What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-28 compared with 2023-03-24 · 118 added, 152 removed, 231 unchanged (54% of the section changed)

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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 leveraging our novel, scalable technology platform to develop proprietary bioengineered, acellular human tissues 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.

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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;

AV access for hemodialysis;

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).

The HAV cabinet would initially target the vascular repair, reconstruction and replacement market, including use in vascular trauma, AV access for hemodialysis, and PAD.

We are also developing the HAV for CABG and pediatric heart surgery.

Over the longer term, we are developing our HAV for the delivery of cellular therapies, including pancreatic islet cell transplantation to treat Type 1 diabetes (our BVP).

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.

For the HAV, 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.

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 complications such as amputation and reperfusion injury.

In addition, in many instances of vascular trauma the patient may not have adequate vein available, or the time between injury and treatment is too long, to make autologous graft repair feasible.

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.

As of December 31, 2023, our HAVs have been implanted in approximately 573 patients.

We and our collaborators are currently conducting Phase 3 and Phase 2 trials of our 6 millimeter HAV across three therapeutic indications:

vascular trauma, AV access for hemodialysis, and PAD.

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 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.

In September 2023, we announced positive top line results from our V005 Phase 2/3 trial in vascular trauma, and in December 2023 we filed a BLA for urgent arterial repair following extremity vascular trauma when synthetic graft is not indicated, and when autologous vein use is not feasible.

In February 2024, the FDA accepted the BLA filing and granted priority review and set a PDUFA) date of August 10, 2024.

In April 2023, we announced completion of enrollment of our V007 Phase 3 trial of the HAV for use in AV access for hemodialysis.

Upon anticipated completion of our V007 Phase 3 trial in 2024, and dependent upon clinical results, we intend to submit a BLA supplement to the FDA for an indication in AV access for hemodialysis.

We have generated no product revenue and incurred operating losses and negative cash flows from operations in each year since our inception in 2004.

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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 December 31, 2022, we had cash and cash equivalents and short-term investments of $151.9 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 the next 12 months from the date of this Annual Report on Form 10-K.

As of December 31, 2023, we had cash and cash equivalents of $80.4 million.

Subsequent to December 31, 2023, in March 2024 we completed the Offering (defined below), which provided approximately $43.1 million in net proceeds and received an additional $20.0 million under the Purchase Agreement (defined below) We believe our cash and cash equivalents 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 Annual Report on Form 10-K.

See Note 1 — Organization and Description of Business in the notes to our accompanying consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding this assessment.

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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.

Until such time, if ever, we expect to finance our operations through the use of existing cash and cash equivalents, the sale of equity or debt, proceeds from the Purchase Agreement, 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.

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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;

• obtain marketing approval for our 6 millimeter HAV for vascular repair, reconstruction and replacement, including for indications in vascular trauma and AV access for hemodialysis;

• commercialize the HAV via U.S.

market launches in vascular trauma and hemodialysis AV access;

market launches for an indication 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;

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• add operational, financial and management information systems and personnel to support, among other things, our product development and commercialization efforts and operations;

• continue operating as a public company, which includes higher costs associated with hiring additional personnel, director and officer insurance premiums, audit and legal fees, expenses for compliance with public company reporting requirements under the Exchange Act and rules implemented by the SEC and The Nasdaq Stock Market LLC (“Nasdaq”).

On August 26, 2021 (the “Closing Date”), Legacy Humacyte and AHAC consummated a merger pursuant to that certain Business Combination Agreement, dated as of February 17, 2021 (the “Merger Agreement”), by and among Legacy Humacyte, AHAC and Hunter Merger Sub, Inc.

(“Merger Sub”), a Delaware corporation and wholly owned subsidiary of AHAC.

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 (the “Merger”).

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 Annual Report on Form 10-K are those of Legacy Humacyte.

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 Contingent 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.

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 (“Contingent 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.

Unless otherwise noted, the Company has retroactively adjusted all common and preferred share and related price information to give effect to the exchange ratio established in the Merger Agreement.

