Humacyte, Inc. Q2 FY2022 Earnings Call

Good morning, ladies and gentlemen. And welcome to the Humacyte Second Quarter 2022 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 will now turn the call over to Lauren Marek with LifeSci Advisors. Please go ahead.

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. Any 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 will be filed today and 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. Following their prepared remarks, the management team will be available for your questions. I will now turn the call over to Dr. Niklason.

Thank you, Lauren. Good morning, everyone, and thank you for joining us for our second quarter 2022 financial results and business update call. During this call, I will review our recent highlights and the progress of our key programs, before turning the call over to Dale for a review of our financial results. Then we will be happy to open up the call for your questions. I am very pleased with the great progress Humacyte has made throughout the second quarter in advancing our universally implantable bioengineered human tissue platform. We are continuing to add to the robust body of data showing that our lead candidates, the human acellular vessels or HAV, may be uniquely suited for vascular and complex organ applications, in which the current standard-of-care is either unavailable or inadequate. We have also strengthened our Board of Directors and leadership team, with the respective appointments of Dr. Diane Seimetz, and Dr. Shamik Parikh, who both bring global drug development experience that will be invaluable as we move closer to our goal of bringing the HAV to market. I will begin with an update on our initiative to provide HAVs to multiple hospitals in Ukraine for the treatment of wounded civilians suffering from vascular trauma injuries. We launched this humanitarian initiative in May in collaboration with the Office of International Programs within the U.S. Food and Drug Administration, as well as the Ukraine Ministry of Health to coordinate the export and import of our investigational HAV. We are very proud to report that HAVs have been successfully implanted into several Ukrainian patients with vascular trauma injuries. To date, all HAVs that have been implanted have been reported to be functional and infection-free, salvaging limbs and patients who are injured in this wartime conflict zone. This humanitarian program is providing further real-world evidence of the potential impact of the HAV in the treatment of vascular trauma injuries. We are honored to contribute to the ongoing medical relief efforts in Ukraine and to help patients and frontline hospitals that are affected by the humanitarian crisis. In addition, we are inspired by the dedicated medical teams on the ground, who were quickly trained on the use of the HAV, as patients treated with the HAV in Ukraine will continue to work with the FDA and with the Ukrainian Ministry of Health in an effort to help save limbs and lives in patients of need. Moving on to our late-stage program for the HAV in vascular trauma, our Phase 2/3 clinical trial is continuing to progress. As a reminder, this trial is a single-arm non-randomized open-label study, evaluating HAVs for vascular repair, reconstruction, and replacement in trauma injury settings. Currently, we have enrolled a total of 55 patients. We are pleased with the results of the study to date, showing very low rates of infection of less than 2%. We have also had no reports of limb amputations that have occurred as a result of HAV malfunction, and we have observed high patency rates of the HAV conduit. Results from the trial are expected to support our planned BLA filing with the FDA, which we plan to submit by the end of 2022 or early 2023. We are continuing to discuss the required number of subjects to be enrolled in the trial with the FDA. The FDA has previously indicated that the HAV for the indication of vascular trauma qualifies for the accelerated approval pathway. The potential of HAVs in vascular trauma was further highlighted in a webinar that we hosted in July, featuring key opinion leaders, Dr. Ernest Moore and Dr. Greg Magee. This was an enlightening discussion of the capacity of the HAV to address current limitations in the standard-of-care for both vascular and promising perspectives, and we are grateful to Drs. Moore and Magee for their insightful presentations. A replay of the webinar can be found on the Events page of the Humacyte website. The HAV was also the subject of multiple presentations at scientific conferences and journal publications throughout the second quarter. In a publication in the June 2022 edition of JAMA Surgery, clinical researchers emphasize the potential of the HAV to make a significant impact on the clinical care of patients with vascular disease and trauma. This manuscript also highlighted favorable data from multiple clinical trials, encompassing nearly 500 patients and over 1,000 patient years of follow-up. Researchers described the potential advantages of the HAV over existing approaches. I would like to turn now to our development program of HAVs for arteriovenous or AV access in hemodialysis patients. Enrollment is nearing completion in our Phase 3 trial, which is designed to assess the usability of the HAV for dialysis in comparison to autogenous fistulas in up to 240 patients with end-stage renal disease. With 222 patients currently enrolled, we are on track for enrollment to be completed this year, with topline results anticipated in late 2023, based upon the one-year follow-up period that’s built into the study. Results from the trial, if successful, will support a BLA filing for the dialysis access indication. In addition, in June at the American Transplant Congress, Humacyte presented data on more than 500 patient years of exposure from Phase 2 and Phase 3 clinical trials, demonstrating that the HAV does not stimulate an increase in panel reactive antibodies, which is an adaptive immune response that’s correlated with tissue rejection. In addition, in a Phase 3 trial of patients with end-stage renal disease who received either the HAV or synthetic PTFE graft for AV access, the HAV implanted patients exhibited fewer instances of sensitization than the patients who received the PTFE graft. The benefit of the HAV appeared to be even greater in women, who demonstrated fewer increases in antibodies, as compared to women who received the PTFE graft. These results are further consistent with the absence of HAV rejection that’s been observed across trials that have been performed with the HAV. As we progress toward commercialization in this indication, we are continuing to strengthen our relationship with our global partner and shareholder, Fresenius Medical Care, which is the global leader in kidney care services, products, and value-based care. We are partnering with Frenova, which is the clinical research group owned by Fresenius, to evaluate complications and cost of hemodialysis access care for vulnerable patients in both the U.S. and Europe. These evaluations will assist with the development of health economic models and value propositions for the HAV in patients with kidney failure. In our earlier stage programs, we are continuing to advance preclinical studies of the HAV, particularly in coronary artery bypass grafting. In July, we presented positive results from a preclinical study of our small-diameter HAVs in CABG at the American Heart Association, Basic Cardiovascular Sciences Scientific Sessions. In a non-human primate model, the HAV maintained structural integrity and patency for up to six months post-implantation and showed evidence of robust host cell remodeling and repopulation. We are excited that our small-diameter HAVs continue to show promise in preclinical CABG models, and we look forward to publication of this study in a September issue of Circulation Research. Finally, Humacyte has strengthened our Board of Directors and leadership team this quarter with the appointments of seasoned experts in global clinical development. In June, we welcomed Diane Seimetz, Ph.D., to our Board of Directors. Dr. Seimetz brings over 22 years of international drug development, partnering and managerial experience in the biopharmaceutical industry. In 2013, she co-founded Biopharma Excellence, serving as its Chief Executive Officer until its acquisition in 2021. In addition, as announced last quarter, we welcomed Shamik Parikh, M.D., as our new Chief Medical Officer. Dr. Parikh leads our global clinical development strategy, including oversight of the preclinical and clinical development, clinical operations, and the medical affairs function. We are so pleased to have Drs. Seimetz and Parikh join us and we look forward to adding their insights and expertise to the Humacyte team. With that, I will now turn it over to Dale for a review of our financial results and other business developments.

