HUMA - NASDAQ

Good morning, ladies and gentlemen, and welcome to the Humacyte 2023 Fourth Quarter Year-End Results Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I will now turn the call over to Lauren Marek with LifeSci Advisors. Please go ahead.

Thank you, operator. Before we proceed with the call, I would like to remind everyone that certain statements made during this call are forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. Additional information concerning factors that could cause actual results to differ from statements made on this call is contained in our periodic reports filed with the SEC. The forward-looking statements made during this call speak only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, except as required by law. Information presented on this call is contained in the press release we issued this morning and in our Form 10-K, which after filing may be accessed from the Investors page of the Humacyte website. Joining me on today's call from Humacyte are Dr. Laura Niklason, President and Chief Executive Officer; Dale Sander, Chief Financial Officer and Chief Corporate Development Officer; and Dr. Heather Prichard, Chief Operating Officer. Dr. Niklason will provide a summary of the Company's progress during the year and recent weeks, and Dale will review the Company's financial results for the quarter and year ended December 31, 2023. Following their prepared remarks, the management team will be available for your questions. I will now turn the call over to Dr. Niklason.

Thank you, Lauren. Good morning, everyone, and thank you for joining us for our 2023 financial results and business update call. Our fourth quarter and the start of 2024 have been highly productive for Humacyte. Importantly, Humacyte completed submission of our BLA in December, and the FDA accepted our biologics license application for the HAV in the vascular trauma indication in February of this year. Over the course of 2023, we also made progress on our broader HAV pipeline, including the completion of enrollment of our Phase III trial in dialysis access, presentation and publication of clinical trial results in peripheral arterial disease and publication of preclinical results for our small caliber HAV in the juvenile heart model. During today's call, I'll review these developments in more detail before turning the call over to Dale for a review of our financial results. Then we'll be happy to open up the call to your questions. I'll begin with our HAV program in vascular trauma. In December 2023, we submitted our BLA to the FDA. This was supported by a robust data package that included positive results from our V005 Phase II/III clinical trial. The BLA package also included real-world evidence from the treatment of wartime injuries in Ukraine under the humanitarian aid program that was supported by the FDA. Our data package showed that the HAV had higher rates of patency and lower rates of amputation and infection as compared to historic synthetic graft benchmarks. In the two trials combined, the 30-day patency or presence of blood flow for the HAV was 91.5% for extremity patients compared to 78.9% historically reported for synthetic grafts. The HAV also demonstrated lower amputation rates with a rate of 4.5% as compared to 24.3% for synthetic grafts. And furthermore, the HAV had lower infection rates at 30 days, with a rate of 0.9% as compared to 8.4% historically for synthetic grafts. In other words, patients treated with the HAV were only 40% is likely to lose blood flow through their conduit after one month, which is a key period for recovery after traumatic injury. HAV patients were also only 1/5th is likely to suffer an amputation and only 1/9th is likely to have an infection of their graft as compared to patients who were treated with the synthetic graft. These results were also provided in November at multiple presentations at the VEITH Symposium, which is a major vascular surgery meeting held in New York. In February of 2024, the FDA accepted our BLA and vascular trauma, also granting priority review and establishing a Prescription Drug User Fee Act, or PDUFA, goal date for action of August 10, 2024. The FDA's decision to grant priority review aligns with their prior grant of a regenerative medicine advanced therapy or RMAT designation for the HAV for urgent arterial repair. We believe this also reflects their recognition that many patients with severe injuries are underserved by the current standards of care. Priority review is also consistent with the priority designation that was given by the Secretary of Defense under a law enacted to expedite the FDA's review of products that are intended to diagnose, treat or prevent serious life-threatening conditions that are facing American military personnel. The BLA acceptance brings us another step closer to our goal of providing an innovative regenerative medicine product for patients who are suffering traumatic vascular injury. Based on the strength of the data package, from our V005 trial in vascular trauma, combined with data from the humanitarian experience in Ukraine, we look forward to the PDUFA date with confidence. In preparation for an anticipated FDA approval, Humacyte is also working to build out the commercial team as part of our go-to-market strategy. Health economic models have been developed which are derived from large national databases of traumatic injury care in the U.S. Based upon historical results for synthetic graft outcomes, it's clear that the HAV can provide important health benefits as well as important economic benefits for the healthcare system. Cost of conduit infection, sepsis and amputation are extremely high adding tens or even hundreds of thousands of dollars to the cost of trauma care. Avoidance of these costly complications will, we believe, help to drive market uptake of this revolutionary product candidate in the care of traumatically injured patients. Turning now to our program in peripheral artery disease. In the fall, results were presented from an FDA-regulated and investigator-sponsored clinical study that's being conducted at the Mayo Clinic of the HAV in patients with chronic limb-threatening ischemia, which is the end stage of PAD. Most patients treated as part of the program required bypass surgery below the knee, which is a type of disease that is typically not well treated with stents and angioplasty procedures. Treated patients did not have suitable vein of their own to perform a needed bypass procedure. And so receive the HAV to revascularize their critically ischemic lower limbs. In presentations at the VEITH Symposium and at the Midwestern Vascular Conference, researchers observed that in the clinical study, the HAV was a safe, resilient and effective conduit for arterial bypass and limb salvage in patients who did not have vein to provide a conduit to restore blood flow. This is an important result since approximately 40% of patients requiring lower extremity bypass do not have saphenous vein available for revascularization. With regard to publications, in October of 2023, a publication in the Journal of Thoracic and Cardiovascular Surgery described a preclinical study showing the potential for the investigational small diameter HAV to treat Tetralogy of Fallot. This is a heart condition that affects one in every 2,000 babies born in the U.S. each year. In this preclinical study, researchers from Nationwide Children's Hospital in Columbus, Ohio, implanted 3.5 millimeter diameter HAVs into a juvenile large animal model of pediatric heart disease. In long-term follow-up in these animals, the 3.5-millimeter HAVs remained patent for up to six months and showed evidence of cellular repopulation by host cells, which is similar to what's been observed in human patients. The pediatric heart study also demonstrated the extension of Humacyte's manufacturing platform, adding the 3.5-millimeter vessels to the 6-millimeter vessels that have been manufactured for more than a decade. As a reminder, our 3.5-millimeter vessels are currently being evaluated in IND-enabling preclinical studies in large animals, to support future advancement of the HAV into human clinical trials in coronary artery bypass. We've previously reported excellent long-term six-month results in coronary artery bypass in large animals. And cardiac implantations are continuing this year as we gather data in support of an IND filing in heart bypass surgery. In July, results of a preclinical study were also published in the Journal of Vascular Surgery-Vascular Science. This study provides a scientific basis for the low rates of infection that have been observed in our clinical trials of the HAV. Researchers found that compared to synthetic grafts, the HAV had a significantly lower bacterial infection rate. The infection resistance maybe due to the HAVs native-like tissue structure that supports superior compatibility with the body zone immune cells. These results have broad implications for all of our intended HAV indications and further support the HAVs potential as a solution to the limitations of synthetic grafts in a wide range of medical conditions. And with that, I'll now turn it over to Dale for a review of our financial results and other business development.

