Humacyte, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”). In addition, you should refer to our audited consolidated financial statements and the related notes for the year ended December 31, 2020 and the section entitled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” included in the Company’s Registration Statement on Form S-1, filed with the SEC on September 17, 2021 and amended on October 22, 2021. Unless the context indicates otherwise, references in this Quarterly Report to the “Company,” “Humacyte,” “we,” “us,” “our” and similar terms refer to Humacyte, Inc. (formerly known as Alpha Healthcare Acquisition Corp.) and its consolidated subsidiaries (including Humacyte Global, Inc.) following the Company’s business combination with Alpha Healthcare Acquisition Corp (the “Business Combination”); references to “Legacy Humacyte” refer to Humacyte, Inc. prior to the Business Combination; and references to “AHAC” refer to Alpha Healthcare Acquisition Corp. prior to the Business Combination. Cautionary Statement Regarding Forward-Looking Statements In addition to historical information, some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, future financial performance, expense levels and liquidity sources, includes forward-looking statements that involve risks and uncertainties. You should read the sections of this Quarterly Report entitled “Forward-Looking Statements” and “Risk Factors” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview We are pioneering the development and manufacture of off-the-shelf, universally implantable, bioengineered human tissues designed to improve the lives of patients and transform the practice of medicine. We believe our technology has the potential to overcome limitations in existing standards of care and address the lack of significant innovation in products that support tissue repair, reconstruction and replacement. We are leveraging our novel, scalable technology platform to develop proprietary, bioengineered, acellular human tissues. Our goal is to develop and manufacture these tissues for the treatment of diseases and conditions across a range of anatomic locations in multiple therapeutic areas. We are initially using our proprietary scientific technology platform to engineer and manufacture our bioengineered human, acellular tissue-based vessels (“HAVs”). Our HAVs are designed to be easily implanted into any patient without inducing a foreign body response or leading to immune rejection. We are developing our “cabinet” of HAVs of varying diameters and lengths. The HAV cabinet would initially target the vascular repair, reconstruction and replacement market, including use in AVs access for hemodialysis, trauma, peripheral arterial disease and coronary artery bypass graft. In addition, we are developing our HAVs as conduits for pediatric heart surgery and the delivery of cellular therapies, including pancreatic islet cell transplantation for the treatment of Type 1 diabetes (our biovascular pancreas). We intend to continue to explore the application of our technology across a broad range of markets and indications, including the development of urinary conduit, trachea, esophagus and other novel cell delivery systems. We believe there is substantial clinical demand for safe and effective vascular conduits to replace and repair blood vessels throughout the body. Vascular injuries resulting from trauma are common in civilian and military populations, frequently resulting in the loss of either life or limb. Existing treatment options in the vascular repair, reconstruction and replacement market use autologous vessels and synthetic grafts and suffer from significant limitations. For example, the use of autologous veins to repair traumatic vascular injuries can lead to significant morbidity associated with the surgical wounds created for vein harvest and prolonged times to restore blood flow to injured limbs leading to an increased risk of amputation and infection. Synthetic grafts are often contraindicated in the setting of vascular trauma due to higher infection risk that can lead to prolonged hospitalization and limb loss. Given the competitive advantages HAVs may have over existing vascular substitutes, we believe that HAVs have the potential to become the standard of care and lead to improved patient outcomes and lower healthcare costs. 28 Table of Contents We have generated no product revenue and incurred losses and negative cash flows from operations in each year since our inception in 2004. As of September 30, 2021 and December 31, 2020, we had an accumulated deficit of $457.2 and $388.1 million, respectively, and working capital of $222.9 million and $30.2 million, respectively. Our net losses were approximately $31.6 million and $69.1 million for the three and nine months ended September 30, 2021, respectively, and $17.8 million and $50.3 million for the three and nine months ended September 30, 2020, respectively. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to incur substantial operating losses and negative cash flows from operations for the foreseeable future as the Company advances its product candidates. As of September 30, 2021 and December 31, 2020, we had cash and cash equivalents of $240.4 million and $39.9 million, respectively. We believe our cash and cash equivalents will be sufficient to fund operations, including clinical trial expenses and capital expenditure requirements, for at least 12 months from the date of this Quarterly Report. See Note 1, “Organization and Description of Business,” in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information regarding this assessment. Recent Developments Closing of Merger On August 26, 2021 (the “Closing Date”), Legacy Humacyte and AHAC consummated the Business Combination pursuant to the Business Combination Agreement (the “Merger Agreement”), by and among Legacy Humacyte, AHAC and Hunter Merger Sub, Inc. (“Merger Sub”). As contemplated by the Business Combination Agreement, Merger Sub merged with and into Legacy Humacyte, with Legacy Humacyte surviving the Merger as a wholly owned subsidiary of AHAC (such transactions, the “Merger”). As a result of the Merger, AHAC was renamed Humacyte, Inc. and Legacy Humacyte was renamed Humacyte Global, Inc. Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), (1) each outstanding share of common stock of Legacy Humacyte (“Legacy Humacyte common stock”) was cancelled and converted into the right to receive approximately 0.26260 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), and (2) each outstanding share of preferred stock of Legacy Humacyte (“Legacy Humacyte preferred stock”) was cancelled and converted into the aggregate number of shares of Common Stock that would be issued upon conversion of the shares of Legacy Humacyte preferred stock based on the applicable conversion ratio immediately prior to the Effective Time, multiplied by approximately 0.26260, resulting in the issuance of a total of 75,656,935 shares of Common Stock. Prior holders of shares of Legacy Humacyte common stock and Legacy Humacyte preferred stock also received the contingent right to receive certain Earnout Shares (as defined below), for each share owned by each such Legacy Humacyte stockholder that was outstanding immediately prior to the closing of the Merger (the “Closing”). In addition, certain investors purchased an aggregate of 17,500,000 shares of Common Stock (such investors, the “PIPE Investors”) in a private placement that closed concurrently with the Closing for an aggregate purchase price of $175 million (the “PIPE Financing”). Additionally, at the Closing, 2,500,000 shares of AHAC’s Class B common stock (“Founder Shares”) automatically converted into shares of Common Stock on a one-for-one basis. Pursuant to the terms of the Merger Agreement, at the Effective Time of the Merger, (1) warrants to purchase shares of Legacy Humacyte common stock were converted into warrants to purchase an aggregate of 287,704 shares of Common Stock, and (2) options to purchase shares of Legacy Humacyte common stock were converted into options to purchase an aggregate of 6,405,138 shares of Common Stock. Following the Closing Date, former holders of Legacy Humacyte common stock and Legacy Humacyte preferred stock may receive up to 15,000,000 additional shares of Common Stock (“Earnout Shares”) in the aggregate in two equal tranches if the volume-weighted average closing sale price of our Common Stock is greater than or equal to $15.00 and $20.00, respectively, for any 20 trading days within any 30 consecutive trading day period. 29 Table of Contents Impact of COVID-19 The COVID-19 pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the spread of the outbreak, including shelter-in-place orders and the mandatory shutdown of certain businesses. The outbreak and government measures taken in response have had a significant impact, both direct and indirect, on our business, as supply chains have been disrupted, and facilities and production have been suspended. The future progression of the pandemic and its effects on our business and operations are uncertain. The COVID-19 pandemic may affect our ability to initiate and complete preclinical studies, delay our clinical trials or future clinical trials, disrupt regulatory activities, or have other adverse effects on our business and operations. The pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds to support our operations. Moreover, the pandemic has significantly impacted economies worldwide and could result in adverse effects on our business and operations. To date, the COVID-19 pandemic has not resulted in material financial impacts or impairment losses in the carrying values of our assets as a result of the pandemic and we are not aware of any specific related event or circumstance that would require us to revise the estimates reflected in our financial statements. The extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including current and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related economic impact of the pandemic. Components of Results of Operations Revenue To date, we have not generated revenue from the sale of any products. All of our revenue has been derived from government and other grants. Since inception we have been awarded grants from the California Institute of Regenerative Medicine (“CIRM”), the National Institutes of Health (“NIH”), and the Department of Defense (“DoD”), to support our development, production scaling and clinical trials of our product candidates. We recognized $30.8 million in revenue from inception to September 30, 2021 from these sources, including $11.2 million from CIRM under a program that ended in 2020. We may