Thank you, Laura. As of June 30, 2022, we reported cash, cash equivalents, and short-term investments of $189 million, compared to $225.5 million as of December 31, 2021. The $36.5 million net use of cash, cash equivalents, and short-term investments for the first six months of 2022 resulted from spending related to net operating activities for the period, including clinical and earlier stage research and development programs, and preparation for our anticipated commercial launch. We believe that our cash, cash equivalents, and short-term investments are adequate to fund operations through 2024, as our current expected timelines for anticipated approval of the HAV in vascular trauma. Revenue was $1.3 million for the second quarter of 2022, compared to $0.7 million for the second quarter of 2021 and was $1.5 million for the six months ended June 30, 2022, compared to $0.8 million for the six months ended June 30, 2021. Revenue in all periods related to grants supporting the development of the HAV. Research and development expenses were $14.7 million for the second quarter of 2022, compared to $14.6 million for the second quarter of 2021 and were $31 million for the six months ended June 30, 2022, compared to $29.7 million for the six months ended June 30, 2021. The current period increases resulted primarily from increased personnel expenses to support expanded research and development initiatives in support of clinical trials. General and administrative expenses were $5.2 million for the second quarter of 2022, compared to $5.4 million for the second quarter of 2021 and were $10.9 million for the six months ended June 30, 2022, compared to $10.2 million for the six months ended June 30, 2021. The increase during the six months ended June 30, 2022, compared to the prior year period, resulted primarily from the transition to being a public company in preparation for the anticipated U.S. commercial launch of HAV, including increased personnel costs, professional fees, and insurance costs. The decrease for the quarter ended June 30, 2022, compared to the prior year quarter, resulted primarily from non-cash stock compensation expense incurred in 2021, related to restructuring of the management team to accommodate the transition to being a public company. Other net income was $55.4 million in the second quarter of 2022, compared to $2.1 million for the second quarter of 2021 and was $57.3 million for the six months ended June 30, 2022, compared to $1.5 million for the six months ended June 30, 2021. The current period increases in other net income resulted primarily from non-cash gains related to the remeasurement of the contingent earn-out liability associated with the August 2021 merger with Alpha Healthcare Acquisition Corp. Net income was $36.9 million for the second quarter of 2022, compared to a net loss of $17.2 million for the second quarter of 2021, and net income was $17 million for the six months ended June 30, 2022, compared to a net loss of $37.5 million for the six months ended June 30, 2021. The current period increases in net income resulted from the increases in other net income described already, partially offset by expense increases also described above. With that, I will turn it back over to Laura for concluding remarks.

