Earnings Call Transcript - HUMA Q1 2024

Operator, Operator

Good morning, everyone, and welcome to the Humacyte First Quarter 2024 Results Conference Call. This call is being recorded.

Thomas Johnson, LifeSci Advisors

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 law. 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 on our Form 10-Q, which, after filing, may be accessible from the Investor 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; Dr. Heather Prichard, Chief Operating Officer. Dr. Niklason will provide a summary of the company's progress during the year and recent weeks, and Dale will review the company's financial results for the quarter ended March 31, 2024. Following their prepared remarks, the management team will be available for your questions. I will now turn over the call to Dr. Niklason.

Laura Niklason, CEO

Thank you, Tom. Good morning, everyone, and thank you for joining us for our first quarter 2024 financial results and business update call. The start of 2024 has been highly productive for Humacyte. Notably, the FDA accepted our Biologics License Application for the HAV in the vascular trauma indication in February of this year. The HAV was granted Priority Review by the FDA with a PDUFA date set for August 10, 2024. The entire Humacyte team has been actively engaged in commercial readiness activities to support our anticipated U.S. market launch. In addition, the HAV continues to be featured in a variety of medical and scientific presentations, highlighting its significant promise across our broader HAV pipeline, including in dialysis access, type 1 diabetes using the BioVascular Pancreas, and in cardiac bypass surgery using a small-caliber version of the HAV. Finally, we strengthened our balance sheet with a $43 million equity raise in February of 2024 and $20 million in funding under our arrangement with Oberland Capital, enabling us to continue executing on our corporate strategy. During today's call, I'll review these developments 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 up for your questions. I'll begin with our HAV program in vascular trauma. You'll recall that in December of 2023, we submitted our BLA to the FDA. During our last quarterly call, we discussed in detail the robust data package supporting our submission, which included positive results from our V005 Phase II/III clinical trial as well as real-world evidence from the treatment of wartime injuries in Ukraine under the humanitarian aid program that was supported by the FDA. In February of 2024, the FDA accepted our BLA in vascular trauma, granting Priority Review and establishing a PDUFA goal date for action of August 10. The FDA has completed its pre-licensing inspection of our manufacturing facilities in Durham, North Carolina as part of the BLA review process. We remain on track with our BLA review and commercial launch preparations, and we remain confident in the approvability of the HAV in vascular trauma. Building upon the positive clinical results and the Priority Review grant by the FDA, we've implemented a company-wide multidisciplinary program that's designed to ensure U.S. launch readiness upon the anticipated approval of the HAV. Among the major recent accomplishments is the completion of a budget impact model, which illustrates the potential economic value of the HAV as compared to the current standard of care in vascular trauma. Presentations of clinical results and the budget impact model are planned at upcoming medical meetings and in publications throughout the remainder of 2024. In addition, our medical affairs team is continuing to build awareness through demonstrations of the HAV at medical and military conferences and at meetings conducted across the U.S. at trauma medical centers. We're also having productive discussions with payers, and we're in the process of achieving an ICD-10 code for HAV implantation procedures with the Centers for Medicare & Medicaid Services, or CMS. Lastly, we've commenced the recruiting of a high-quality sales team to support the planned market launch. Humacyte is pleased to announce that we've hired Morgan Rankin as Vice President of Sales, joining Humacyte after 12 years at Teleflex Medical. Morgan most recently served as the Vice President of Sales, Trauma and Emergency Medicine at Teleflex, where she led a team of approximately 100 sales professionals who were focused on vascular access and hemorrhage control. We are on the cusp of being able to provide an innovative regenerative medicine product for patients who are suffering from traumatic vascular injury. Based on the strength of our BLA data package, combined with our Priority Review and the RMAT designation from the FDA, we're looking forward to the PDUFA date. Turning now to our program in dialysis access. In March of 2024, we hosted a key opinion leader webinar entitled Hemodialysis Access: A Crossroads of Care, which featured the HAV as a potential solution for arteriovenous access in patients with end-stage kidney disease requiring hemodialysis. A replay of that webinar can be found on the Investors section of the Humacyte website. Dr. Timmy Lee, Dr. Prabir Roy-Chaudhury, and Dr. Michael Curi provided a thorough picture of the unmet need in dialysis access and discussed real-world patient examples of the gaps in hemodialysis access care. We also presented results from a study that we conducted with our corporate partner, Fresenius Medical Care, and its subsidiary, Frenova Renal Research. In that study, we reviewed outcomes of nearly 180,000 adult patients who received in-center dialysis at Fresenius Kidney Care dialysis centers. The objective of the study was to further define the patient subgroups who could most benefit from the HAV in hemodialysis. Strikingly, the study revealed that women, particularly those who are obese or diabetic, are much more likely to have higher dialysis access complication rates. These complications of dialysis access include infections, access removals, thrombosis, and access failures. The cost of maintaining dialysis access in patients, including the cost of infections and fistula failures, can average approximately $22,000 to $55,000 per year for these high-cost, high-complication patient groups. In addition, data indicate that vascular access costs in the upper quintile of patients exceeded approximately $91,000 