Thank you, Laura. We had cash and cash equivalents of $80.4 million as of December 31, 2023. We also completed two transactions in early 2024, which added substantially to our cash balances. On March 5, 2024, we closed an underwritten public offering of common stock and raised net proceeds of approximately $43.1 million. In addition, on March 11, 2024, we've received $20 million in proceeds from an additional draw under our revenue purchase agreement with Oberland Capital. Total net cash used was $69.0 million for the year ended December 31, 2023, compared to $67.7 million for the year ended December 31, 2022. We believe that our cash and cash equivalents are adequate to finance operations well past the currently anticipated timelines for FDA approval and commercialization of the HAV in the vascular trauma indication. There was no revenue for the fourth quarters of 2023 and 2022, and there were no revenue for the year ended December 31, 2023. Revenue was $1.6 million for the year ended December 31, 2022, and was related to a grant supporting the development of the HAV that was completed during 2022. Research and development expenses were $20.2 million for the fourth quarter of 2023 compared to $15 million for the fourth quarter of 2022, and were $76.6 million for the year ended December 31, 2023 compared to $63.3 million for the year ended December 31, 2022. The 2023 increases resulted primarily from increased personnel, external services expenses and materials expenses supporting the expanded research and development initiatives in our clinical studies, including the completion of our V005 Phase II/III trial, NRB017-Ukraine humanitarian trial for use of HAV and extremity vascular trauma as well as our BLA filing in December and the clinical development of the HAV for use in dialysis access. General and administrative expenses were $6 million for the fourth quarter of 2023 compared to $5.8 million for the fourth quarter of 2022 and were $23.5 million for the year ended December 31, 2023, compared to $22.9 million for the year ended December 31, 2022. The 2023 slight net increases in G&A expenses resulted primarily from increased personnel costs, primarily driven by preparation of the planned commercial launch of HAV in the vascular trauma indication. Other net income or expense was net income of $1.1 million for the fourth quarter of 2023 compared to net income of $17.1 million for the fourth quarter of 2022 and was net expense of $10.7 million for the year ended December 31, 2023, compared to net income of $72.6 million for the year ended December 31, 2022. The reduction in other net income in the fourth quarter of 2023 and the increase in other net expense for the year ended December 31, 2023, resulted primarily from the non-cash remeasurement of the contingent earn-out liability associated with the August 2021 merger with Alpha Healthcare Acquisition Corp. Net loss was $25.1 million for the fourth quarter of 2023 compared to $3.7 million for the fourth quarter of 2022. The net loss was $110.8 million for the year ended December 31, 2023 compared to $12 million for the year ended December 31, 2022. The 2023 increases in net loss resulted primarily from the non-cash remeasurement of the contingent earn-out liability and increased operating expenses, both described above. With that, I'll turn it back to Laura for concluding remarks.