Thank you, Dale. To conclude, we are pleased with the progress that we have made across multiple indications in the first half of the year. As we move into the latter half of 2022, we are entering an exciting time for Humacyte, with an anticipated cash runway to carry us through significant value inflection points and beyond. We believe we are well-positioned to deliver on clinical and regulatory milestones in the coming months. Operator, we are ready to take questions.

Thank you. Our first question comes from Brooks O'Neil with Lake Street Capital. Please proceed with your question.

Thank you and good morning. I have a couple of big picture questions. So the first one is, obviously, you’re going after a number of big markets, all of which have significant unmet clinical needs. Can you just tell us Laura, which one of these markets you are most excited about and think offers Humacyte the most potential long-term?

Thank you, Brooks. That’s an interesting question. It’s a little bit like being asked which of your children you love the best? I would say that in the short term, obviously, the trauma indication I think has huge appeal for the company. I think the fact that we have had such good success with our humanitarian efforts in Ukraine just illustrates the fact that this product can go out into the field into just terrible circumstances and surgeons can be trained and outcomes can be excellent, and it just validates everything that we have been saying all along. Our KOL meeting that we had in July, where Dr. Moore and Dr. Magee spoke about the product and about where they thought its utility was in civilian trauma, I think was just reinforcing of that. So, again, we anticipate being on the market with trauma first. I anticipate that when this is in Level 1 trauma centers and in the hands of experienced trauma and vascular surgeons, that it will see a lot of use in a broad range of applications. Dialysis is also something that, obviously, we’ve been focused on for a number of years. I’m particularly excited about the results of the clinical research studies that we’re doing with Frenova as part of our Fresenius collaboration right now. That’s because we expect the data to come from the Frenova study to help us understand which dialysis patients really are going to benefit the most from our product both in the U.S. and Europe. We’re looking at hundreds of thousands of patients’ worth of data. So it’s a tremendous opportunity for us to really hone in on those patients who will best benefit.