Impact of COVID-19

The COVID-19 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 enrollment in clinical trials has been delayed.

To date, the COVID-19 pandemic has not resulted in material financial impacts or impairment losses in the carrying values of our assets 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 ongoing effects of 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 and timelines, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the emergence of new virus variants, and the duration and intensity of the related economic impact of the COVID-19 pandemic.

• 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 The Nasdaq Stock Market LLC (“Nasdaq”).

Recent Developments

On February 29, 2024, we entered into an underwriting agreement (the “Underwriting Agreement”) with Cowen and Company, LLC and Cantor Fitzgerald & Co.

as representatives of the several underwriters named therein (collectively, the “Underwriters”), relating to the issuance and sale in an underwritten offering (the “Offering”) of 15,410,000 shares of our Common Stock, which included a full exercise of the Underwriters’ option to purchase additional shares, at a price to the public of $3.00 per share (the “Shares”).

The net proceeds to us from the Offering were approximately $43.1 million after deducting underwriting discounts and commissions and estimated Offering expenses.

The Offering closed on March 5, 2024.

Components of Results of Operations

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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”), NIH, and the DoD, to support our development, production scaling and clinical trials of our product candidates.

From inception through December 31, 2023, we have been awarded grants, including grants from the California Institute of Regenerative Medicine (“CIRM”), 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.

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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, finance leases, and our PPP loan during the periods each were outstanding, (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, (v) a non-cash gain on PPP loan forgiveness during the year ended December 31, 2021, and (vi) during the year ended December 31, 2021, legal, accounting, and underwriting fees and other costs directly related to the consummation of the Merger that were associated with the aforementioned warrant liabilities.

the contingent derivative liability related to the Purchase Agreement;

a liability related to a freestanding option agreement related to the Purchase Agreement;

and the derivative liability related to our agreement with JDRF (defined below), all of which are subject to remeasurement to fair value at each balance sheet date resulting in a non-cash gain or loss, (v) a loss on debt extinguishment related to the prepayment of our loan agreement with SVB in May 2023, and (vi) an employee retention credit we recognized in June 2023.

Results of Operations

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Change in fair value of Contingent Earnout Liability (10,023) 75,767 (85,790) (113) %

Gain on PPP loan forgiveness — 3,284 (3,284) (100) %

Employee retention credit 3,107 — 3,107 100 %

Loss on extinguishment of debt (2,421) — (2,421) (100) %

Interest expense (6,599) (6,200) (399) 6 %

Other income, net 417 7 410 *

Total other income, net

Change in fair value of derivative liabilities (260) 417 (677) (162) %

Total other income (expense), net

(10,729) 72,613 (83,342) (115) %

$ (110,776) $ (11,965) $ (98,811) 826 %

* Not meaningful

Grant Revenue

For the years ended December 31, 2022 and 2021, revenue was approximately $1.6 million and $1.3 million, respectively, and related to the reimbursement of qualifying expenses incurred in connection with our grant from DoD.

The increase in revenue of $0.3 million, or 24%, relates to the timing of reimbursement of certain allowable costs related to our grant from DoD, which totaled approximately $6.8 million over the life of the grant before this program ended in November 2022.

There was no revenue for the year ended December 31, 2023, compared to $1.6 million in grant revenue for the year ended December 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.

Research and Development Expenses

The following table discloses the breakdown of research and development expenses:

The following table discloses the breakdown of research and development expenses for the periods indicated:

Year Ended December 31, Change

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$ 76,550 $ 63,260 $ 13,290 21 %

Research and development expenses increased from $61.3 million for the year ended December 31, 2021 to $63.3 million for the year ended December 31, 2022.

The increase of $1.9 million, or 3%, was primarily driven by expenses incurred to support our expanded research and development initiatives, including a $1.4 million increase in other research and development expenses driven by expanded preclinical studies of our earlier-stage pipeline programs combined with smaller increases in supplies and personnel.

Research and development expenses were $76.6 million for the year ended December 31, 2023, representing an increase of $13.3 million, or 21%, from $63.3 million for the year ended December 31, 2022.