per year. Based on these results, we believe that female patients could benefit from more reliable AV access by avoiding infections and other complications that are associated with the current standard of care. To that end, we've initiated a study that will collect comprehensive data on the outcomes and complications in women receiving the HAV for dialysis access as compared to those receiving autogenous fistula. The study, named the V012 study, is not only designed to evaluate the efficacy and safety of the HAV as compared to fistula in women but will also capture important information on access complications and resulting health economic data. This study is the first of its kind, and it will help to quantify the potential health economic benefits of the HAV and should provide additional support for reimbursement in women. We're very excited about this study, and we'll provide you with updates as it progresses. Results from our V007 Phase III trial of the HAV in patients with end-stage renal disease remain on track to be reported in the third quarter of 2024. As a reminder, we completed enrollment of 242 patients in this trial in April of 2023. The trial is designed to evaluate the usability of the HAV for dialysis during the first 12 months, and participants will be followed for 24 months after implantation. We look forward to sharing these results when they become available. On the diabetes front, results from our studies with the HAV in our earlier-stage programs are slated to be featured in several upcoming medical meetings. Results from ongoing preclinical studies support the potential of our BioVascular Pancreas, or BVP, which is a product candidate to enable the delivery and survival of insulin-producing islets as a potential treatment for type 1 diabetes. In 3-month studies conducted in nonhuman primates, researchers observed that insulin-producing cells in the BVP survived after implantation for 3 months and continue to make insulin. In addition, we have advanced the manufacturing of islets from human stem cells and have shown that these human stem cell-derived islets can arrest diabetes in rodent models. These and other preclinical results will be presented at the American Diabetes Association Annual Meeting being held in June in Orlando, Florida. We'll also be presenting results from studies of our small 3.5-millimeter diameter HAV in cardiac bypass graft surgery, or CABG. Preclinical 6-month studies have been conducted in nonhuman primates to support the planned advancement of the small diameter HAV into human clinical trials in CABG. We have observed remodeling of the HAV to a diameter that closely matches that of the native coronary vessels in the nonhuman primates, which is an outcome that has not been observed with any other conduit. These promising results of HAV patency and remodeling will be presented at the Tissue Engineering and Regenerative Medicine Conference in June. 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 March 31, 2024, we had cash and cash equivalents of $115.5 million. Total net cash provided was $35.1 million for the first 3 months of 2024 compared to net cash used of $20.2 million for the first 3 months of 2023. The increase in net cash provided resulted primarily from $43 million in net proceeds from a public offering of Humacyte's common stock in March 2024 and $20 million in proceeds from an additional draw under our funding arrangement with Oberland Capital Management. We believe that our cash and cash equivalents will be adequate to finance operations for at least 12 months from the date of this financial report, well past the currently anticipated timelines for FDA approval and commercialization of the HAV in the vascular trauma indication. There were no revenues for either the first quarter of 2024 or the first quarter of 2023. I will run through the normal year-to-year comparison of expenses, but first, I wanted to highlight that our overall expense run rate for the first quarter of 2024 is virtually identical to the fourth quarter of 2023. Total operating expenses, which include noncash expenses, were $26.6 million for the first quarter of 2024, largely unchanged compared to the $26.2 million incurred in the fourth quarter of 2023. Regarding the year-over-year comparisons, research and development expenses were $21.3 million for the first quarter of 2024 compared to $17.3 million for the first quarter of 2023. The current year increase resulted primarily from increased materials and personnel expenses to support expanded research and development initiatives and our clinical trials, including the ongoing clinical development of the HAV for use in AV access for hemodialysis. General and administrative expenses were $5.3 million for the first quarter of 2024 compared to $5.2 million for the first quarter of 2023. The slight increase during the 3 months ended March 31, 2024, compared to the prior year period resulted primarily from increased professional fees and external service costs. Other net expense was $5.3 million for the first quarter of 2024 compared to net expense of $14.5 million for the first quarter of 2023. The decrease in other net expense from the first quarter of 2024 compared to 2023 resulted primarily from the noncash remeasurement of the contingent earnout liability associated with the August 2021 merger with Alpha Healthcare Acquisition Corp. Net loss was $31.9 million for the first quarter of 2024 compared to $37.0 million for the first quarter of 2023. The current period decrease in net loss resulted primarily from the noncash remeasurement of the contingent earnout liability described previously. I will now turn it back 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. I'd like to take a moment again to thank the Humacyte team as well as all of our partners for their continued commitment to our programs. Our team's dedication has been instrumental in reaching this crucial and exciting stage in our company's development. Not only are we nearing our first anticipated regulatory approval but we're also making meaningful progress across our broader pipeline, bringing us closer to delivering a potential solution to patients with a variety of vascular diseases and complications. We look forward to keeping you updated with 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 Ryan Zimmerman with BTIG.