Great. I have to say, having visited your facilities and talked with your people just a few weeks ago. I mean, it’s tremendously impressive all that you have accomplished and all you’re doing, and I’m really excited about all of these indications. So I think it’s great. One more question that I get maybe most suited to Dale, but either of you please feel free to comment. Obviously, SPAC mergers have come under a lot of pressure and I think a lot of people comment that that was an ill-advised time in the marketplace. For you guys, I think, it’s positioned you extremely well for the future. But can you just comment on how you feel today about having participated in a SPAC merger and what that has done for you as a company?

Yeah. Brooks, I mean, certainly, the SPAC transaction merger took a lot of us transition to be in a public company, which we think was important in our evolution and also provided resources that take us well past the anticipated approval timeline for our first launch, which we expect to be in vascular trauma here in the United States. So, I think it was a transaction that served us well. I mean, for me, I’ve been in the biotech industry directly for more than 30 years and had worked on four IPOs during that time, multiple in the U.S. and one over in Europe. I guess, as a relatively newly public company, I don’t feel any different as a SPAC company than I did as an IPO in my prior companies. Our expectation is this has given us the resources to improve value for shareholders and we expect that as we hit our milestones, our shareholders will be rewarded just like the shareholders of any other company that has gone public.

Good morning. Thanks for taking my questions. Laura, I think, at the site visit, you were talking about some new enrollment sites for V005, the trauma trial, and just wanted to see, I think those were in Israel, if I’m not mistaken, newish, I guess, I should say. What’s the status of those and are you starting to be able to get some patients in the door at least to start the enrollment process for the V005 trial?

Yes. So we’re looking at four sites in Israel, and one or two of those sites have been fully activated, and we’re anticipating activating the other sites very soon. Israel, obviously, is a site with some active domestic conflict as we know. And also the consenting process under Israeli law is a little bit different than it is in the U.S. So we are, while of course, we would never wish anyone injury, we are expecting and hoping that enrollment contributions by the Israeli sites will be substantial. But it’s still something that we’re activating right now.

Okay. Fair enough. And then, I imagine, I think, you know the answer to this question, but there’s no potential to utilize any of the Ukrainian patients getting HAV as part of the enrollment in the V005 trial, is that correct?

So that’s correct. I mean, this is a humanitarian effort. We’re certainly not doing a clinical trial in a war zone with patients in need. So I do want to make that very clear. That said, any summary of data in the trauma indication that is provided to regulators, whether it’s in the U.S. or Europe would certainly include information on the real-world outcomes of this humanitarian effort. So on the one hand, these are not V005 study patients. But on the other hand, the information that we’re able to glean will, I think, bolster our overall case for the trauma indication.

Yeah. Yeah. I completely agree with that. Makes perfect sense. And lastly, for me, and I’ll hop back in queue. Dale, operating expenses came in a little bit lower than we were expecting this quarter. And just wanted to see, if there’s any specific call out, if I look at R&D costs, for example, is down a healthy amount relative to last quarter, ending the call out there, just how to think about CapEx for the balance of the year? Thanks, Dale. Thanks, Laura, for taking the questions.

Certainly, Ryan can provide some insights on that. As a company, we haven't publicly shared specific projections or ranges for expenses or other financial metrics at this time. However, the expenses are aligning with our expectations. Research and development costs can vary depending on the patient population involved in the clinical trials, the stages of the studies, and the number of new patient enrollments. For instance, in the V007 trial for AV access, although we anticipate quick completion of enrollment, most patients have already undergone their implants, resulting in a decrease in costs. If we were to project our performance from the first half of the year onward to the end of the year, it is likely to be close to our expectations.

Good morning. Thanks for taking my questions. Just on the enrollment, Laura, it looks like from May until I assume that the latest information you’re giving us is probably as of today. The enrollment has been fairly slow in both the trauma and fistulas study. So I want to make sure everything is on track as far as patient enrollment goes with those two studies?