generate revenue in the future from government and other grants, payments from future license or collaboration agreements and, if any of our product candidates receive marketing approval, from product sales. We expect that any revenue we generate will fluctuate from quarter to quarter. If we fail to complete the development of, or obtain marketing approval for, our product candidates in a timely manner, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected. Research and Development Expenses Since our inception, we have focused our resources on our research and development activities, including conducting preclinical studies and clinical trials, developing our manufacturing process and activities related to regulatory filings for our product candidates. We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of: ● salaries and related overhead expenses for personnel in research and development functions, including stock-based compensation and benefits; ● fees paid to consultants and clinical research organizations (“CROs”), including in connection with our clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work and statistical compilation and analysis; ● allocation of facility lease and maintenance costs; ● depreciation of leasehold improvements, laboratory equipment and computers; ● costs related to purchasing raw materials for and producing our product candidates for clinical trials; ● costs related to compliance with regulatory requirements; 30 Table of Contents ● costs related to our manufacturing development and expanded-capabilities initiatives; and ● license fees related to in-licensed technologies. The majority of our research and development resources are currently focused on our Phase III clinical trials for our 6 millimeter HAV and other work needed to obtain marketing approval for our 6 millimeter HAV for use for vascular repair, reconstruction and replacement, including trauma and arteriovenous (“AV”) access in hemodialysis in the United States and Europe. We have incurred and expect to continue to incur significant expenses in connection with these and our other clinical development efforts, including expenses related to regulatory filings, trial enrollment and conduct, data analysis, patient follow up and study report generation for our Phase II and Phase III clinical trials. We do not allocate our costs by each research and development program for which we are developing our cabinet of HAVs, as a significant amount of our development activities broadly support multiple programs that use our technology platform. We plan to further increase our research and development expenses for the foreseeable future as we continue the development of our proprietary scientific technology platform and our novel manufacturing paradigm. The successful development of our preclinical and clinical product candidates is highly uncertain. At this time, we cannot estimate with any reasonable certainty the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our preclinical or clinical product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with the development of our product candidates, including: ● the scope, rate of progress, expense and results of our preclinical development activities, our ongoing clinical trials and any additional clinical trials that we may conduct, and other research and development activities; ● successful patient enrollment in and the initiation and completion of clinical trials; ● the timing, receipt and terms of any marketing approvals from applicable regulatory authorities including the U.S. Food and Drug Administration (“FDA”) and non-U.S. regulators; ● the extent of any required post-marketing approval commitments to applicable regulatory authorities; ● development of clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that it or its third-party manufacturers are able to successfully manufacture our product; ● obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights; ● significant and changing government regulations; ● launching commercial sales of our product candidates, if approved, whether alone or in collaboration with others; ● the degree of market acceptance of any product candidates that obtain marketing approval; and ● maintaining a continued acceptable safety profile following approval, if any, of our product candidates. A change in the outcome of any of these variables could lead to significant changes in the costs and timing associated with the development of our product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate being required to conduct in order to complete the clinical development of any of our product candidates, or if we experience significant delays in the enrollment or the conduct of any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. 