Ryan Zimmerman, Analyst

Well, congrats on all the progress, getting closer to PDUFA here. Laura, can you talk about the facility inspection with the FDA? Any observations? Anything that you guys had to correct? How clean was that? And just help us know that we're kind of checking those boxes before PDUFA.

Heather Prichard, COO

Ryan, yes, as Laura stated, we completed our pre-license inspection of our manufacturing facility and had a very successful outcome. And based on the outcome of the inspection and all of the other FDA interactions on the whole, we remain very confident in the approval of the HAV in vascular trauma. And we won't necessarily comment on any single interaction or the details, but we do feel very confident. It was a very successful interaction that we have with the FDA, and we feel like it concluded very successfully.

Ryan Zimmerman, Analyst

Okay. I appreciate that. And then Dale, your SG&A costs were running a little lower than we expected, at least this quarter. They were, as you noted, in line with last quarter. Just help us understand kind of when that step-up occurs as you prepare for commercialization. We've talked in the past about needing a smallish kind of modest sales force for the vascular trauma indication. When do we think about that increase in cash and those needs? And I guess, help us understand what you're doing today in terms of preparing for commercialization.

Dale Sander, CFO

Yes. Yes, certainly, Ryan. And so SG&A expenses are where we expected. Keep in mind that even though we're feverishly preparing for the commercial launch, we have had a core commercial team, which is primarily on the marketing side that has been in place for some time, which is why the SG&A expenses are somewhat level because a number of the activities that we've been undertaking to prepare for launch, including the preparation of the budget impact model that demonstrates the potential savings of the use of the HAV in vascular trauma versus standard of care and other longer-time items like that, such as working with payors and working with CMS to get the coding that we need, have been underway for quite some time. In terms of the actual ramp-up associated with the sales force, as indicated in the press release, we're pleased that we brought our Vice President of Sales, Morgan Rankin, onboard. The actual sales team itself, which as we've discussed in the past will be relatively small because the vascular trauma market is very concentrated with only about 200 level 1 trauma centers in the United States. That will be brought on closer to the time of approval. So you don't see those expenses in place right now. In terms of the sizing of that sales force, we haven't given absolute guidance other than to point out that based on the level 200 trauma centers in the U.S., that sales force will be somewhat less than 20 representatives, most likely.