We are enrolling a small number of patients each month in the dialysis fistula study, and we expect to reach around 240 by the end of the year, which would allow us to have topline results by late 2023 since the endpoint is a year away. Regarding the trauma trial, enrollment has been a bit inconsistent due to the nature of acute trauma patients. We saw significant enrollment growth in the spring, but it has slowed down recently. However, we anticipate an increase in the coming months. We have added Israeli sites and the Mayo Clinic as additional sites and are working to support them with clinical trial monitors, as staffing challenges due to the nursing shortage have affected many clinical trials. We are doing everything we can to support these trials and are still on track to file a BLA, possibly late this year or early next year. We have not received any different expectations from the FDA and are still targeting around 70 or 75 total patients as previously mentioned.

Good morning, Laura, Dale. Can you hear me all right?

Yeah.

Perfect. Hey, Laura, I wanted to follow up on Matt’s question regarding V005. The discussions with the FDA have been ongoing for some time. We're looking at possibly 20 to 25 additional patients, and with Israel and Mayo coming online, that should be fine. But could you clarify the specific nature of the discussions with the FDA that have been taking place?

Well, as far as what I can share in this setting, Suraj, it’s really been about understanding how many total patients, but also how the FDA should think about the data, given that this is a single-arm trial in an acute injury population and trauma patients, where it’s physically not possible to randomize. In this trial, we specify that patients who are enrolled must provide consent, but they also must not be suitable for other options, such as saphenous vein grafting. So that has an effect of providing a patient population that is very much in need, because by definition, if they’re acutely injured and if saphenous vein is not suitable, then these are patients who are facing amputation or other significant morbidity. So it’s really been about discussing how to interpret the data that are coming out of the trial. The Center for Biologics is filled with outstanding and smart people, who have typically regulated biologics. They typically regulate antibodies and proteins and gene editing technology. They’re, frankly, thinking about clinical trials that involve what is essentially a device, even though we’re regulated as a biologic, thinking about a clinical trial that involves a device in an acutely injured population with no active comparator. That’s just required a lot of discussion. But I really see CBER as being a great partner with us here. I think that the benefits of the product are obvious to us, and I think they will be obvious to the regulators, but it’s been a process, and it’s taken time.

Got it. Laura, can you give us some additional color on the status of the anastomotic junction for the six-month primate in your CABG pilot or feasibility?

What we reported in January and July indicates that the anastomoses in our primate CABG studies are generally fine. As you may know, we are studying adult human-sized vessels, which are 3.5 millimeters in diameter, in a large primate that weighs about 60 pounds, but which has coronary arteries around 1 millimeter in diameter. This situation is akin to sewing an adult human vessel onto a pediatric patient, presenting technical challenges inherent to this type of study. Despite these challenges in connecting a 3.5 millimeter vessel to a 1 millimeter vessel, we have not observed anything unique or surprising regarding the anastomotic response in these experiments compared to our clinical trials or earlier primate studies.

Got it. A final question, Dale, have your expectations for cash runway changed somewhat? And the reason I ask is, there’s been a subtle shift in the language, in terms of your cash runway from prior quarters. Just any additional color or clarity would be appreciated? Thank you for taking my questions.

I think, Suraj, regarding our thoughts on cash runway, we originally anticipated that the net proceeds from the transaction would carry us through the end of 2024, and that remains true. We are certainly aware of the current market conditions and are focused on reaching key value milestones with the available cash. Therefore, we are considering ways to adjust some medium priority projects and postpone certain efforts to extend our runway even further. However, we have not changed our expectations about how long our cash will last, and our current cash balance is sufficient to support us beyond the expected timeline for our first market approval and launch.

Hi. Good morning. Thanks for taking the questions. I want to just follow up on the Frenova collaboration and just better understand how this will inform Fresenius once you get to the commercial stage for HAV in the dialysis access indication? And just remind us of the agreement there and then also how this investigation will inform pricing as well?

