Earnings Call Transcript - HUMA Q3 2023

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to the Humacyte Third 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 will now turn the call over to Lauren Marek with LifeSci Advisors. Please go ahead.

Lauren Marek, Moderator

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 afternoon 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 September 30, 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, CEO

Thank you, Lauren. Good afternoon, everyone, and thank you for joining us for our third quarter 2023 financial results and business update call. Our third quarter was a highly productive period for Humacyte, during which we achieved significant milestones in the advancement of our universally implantable bioengineered human tissue product candidate, the Human Acellular Vessel, or HAV, and we've worked on this in multiple indications. This was led by our announcement in September of positive top-line results from our Phase 2/3 clinical trial in vascular trauma repair, which positions us to submit our BLA filing for approval in this indication during the current quarter. We're also pleased that the potential of our HAV pipeline has been shown in other clinical studies this quarter, including the presentation of Phase 2 results in severe Peripheral Artery Disease, or PAD. In addition, we recently published preclinical results of our small caliber HAV in a juvenile heart disease model. During today's 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 the call to your questions. I'll begin with our HAV program in vascular trauma and the positive top-line results that we announced from our V005 Phase 2/3 clinical trial of the HAV in trauma repair. In this clinical trial, the HAV had higher rates of patency and lower rates of amputation and infection as compared to historical published benchmarks of synthetic graft function in trauma patients. A total of 69 patients were enrolled in the V005 trial, and 51 of these had vascular injury of the extremities and comprise the primary evaluation group for the study. 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 grafts. Importantly, the HAV also demonstrated a lower amputation rate with a rate of 9.8% for the HAV compared to over 20% being reported historically for synthetic grafts. This means that for a vascular trauma patient receiving the HAV, the chances of amputation are less than half of the chances associated with receiving a synthetic graft. It's also important to note that in the V005 trial, there were no amputations that occurred because of failure of the HAV. All of the amputations occurred because of severe injuries to the limb and not due to loss of blood flow from the HAV implant. The HAV also demonstrated lower rates of infection, with an infection rate of 2% compared to over 8% historically reported for synthetic grafts. 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 grafts for their injuries. Building on the momentum of these positive results, we plan to submit a Biologics Licensing Application, or BLA, with the FDA during this quarter. In May of this year, Humacyte received a Regenerative Medicine Advanced Therapy, or RMAT, designation from the FDA, which will allow us to request a priority review of our BLA filing. Since we've also received priority designation from the Department of Defense, we believe that we'll have a high potential for priority review of our planned BLA filing in the trauma indication. Further solidifying the real-world utility of the HAV in treating injured patients, Humacyte's vessels have been used in Ukraine under a humanitarian aid program. During the one-year humanitarian effort, 19 vascular trauma patients received the HAV in Ukraine. Results will also be highlighted from these patients in our BLA filing with the FDA. Outcomes from these 19 patients were described in a presentation at the 2023 Military Health System Research Symposium in August, with clinicians reporting a very high success rate in treating these patients with the HAV to date. In war-wounded patients in Ukraine, who suffered blast and shrapnel injuries that were often severe, both a 30-day limb salvage and 30-day patient survival were 100%. 30-day patency or blood flow was 95%, and there were no reported instances of infection of the HAV. We believe that these remarkable results are an important addition to our BLA filing, and we're proud to be able to help our Ukrainian surgeon colleagues save lives and limbs in this wartime setting. Humacyte and our collaborators expect to make multiple presentations at the VEITH Symposium, which is a major vascular surgery meeting in New York next week. These include an expanded presentation of the results of our V005 vascular trauma trial and also the outcome of research that seeks to identify which dialysis patients experience the most difficulties with their dialysis access and which patients may benefit from an access that is both durable and resistant to infection. In September, clinical results were also presented on an FDA-regulated investigator-sponsored clinical study at the Mayo Clinic. In this study, patients with severe peripheral arterial disease, who face possible limb amputation and who had no vein of their own for bypass surgery, were treated with the HAV to restore blood flow to their limbs. In the presentation at the Midwestern Vascular Conference, Mayo researchers observed that the HAV was a safe, resilient, and effective conduit for arterial bypass and limb salvage. This is an important result since approximately 40% of patients requiring lower extremity bypass do not have a saphenous vein available. In the future, the HAV may represent a promising alternative for preserving limbs in patients with advanced peripheral artery disease. With regard to publications, in October of 2023, a publication in the Journal of Thoracic and Cardiovascular Surgery described a preclinical study showing the potential for the investigational small diameter HAV to treat Tetralogy of Fallot, which is a heart condition that affects one in every 2,000 babies born each year. In this large animal study, Humacyte collaborated with researchers from Nationwide Children's Hospital in Columbus, Ohio to implant 3.5-millimeter HAVs into a juvenile model of pediatric heart surgery. The 3.5-millimeter HAVs remained patent for up to six months and showed evidence of repopulation by host cells, which was similar to what has been observed in human patients. This study also demonstrated the extension of Humacyte's manufacturing platform, adding production of 3.5-millimeter vessels in the same platform that is used to produce Humacyte's 6-millimeter HAVs, which are the ones that are currently in clinical use. In July, results from a preclinical study on the ability of the HAV to resist infection were published in the Journal of Vascular Surgery-Vascular Science. This study provides a scientific basis for the low rates of infection that we have observed in clinical trials of the HAV to date. Researchers found that compared to synthetic grafts, the HAV had a significantly lower bacterial infection rate. This infection resistance of the HAV may be due to the native-like biocompatibility of the HAV material, which supports the survival and function of human immune cells that are the key to fighting bacterial infection. These results have broad implications for all of our intended clinical indications and further support the potential of the HAV as an excellent alternative to synthetic grafts in a wide range of medical conditions. And with that, I'll now turn it over to Dale for a review of our financial results and other business developments.