Ryan Zimmerman, Analyst

Okay. Very helpful, and congrats on all the progress.

Kristen Kluska, Analyst

I want to congratulate the team on all the progress made three months into the PDUFA. I'll start with a question about AV access. The top line results are exciting and just a quarter away. Given the findings presented at your KOL event, could you discuss how you plan to present the overall data? Additionally, could you touch on the subset analyses, especially regarding areas of greatest unmet medical need, and how this will factor into future discussions with the agency?

Laura Niklason, CEO

Kristen, this is Laura, and that's a great set of questions. Our partnership with Fresenius is really what has allowed us to leverage their enormous database, which is really worldwide, on dialysis access complications and which demographics fare well and which fare poorly. And so I just want to give a shout-out to our team members at Fresenius. We could not have done this research without them. But you're right, Kristen, it is clear that not all dialysis patients are created equal. There's clear quantitative evidence now that female patients, diabetics, and obese patients all have more trouble with their access and are more expensive to care for than our male patients, particularly male patients who aren't burdened with those other disease processes. So you're right. We're going to look at the V07 data through the lens of all patients writ large, but also through the lens of these different demographic subsets. Because again, the benefits that accrue to some of these patients, particularly perhaps women, the elderly, or diabetics, those relative benefits as compared to fistula may be even greater. We anticipate that this will be part of our discussions with the agency, both for the V07 trial, but then also, obviously, for the V012 trial, which is our women-only trial, once we start to get those data in hand.

Kristen Kluska, Analyst

Okay. And then moving on to vascular trauma. You've clearly also done a lot of work with the community here and educating them about the benefits of this product. But I know it's going to require a relatively small sales force to bring this out. But do you think that this is going to be a product where word of mouth is going to be essential and not initially yield target surgeons that are more open to trying new therapies and then they'll essentially tell their colleagues at conferences, events, et cetera? And then have you gated from the surgeons that participated in the trial that they would be open to using it in a commercial setting as well?

Laura Niklason, CEO

I will address the second question first. Many of our surgeons involved in the trauma trial, especially our highest enrolling surgeons at leading centers like the Denver trauma center, Baltimore Shock Trauma, Johns Hopkins, and Grady Medical Center in Atlanta, have shown significant enthusiasm for the vessel. They recognize the substantial clinical benefits of having an immediately available conduit for both vascular and trauma surgeons in treating vascular injuries. It's crucial to mention that while vascular surgeons are skilled in harvesting veins, trauma surgeons, who care for many patients, do not typically undergo that training. For trauma surgeons, having an easily accessible conduit that does not need to be retrieved from patients and is resistant to infection is highly appealing. Nevertheless, you are right; we will need to work with each medical center and surgeon individually, particularly in major urban centers across the country. Our medical affairs team is actively engaging in this process, conducting educational roadshows to inform surgeons about biological conduits and their relevance in trauma care without formally marketing the product. We are focusing on major medical centers and specific geographical areas. If a leading academic center in a metropolitan area adopts our product, we anticipate that the resulting word-of-mouth will facilitate further adoption within the local community.

Operator, Operator

Our next question comes from the line of Bruce Jackson with The Benchmark Company.

Bruce Jackson, Analyst

Most of my questions have been answered. If maybe you could just give us a little bit of a flavor of the interaction with the FDA. What types of questions are they asking? And how close do you think you're getting to concluding the BLA?

Laura Niklason, CEO

As with any BLA filing, part of the standard procedure is that after the submission and acceptance of the file, there is extensive communication involving clarifying questions and requests for additional information. This process has been ongoing since January, and those interactions have gone very smoothly as we've addressed all their inquiries. There are also specific meetings that are part of the normal process, including a mid-cycle meeting, which we have already completed. Additionally, we've finished the inspection of our facility. Everything is proceeding as we had anticipated, considering the timelines for a Priority Review. We see no reason for a shift in the PDUFA date. While the FDA's actions are beyond our control, we have no indication that we are off track. Overall, everything appears to be moving forward as expected.