The increase was primarily driven by expenses incurred to support our expanded research and development initiatives, including the completion of our V005 Phase 2/3 trial and the V017 study for the use of the HAV in extremity vascular trauma, and our related BLA filing in December 2023, increased product manufacturing and development, and clinical development of the HAV for use in AV access for hemodialysis.

Expense increases were primarily comprised of (i) a $6.4 million increase in payroll and personnel expenses, (ii) a $3.6 million increase in external services, including the support of clinical studies, (iii) a $2.5 million increase in the purchase of materials and supplies, and (iv) a $0.8 million increase in other research and development expenses.

General and Administrative Expenses

General and administrative expenses were $23.5 million and $22.9 million for the years ended December 31, 2023 and 2022, respectively.

The increase in general and administrative expenses during this period of $1.8 million, or 8%, was

primarily driven by expenses associated with the transition to public company status and company growth, including (i) a $1.2 million increase in salaries and benefits and recruiting costs primarily due to higher headcount, including the initial members of the planned commercial launch team, (ii) a $1.1 million increase in external services, (iii) a $0.6 million increase in insurance costs, (iv) a $0.6 million increase in other general and administrative expenses, including software costs, travel and expenses related to our board of directors, partially offset by a $1.8 million decrease in non-cash stock compensation expense primarily due to higher costs in 2021 resulting from restructuring of the management team to accommodate the transition to being a public company.

Total Other Income, net

Total other income, net was $72.6 million and $54.7 million for the years ended December 31, 2022 and 2021, respectively.

The increase of $17.9 million in income primarily resulted from (i) a $20.0 million increase in the non-cash gain related to the remeasurement of the Contingent Earnout Liability during the year ended December 31, 2022 compared to the year ended December 31, 2021, (ii) a $2.6 million increase in interest income, and (iii) a $0.4 million increase in the non-cash gain related to the remeasurement of our private placement warrant liability, partially offset by (i) a $3.3 million gain on PPP loan forgiveness we recognized during the year ended December 31, 2021 and (ii) a $1.9 million increase in interest expense primarily related to our loan facility with Silicon Valley Bank, which commenced in March 2021.

The slight net increase in general and administrative expenses during the year ended December 31, 2023 of $0.6 million, or 3%, compared to the year ended December 31, 2022 was primarily driven by preparation for the planned commercial launch of the HAV for an indication in vascular trauma, including a $1.3 million increase in payroll and personnel expenses and a $0.3 million increase in insurance expense, partially offset by a $1.0 million decrease in professional fees, including a reduction in legal fees.

Total Other Income (Expense), net

Total other income (expense), net was expense of $10.7 million for the year ended December 31, 2023, compared to income of $72.6 million for the year ended December 31, 2022.

The increase in expense of $83.3 million primarily resulted from the remeasurement of the Contingent Earnout Liability as of December 31, 2023, which resulted in non-cash expense of $10.0 million for the year ended December 31, 2023, compared to a $75.8 million non-cash gain for the year ended December 31, 2022, and a $2.4 million loss on extinguishment of debt related to the prepayment of balances outstanding under our loan agreement with SVB, partially offset by a $3.1 million employee retention credit and a $2.8 million increase in interest income earned on our cash, cash equivalents and short-term investments during 2023 primarily due to higher interest rates.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have 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.

We have historically financed our operations primarily through the sale of equity securities and convertible debt, proceeds from the Merger and related PIPE Financing (as defined in Note 1 to our accompanying consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K), borrowings under loan facilities, the Purchase Agreement (defined below), 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 December 31, 2023 and 2022, we had an accumulated deficit of $537.3 million and $426.5 million, respectively.

As of December 31, 2022 and 2021, we had cash and cash equivalents and short-term investments of $151.9 million and $225.5 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 Annual Report on Form 10-K.

See Note 1 to our accompanying consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K for additional information on 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 of this Annual Report on Form 10-K titled “Forward-Looking Statements” and “Risk Factors.”

As of December 31, 2023 and 2022, we had working capital of $64.8 million and $134.6 million, respectively.