Dale Sander, CFO

Thank you, Laura. As of September 30, 2023, we had cash and cash equivalents of $100 million. In May 2023, we reported the completion of a funding arrangement with Oberland Capital of up to $160 million, of which we have received $40 million to date. Total net cash used was $49.4 million for the first nine months of 2023, compared to $53.8 million for the first nine months of 2022. We believe that our cash and cash equivalents and expected funding from the Oberland funding arrangement are adequate to finance operations past the currently anticipated timelines for FDA approval and commercialization of HAV in the vascular trauma indication. There was no revenue for the third quarter of 2023 and nine months ended September 30, 2023. Revenues were $31,000 for the third quarter of 2022 and $1.6 million for the nine months ended September 30, 2022. Revenue from 2022 was related to a grant supporting the development of HAV. Research and development expenses were $18.6 million for the third quarter of 2023 compared to $17.3 million for the third quarter of 2022, and were $56.4 million for the nine months ended September 30, 2023 compared to $48.3 million for the nine months ended September 30, 2022. The current period increases resulted primarily from increased personnel and external services to support expanded research and development initiatives and our clinical trials, including preparation for the HAV trauma clinical trial and completion and planned BLA filing for the vascular trauma indication and expansion of clinical development of HAV in AV access for hemodialysis. General and administrative expenses were $6.1 million for the third quarter of 2023 compared to $6.2 million for the third quarter of 2022, and were $17.5 million for the nine months ended September 30, 2023, compared to $17.1 million for the nine months ended September 30, 2022. The increase during the nine months ended September 30, 2023 compared to the prior-year period resulted primarily from increased personnel costs, largely driven by preparation for the planned U.S. commercial launch of HAV in the vascular trauma indication. The slight decrease during the third quarter of 2023 compared to 2022 resulted primarily from a reduction in external services and professional fees, partially offset by an increase in personnel expenses. Other net income or expense was a net expense of $1.4 million for the third quarter of 2023 compared to a net expense of $1.8 million for the third quarter of 2022. Other net expense was $11.8 million for the nine months ended September 30, 2023, compared to other net income of $55.5 million for the nine months ended September 30, 2022. The decrease in other net expenses for the third quarter of 2023 compared to 2022 resulted primarily from an increase in interest income due to rate increases. The increase in other net expense for the nine months ending September 30, 2023 compared to 2022 resulted primarily from the non-cash remeasurement of the contingent earnout liability associated with the 2021 merger with Alpha Healthcare Acquisition Corp. Net loss was $26.0 million for the third quarter of 2023 compared to $25.3 million for the third quarter of 2022. Net loss was $85.7 million for the nine months ended September 30, 2023 compared to $8.2 million for the nine months ended September 30, 2022. The current period increase in net loss resulted from the non-cash measurement of the contingent earnout liability and increased operating expenses described with that. With that, I'll turn it back over to Laura for concluding remarks.

