stacked ahead of them, with one approval and a further regulatory stage program, and yet, the stock is now down, which begs the question - is HUMA a buy now?

There's hardly any reason for the stock to stay depressed, barring, perhaps, the Oberland loan, which has complicated terms. Here's an interesting discussion from their latest earnings call:

Suraj Kalia

...the contingent earnout in revenue interest liability caught my attention. Love some additional color. I'm assuming the revenue interest liability is the $40 million from Oberland, but I might be wrong, if you could just walk us through that? Thank you.

Dale Sander

Yeah, you're exactly right. The -- what we call the RIP, or the Revenue Interest Liability, is essentially the debt instrument with Oberland. And so, that will accrue up over time as interest is accrued. But right now, the face amount of that debt is $40 million. The contingent earnout liabilities associated with our going public transaction, the legacy holders of Humacyte are potentially due shares if the stock price hits certain levels. And so, every quarter, if the price goes down, that liability increases and there's a non-cash expense recorded and if the stock goes down that quarter, there's a non-cash gain and the liability goes down.

Thus, the contingent earnout liabilities are tied to the stock price performance for legacy holders of Humacyte. The non-cash expense or gain is related to changes in stock prices impacting these liabilities. As Dale Sander of Humacyte says, the contingent earnout liability is subject to change based on the stock price movement. If the stock price goes down, there is a non-cash expense recorded, increasing the liability. If the stock price goes up, there is a non-cash gain, reducing the liability. This could, perhaps, have some effect on the stock price, but in general, the company's ability to secure a very critical loan may be a robust situation.

Coming now to the top-line results, these were released in September, and the trial was a success. Here, the HAV had a higher rate of patency, which, for vascular surgeons, means the unobstructed blood flow in vessels. The 30-day patency or presence of blood flow for the HAV in the clinical trial was 90% as compared to approximately 81% historically reported for synthetic graphs.

This trial, as I noted earlier, did not have a comparator arm, and data was compared with historical data. This is a weakness, but, as it turns out, the trial saw lower rates of amputation and infection as compared to this historical data benchmarking synthetic graft function in trauma patients. The rates were 9.8% for amputation compared to 20% in historical data. Interestingly, no amputations occurred due to HAV failure, but only due to severe injuries to the limb and not due to loss of blood flow from the HAV implant.

The trial enrolled 69 patients, where 51 patients, comprising the primary evaluation group, had vascular injury of the extremities. In terms of infection, the rate was only 2% compared to over 8% historically reported for synthetic grafts.

As the company noted:

In other words, patients receiving the HAV in this trial were less than half as likely to suffer an amputation, and one-fourth as likely to have an infection of their graft as patients who historically got synthetic graphs for their injuries.

That one sentence sums up the data: while the difference in the 30-day patency rate between HAV and synthetic grafts was not statistically significant, lower risks of amputation and infection were solidly significant and satisfies a major unmet need.

In AV access, as well, there is a major unmet need. The current standard is AV fistula, 40% of which fail to mature, may require up to 6 months to mature, and the use of catheters meanwhile could cause infections. The company held trials comparing HAV to ePTFE, but the data was inconclusive as to non-inferiority. They are now running a pivotal randomized trial, V007, in this indication. This is a Phase 3 trial in hemodialysis access with HAV in patients with end-stage renal disease (ESRD) as compared to autogenous arteriovenous fistulas. The trial is fully enrolled with 240+ patients, and the primary completion date is August 2024. Usability of the conduit for dialysis at six and 12 months and a comparison of secondary patency, evaluated at 12 months, are key endpoints; dialysis-related infection is also a secondary endpoint.

For the vascular trauma indication, there are around 70,000 vascular injuries in the U.S. every year. 10-15% of these are treated through synthetic grafts, while a large number are treated through active surgical repair, essentially a vein graft harvested from the patient. The company says that the extra hour required to harvest this vein graft may increase the risk of amputation, and that “if you talk to trauma practitioners, they will tell you that synthetic grafts are essentially never indicated in patients with traumatic injury.” Thus, the company is eyeing this entire market for its first approved indication.

Financials

HUMA has a market cap of $247mn and a cash balance of $100mn. They also have a $160mn funding arrangement with Oberland Capital, of which $120mn is still pending access. Research and development expenses were $18.6 million for the third quarter of 2023, while General and administrative expenses were $6.1 million. At that rate, they have 3 more quarters of funding from their existing cash, and another 3-4 quarters through the Oberland loan. Thus, they have adequate cash to see them through their first approval, which should be no later than the third quarter of 2024.

Risks

There are two risks here. One, that I already noted, is that the V005 trial is a single arm. The company says this design is FDA approved, but that is not as reassuring as it sounds because, as we have seen so many times before, the FDA may often greenlight a particular non-robust design but then get uneasy with the ensuing data. Like I noted in my August coverage:

This is even more true when standards of care are available, like here. So we shall have to wait and see.

This, of course, is still a concern. Luckily, the pivotal AV trial, which also completed enrollment, is a randomized trial.

The other risk is the cash situation. They do have adequate cash if you consider the loan. But firstly, I was expecting stronger cash reserves for a company with such major, upcoming catalysts, and two, the Oberland loan, while non-dilutive on the surface, looks a little desperate.

The forward P/S of HUMA is 3,790.66. I checked out the relevant SA page, here , and while I do not know where this data is sourced from, I must say that these calculations, for emerging companies with no competition in this particular space, are not very convincing. Price movements of such companies hardly ever depend on valuation estimates. If they have a major catalyst, trial data is good, and the market is not negligible, these factors have a stronger effect on stock price than valuation estimates. You have to understand that at the heart of such estimates is the discounting factor, and this discounting factor is guesswork. The validity of this guesswork depends on who is guessing - whether it's a KOL, or a veteran analyst, or software.

Bottom line

HUMA has an upcoming BLA submission this year which appears to be on track, and a potential approval next year. They also have a second pivotal trial ongoing with data expected next year, so their ducks are all lined up, and their catalysts are stacked. They have decent cash and a loan. They have solid real-world data from wartime Ukraine where their HAV grafts have been very successful, as I discussed in my previous coverage, and as was also presented at a recent conference, via their earnings call. They are looking at a decent-sized market. The prices are currently low, and this is an opportunity.

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