31 Table of Contents General and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance, human resources, commercialization, and administrative support functions, which also include stock-based compensation expenses and benefits for such employees. Other significant general and administrative expenses include facilities costs, professional fees for accounting and legal services and expenses associated with obtaining and maintaining patents. We expect our general and administrative expenses will increase for the foreseeable future to support our expanded infrastructure and increased costs of operating as a public company. These increases are expected to include increased employee-related expenses and increased director and officer insurance premiums, audit and legal fees, investor relations fees and expenses for compliance with public company reporting requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and rules implemented by the Securities and Exchange Commission (the “SEC”), as well as the rules of the Nasdaq Global Select Market. Total Other Expenses, Net Total other expenses, net consists of (i) the change in fair value of the contingent earnout liability that was accounted for as a liability as of the date of the Merger, and is remeasured to fair value at each reporting period, resulting in a non-cash gain or loss, (ii) a gain on Paycheck Protection Program (“PPP”) loan forgiveness, (iii) interest income earned on our cash and cash equivalents, (iv) interest expense incurred on our term loan agreement with Silicon Valley Bank and SVB Innovation Credit Fund VIII, L.P. (the “Loan Agreement”), finance leases, and our PPP loan during the periods each were outstanding, (v) a change in fair value of private placement common stock warrant liabilities related to private placement warrants originally issued in a private placement to AHAC Sponsor LLC (“Private Placement Warrants”), which we assumed in connection with the Merger, and which are subject to remeasurement to fair value at each balance sheet date resulting in a non-cash gain or loss, and (vi) legal, accounting, and underwriting fees and other costs directly related to the consummation of the Merger that were associated with the aforementioned warrant liabilities. Results of Operations Comparison of the Three Months Ended September 30, 2021 and 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Change ($in thousands) 2021 2020 ​ $ ​ % ​ Revenue $ 241 $ 914 (673) ​ (74) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ Research and development ​ 15,386 ​ 14,692 ​ 694 ​ 5 % General and administrative ​ 5,398 ​ 3,435 ​ 1,963 ​ 57 % Total operating expenses ​ 20,784 ​ 18,127 ​ 2,657 ​ 15 % Loss from operations ​ (20,543) ​ (17,213) ​ (3,330) ​ (19) % Other expenses, net ​ ​ ​ ​ ​ ​ Change in fair value of contingent earnout liability ​ (9,768) ​ — ​ (9,768) ​ 100 % Interest expense ​ (1,204) ​ (549) ​ (655) ​ (119) % Other (expenses) income, net ​ (48) ​ 2 ​ (50) ​ — ​ Total other expense, net ​ (11,020) ​ (547) ​ (10,473) ​ — % Net loss ​ $ (31,563) ​ $ (17,760) ​ $ (13,803) ​ (78) % ​ Grant Revenue For the three months ended September 30, 2021 and 2020, revenue totaled $0.2 million and $0.9 million, respectively, a decrease of $0.7 million, or 74%. The decrease relates to $0.3 million of revenue recognized during the three months ended September 30, 2020 related to our grant from NIH before the program ended in 2020, and $0.4 million related to the timing of reimbursement of certain allowable costs related to our grant from DoD in the third quarter of 2020 as compared to the current year period. 32 Table of Contents Research and Development Expenses The following table discloses the breakdown of research and development expenses for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Change ($in thousands) ​ 2021 ​ 2020 ​ $ ​ % External services $ 3,801 $ 3,696 $ 105 ​ 3 % Lab supplies ​ 2,947 ​ 3,273 (326) ​ (10) % Payroll and personnel expenses ​ 5,775 ​ 4,774 ​ 1,001 ​ 21 % Other research and development expenses ​ 2,863 ​ 2,949 ​ (86) ​ (3) % ​ ​ $ 15,386 ​ $ 14,692 ​ 694 ​ 5 % ​ Research and development expenses increased from $14.7 million for the three months ended September 30, 2020 to $15.4 million for the three months ended September 30, 2021. The increase of $0.7 million, or 5%, was primarily driven by an increase in payroll and personnel expenses to support our research and development initiatives, including a $0.8 million increase in salaries and benefits and a $0.2 million increase in non-cash stock compensation expense, partially offset by a $0.3 million decrease in the purchase of lab supplies. General and Administrative Expenses General and administrative expenses were $5.4 million and $3.4 million for the three months ended September 30, 2021 and 2020, respectively. The increase in general and administrative expenses of $2.0 million, or 57%, was primarily driven by increases in professional fees of $0.6 million, including those related to preparations for commercial launch, non-cash stock compensation expense of $0.5 million, $0.3 million in insurance costs and $0.2 million in salaries and benefits. Total Other Expenses, Net Total other expense, net was $11.0 million and $0.5 million for the three months ended September 30, 2021 and 2020, respectively. The increase of $10.5 million resulted from a $9.8 million non-cash expense related to the remeasurement of the contingent earnout liability as of September 30, 2021 and a $0.7 million increase in interest expense related to our loan facility with Silicon Valley Bank, which commenced in March 2021. Comparison of the Nine Months Ended September 30, 2021 and 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ Change ​ ($ in thousands) ​ 2021 ​ 2020 ​ $ ​ % ​ Revenue ​ $ 1,086 ​ $ 1,367 ​ ​ (281) ​ (21) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ 45,091 ​ 40,879 ​ ​ 4,212 ​ 10 % General and administrative ​ 15,576 ​ 