As of December 31, 2022, we had $30.0 million outstanding principal and $20.0 million of contingent borrowing capacity under our Loan Agreement (as defined below).

We do not currently have any committed external source of funds beyond the Loan Agreement.

As of December 31, 2023, we had cash and cash equivalents of $80.4 million and as of December 31, 2022, we had cash and cash equivalents and short-term investments of $151.9 million.

Subsequent to December 31, 2023, in March 2024 we completed the Offering which provided approximately $43.1 million in net proceeds and received an additional $20.0 million under the Purchase Agreement.

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 Annual Report on Form 10-K.

See Note 1 to our accompanying consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K 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 may 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.

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.

On May 12, 2023, we entered into a Revenue Interest Purchase Agreement (the “Purchase Agreement”) with two purchasers (the “Purchasers”), both affiliates of Oberland Capital Management LLC (“Oberland”), and another affiliate of Oberland, as agent for the Purchasers (the “Agent”), to obtain financing in respect to the further development and commercialization of our HAV, to repay our then outstanding credit facility with SVB, and for other general corporate purposes.

Pursuant to the Purchase Agreement, on May 12, 2023, the Purchasers purchased certain revenue interests (the “Revenue Interests”) from us in exchange for an aggregate investment amount of up to $150.0 million (the “Investment Amount”).

On May 12, 2023, we received an initial payment of $40.0 million , less certain transaction expenses, which was used to repay in full all of the outstanding obligations under our loan agreement with SVB .

We will be entitled to receive up to approximately $110.0 million in subsequent installments subject to the terms and conditions set forth in the Purchase Agreement, as follows:

(i) $20.0 million upon our BLA for an indication in vascular trauma being accepted on or prior to March 31, 2024, (ii) $40.0 million , at our option, upon us receiving FDA approval of the HAV for the vascular trauma indication on or prior to December 31, 2024 and (iii) $50.0 million , at our option, upon reaching $35.0 million trailing worldwide three-month net sales any time prior to December 31, 2025.

Each tranche is dependent on the satisfaction of the conditions and receipt of funds from the previous tranche.

On February 18, 2024, we agreed with the Purchasers and the Agent, to waive certain breaches related to, and extend the deadline for certain post-closing obligations under, the Purchase Agreement, including the requirement for a leasehold mortgage over our headquarters.

Giving effect to the extension and waiver, we are obligated to deliver by no later than April 30, 2024 (or such later date as the Agent may agree in its sole discretion), an executed leasehold mortgage (or alternative documentation satisfactory to the Agent in its sole discretion) over our headquarters.

Concurrently with such agreement, we delivered a request that the Purchasers fund the second payment under the Purchase Agreement in an aggregate amount equal to $20.0 million, which was funded on March 11, 2024.

As of March 15, 2024, we had received funding of $60.0 million under the Purchase Agreement.

For additional information about this financing transaction, see Note 6 to our accompanying consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

On February 29, 2024, we entered into the Underwriting Agreement with the Underwriters, relating to the issuance and sale in an underwritten offering of 15,410,000 shares of our Common Stock at a price to the public of $3.00 per share.

The net proceeds to us from the Offering were approximately $43.1 million, after deducting underwriting discounts and commissions and estimated Offering expenses.

The Offering closed on March 5, 2024.

Material Cash Requirements

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(1) the purchase of supplies and services that are primarily for research and development;

(2) debt repayments (for additional information, see below and Note 7 to our consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K);

(2) repayments pursuant to the Purchase Agreement (for additional information see below and Note 6 to our accompanying consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K);

(3) employee wages, benefits, and incentives;

and (4) financing and operating lease payments (for additional information see below and Note 8 to our accompanying consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K).

(4) financing and operating lease payments (for additional information see below and Note 8 to our accompanying consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K), and (5) payments under the JDRF Agreement (for additional information see Note 13 to our accompanying consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K).

We have also entered into contracts with CROs primarily for clinical trials.

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As of December 31, 2023, we had non-cancellable purchase com mitments of $20.2 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 December 31, 2022.