Bruce Jackson, Analyst

Okay. That's great. Congratulations again on all the progress.

Operator, Operator

Our next question comes from the line of Josh Jennings with TD Cowen.

Joshua Jennings, Analyst

I was hoping that if the August PDUFA date is maintained by the FDA and the BLA receives approval, you could guide us through the next steps regarding the initial commercialization efforts. It would be helpful to discuss the back approvals we've heard about from other device companies, as that process has been taking longer. Ultimately, I'm trying to understand if we should anticipate initial revenues in the fourth quarter or if we should adopt a more conservative approach in our modeling and consider the first quarter of 2024 instead. Additionally, I have one follow-up question regarding the 2025 season.

Dale Sander, CFO

Yes, absolutely. Thanks, Josh. You're right. We are a biologic, but the process of getting through hospitals will be somewhat similar to the med tech world and devices. Regarding the launch, the timeline after launch is generally influenced by the extent of changes to package inserts and labeling, as well as logistics related to any necessary new packaging. Typically, there’s the approval phase followed by a few weeks to implement any packaging changes. Then, there’s a soft launch where the company begins responding to and filling orders, followed shortly by a full promotional effort for the major launch. We anticipate that most hospitals will have some form of a value analysis committee program. From my previous experiences with launches, there are times when hospitals place orders on day one, either bypassing the formal process or ordering simultaneously. Other hospitals typically follow the complete VAC process, which historically has taken about six months to navigate. Feedback from several trauma and vascular surgeons advocating for the product indicates that they feel confident in their ability to influence this process, especially in trauma and vascular trauma, given the relatively low number of patients seen each week in hospitals. They believe they have a high success rate and expect to expedite the HAV through the necessary processes.

Joshua Jennings, Analyst

That's super helpful. I know it's been a little while since your team hosted us at your headquarters and showed us the manufacturing facility. I just wanted to remind me of the current manufacturing capacity and the steps the team needs to take to ramp up capacity in these early days as the vascular trauma indication is getting ready for BLA approval.

Heather Prichard, COO

Thanks, Laura. So Josh, as our manufacturing capacity stands now, as you know, at about 8,000 HAVs gross per year. And as far as scaling that out with the LUNA system that we have that manufactures our product, that is just a case of putting in more LUNA lines. Our facility is already ready in a shelled-out space that's already plumbed for electrical and gases and utilities for us to add additional units LUNA up to about 40,000 HAV per year annual gross yield. So we're prepared, and we're prepared for a launch to be able to produce enough vessels in the first few years. And then we're also prepared and have begun planning for that expansion within the space. So as demand grows, we can produce enough HAVs for the market.

Operator, Operator

Our next question is a follow-up from Ryan Zimmerman with BTIG.

Ryan Zimmerman, Analyst

Sorry, I have one follow-up question. You mentioned ICD-10s for Humacyte in relation to the HAV. I'm curious if you could share your thoughts on that process and any timing you might anticipate for obtaining a code for the implantation of the HAV, whether it relates to vascular trauma or AV access, among other things.

Laura Niklason, CEO

Yes, Ryan. So we submitted the application with CMS for the ICD-10 code in trauma because the ICD-10 code in this case is going to be indication-specific. We submitted the application in December, and we had a public forum meeting on the ICD-10 code application in March. This is in the public domain. The CMS recommendation at the time was that the HAV be granted its own ICD-10 code for the implantation of a bioengineered vessel in the upper or lower extremities. CMS doesn't execute on the final decision on that, I don't think, until June. But based on the CMS recommendation, which is already in the public domain, we expect that to go through and to have that in hand before approval. Just as a side note, also with respect to CMS, we are planning to apply for a new technology add-on payment with CMS after our projected approval date. You can apply for an NTAP once per year, and the application date is typically around October 1, and we plan on hitting that allocation date and applying this year.

Operator, Operator

Thank you. I'm showing no further questions at this time in queue. This concludes the Humacyte First Quarter Results Conference Call. Thank you all for participating. You may now disconnect your lines.