9,416 ​ ​ 6,160 ​ 65 % Total operating expenses ​ 60,667 ​ 50,295 ​ ​ 10,372 ​ 21 % Loss from operations ​ (59,581) ​ (48,928) ​ ​ (10,653) ​ (22) % Other expenses, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain on PPP loan forgiveness ​ 3,284 ​ — ​ ​ 3,284 ​ 0 % Change in fair value of contingent earnout liability ​ (9,768) ​ — ​ ​ (9,768) ​ 100 % Interest expense ​ (2,952) ​ (1,661) ​ ​ (1,291) ​ (78) % Other (expenses) income, net ​ (45) ​ 277 ​ ​ (322) ​ 116 % Total other expense, net ​ (9,481) ​ (1,384) ​ ​ (8,097) ​ — ​ Net loss ​ $ (69,062) ​ $ (50,312) ​ $ (18,750) ​ (37) % ​ 33 Table of Contents Grant Revenue For the nine months ended September 30, 2021 and 2020, revenue totaled $1.1 million and $1.4 million, respectively, a decrease of $0.3 million, or 21%. The decrease relates to $0.3 million of revenue recognized during the nine months ended September 30, 2020 related to our grant from NIH before the program ended in 2020. Research and Development Expenses The following table discloses the breakdown of research and development expenses for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ Change ($in thousands) 2021 2020 $ ​ % ​ External services $ 11,534 $ 10,748 $ 786 ​ 7 % Lab supplies ​ 8,141 ​ 6,815 ​ 1,326 ​ 19 % Payroll and personnel expenses ​ 17,003 ​ 14,497 ​ 2,506 ​ 17 % Other research and development expenses ​ 8,413 ​ 8,819 ​ (406) ​ (5) % ​ ​ $ 45,091 ​ $ 40,879 ​ $ 4,212 ​ 10 % ​ Research and development expenses increased from $40.9 million for the nine months ended September 30, 2020 to $45.1 million for the nine months ended September 30, 2021. The increase of $4.2 million, or 10%, was primarily driven by an increase in payroll and personnel expenses, including a $1.4 million increase in salaries and benefits and a $1.1 million increase in non-cash stock compensation expense, and the purchase of lab supplies used to in the development of our commercial manufacturing process and in our research and development initiatives, including the preparation of clinical studies. General and Administrative Expenses General and administrative expenses were $15.6 million and $9.4 million for the nine months ended September 30, 2021 and 2020, respectively. The increase in general and administrative expenses of $6.2 million, or 65%, was driven by increases in non-cash stock compensation expense of $2.8 million, external services and professional fees of $1.7 million, including those related to preparations for commercial launch and corporate initiatives, $0.6 million in salaries and benefits, and $0.4 million in insurance costs. Total Other Expenses, net Total other expense, net was $9.5 million and $1.4 million for the nine months ended September 30, 2021 and 2020, respectively. The increase of $8.1 million resulted from a $9.8 million non-cash expense related to the remeasurement of the contingent earnout liability as of September 30, 2021, a $1.3 million increase in interest expense related to our loan facility with Silicon Valley Bank, which commenced in March 2021, and a $0.3 million decrease in interest income earned on our cash equivalents due to lower interest rates and lower average cash balances during the year, partially offset by a $3.3 million gain on PPP loan forgiveness. Liquidity and Capital Resources Sources of Liquidity To date, we have financed our operations primarily through the sale of equity securities and convertible debt and, to a lesser extent, through grants from governmental and other agencies. Since our inception, we have incurred significant operating losses and negative cash flows. As of September 30, 2021 and December 31, 2020, we had an accumulated deficit of $457.2 and $388.1 million, respectively. As of September 30, 2021, we had cash and cash equivalents of $240.4 million. We believe our cash and cash equivalents will be sufficient to fund operations, including clinical trial expenses and capital expenditure requirements, for at least the next 12 months from the date of this Quarterly Report. See Note 1, “Organization and Description of Business,” in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information regarding this assessment. 34 Table of Contents In April 2020, we received loan proceeds in the amount of approximately $3.3 million under the PPP. The loan and accrued interest were forgivable after a 24-week period as long as we used the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintained its payroll levels. On May 25, 2021, the Small Business Administration approved the forgiveness of the outstanding amount of the PPP loan and we recognized a gain from loan extinguishment in the amount of $3.3 million during the nine months ended September 30, 2021. In March 2021, we entered into the Loan Agreement with Silicon Valley Bank and SVB Innovation Credit Fund VIII, L.P., which provides a term loan facility of up to $50.0 million, with a maturity date of March 1, 2025, of which $20.0 million was funded upon the closing of the Loan Agreement, and the additional $30.0 million is accessible in three tranches of $10.0 million each contingent on the achievement of certain business and clinical development milestones. Our obligations under the Loan Agreement are secured by substantially all of our assets, except for our intellectual property. The Loan Agreement contains certain customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. We