Thank you, Dale. This is a very exciting time for Humacyte and all of our stakeholders. I'd like to take a moment to thank the Humacyte team as well as our partners for their continued commitment to our programs. The entire team has worked incredibly hard to reach this point, and we are approaching what could be a transformational time not only for the company, but for patients suffering from a variety of vascular diseases and complications. Across our clinical programs, the HAV has already accumulated more than 1,200 patient years of experience, including in vascular trauma repair, dialysis access and peripheral artery disease. And we are continuing to study the HAV in our earlier programs in order to maximize the full potential of our technology platform and its value. We look forward to keeping you updated with our progress and thank you all for joining us today. Operator, we are ready to take questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question is from the line of Ryan

Good morning. Can you hear me okay?

We can hear you.

Good morning. Congrats on the progress. It's so close. You can reach out and touch it. Maybe just to start, as we think about commercial preparation, Dale, you alluded to some of the health economic work you're doing. I think one of the questions that investors have is kind of where the HAV lives economically in the spectrum of product offerings and kind of how you think about where you'd like it to be priced at? And to the extent that you can elaborate on kind of what the target opportunity looks like and the ramp that we should be thinking about as you prepare for commercial activity?

Yes. Thanks, Ryan, and I'll try to take those in somewhat order. But obviously, the HAV is the biologic, which has produced clinical results which are far superior to the comparable standard of care today, particularly synthetic grafts, it's going to be priced at higher acquisition costs than the current standard of care. But we believe that our budget impact models, which are largely developed at this stage will show that due to the reduction in complications such as amputations and infections and in the case of saphenous vein reperfusion injury and other complications like that, that are very expensive for the providers. In this case, the hospitals that the overall cost of treating a patient with HAV will be very favorable. And as you know, pricing itself is usually determined and announced at the time of launch because you don't want to do that in a vacuum. You want to do that in combination with the clinical story and the health economic story. But I think as we've talked about in the past, if you look at our earliest SEC filings, we had suggested something in the $25,000 range for the product to be somewhat lower, could be somewhat higher, but wherever it falls within that range. Clearly, the health economic benefits that are going to be demonstrated due to this reduction of complications is going to be meaningful and certainly will support the pricing of the product. Beyond that, I think you had a question about market size. There's around 80,000 vascular trauma cases each year within the United States. And when we drill down and look very specifically at kind of the low-hanging fruit and the ones that are most immediately applicable to the HAV by looking at hospital billing codes and other information like that. There's at least 26,000 cases, we believe, that are clear candidates for the HAV to be used within the United States, which suggest that this is a market that could be somewhere in the $600-plus million range dependent upon pricing. So hopefully, I've answered your questions, but point out that you can admit.

No, no. Thank you, Dale. It's still early. I know these are not fully flushed out. As you get closer, I think more clarity will emerge there. The other question is just around cash burn guidance. I think pro forma with the recent equity offering and some of the tranches from Oberland. I think you're around the 140 range as of today, if I'm not mistaken, about 143, and that's based on the gross proceeds from the recent equity offering. So I'm just curious what you can say for 2024 around cash burn, maybe any directional commentary on operating spend as you do kind of prepare for this commercial launch?

