Humacyte, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”) and with our audited financial statements and the notes thereto included in our Annual Report. In addition, you should read the “Risk Factors” and “Information Regarding Forward-Looking Statements” sections of this Quarterly Report and our Annual Report 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. 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 Merger (defined below); references to “Legacy Humacyte” refer to Humacyte, Inc. prior to the Merger; and references to “AHAC” refer to Alpha Healthcare Acquisition Corp. prior to the Merger. Overview We are pioneering the development and manufacture of off-the-shelf, universally implantable, bioengineered human tissues, advanced tissue constructs and organ systems with the goal of improving the lives of patients and transforming the practice of medicine. We believe our regenerative medicine 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 product candidates for use in 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 HAVs. Our investigational HAVs are designed to be easily implanted into any patient without inducing a foreign body response or leading to immune rejection. We are developing a portfolio, or “cabinet”, of HAVs with varying diameters and lengths. The HAV cabinet would initially target the vascular repair, reconstruction and replacement market, including use in vascular trauma; arteriovenous (“AV”) access for hemodialysis, peripheral artery disease (“PAD”); and coronary artery bypass grafting (“CABG”). In addition, we are developing our HAVs for pediatric heart surgery and the delivery of cellular therapies, including pancreatic islet cell transplantation to treat Type 1 diabetes (our biovascular pancreas). We will 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 include the use of autologous vessels and synthetic grafts, which we believe 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 our HAVs are designed to 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. We are currently conducting Phase 2 and Phase 3 trials of our 6 millimeter HAV across two therapeutic indications, vascular trauma and AV access for hemodialysis, as well as continuing long-term follow up of patients in our Phase 2 PAD studies. We were granted Fast Track designation by the FDA for our 6 millimeter HAV for use in AV access for hemodialysis in 2014. We also received the first Regenerative Medicine Advanced Therapy (“RMAT”) designation from the FDA, for the creation of vascular access for performing hemodialysis, in March 2017. In May 2023, we were granted the RMAT designation for the HAV for urgent arterial repair following extremity vascular trauma. In addition, in 2018 our HAV product candidate was assigned a priority designation by the Secretary of Defense under Public Law 115-92, enacted to expedite the FDA’s review of products that are intended to diagnose, treat or prevent serious or life-threatening conditions facing American military personnel. Upon completion of our Phase 3 trials, we intend to submit a BLA to the FDA for an indication in vascular trauma and AV access for hemodialysis. 29 Table of Contents We have generated no product revenue and incurred operating losses and negative cash flows from operations in each year since our inception in 2004. As of March 31, 2023 and December 31, 2022, we had an accumulated deficit of $463.5 million and $426.5 million, respectively, and working capital of $110.3 million and $134.6 million, respectively. Our operating losses were approximately $22.5 million and $21.8 million for the three months ended March 31, 2023 and 2022, respectively. Net cash flows used in operating activities were $18.6 million and $18.8 million during the three months ended March 31, 2023 and 2022, respectively. Substantially all of our operating 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 we advance our product candidates. As of March 31, 2023, we had cash and cash equivalents and short-term investments of $131.7 million. We believe our cash and cash equivalents and short-term investments on hand 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 unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information regarding this assessment. Our need for additional capital will depend in part on the scope and costs of our development and commercial manufacturing activities. To date, we have not generated any revenue from the sale of commercialized products. Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates. Until such time, if ever, we expect to finance our operations through the use of existing cash and cash equivalents and short-term investments, the sale of equity or debt, borrowings under credit facilities, or through potential collaborations, other strategic transactions or government and other grants. Adequate capital may not be available to us when needed or on acceptable terms. If we are unable to raise capital, we could be forced 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. See “Risk Factors” for additional information. We expect to continue to incur significant expenses and to increase operating losses for at least the next several years. We anticipate that our expenses will increase substantially as we seek to: • obtain marketing approval for our 6 millimeter HAV for vascular repair, reconstruction