may use the proceeds of borrowings under the Loan Agreement as working capital and to fund our general business requirements. Borrowings under the Loan Agreement bear interest at a rate of 7.5% or the sum of the Wall Street Journal Prime Rate plus 4.25%, whichever is greater. In addition, the lenders were granted warrants to purchase Common Stock. As of September 30, 2021, principal of $20.0 million was outstanding under the Loan Agreement and we were in compliance with all covenants in all material respects. On October 13, 2021, the Company borrowed an additional $10.0 million under the Loan Agreement, and principal of $30.0 million is outstanding as of the date of this Quarterly Report. As a result of the additional borrowing, the commencement of repayment of principal was deferred to no earlier than July 2023. Including the additional $10.0 million borrowed, our contractual obligations under the Loan Agreement as of September 30, 2021, include cash payments related to principal and interest of $2.2 million within one year, $25.0 million within one to three years, and $10.3 million within three to five years. Future Funding Requirements Until such time, if ever, as we are able to successfully develop and commercialize one or more of our product candidates, we expect to continue financing our operations through the sale of equity, debt, borrowings under credit facilities or through potential collaborations with other companies, other strategic transactions or government or other grants. Adequate capital may not be available to us when needed or on acceptable terms. We do not currently have any committed external source of funds beyond the Loan Agreement. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures. Debt financing would also result in fixed payment obligations. If we are unable to raise additional funds through equity or debt financings or other strategic arrangements when needed, we may be required to delay, reduce, suspend or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results and financial condition. Humacyte’s principal use of cash in recent periods has been funding its operations. Humacyte’s future capital requirements, both short-term and long-term, will depend on many factors, including the progress and results of our clinical trials and preclinical development, timing and extent of spending to support development efforts, cost and timing of future commercialization activities, and the amount and timing of revenues, if any, that we receive from commercial sales. See the section of this Quarterly Report entitled “Risk Factors” for additional risks associated with our substantial capital requirements. 35 Table of Contents Cash Flows The following table shows a summary of our cash flows for each of the periods shown below: ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ($in thousands) 2021 2020 Statement of cash flows data: ​ ​ Total cash (used in)/provided by: ​ ​ Operating activities ​ $ (59,742) ​ $ (40,373) Investing activities ​ (175) ​ (255) Financing activities ​ 260,437 ​ 2,379 ​ ​ $ 200,520 ​ $ (38,249) ​ Cash Flow from Operating Activities Net cash used in operating activities of $59.7 million during the nine months ended September 30, 2021 was primarily the result of our net loss of $69.1 million to support our research and development, including clinical trial, manufacturing and regulatory costs, and general and administrative costs, $12.4 million related to payments of liabilities acquired in the Merger, and adjustments for non-cash expenses related primarily to a $9.8 million loss related to the change in the fair value of our contingent earnout liability, $7.4 million of stock-based compensation, $4.7 million of depreciation expense, $1.5 million for amortization of finance lease right-of-use assets, and $0.6 million amortization of Silicon Valley Bank debt discount, partially offset by a $3.3 million non-cash gain on PPP loan forgiveness. We also experienced a $1.0 million net favorable change in cash related to operating assets and liabilities primarily related to an increase in accrued expenses of $2.4 million, an increase in accounts payable of $0.8 million, partially offset by an increase in prepaid expenses of $2.0 million. Net cash used in operating activities of $40.4 million during the nine months ended September 30, 2020 was primarily the result of our net loss of $50.3 million to support our research and development, including clinical trial, manufacturing and regulatory costs, and general and administrative costs, with adjustments for non-cash expenses related primarily to $4.7 million of depreciation expense, $3.5 million of stock-based compensation and $1.5 million for amortization of finance lease right-of-use assets. Cash Flow from Investing Activities Net cash used in investing activities during the nine months ended September 30, 2021 was $0.2 million, primarily consisting of the purchases of laboratory equipment. Net cash used in investing activities during the nine months ended September 30, 2020 was $0.3 million, primarily consisting of the purchases of laboratory and manufacturing equipment. Cash Flow from Financing Activities Net cash provided by financing activities during the nine months ended September 30, 2021 was $260.4 million, consisting of $242.4 million of proceeds from the Merger and the PIPE Financing, $19.7 million of net proceeds from our loan facility with Silicon Valley Bank and $0.6 million from the exercise of stock options, partially offset by $0.9 million of transaction costs paid and principal payments of $1.3 million in connection with a finance lease obligations. Net cash provided by financing activities during the nine months ended September 30, 2020 was $2.4 million, consisting of $3.3 million of the proceeds from our PPP loan and proceeds of $0.2 million from the exercise of stock options, partially offset by principal payments of $1.1 million in connection with a finance lease obligation. ​ 36 Table of Contents Contractual Obligations and Commitments The following table summarizes our contractual obligations as of September 30, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 1 ​ ​ ​ ​ More than 5 ($in thousands) ​ Total ​ year ​ 1 - 3 years ​ 3 - 5 years ​ years Contractual obligations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance leases ​ $ 33,952 ​ $ 950 ​ $ 7,833 ​ $ 8,232 ​ $ 16,937 Operating leases ​ 1,126 ​ 26 ​ 210 ​ 210 ​ 680 SVB loan payable ​ 23,980 ​ 5,336 ​ 14,813 ​ 3,831 ​ — Noncancelable purchase commitments (1) ​ 12,411 ​ 12,411 ​ — ​ — ​ — Total contractual obligations ​ $ 71,469 ​ $ 18,723 ​ $ 22,856 ​ $ 12,273 ​ $ 17,617 (1) As of September 30, 2021, we had non-cancellable purchase commitments of $12.4 million for supplies and services that are primarily for research and development. We have also entered into contracts with CROs primarily for clinical trials. These contracts generally provide for termination upon limited notice, and therefore we believe that our non-cancellable obligations under these agreements are not material. The table above does not include potential milestone payments, license fee payments, royalties and other payments that we may be required to make under our license agreements with Duke University and Yale University and our distribution agreement with Fresenius Medical Care Holdings, Inc. These payments are not included in the preceding table as the amount and timing of such payments are unknown or uncertain at September 30, 2021. For additional information regarding these agreements and the nature of payments that could become due thereunder, see “— Business — Distribution ,” and “— Business — Intellectual Property ” included in the Company’s Registration Statement on Form S-1, filed with the SEC on September 17, 2021 and amended on October 22, 2021. Our contractual obligations increased materially from December 31, 2020 as a result of entering into the Loan Agreement with Silicon Valley Bank and SVB Innovation Credit Fund VIII, L.P., which provides a term loan facility of up to $50.0 million with a maturity date of March 1, 2025, of which $20.0 million was outstanding as of September 30, 2021. On October 13, 2021, we borrowed an additional $10.0 million under the term loan facility. Including the additional $10.0 million borrowed, our contractual obligations under the Loan Agreement as of September 30, 2021 include cash payments related to principal and interest of $2.2 million within one year, $25.0 million within one to three years, and $10.3 million within three to five years. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in SEC rules and regulations. Critical Accounting Policies and Significant Judgments and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, costs and expenses. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates. Other than the policies noted in Part I, Item 1, Note 2, “Summary of Significant Accounting Policies,” in our notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our audited consolidated financial statements as of and for the years ended December 31, 2020 and 2019, included in the Company’s Registration Statement on Form S-1, filed with the SEC on September 17, 2021 and amended on October 22, 2021. 37 Table of Contents Recent Accounting Pronouncements See Note 2, “Summary of Significant Accounting Policies,” in our notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report for a description of recent accounting pronouncements applicable to our financial statements. Emerging Growth Company and Smaller Reporting Company Status The Company is an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies until it is no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We expect the Company to avail itself of the extended transition period and, therefore, while the Company is an emerging growth company it will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies, unless it chooses to early adopt a new or revised accounting standard. This may make it difficult or impossible to compare the Company’s financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. Additionally, the Company is a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. The Company will remain a smaller reporting company if (1) the market value of Common Stock held by non-affiliates is less than $250 million as of the last business day of the second fiscal quarter, or (2) the Company’s annual revenues in its most recent fiscal year completed before the last business day of its second fiscal quarter are less than $100 million and the market value of Common Stock held by non-affiliates is less than $700 million as of the last business day of the second fiscal quarter.