Yes. Yes, certainly. I think your math is right. The way we look at it is we ended December 31 with a little more than – well, right around $81 million in cash. And when we add on the $63-plus million that we achieved through the equity financing as well as the additional draw into our Oberland facility. That means we're entering the year with about $144 million in cash, which leaves us very well positioned. Our net cash burn for 2023 rounded to about $69 million. But if you back out the effect of some net financing transactions from an operating cash point of view and from a capital expenditure point of view, we've burned about $73.5 million in 2023 in those activities. So suggesting we're very well positioned with the cash that we have on hand right now. In terms of how we'll proceed in the upcoming year, we haven't given super specific guidance, but I'll share what we've guided in the past is that certainly, we expect to expand our commercialization activities during the year, including near the time of launch, bringing on a relatively small sales force to address this very concentrated market. So we will have, obviously, higher commercialization expenses during this year. But we do also have a wind down of certain clinical costs during the year with the V005 study just in long-term follow-up and not as intensive activities as we had during 2023 as we prepared for the close out of that study and for filing of the BLA. And then also our dialysis trial [V007] will be winding down in the second half of the year, too. So we expect somewhat of an increase in overall cash burn for the upcoming year, but not to a great extent on a net basis. And we believe that the cash on hand is certainly adequate to take us well past the commercial launches in trauma and AV access and well passed or certainly through 2026. So we certainly don't have any cash concerns at this point in time.

Very helpful, Dale. Thank you for all the information.

Our next question is from the line of Kristen Kluska with Cantor Fitzgerald. Please proceed with your question.

Hi everyone. Good morning and congrats as well on the progress. I wanted to touch on manufacturing as this is often something that FDA scrutinizes on very closely during PDUFA and drug approval. So I wanted to ask how you're feeling about your manufacturing? And also anything you're doing to prepare for upcoming inspections and meetings that the FDA will be conducting?

Yes, Kristen, this is Laura Niklason. Thank you for that question. So yes, certainly, after the BLA file was accepted and we got our PDUFA date in August, the FDA moved rapidly to begin scheduling interim meetings and also our inspection, which is upcoming in the near future. As far as what we've been doing to prepare for this, we've actually run two mock inspections, one last summer and one just last month in February, where we brought consultants in to Humacyte who were all ex-FDA inspectors. And they really did a deep dive on two separate occasions, really helping us be as prepared as possible for this upcoming inspection. I would say that since we began preparing for this last summer, we've really been able to execute on all of the remediations that were picked out, certainly from 2023. And we're feeling very confident about how this inspection is going to go. We believe that the facility is in great shape. Our manufacturing processes are well characterized and well understood. Obviously, with the Center for Biologics, you're right, a big focus is always on manufacturing and the facility and the robustness of the process. But we believe we're in good shape.

Great. And then the preclinical study that you talked about in the juvenile animal model, it seems to highlight the different applications of the HAV platform. So how are you thinking about the flexibility for your current platform as it relates to different vessels and how you might go about implementing this on pilot or larger-scale program?

So the – one of the beauties of the platform, and this was designed with intention is that our LUNA manufacturing machines each of which right now can make up to about 1,000 40-centimeter HAVs per year. Those were designed specifically so as to be modular and flexible. So using the same machine, we can grow tissues of different diameters and different lengths without changing the machinery itself. It really only involves changing some of the plastic bag sizes and some of the tubing. So as we mentioned in the call, we've been making 3.5 millimeter vessels that are suitable for heart bypass and pediatric heart surgery we've been making those in our current system for the last couple of years, and we've been testing them in animals. It's also, for us, we believe, a short hop to modify our system and make 6-millimeter vessels, but – that are shorter or longer, shorter vessels may have added utility in the trauma indication in the future because many traumatic injuries don't require 40 centimeters of conduit. They can utilize a shorter vessel. Conversely, in peripheral arterial disease, where we're also working pretty actively with our Phase II programs, it may be that in the future, some patients would benefit from a longer vessel, which can extend from the growing down to below the knee and we believe that we can also make longer vessels, again, using the same equipment. So we were very intentional when we designed the platform so that we could pivot and make vessels of different shapes and sizes. And I would say we're already doing that. And that will be after approval, going forward, follow-on product candidates will be manufactured in our same system just using slight modifications of the tubing.

Great. Thanks for taking the question.