and replacement, including for vascular trauma and AV access for hemodialysis; • commercialize the HAV via U.S. market launches in vascular trauma and hemodialysis AV access; • scale out our manufacturing facility to the extent required to satisfy potential demand following any receipt of marketing approval; • continue our preclinical and clinical development efforts; • maintain, expand and protect our intellectual property portfolio; • add operational, financial and management information systems and personnel to support, among other things, our product development and commercialization efforts and operations; and • continue operating as a public company, which includes higher costs associated with hiring additional personnel, director and officer insurance premiums, audit and legal fees and expenses for compliance with public company reporting requirements under the Exchange Act and rules implemented by the SEC and Nasdaq. Recent Developments Revenue Interest Purchase Agreement On May 12, 2023, we entered into the Purchase Agreement with the Purchasers and another affiliate of Oberland Capital Management LLC, as agent for the Purchasers, to obtain financing in respect to the further development and commercialization of our HAV, to repay our existing credit facility with SVB, and for other general corporate purposes. Pursuant to the Purchase Agreement, the Purchasers have agreed to pay us an aggregate investment amount of up to $150.0 million. Under the terms of the Purchase Agreement, $40.0 million of the Investment Amount less certain transaction expenses was funded on May 12, 2023 , which was used to repay in full and retire our indebtedness under the Loan Agreement, with the remaining proceeds funded to the Company. See Note 12 — Subsequent Events to the condensed consolidated financial statements for additional details about this financing transaction. 30 Table of Contents JDRF Agreement On April 1, 2023, we entered into an Industry Discovery and Development Partnership Agreement with JDRF International (“JDRF,” and such agreement, the “JDRF Agreement”) to further develop and perform preclinical testing of the BVP, a product candidate designed to deliver insulin-producing islets using the HAV as a means of treating patients with type 1 diabetes. According to the terms of the JDRF Agreement, JDRF will provide funding up to $0.8 million based on the achievement of certain research and development milestones. Merger On August 26, 2021, Legacy Humacyte and AHAC consummated a merger pursuant to the Merger Agreement, by and among Legacy Humacyte, AHAC and Merger Sub. As contemplated by the Merger Agreement, Merger Sub merged with and into Legacy Humacyte, with Legacy Humacyte continuing as the surviving corporation and as a wholly owned subsidiary of AHAC. On the Closing Date, AHAC changed its name to Humacyte, Inc. and Legacy Humacyte changed its name to Humacyte Global, Inc. Operations prior to the Merger included in this Quarterly Report are those of Legacy Humacyte. In addition, the PIPE Investors purchased an aggregate of 17,500,000 shares of Common Stock in the PIPE Financing. We received $242.4 million in proceeds from the Merger and related PIPE Financing, and incurred $3.9 million of transaction costs, consisting of banking, legal, and other professional fees. 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. From inception through March 31, 2023 we have been awarded grants from the California Institute of Regenerative Medicine (“CIRM”), the National Institutes of Health (“NIH”), and the DoD, to support our development, production scaling and clinical trials of our product candidates. 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 and producing our product candidates for clinical trials; • costs related to compliance with regulatory requirements; • costs related to our manufacturing development and expanded-capabilities initiatives; and • license fees related to in-licensed technologies. 31 Table of Contents The majority of our research and development resources are currently focused on our Phase 2 and 3 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 vascular trauma and AV access in hemodialysis in the United States. 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 2 and Phase 3 clinical trials. We do not allocate all of 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 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. 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 continue to increase for the foreseeable future to support our expanded infrastructure and increased costs of operating as a public company and as we prepare for our anticipated commercial launch of the HAV. These increases are expected to include increased employee-related expenses, increased sales and marketing expenses, and increased director and officer insurance premiums, audit and legal fees, and expenses for compliance with public company reporting requirements under the Exchange Act and rules implemented by the SEC, as well as Nasdaq rules. 