Thanks, Josh. That’s a multi-part question. I’ll try to handle what I can, and Dale may jump in as well. But as you’ll recall, the Fresenius agreement stipulates that for some of the early indications, which include trauma, dialysis access, and peripheral arterial disease, that Fresenius would have the rights for marketing and distribution of those indications in Europe. For those same indications in the U.S., Humacyte will shoulder the marketing and distribution of those products in those indications. As far as the data that we’re collecting with Frenova, this is a project that’s been going on for several months, and we expect the readout on these several 100,000 patients to come in the next month or two. I’m excited about this project, because it will really give us granular hard data on how many patients and what types of patients tend to have repeated problems with their dialysis access in terms of patency loss, repeated infection, and what types of patients tend not to mature their fistulas and then are stuck on a catheter for a long period of time. So really identifying those patient subsets in the U.S. and Europe that tend to have chronic difficulties with their access will really allow us to focus on those patients in terms of subsequent marketing and commercialization. There’s a second part to this project, which we’re going to undertake once we understand which patients have the most difficulties, then we will work to put in cost estimates of those difficulties in these different geographies, both in the U.S. and Europe. I would expect that this would inform pricing and what the market will bear in terms of the HAV treating these patients who are currently not acceptably treated by existing therapies.

Great. Thanks for that. And just a follow-up from our headquarter visit and facility tour. I think during our discussion, you mentioned that little intimal hyperplasia hadn’t been experienced in any implanted HAV to date. I just wanted to follow up and just ask, I mean, how strong was that signal do you think you have and maybe a hypothesis of the mechanism of action of why you haven’t seen little intimal hyperplasia in an HAV would be great to better understand? Thanks for taking the questions.

Sure. Josh, my remarks are somewhat speculative, and I acknowledge that. As we talked about during the site visit, we have indeed observed tissue growth at the anastomosis, known as patency, in some of our dialysis patients and others. This is a normal biological occurrence seen in various types of vascular grafts. It’s not unusual, and it has contributed to anastomotic stenosis. However, in our peripheral arterial disease population, which doesn't undergo frequent needle stick treatments like dialysis patients, we see a cleaner signal. So far, we have not found convincing evidence of intimal hyperplasia along the graft length in those patients. I must clarify that we lack biopsies to confirm this since most patients are living normally with their grafts. Ultimately, it may take us a couple of years to accurately verify this. My earlier statement is a scientific hypothesis based on my understanding, but it’s not yet fully documented.

Hi. Good morning and congratulations on all of the progress. So Laura getting back to your favorite children, with the biovascular pancreas project, anything to look forward to over the next few months?

We have partnered with some smaller stem cell companies to explore our capability to produce islets from stem cells that will be integral to the biovascular pancreas product. We are making progress in this area. Currently, we do not have plans for any scientific presentations in the coming months. However, I can say we are advancing in our islet differentiation efforts and are also moving towards conducting initial proof-of-principle studies in large animals by the end of this year. We are still on track with this. I am cautious about sharing too much more at this point because I want to be certain when we release additional information. Nevertheless, the biovascular pancreas is still on track based on everything we have communicated earlier this year.

Bruce, part of it’s just the ebb and flow of clinical trials. Part of it is, there are other meaningful components to R&D expenses. As a biologics company, the actual development and ongoing enhancements in really preparation for an anticipated launch of our manufacturing facilities also drives cost through our bioprocessing facility that maybe don’t get the visibility in terms of press releases and scientific presentations. But as a key component is often the tour of the technology platform site. So there are ebb and flow costs associated with bioprocessing also dependent on when we’re doing production runs or when we’re doing certain experimentation either to support new product development or other activities that are additive to whatever cycles of costs that you see on the clinical side also.

And thank you, I’m showing no further questions in the queue at this time. This concludes the Humacyte second quarter results conference call. Thank you for participating.