Thank you. Our next question is from the line of Josh Jennings with TD Cowen. Please proceed with your questions.

Hi, good morning. Laura and Dale thanks for taking the questions. I wanted to just follow up on Ryan's question on health economics data, thanks for the download there. But just wanted to better understand any – if there's any color on preliminary discussions with payers and just how you expect Medicare and private payer reimbursement for HAV and the vascular trauma indication to evolve the DRGs is in place. And just any color as you think about launch time and then how reimbursement and payment can evolve from there?

Yes. Yes, certainly. So in parallel to date, we've had discussions with hospital administrators, interactions with CMS and also interactions with private payers. And those discussions will – are intensifying with the data in hand. And as we start rolling out our budget impact model. The budget impact model itself, which really supports the value proposition of HAV and the implications of using the HAV and the extent to which you can save the cost of other complications. It is essentially – will essentially be presented and then published through the course of the year, presumably in advance of launch. Beyond that, though, specific – your specific questions around reimbursement, how the HAV is reimbursed is going to be dependent upon the indication and also where the patient is being served. So specifically with regards to trauma, that's an inpatient surgical setting. And so the hospitals are generally going to be reimbursed on a DRG or a fixed price basis as you implied. And so the HAV would be an acquisition cost by the hospital, which is not separately reimbursed at its core, which is why the health economic implications of HAV, the ability to save the cost of these complications is so important. But keep in mind that as a new technology and also as a biologic HAV, we believe, will qualify for an NTAP or new technology add-on payment reimbursement, which will give the hospitals an additional reimbursement that they would not get under the normal DRGs. And clearly, the HAV qualifies for an NTAP reimbursement because it's innovative and because it provides a meaningful patient benefit. But I think both CMS and then private payers who can provide the equivalent of an NTAP reimbursement will be motivated to do so because not only are the savings associated with the HAV present during the time the patients in the hospital. But once the patient leaves the hospital, the reduction in amputations and other complications, we'll save the payers a substantial amount of money in terms of ongoing rehabilitation and prosthetics and other costs like that. So we believe that within the existing DRGs the use of HAV will be very favorable because of the production and complications, but that we will also get NTAP in the equivalent from private pay due to the innovative nature of the product and the savings that it provides once the patient leaves the hospital.

Excellent.

Dale. And the only thing I would add there, and that this is also in the public domain, but as part of applying for the NTAP, it's necessary to obtain an ICD-10 code from CMS. And we had a recent meeting with CMS that was in the public domain on the ICD-10 coding and CMS has recommended that the HAV be given a unique code. And so that's an important step. It's an important precursor to filing for the NTAP application later this year. So I just wanted to say that from a CMS standpoint, in terms of coding and reimbursement we're definitely on track. And I also want to reiterate Dale's points, which I think are very important for CMS and for all private payers and Medicaid also is that the initial hospital costs for severe traumatic injury, the initial hospital costs are only part of the equation. Readmissions and complications due to the amputation and infection and sepsis are huge cost drivers and the insurers are going to understand this. And the case for providing add-on payments to support HAV adoption in trauma, I think, is going to be very strong.

Excellent. Thanks for that. And just a follow-up on the AV access indication. And you've done work with Fresenius taking through their large data set on patients that could benefit most from HAV as well as health economics, I'm not sure if there's any details you can share from that or timing of when more intel could come from that collaboration? And then just also remind us how you can leverage the vascular trauma indication in the filing for the AV access indication as we move down the year here? Thanks.

Well, as we've said on several calls, we're looking forward to sharing that information I think we have – so I can say that we're going to do a KOL event actually next week, where we're going to present a lot of the Frenova data that we've gathered with our partner, Fresenius for more than a year, that really paints a very clear picture of how costly some of the most costly patients are and who those patients are. So we're really looking forward to that, and that will be next week. As far as how the trauma data will be leveraged for a potential follow-on BLA supplement in dialysis access. As you know, the agency tends to look at safety and efficacy data within indication, that will be their primary focus. Although, of course, the long-term safety updates that we're going to be providing as part of our drug safety update report and also just trauma follow-on, I'm sure we'll be part of that file. But just realistically, I think that particularly from an efficacy standpoint, since dialysis really is a different indication from trauma. I think the efficacy focus will be on the dialysis data, but I would anticipate that safety information from all indications, but especially from trauma would factor into the FDA's thinking.

Excellent. And also I you can, I was my assumption is you can leverage the modules on manufacturing and preclinical [indiscernible].