For additional information regarding these agreements and the nature of payments that could become due thereunder, see the sections in this Annual Report on Form 10-K titled “Business — Distribution” and “Business — Intellectual Property.”

In March 2021, we entered into the Loan Agreement with Silicon Valley Bank 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.

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.

The additional $20.0 million becomes accessible in two tranches of $10.0 million each contingent on the achievement of certain business and clinical development milestones, although we currently do not expect to make any additional borrowings under the Loan Agreement.

As a result of the additional borrowing in October 2021, the commencement of repayment of principal was deferred until no earlier than July 2023 and potentially later if the remaining tranches are drawn.

As of December 31, 2022, principal of $30.0 million was outstanding under the Loan Agreement and we were in compliance with all covenants in all material respects.

Assuming no additional borrowings under the Loan Agreement, we expect to make interest payments of approximately $5.1 million under the Loan Agreement from January 1, 2023 through March 1, 2025, approximately $3.4 million of which we expect to pay during the year ended December 31, 2023.

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 (11.75% as of December 31, 2022).

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.

We are required to repay principal beginning on July 1, 2023, unless we draw the remaining two loan tranches, in which case repayment of the outstanding principal amount will begin no later than April 1, 2024.

Additionally, we are obligated to pay to the lenders a final payment fee of $1.5 million upon the maturity of the loan.

Our contractual obligations under the Loan Agreement as of December 31, 2022, include $8.6 million in cash payments related to principal within one year and $21.4 million within one to three years.

In April 2020, we received loan proceeds in the amount of approximately $3.3 million under the PPP established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

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 our 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 year ended December 31, 2021.

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.

We have existing license agreements with Duke University and Yale University, a distribution agreement with Fresenius Medical Care and the JDRF Agreement.

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 December 31, 2023.

For additional information regarding our agreements with Duke University, Yale University, and Fresenius Medical Care, and the nature of payments that could become due thereunder, see the sections in this Annual Report on Form 10-K titled “Business — Distribution” and “Business — Intellectual Property.” For additional information about the JDRF Agreement, see Note 13 — Commitments and Contingencies to our accompanying consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K .

Revenue Interest Purchase Agreement

On May 12, 2023, we entered into the Purchase Agreement and repaid in full all of the then-existing obligations under our loan agreement with SVB.

Under the Purchase Agreement, as of December 31, 2023, we had $38.6 million recorded as a revenue interest liability on our consolidated financial statements.

On February 18, 2024, we delivered a request that the Purchasers fund the second payment under the Purchase Agreement in an aggregate amount of $20.0 million, which was funded on March 11, 2024.

For additional information regarding repayment, see Note 6 — Revenue Interest Purchase Agreement to our accompanying consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

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 is being leased through May 2033, and our operating lease relates to the land lease associated with our headquarters.

See Note 8 to our accompanying consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K for further information regarding our leases.

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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 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 BLAs for FDA approval, (ii) if marketing approval is obtained, to launch and commercialize our HAVs for an indication in vascular trauma and hemodialysis AV access 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 BVP 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.

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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.

Other than the funds that may become available to us under the Purchase Agreement upon the achievement of specified milestones, 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.

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30,900 (60,193)

Payment of liabilities assumed in Merger — (14,461)

Changes in operating assets and liabilities:

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Net cash provided by (used in) investing activities (173) 4,845

Net cash (used in) provided by financing activities (1,446) 266,983

Net (decrease) increase in cash and cash equivalents $ (67,730) $ 177,573

Cash and cash equivalents at the beginning of the period $ 217,502 $ 39,929

Cash and cash equivalents at the end of the period $ 149,772 $ 217,502

Net cash provided by (used in) financing activities 4,507 (1,446)

Net decrease in cash, cash equivalents and restricted cash $ (68,971) $ (67,730)

Cash, cash equivalents and restricted cash at the beginning of the period $ 149,772 $ 217,502

Cash, cash equivalents and restricted cash at the end of the period $ 80,801 $ 149,772

___________________________

(1) Includes depreciation, amortization related to our leases and our debt discount, stock-based compensation expense, the change in fair value of our Contingent Earnout Liability and our common stock warrant liabilities, and in 2021 includes a gain on PPP loan forgiveness.