Laura Niklason, CEO

Thank you, Dale. This is a very exciting time for Humacyte and for all of our stakeholders. As we move closer to our planned regulatory filing in our first HAV indication, I'd like to take a moment to thank the entire Humacyte team as well as our partners for their continued commitments to our programs. The entire team has worked incredibly hard to reach this point, and we are approaching what could be a transformational time not only for the company but for patients who are suffering from a variety of vascular diseases. Across our clinical programs, the HAV has already accumulated more than 1,200 patient years of experience, including in vascular trauma, vascular access and hemodialysis, and peripheral artery disease. We're also continuing to study the HAV in our earlier-stage programs in order to maximize the full potential of the HAV's value for our patients and our investors. We look forward to keeping you updated on our progress, and thank you all for joining us today. Operator, we're now ready to take questions.

Operator, Operator

Our first question comes from Suraj Kalia of Oppenheimer. Your line is open.

Suraj Kalia, Analyst

Hi, Laura, Dale. Can you hear me all right?

Laura Niklason, CEO

Yes, we can.

Suraj Kalia, Analyst

Perfect. Congrats on all the progress. Laura at VEITH, what additional data on V005 should we expect?

Laura Niklason, CEO

At the VEITH meeting, we're going to share, in addition to the efficacy results, we're going to share some of the safety outcomes. That's during a podium presentation that will occur during the meeting on Wednesday. In addition, on Thursday evening, we have a dinner symposium session where we will talk about the V005 outcomes and also the outcomes from Ukraine and look at the combination of those outcomes and as they compare to our benchmarks in synthetic graft treatment for vascular trauma.

Suraj Kalia, Analyst

Got it. Laura, assuming nine months after the BLA filing for a vascular trauma indication, how should we start thinking about the label not being indicated for synthetic grafts? Can you size up the market and also identify the immediate opportunities post-approval?

Laura Niklason, CEO

In terms of market size, there are about 70,000 vascular injuries in the U.S. annually that require some form of repair, with tens of thousands needing grafting or surgical repair. Approximately 12% to 15% of these procedures utilize synthetic grafts. However, trauma surgeons emphasize that almost all traumatic injuries are considered contaminated or at risk for infection, making synthetic grafts generally unsuitable for these patients. Furthermore, the additional hour required to harvest a vein increases the risk of amputation for injured limbs, which may lead to more patients being suitable for an HAV instead of a vein. Therefore, we anticipate capturing a significant portion of synthetic graft usage, as well as reducing vein utilization in cases of traumatic injury.

Dale Sander, CFO

And Suraj, some of the data that may will be presented at VEITH will be the outcome from the study in terms of why surgeons use the HAV in those particular patients and that may provide some further evidence to support what Laura just said about the likely uses and why they would choose to use it in certain instances over synthetic or saphenous vein.

Suraj Kalia, Analyst

Got it. Appreciate the additional color. Dale, one final question for you. Dale, 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, CFO

You're right. The Revenue Interest Liability, or RIP, is essentially the debt instrument with Oberland, which will accumulate over time as interest is charged. Currently, the principal amount of that debt stands at $40 million. The contingent earnout liabilities related to our public transaction mean that the former Humacyte holders could potentially receive shares if the stock price reaches certain thresholds. Consequently, if the stock price declines each quarter, that liability increases, leading to a non-cash expense. Conversely, if the stock price drops during that quarter, it results in a non-cash gain and a reduction in the liability.

Suraj Kalia, Analyst

Got it. Thank you so much for taking my questions.

Operator, Operator

Our next question comes from Josh Jennings of TD Cowen. Your line is open.

Unidentified Analyst, Analyst

Hi. This is Eric on for Josh. Thanks for taking the question. On the RMAT designation that you have in vascular trauma, I was wondering if you could share with us when you will know whether or not you received priority review for your BLA filing. And secondly, if you do receive priority review, could you specify what that entitles you to throughout the BLA review process? Thank you.

Laura Niklason, CEO

So as part of the BLA filing, we are going to apply for priority review, which, as you may know, would entitle us to a six-month review period in PDUFA date as opposed to a standard 10-month, which is more typical for biologics. So, it's my understanding that once we file that within 60 days, the agency comes back to us with the acceptance of the file and also with a determination at that time as to whether or not they've granted priority review. So, I would expect 60 days after we file, we'll know if we have a priority pathway. Again, I would hope and expect that we do because of the RMAT and also because of the priority designation from the Defense Department. The priority review provides a speedier review process. I'm not sure that it really changes the amount of interaction you have with the agency. Certainly, once you file a BLA, the amount of interaction and the back and forth and the discussion is always really robust. So, I think it's more about speed.

Unidentified Analyst, Analyst

Understood. That's great. And then sticking with vascular trauma, with the target you have here submitting the BLA in 4Q, could you tell us what steps remain for the process before you actually make that submission?

Laura Niklason, CEO

Well, without going into too much detail not already shared in public, I can mention that a BLA consists of thousands of pages and is quite a complex document. However, a significant portion of the BLA has been ready for quite some time. Our Module 3, which details the manufacturing components, has been in a near-final state for many months since we shifted to commercial-stage manufacturing back in 2021. Additionally, our preclinical work, which corresponds to Module 4, has essentially been completed for years. There are five modules in total for the BLA, and I would argue that two of them have been finished or nearly finished for a while. The focus now is on completing the clinical modules and some labeling. Therefore, we do not expect any challenges in filing this quarter, and we believe we are fully on track.

Unidentified Analyst, Analyst

Understood. Thank you for that, and thank you for taking the questions.

Operator, Operator

Our next question comes from Matthew O'Brien of Piper Sandler. Your line is open.

Unidentified Analyst, Analyst

Hi. This is Samantha on for Matt. We just have a couple of questions for you. I guess, first off, we were wondering if you thought about providing humanitarian efforts during the Gaza conflict like you have in the past?

Laura Niklason, CEO

Yes. That's a very interesting question. I think it's an excellent question. It is a topic that's come up amongst our leadership. In the Ukraine conflict, we had surgeons reach out to us and ask for access to the HAVs as part of treating patients who were injured in the conflict. To date, we have not yet received any request from surgeons in Israel along these same lines. I think it may be that the Israeli healthcare system is perhaps better equipped to handle the casualties that they're seeing. I honestly don't know. Certainly, if we had requests come in from surgeons in Israel, we would certainly consider them and work with our regulatory and clinical teams and work with the FDA to consider those requests.

Unidentified Analyst, Analyst

That's great. Thank you. And then, I guess, on another note, maybe you could talk a little bit about launch preparations that are ongoing for the HAV, maybe in terms of hiring sales reps and how you anticipate launching this product?

Laura Niklason, CEO

Well, I'll let Dale handle the sales force and part of the launch, but I will say that an ongoing focus for Humacyte and one where we've made tremendous progress is really speaking to the health economics and the budget impact modeling of the vessel in the care of trauma patients. It's been incredibly useful that our clinical trial results have shown a real decrease in amputation and infection as compared to patients who were historically treated with synthetic grafts. That really provides us excellent hard data to make strong economic arguments around the utility of the HAV not just for improving patient outcomes, but also for improving the total expenditures for hospitals and for insurers. So, we're working closely now with our colleagues in health economics that we've brought on a whole team here at Humacyte, really mapping out those arguments, and also putting together dossiers that we're going to bring forward to insurers even in advance of approval to outline for them the size of the clinical problem and the benefits that we think the HAV can bring to patients and to the healthcare system. So that's really in terms of we're doing work with health economics, reimbursement and also in coding, and that's all very active work streams. But I'll let Dale speak to the sales force and the timing on that.