Oh yes, of course. Absolutely. Yes. Thank you for that. Yes. No, the – since the product is identical, all of the preclinical and all of the shelf life and manufacturing data are identical. Yes, that would all be leveraged. So that will be very helpful. And efficiency generating.

Excellent. Okay. Thanks so much.

Our next question is from the line of Suraj Kalia with Oppenheimer. Please proceed with your questions.

Hi, Laura and Dale. This is Seamus on for Suraj. Just to start, I know the HAV for dialysis access has been almost a year fully enrolled. I guess, at this point, when could we expect some topline results filing? Any updates you can give us on that? Thank you.

Sure. So our enrollment completed actually in late April last year. So technically, we'll hit the 12-month point next month. This is a large trial that went on for a while. It started pre-COVID at many centers. So it's going to take us several months to pull this data together. So what we've guided the market is that we would expect topline results on the V007 trial in dialysis sometime in the third quarter of this year.

Got it. Thank you. And then just thinking through the initial sales force for trauma. I know you've said somewhere around 20 individuals. How should we think about kind of the ramp for hiring as you do what you'll have roughly around the PDUFA date? Any updates you can give us there where you would be and I guess, percentage-wise of those 20 people?

Yes. Go ahead, Dale.

Go ahead.

No, you go ahead.

Yes. Yes, I think we've indicated with a relatively concentrated market in level one trauma centers. There are up 200 of them within the United States that we expect the sales force somewhat less than 20 to be able to reach that market. In terms of when that group will be brought on the exact sizing will be probably more specific around that as we get closer to launch. But much of the infrastructure for the sales team is being built right now in terms of the management of that team and complementing our current commercialization group in terms of the actual sales reps. They will be brought on much, much closer to the exact time of approval as opposed to too far in advance. We'll make a decision as to whether that entire team will be brought on day one to accommodate the launch or whether it will be layered into one or two segments that facilitate the launch that way. But those are decisions that are under active discussion right now, and we'll decide as we get close.

Understood. Thank you. And just one last quick one for me. The NTAP cycle, do you guys believe it's going to be a 2025 event or 2026? Thank you for taking our questions.

So based on the revised rules for when you can file an NTAP application, our earliest that we can file will be October of this year. Typically, decisions are made a couple of quarters after that. And – but then the NTAP reimbursement would be scheduled to kick in, I believe, to the best of my knowledge in October of 2025. Again, we expect an NTAP application to be successful, but the – our earliest date when we can apply is this October.

Thank you. Our next question is from the line of Allison Bratzel with Piper Sandler. Please proceed with your question.

Hey. Good morning. Congrats on all the progress and thank you for taking my question. Really just one for me. A follow-up on the dialysis vascular access setting. Just on the V007 trial reading out in Q3, could you just remind us kind of what you see as the bar for success that would lead to the HAV being widely adopted for dialysis access. What do you hope to show when that trial reads out? And then just related, how does the ongoing trial in female patients just play into your plans for filing and commercialization in that indication? Thank you.

Yes, Allison, thanks for these questions. So again, the V007 trial is a prospective randomized blinded trial that compares the HAV to Fistula in a broad range of patients at more than 20 sites in the U.S. So the primary endpoints for this trial are looking at usability for dialysis and patency at six and 12 months, and this is a superiority trial. Again, we are blinded, and we don't have topline, so we don't know how it's going to go. Obviously, our goal and our hope is that across the board, we will have superiority across the whole trial and for all patient groups. However, it's possible that we would have subgroups that would show more superiority or increased beneficial effects as compared to other groups. Again, it's very hard to predict in advance of the data. And so I don't want to give specific guidance here, but I would hope that if we had superiority in either across the trial or within a subgroup, that, that clinical data in combination with an already approved HAV product in the trauma indication, our hope that would be – that would be sufficient to file a supplemental BLA perhaps sometime in 2025 for the dialysis indication. As far as the female-only trial, that's a trial that we've very newly initiated that really focuses on – it's a smaller trial, and it focuses on women comparing the HAV to fistula in women. And again, we're going to be discussing this more at the KOL event next week. And so I don't want to get ahead of the information and the story here on this call. But again, based on our health economic data and looking at the complications that are suffered by dialysis patients, it's become clear from our work with Frenova that women in general, and there are certain subsets of women that have extraordinarily high complication rates and are extraordinarily expensive system. And we believe that the Frenova data in combination with additional data that we're going to get on our clinical trials will really help make the health economic case around the HAV in female patients who have very high complication rates.