(1) Includes depreciation, amortization related to our leases and our debt discount, stock-based compensation expense, non-cash interest expense related to our revenue interest liability and our JDRF Award liability (defined below), the changes in fair value of our Contingent Earnout Liability and our derivative liabilities, and in 2023 includes a loss on extinguishment of debt and an immaterial amount of loss on disposal of property and equipment.

Cash Flow from Operating Activities

The decrease in net cash used in operating activities from 2021 to 2022 was primarily due to $14.5 million in payments of liabilities acquired in the Merger during the year ended December 31, 2021, partially offset by increased spending on pre-clinical, clinical and pre-commercial activities as well as payroll and personnel expenses.

The increase in net cash used in operating activities from 2022 to 2023 was primarily due to increased spending on pre-clinical, clinical and pre-commercial activities as well as payroll and personnel expenses, primarily those related to preparation for the completion of our trial for the use of the HAV in vascular trauma and our related BLA filing, expansion of clinical development of the HAV for use in AV access, and preparation for the planned commercial launch of the HAV for an indication in vascular trauma.

Cash Flow from Investing Activities

The increase in net cash provided by investing activities from 2021 to 2022 was primarily due to a net cash inflow of $5.9 million related to investments in certificates of deposit classified as short-term investments on our consolidated balance sheets.

Net cash used in investing activities for the year ended December 31, 2023 consisted of purchases of property and equipment partially offset by proceeds from the maturity of our short-term investments (certificates of deposit).

Net cash provided by investing activities for the year ended December 31, 2022 was primarily due to a net cash inflow of $5.9 million related to our certificates of deposit classified as short-term investments.

Cash Flow from Financing Activities

The decrease in net cash provided by financing activities for the year ended 2022 was primarily due to $242.4 million of proceeds received in August 2021 in connection with the Merger, including proceeds from the trust account that we obtained in connection with the closing of the Merger, as well as from the PIPE Financing, along with $29.7 million of net proceeds in connection with draws under our loan facility with Silicon Valley Bank in March 2021.

Net cash provided by financing activities for the year ended December 31, 2023 consisted primarily of net proceeds from the Purchase Agreement, partially offset by the repayment of our loan agreement with SVB.

Net cash used in financing activities for the year ended December 31, 2022 consisted primarily of principal payments of our finance leases.

Off-Balance Sheet Arrangements

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Our critical accounting policies are summarized below.

Common Stock Warrants

Under the Merger, we assumed 5,000,000 publicly-traded warrants (“Public Warrants”) and 177,500 private placement warrants issued to AHAC in connection with AHAC’s initial public offering (“Private Placement Warrants” and, together with the Public Warrants, the “Common Stock Warrants”).

We account for the Common Stock Warrants in accordance with the guidance contained in ASC Topic 480, Distinguishing Liabilities from Equity and ASC Topic 815, Derivatives and Hedging ( “ASC 815”) .

We account for the Private Placement Warrants in accordance with the guidance contained in ASC 815, under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities.

As the Private Placement Warrants meet the definition of a derivative under ASC 815, we recorded these warrants as liabilities on the consolidated balance sheet at fair value, with subsequent changes in their respective fair values recognized in the consolidated statements of operations and comprehensive loss at each reporting date.

The fair value of the warrants was estimated using a Monte Carlo simulation value model utilizing assumptions including our current common stock price, expected volatility, risk-free rate, expected term and expected dividend yield.

The fair value of the Private Placement Warrants is based on significant unobservable inputs, which represent Level 3 fair value measurements within the fair value hierarchy (see “Fair Value of Financial Instruments” accounting policy described in Note 2 to our accompanying consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K).

Determining the fair value of the Private Placement Warrants involves certain assumptions requiring significant judgment and actual results can differ from assumed and estimated amounts.