Dale Sander, CFO

Thank you, Laura. As mentioned, the core commercial team is currently focused on longer lead time items such as the budget impact model, coding, reimbursement, and market access. Regarding the sales force, we are planning how to size it and how to allocate territories and strategies. However, the actual recruitment of the sales force will occur closer to the market launch, so there is no urgency to hire them well before the 2024 launch. Planning is already in progress. It’s important to note that this market is quite concentrated, with over 80% of patients being treated at level one trauma centers, of which there are about 200. Therefore, we will have a highly qualified sales force focused on surgical products within the trauma setting, though it will not be very large.

Unidentified Analyst, Analyst

Great. Thank you.

Operator, Operator

Our next question comes from Kristen Kluska of Cantor Fitzgerald. Your line is open.

Unidentified Analyst, Analyst

Hi. This is Jason speaking on behalf of Kristen. Thank you for taking our questions. I have two inquiries. First, how receptive are surgeons to exploring new procedures and options? The second question is about your plans, if any, for gathering real-world evidence and statistics that could support future launches. I will wait for the responses offline.

Laura Niklason, CEO

Those are great questions. In the trauma area, the users will mainly be vascular surgeons and trauma surgeons. It's true that neither group has seen a significant new development in conduits for vascular restoration and replacement in about 30 years. These surgeons, who feel they have been using the same tools for a long time, are very excited about the availability of a new biologic that has been used in over 1,200 patient years. We frequently receive spontaneous inquiries about when this product will be available and how quickly it can be utilized. There is considerable anticipation in the vascular surgical market. Additionally, trauma surgeons are generally trained as general surgeons rather than specialized vascular surgeons, and they prefer not to spend time harvesting veins. Having an off-the-shelf biologic that can resist infection will be very appealing to them. Regarding real-world evidence, we are progressing with our coding to capture cases using the HAV and various trauma situations once we are on the market. We intend to keep monitoring that data and collaborate with key opinion leaders involved in our Phase 2/3 V005 trial for post-launch studies on specific injuries or regions, analyzing usage and outcomes. We definitely want to leverage that data after we hit the market.

Unidentified Analyst, Analyst

Great. Thanks a lot.

Operator, Operator

Our next question comes from Bruce Jackson from The Benchmark Company. Your line is open.

Bruce Jackson, Analyst

Hi, congratulations on all the progress. Most of my questions have been answered. I just wanted to ask about the VEITH Symposium coming up soon. Are there any presentations that you're particularly excited about?

Laura Niklason, CEO

I'm excited about Humacyte's presentations. But I'm also excited about a couple of other things that we haven't mentioned. I will say that there's a surgeon from the Mayo Clinic, who has been doing peripheral artery disease work that he's doing an investigator-sponsored study with the HAV in patients with critical limb ischemia who are facing potential amputation. So, he's going to talk about those results, which are very encouraging. We also have a joint presentation with Fresenius, where we're presenting some early results of a data dive that we're doing to look into the types of patients who have problems with their access, either access failures or frequent access infections to really hone in on which dialysis patients may benefit from the HAV in the long term.

Bruce Jackson, Analyst

All right. That's it for me. Thank you.

Operator, Operator

I'm seeing no further questions. I'll turn the call back over to our host.

Laura Niklason, CEO

Well, thank you very much for everyone for your time and attention. It's been an exciting quarter. And everybody at Humacyte is working hard to continue to meet our milestones. As I've said, since we went public, we have been delivering on what we said we would deliver on the timelines on which we said we would deliver it, and we're just continuing to do that. And I'm just so proud of our team and all the hard work that they've done, and also all of our collaborators, whether it's collaborating surgeons or our corporate partners. So, I just want to give a big shout out to everybody who's helped us get this far.

Operator, Operator

That concludes today's conference call. Thank you for joining, and have a pleasant day.