Excellent. Thanks so much.

Thank you. Our next question is from the line of Vernon Bernardino with H.C. Wainwright. Please proceed with your questions.

Hi, Laura and Dale. Thanks for taking my question and congrats on the progress. Definitely looking forward to the approval later this year and launch. Just wanted to follow-up on a few questions. One of them being the expenses rising according to what you said, Dale, this year. You anticipate more – you said there's probably going to be a ramp down as far as R&D maybe. And so therefore, maybe most of the ramp-up and OpEx would be from G&A? And do you anticipate that will be mostly heavily weighted towards the back of the year, of course, because that's when the expected launch would be? And then I have a follow-up question.

Yes, you're right. Much of – I mean we do have a very meaningful commercial team in place right now, which is undertaking much of the activities that are longer lead time to get ready for a successful launch. And those include the budget impact model and the applications for ICD-10 codes and other activities like that, that are ongoing, but much of the heavy increase in terms of commercialization expenses will come in the second half of the year with the addition of the sales force. And you're right, there is somewhat of a wind down of certain R&D expenses in part because certain of the clinical trials are winding down and also in part because everything we do from a manufacturing point of view kind of rolls into R&D expense to date. But as we move towards commercialization, a number of those manufacturing costs are going to be appearing in cost of sales, which has the effect of reducing R&D expense. So with that, we expect on an overall net basis, just really a slight increase in overall burn for 2024 compared to 2023.

And then regarding – Laura, you had alluded to using the same manufacturing and so on. Do you anticipate margins improving over time since you're using the same equipment regardless of whether or not you're making, let's say, mostly large versus small or whatever mix of diameter of what HAVs?

Yes. There are two main sources of decreasing COGS over time. And I would say that both apply regardless of whether we're making a 40-centimeter vessel or, say, a short vessel in the future, for example, down the road. The first is just a more efficient use of our facility. Right now, we have built out only a fraction of our manufacturing floor because we have eight LUNA's installed, although we have room for 40. So we're essentially amortizing all of the facility costs across a smaller amount of production as production increases, that inherent overhead obviously will fall linearly. But in addition, we believe that there are additional reductions in COGS that will result from efficiencies of how we use our raw materials, how we prepare and bring in our raw materials, which as we go to greater scale and as we're able to negotiate improved contracts with some of our suppliers, some of those cost inputs will also come down. So it's – we anticipate that regardless of what type of product we're making COGS should fall at a fairly predictable rate.

And one further follow-up, if I may. Regarding, let's say, the launch this year. I know that with vascular trauma, you would expect not to really have insight into a really much longer than, let's say, a short-term vision of need. But do you have any idea of vision, let's say, that you might have, at some point, what you could describe as an inventory patients who need something such that you could predict the need for example, much longer than, let's say, the next week, two weeks, maybe even a month, but longer term, two or three months. Or is that really just going to be for when you have the AV access and PAD and CABG markets where HAV has approval for application? Thank you.

So, Vincent, I'm going to try to answer your question. I'm not completely sure I understood the question, but let me take a shot. So certainly, trauma care, there is some variability. There's some seasonal variability. But overall, it's not a hugely variable market in the aggregate. There are some centers that will have more trauma some months than others. But in the aggregate, it's not a hugely variable market. So we have shared in some of our filings that – and on this call that we think the total addressable market in trauma is about 26,000 patients. Of those, we would expect to capture at full saturation at three or five or seven years at full market saturation, we would expect to capture a reasonable fraction of those. Might be 30%, might be 50% of those patients, could be more. So – and we've shared that we expect market penetration in dialysis and peripheral artery disease, ultimately at full penetration to be at around 20% because we – again, we are targeting the HAV toward patients who do not have their needs met by the current standard-of-care. But trauma overall, even though it's locally episodic is globally a little bit more predictable. So we believe we'll be able to ramp production, tracking demand, we'll be able to ramp production and add more LUNA capacity and meet that as it grows. Does that answer your question?

No, that's perfect. And by the way, it's Vernon and Vincent is my evil twin. So thank you for taking my questions.

I’m sorry Vernon.

That's okay. My evil twin and I, again, in each other way, I'm looking forward to your KOL event and thanks again for taking my question.

Thank you.