The Public Warrants are considered to be “indexed to the Company’s own stock” and as we have a single class of common stock, a qualifying cash tender offer of more than 50% of the Company’s common stock will always result in a change-in-control and would not preclude permanent equity classification of the Public Warrants.

Based on this evaluation, we concluded that the Public Warrants meet the criteria to be classified within stockholders’ equity.

Contingent Earnout Liability

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The assumptions utilized in the calculation were based on the achievement of certain stock price milestones, including our current common stock price, expected volatility, risk-free rate, expected term and expected dividend yield.

See Note 9 to our accompanying consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K for further information regarding the assumptions used in the valuation at December 31, 2022 and 2021.

The Contingent Earnout Shares are categorized as a Level 3 fair value measurement (see “Fair Value of Financial Instruments” accounting policy described in Note 2 to our financial statements contained elsewhere in this Annual Report on Form 10-K) because we estimated projections over a ten-year period utilizing unobservable inputs.

Contingent earnout payments involve certain assumptions requiring significant judgment and actual results can differ from assumed and estimated amounts.

Revenue Interest Liability

On May 12, 2023, we entered into the Purchase Agreement to obtain financing in respect to the further development and commercialization of our HAV, to repay our credit facility with SVB, and for other general corporate purposes.

We recorded a revenue interest liability related to the Purchase Agreement on our consolidated balance sheet on the date we entered into the Purchase Agreement, which is presented net of issuance costs and a debt discount.

We impute interest expense associated with this liability using the effective interest rate method.

The estimated effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement.

Interest expense and amortization of our issuance costs and debt discount is recognized over the estimated term in our consolidated statements of operations and comprehensive loss.

The interest rate on the liability may vary during the term of the agreement primarily due to the level of forecasted net sales.

We evaluate the interest rate quarterly based on our current net sales forecasts utilizing the prospective method.

A significant increase or decrease in net sales could materially impact the revenue interest liability, interest expense and the time period for repayment.

At December 31, 2023, the revenue interest liability is calculated using our current estimate of forecasted global net sales of our products for our planned commercial launch, and impacted by a debt discount comprising the estimated fair value of a bifurcated derivative liability related to the Purchasers’ put option under the Purchase Agreement, the estimated fair value of a freestanding option agreement related to the Purchase Agreement, and issuance and transaction costs incurred.

As our product candidates are not yet approved for sale, the estimated probability and timing or amounts of repayment is likely to change each reporting period.

The fair value of the contingent derivative liability is valued using a “with-and-without” method.

The “with-and-without” methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the individual embedded derivative.

The difference between the entire instrument with the embedded derivative compared to the instrument without the embedded derivative was the fair value of the contingent derivative liability.

The estimated probability and timing of underlying events triggering the exercisability of the contingent derivative liability bifurcated from within the Purchase Agreement, forecasted cash flows and the discount rate are significant unobservable inputs used to determine the estimated fair value of the entire instrument with the embedded derivative.

Stock-Based Compensation

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• Fair Value of Common Stock .

Subsequent to the Merger, the fair value of our Common Stock has been determined based on the closing price of the shares on Nasdaq.

Prior to the Merger, as our common stock was not publicly traded, the fair value of the shares of our common stock underlying the options was determined by our board of directors with input from management, after considering independent third-party valuation reports.

See “—Fair Value of Common Stock” and “—Common Stock Valuation Methodology.”

The fair value of our Common Stock has been determined based on the closing price of the shares on Nasdaq.

• Expected Term .

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Accordingly, we have estimated the dividend yield to be zero.

Fair Value of Common Stock Post-Merger

Following the closing of the Merger, the fair value of our Common Stock is determined based on the closing price of our Common Stock on Nasdaq on the date stock options or other awards are granted under the 2021 Plan.

Fair Value of Common Stock Pre-Merger

Historically, for all periods prior to the Merger, the fair values of the shares of common stock underlying our options were determined on each grant date by our board of directors with input from management.

In order to determine the fair value, our board of directors considered, among other things, contemporaneous valuations of our common stock and preferred stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity

Securities Issued as Compensation (the “Practice Aid”).