32 Table of Contents Other Income (Expense), Net Total other income (expense), 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) interest income earned on our cash and cash equivalents and short-term investments, (iii) interest expense incurred on our Loan Agreement and finance leases during the periods each were outstanding, and (iv) a change in fair value of private placement Common Stock warrant liabilities related to the 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. Results of Operations Comparison of the Three Months Ended March 31, 2023 and 2022 Three Months Ended March 31, Change ($ in thousands) 2023 2022 $ % Grant revenue $ — $ 233 $ (233) (100) % Operating expenses: Research and development 17,278 16,314 964 6 % General and administrative 5,234 5,682 (448) (8) % Total operating expenses 22,512 21,996 516 2 % Loss from operations (22,512) (21,763) (749) 3 % Other income (expense), net Interest income 1,475 31 1,444 * Change in fair value of Contingent Earnout Liability (14,191) 3,258 (17,449) (536) % Interest expense (1,699) (1,432) (267) 19 % Other income (expense), net (42) 74 (116) (157) % Total other income (expense), net (14,457) 1,931 (16,388) (849) % Net loss $ (36,969) $ (19,832) $ (17,137) 86 % * Not meaningful Grant Revenue There was no revenue for the three months ended March 31, 2023, compared to $0.2 million for the three months ended March 31, 2022. Revenue for 2022 related to the reimbursement of qualifying expenses incurred in connection with our grant from DoD, which totaled approximately $6.8 million over the life of the grant before this program ended in November 2022. 33 Table of Contents Research and Development Expenses The following table discloses the breakdown of research and development expenses: Three Months Ended March 31, Change ($ in thousands) 2023 2022 $ % External services $ 4,169 $ 3,850 $ 319 8 % Materials and supplies 2,167 3,737 (1,570) (42) % Payroll and personnel expenses 7,649 5,641 2,008 36 % Other research and development expenses 3,293 3,086 207 7 % $ 17,278 $ 16,314 $ 964 6 % Research and development expenses increased by $1.0 million, or 6%, from $16.3 million for the three months ended March 31, 2022 to $17.3 million for the three months ended March 31, 2023. The increase was primarily driven by expenses incurred to support our expanded research and development initiatives, including (i) a $2.0 million increase in payroll and personnel expenses, (ii) a $0.3 million increase in external services and (iii) a $0.2 million increase in other research and development expenses, partially offset by a $1.6 million decrease in the purchase of materials and supplies. Materials and supplies are used in our commercial-scale manufacturing facilities and in other research and development initiatives, and the current-year decrease was the result of a scheduled shutdown of manufacturing during the quarter ended March 31, 2023 to allow refurbishment of the facilities in preparation for a pre-approval inspection expected to be conducted by the FDA in conjunction with our planned BLA filing for the HAV for an indication in vascular trauma. General and Administrative Expenses General and administrative expenses were $5.2 million and $5.7 million for the three months ended March 31, 2023 and 2022, respectively. The decrease in general and administrative expenses during this period of $0.4 million, or 8%, was primarily driven by a $0.6 million decrease in professional fees. Total Other Income (Expense), net Total other income (expense), net was expense of $14.5 million compared to income of $1.9 million for the three months ended March 31, 2023 and 2022, respectively. The increase in expense of $16.4 million primarily resulted from a $17.4 million increase in the non-cash loss related to the remeasurement of the Contingent Earnout Liability as of March 31, 2023 compared to March 31, 2022, partially offset by a $1.4 million increase in interest income. Liquidity and Capital Resources Sources of Liquidity We have historically financed our operations primarily through the sale of equity securities and convertible debt, proceeds from the Merger and related PIPE Financing, borrowings under loan facilities 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 March 31, 2023 and December 31, 2022, we had an accumulated deficit of $463.5 million and $426.5 million, respectively. As of March 31, 2023 and December 31, 2022, we had cash and cash equivalents and short-term investments of $131.7 million and $151.9 million, respectively. We believe our cash and cash equivalents and short-term investments 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 to our accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information regarding our assessment. We believe that our longer-term working capital, planned research and development, capital expenditures and other general corporate funding requirements will be satisfied 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. Our liquidity plans are subject to a number of risks and uncertainties, including those described in the sections entitled “Forward-Looking Statements” and “Risk Factors” in this Quarterly Report and our Annual Report. 34 Table of Contents As of March 31, 2023 and December 31, 2022, we had working capital of $110.3 million and $134.6 million , respectively. As of March 31, 2023, we had $30.0 million outstanding principal under our Loan Agreement (as defined below), which was repaid in full on May 12, 2023 . Other than the Purchase Agreement (as discussed below), we do not currently have any committed external source of funds. On May 12, 2023, we entered into the Purchase Agreement with the Purchasers and another affiliate of Oberland Capital Management LLC, as agent for the Purchasers. Pursuant to the Purchase Agreement and subject to customary closing conditions, the Purchasers have agreed to pay us an aggregate investment amount of up to $150.0 million. Under the terms of the Purchase Agreement, an aggregate of $40.0 million less certain transaction expenses was funded on May 12, 2023 , which was used to repay in full and retire our indebtedness under the Loan Agreement. See “Recent Developments” above for further information . Material Cash Requirements Our known material cash requirements include: (1) the purchase of supplies and services that are primarily for research and development; (2) debt repayments (for additional information, see below and Note 6 — Debt to our unaudited condensed consolidated financial statements contained elsewhere in this Quarterly Report); (3) employee wages, benefits, and incentives; and (4) financing and operating lease payments (for additional information see below). 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. Moreover, we may be subject to additional material cash requirements that are contingent upon the occurrence of certain events, for example, legal contingencies, uncertain tax positions, and other matters. As of March 31, 2023, we had non-cancellable purchase com mitments of $18.5 million for supplies and services that are primarily for research and development. We have existing license agreements with Duke University and Yale University and have a distribution agreement with Fresenius Medical Care. The amount and timing of any potential milestone payments, license fee payments, royalties and other payments that we may be required to make under these agreements are unknown or uncertain at March 31, 2023. For additional information regarding our agreement with Fresenius Medical Care, and our agreements with Duke University and Yale University, see Note 11 — Related Party Transactions and Note 10 — Commitments and Contingencies, respectively, to our unaudited condensed consolidated financial statements contained elsewhere in this Quarterly Report. Debt In March 2021, we entered into the Loan Agreement with SVB and SVB Innovation Credit Fund VIII, L.P., as amended in June and September 2021, which provides a term loan facility of up to $50.0 million, with a maturity date of March 1, 2025. On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, and the FDIC was appointed as receiver. On March 13, 2023, the FDIC announced that all of SVB’s deposits and substantially all of its assets had been transferred to a newly created, full-service, FDIC-operated bridge bank, SVBB. SVBB assumed all loans that were previously held by SVB. On March 27, 2023, First-Citizens Bank & Trust Company assumed all of SVBB’s customer deposits and certain other liabilities and acquired substantially all of SVBB’s loans and certain other assets from the FDIC, including the Loan Agreement. The initial term loan tranche of $20.0 million was funded upon the closing of the Loan Agreement, and on October 13, 2021, we borrowed an additional $10.0 million under the Loan Agreement. As of March 31, 2023, principal of $30.0 million was outstanding under the Loan Agreement and we were in compliance with all covenants in all material respects. 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 ( 12.25% as of March 31, 2023) . In addition, the lenders were granted warrants to purchase Common Stock. Interest-only payments on the principal amount outstanding are due monthly beginning in the first month after the loan is dispersed. Our contractual obligations under the Loan Agreement as of March 31, 2023 include $12.9 million of cash payments related to principal within one year and $17.1 million of principal payments within one to two years. On May 12, 2023, we repaid in full all of the outstanding obligations under the Loan Agreement. 35 Table of Contents Leases Our finance lease relates to our headquarters facility containing our manufacturing, research and development and general and administrative functions, which was substantially completed in June 2018 and leased through May 2033, and our operating lease relates to the land lease associated with our headquarters. Our future contractual obligations under our lease agreements as of March 31, 2023 are as follows: ($ in thousands) Total Less than 1 year 1 – 3 years 3 – 5 years More than 5 years Finance leases $ 28,160 $ 3,990 $ 8,282 $ 6,385 $ 9,503 Operating leases 968 105 211 211 441 ATM Facility On September 1, 2022, we entered into an agreement for the sale from time to time up to $80.0 million of shares of Common Stock pursuant to a sales agreement (the “ATM Facility”). As of March 31, 2023, we have not conducted any sales of Common Stock under the ATM Facility. Future Funding Requirements We expect to incur significant expenses in connection with our ongoing activities as we seek to (i) continue clinical development of our 6 millimeter HAV for use in vascular trauma and hemodialysis AV access and submit biologics license applications for FDA approval, (ii) if marketing approval is obtained, to launch and commercialize our HAVs for hemodialysis AV access and vascular repair in the U.S. market, including subsequent launches in key international markets, (iii) advance our pipeline in major markets, including PAD Phase 3 trials and continue preclinical development and advance to planned clinical studies in CABG and biovascular pancreas for diabetes, and (iv) scale out our manufacturing facility as required to satisfy potential demand if our HAVs receive marketing approval. We will need additional funding in connection with these activities. Our future funding requirements, both short-term and long-term, will depend on many factors, including: • the progress and results of our clinical trials and interpretation of those results by the FDA and other regulatory authorities; • the cost, timing and outcome of regulatory review of our product candidates, particularly for marketing approval of our HAVs in the United States; • the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our additional product candidates; • the cost and timing of our future commercialization activities, including product manufacturing, marketing and distribution for our HAVs if approved by the FDA, and any other product candidate for which we receive marketing approval in the future; • the amount and timing of revenues, if any, that we receive from commercial sales of any product candidates for which we receive marketing approval; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and • the costs of operating as a public company, including hiring additional personnel as well as increased director and officer insurance premiums, audit and legal fees, and expenses for compliance with public company reporting requirements under the Exchange Act and rules implemented by the SEC and Nasdaq. 36 Table of Contents 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. Other than the Purchase Agreement, we do not currently have any committed external source of funds. 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 capital, we could be forced 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. Our principal use of cash in recent periods has been primarily to fund our operations, including the clinical and preclinical development of our product candidates. Our 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. Cash Flows The following table shows a summary of our cash flows for each of the periods shown below: Three Months Ended March 31, ($ in thousands) 2023 2022 Net loss $ (36,969) $ (19,832) Non-cash adjustments to reconcile net loss to net cash used in operating activities (1) : 18,487 644 Changes in operating assets and liabilities: (159) 391 Net cash used in operating activities (18,641) (18,797) Net cash used in investing activities (1,152) (22) Net cash used in financing activities (409) (461) Net decrease in cash and cash equivalents $ (20,202) $ (19,280) Cash and cash equivalents at the beginning of the period $ 149,772 $ 217,502 Cash and cash equivalents at the end of the period $ 129,570 $ 198,222 ___________________________ (1) Includes depreciation, amortization related to our leases and our debt discount, stock-based compensation expense, and the changes in fair value of our Contingent Earnout Liability and our Common Stock warrant liabilities. Cash Flow from Operating Activities Cash used in operating activities was substantially consistent for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. 37 Table of Contents Cash Flow from Investing Activities Net cash used in investing activities for the three months ended March 31, 2023 and 2022 consisted of the purchases of property and equipment. Cash Flow from Financing Activities Net cash used in financing activities for the three months ended March 31, 2023 and 2022 consisted of principal payments of our finance leases, partially offset by proceeds from stock option exercises. 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 Estimates Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and disclosure of contingent liabilities. 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. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates based on different assumptions, judgments, or conditions. An accounting estimate or assumption is considered critical if both (a) the nature of the estimate or assumption involves a significant level of estimation uncertainty, and (b) the impact within a reasonable range of outcomes of the estimate and assumption is material to our financial condition. 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, 2022 and 2021, included in our Annual Report. Emerging Growth Company and Smaller Reporting Company Status We are 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 to use the extended transition period and, therefore, while we are an emerging growth company we 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 we choose to early adopt a new or revised accounting standard. This may make it difficult or impossible to compare our financial results with the financial results of another public company because of the potential differences in accounting standards used. Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K under the Exchange Act (“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. We 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) our annual revenues in our 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk We qualify as a smaller reporting company, as defined by Item 10 of Regulation S-K and, thus, are not required to provide the information required by this Item. 38 Table of Contents