Given the absence of a public trading market of our capital stock, the assumptions used to determine the estimated fair value of our common stock were based on a number of objective and subjective factors, including:

• our stage of development and business strategy;

• the prices, rights, preferences and privileges of our redeemable convertible preferred stock relative to our common stock;

• our business, financial condition and results of operations, including related industry trends affecting our operations;

• the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company, given prevailing market conditions;

• the lack of marketability of our common stock;

• the market performance of comparable publicly traded companies;

and global economic and capital market conditions and outlook.

Common Stock Valuation Methodology

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date.

In accordance with the Practice Aid, we considered the following methods:

• Option Pricing Method.

Under the option pricing method (“OPM”), shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class.

The estimated fair values of the preferred and common stock are inferred by analyzing these options.

• Probability-Weighted Expected Return Method.

The probability-weighted expected return method (“PWERM”) is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, assuming various outcomes, as well as the economic and control rights of each share class.

Based on our early stage of development, we determined that the PWERM method, incorporating the OPM as one of several scenarios, was the most appropriate method for allocating our enterprise value to determine the estimated fair value of Legacy Humacyte common stock for valuations performed as of November 13, 2020 and October 23, 2019, which resulted in common stock valuations of $10.28 and $8.48 per share, respectively.

In January, February, March and June 2021, stock options were granted at fair market value with an exercise price of $10.28, consistent with the fair market value determined two months earlier in November 2020.

The $10.28 exercise price is greater than the public trading price of the AHAC Class A common stock as of the date of grant and also greater than the share price reflected in the $800 million equity value agreed upon in connection with the Merger.

We also utilized the PWERM method for our valuation as of June 25, 2018, which resulted in a common stock valuation of $8.48 per share.

In determining the estimated fair value of Legacy Humacyte common stock, our board of directors also considered the fact that our stockholders could not freely trade our common stock in the public markets.

Accordingly, we applied discounts to reflect the lack of marketability of our common stock based on the weighted-average expected time to liquidity.

The estimated fair value of our common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.

Income taxes are computed using the asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements.

In estimating future tax consequences, we consider all expected future events other than enactment of changes in tax laws or rates.

A valuation allowance is recorded to reduce net deferred tax assets to their realizable values if management does not believe it is more likely than not that the net deferred tax assets will be realized.

As of December 31, 2022 and 2021, we have recorded a full valuation allowance against our net deferred tax assets.

We recognize the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position.

Otherwise, no benefit can be recognized.

Assessing an uncertain tax position begins with the initial determination of the sustainability of the position and is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

As of each balance sheet date, unresolved uncertain tax positions must be reassessed.

Additionally, we must accrue interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.

We have not identified any uncertain tax positions for the years ended December 31, 2022 and 2021.

We have analyzed our filing positions in all significant Federal and state jurisdictions where we are required to file income tax returns, as well as open tax years in these jurisdictions.

As of December 31, 2022 and 2021, we have determined that no uncertain tax positions would have a material impact on our financial statements.

We are no longer subject to U.S.

Federal, state, and local tax examinations by tax authorities for years before 2019 although carry-forward attributes that were generated prior to 2019 may still be adjusted upon examination by the taxing authorities if they either have been or will be used in a future period.

No income tax returns are currently under examination by taxing authorities.

As of December 31, 2022 and 2021, we had not recorded any amounts for unrecognized tax benefits.

Our policy is to recognize interest and penalties related to uncertain tax positions in the provision for income taxes, if any.

As of December 31, 2022 and 2021, we had no accrued interest or penalties related to uncertain tax positions, and no amounts had been recognized in our statements of operations and comprehensive loss.

Common Stock Warrants

Determining the fair value of the Private Placement Warrants involves certain assumptions requiring significant judgment and actual results can differ from assumed and estimated amounts.

Based on this evaluation, we concluded that the Public Warrants meet the criteria to be classified within stockholders’ equity.

Emerging Growth Company and Smaller Reporting Company Status

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis