Rumors of $HUMA's demise are greatly exaggerated

After treading the $10 level this summer, the stock has sunk under $5 despite FDA approval. Some say FDA approval was more than priced-in, but what's important is to look at how the stock got here from $10 and what the company's prospects look like in comparison to its Enterprise Value and cash runway.

HUMA is the only FDA-approved, commercial-scale manufacturer of universally implantable human tissue. In five weeks their product is ready for shipment, according to the CEO. The first FDA approval they got on December 19, 2024 is for Vascular Trauma. They expect FDA approval for more indications this year and next. Peak sales projection is $12 billion for current late-stage pipeline products. TAM is $150 billion. The median price to sales ratio for biotech firms producing biological implants is 14.7 and biotech generally is 7.14. Either way, this is potentially a micro-cap to large-cap story.

Why then, is it trading at an almost 200% yield to the average analyst estimate? This part is a cluster, but bear with me as I simplify it into four points. First the CEO Laura Niklason and her husband and HUMA board member Brady Dougan jointly seemed to sell a huge chunk of shares since summer. However, notes to the filings state that the husband needed liquidity for the troubles with his other company, Exos Financial. Basically, dude's a banker who started his own bank and effectively got margin called. He's "special" just like us!

Second, within just a few days of their first large sale, the number of shares short in the stock went way up and it continued to rise 607% after the FDA delayed its decision to approve HUMA's first indication on August 10, 2024.

To make matters worse, Martin Shkreli revealed he is short on HUMA via X and youtube, but published no detailed rationale. He just said he trusted the research of a guy he found (more on this later). A lot of traders respect his take on stocks and bio tech, so he has high credibility to influence them to join him in shorting it. The 12 month mark passed with no FDA decision on December 11, 2024 for HUMA's BLA submission for their first indication.

On December 17, 2024 a short seller published a convincing and highly technical short report arguing that the FDA would reject the BLA for the first indication and that HUMA would soon after run out of cash and die. I speculate that this is the guy Shkreli mentioned. Funnily enough, the FDA approved HUMA's SYMVESS on December 19, 2024.

So they did what any sensible trader would do. They dug their heels in and married their short positions. Martin Shkreli asked people to short the FDA pop. This was soon after his success shorting $SAVA so a lot more people joined in to create a shorting frenzy. Even though the stock was up 45% in the middle of trading day, out-of-the-money puts were up over 10,000%. Short interest was 30% at year end.

The crux of their argument is that HUMA's FDA approval for SYMVESS is useless, because it's too expensive and provides too little additional benefit over competitor products per clinical trail metrics. What they refuse to accept is that there is still a great business case for SYMVESS. They also argue that HUMA's future products will not be FDA approved due to clinical trial issues.

HUMA's tech was praised by the Department of Defense (DoD) in a report they published in 2016. In fact, they've issued $7m in grants to HUMA and were key in pushing for FDA approval via Public Law 115-92. The DoD explains in that report above: "IED wounds are always “dirty”, and bacteria in the wound can colonize the synthetic graft, causing abscesses and sepsis, therefore there is a need for [an] alternative [like SYMVESS] [...] The [SYMVESS] grafts are also self-healing making them amenable to the frequent re-cannulation required for [Hemodialysis]." Such benefits do not show up in the clinical trial data.

These benefits are a crucial differentiator though. Plastic and cow grafts are not recognized by the human body as part of itself. However, SYMVESS and other HUMA products make the body think and act like it's repairing itself as usual, because the material is real human tissue. The body populates it with its own cells. That's why they have never had a single episode of rejection. Zero rejections across several clinical trials involving hundreds of patients. Rejections are insanely expensive and they happen with plastic and cow grafts.

The CEO of the company explains, "We've implanted hundreds of patients inside the US and outside the US, and we've never had a single episode of rejection." So synthetic grafts can be made to have similar data with modern medications that prevent clotting and infections, but there are immeasurable long-term benefits to using actual human tissue populated by the patient's own cells.

This is why countless surgeons with decades of experience love HUMA's tech:

"I am most excited about the promise that Symvess holds for the long-term experience of our patients. I hope that, with Symvess, the 19-year-old patient with vascular reconstruction after trauma will no longer spend the six decades after their surgery anticipating disaster, but that their chances for reintervention will be no different than if they had autologous conduit.”

- Dr. Rishi Kundi, a clinical investigator at the University of Maryland Medical System

I won't bore you with quotes but here's a few names to Google if you want their thoughts on SYMVESS:

Dr. Michael C., the chief of vascular surgery at Rutgers New Jersey Medical School

Dr. Peter Marks, director of the FDA’s Center for Biologics Evaluation and Research

Dr. Nicole Verdun, director of the Office of Therapeutic Products at FDA’s Center for Biologics Evaluation and Research

Charles J. Fox, MD, FACS, Director of Vascular Surgery, University of Maryland Capital Region

Ernest E. Moore, MD, FACS, Director of Research, Ernest E. Moore Shock Trauma Center at Denver Health

HUMA's next indication due for approval is dialysis, where again the clinical trail data seems comparable, but the CEO explained the main advantage in response to an analyst question, "One of the Chief Medical Officers from Fresenius [our dialysis partner] joined us at the post-presentation lunch after ASN and his biggest comment and what he said mattered most to him, because he oversees a lot of the provision of care at dialysis centers is a decrease in catheter time and exposure in terms of reimbursement for the services Fresenius provides is huge for them."

Obviously you could argue the advantages being outside the scope of clinical trials make FDA approval an uphill battle for HUMA's future indications, but that's where DoD backing via Public Law 115-92 comes in to push through FDA hurdles. It was during Trump's first administration that DoD financially backed HUMA in 2017, so the incoming administration is on board. Physicians and hospital administrators already see the nuanced healthcare and business advantages.

Sales to DoD are a given at this point. In that 2016 report, they state, "These [SYMVESS grafts] can be shipped to hospitals and field locations, and can be stored until needed." Meaning DoD will stockpile not just for battle readiness worldwide, but also for the Strategic National Stockpile and domestic trauma centers. Shelf life is 18 months so they will restock and provide recurring revenue.

Sales to healthcare customers are not difficult, because it's intuitively better vs plastic, cow, or risky and time-consuming traditional vein grafts. It's more expensive, but it's easy for the healthcare customers to understand how it can save a lot more money on unnecessary autologous vein procedures and in the long-run due to rejections of plastic or cow vein substitutes.

Yes SYMVESS got a black box warning from FDA due to rare thrombosis (clotting) and rupture risks that their competitor products don't have. But a lot of FDA approved stuff has black label warnings. Some examples: Ozempic, Altace, Wegovy, Celebrex, Fortamet, Paxil, Prozac, Warfarin, Pradaxa, etc. What's more, the final FDA report on SYMVESS approval contains only one restriction for its use vs three restrictions for the current standard-of-care fistula.

This won't inhibit sales one bit. According to a vascular surgeon, "there has been no innovation in this indication for decades," and SYMVESS is likely to be used off-label in all areas of the body, because of the risks and added procedure cost with Saphenous Vein harvest. SYMVESS is way more predictable and off-the-shelf, according the same surgeon. The major long-term advantages, high praise from the medical community, and an unusual press release by the FDA itself that expressed excitement about the approval confirm this.

"The total lifetime health-care cost projected for patients undergoing amputation ($509,275) was more than three times higher than that for patients undergoing reconstruction ($163,282)." - Health-Care Costs Associated with Amputation or Reconstruction of a Limb-Threatening Injury

Plastic and cow vein graft substitutes have a much higher rate of amputation. Also the autologous vein method requires a whole another procedure to extract a section of vein from another place in the body. The cost of another procedure is way higher than SYMVESS. $25k is chump change in comparison.

On the balance-sheet front, HUMA has no debt and a tiny lease liability. Other liabilities are non-cash (royalties). No production reason to need cash, unless sales are great. Five weeks to relabel and ship thousands of grafts on-hand. Just received a $40m milestone investment due to FDA approval. They have been good about not diluting too much.

The forest vs trees analogy on HUMA is that you have a company fighting to establish a synthetic human tissue platform for 20 years. They have strategically overcome many forms of crisis without taking on any debt, and just got de-risked via FDA approval. It's a terrible short with 30% SI, and a great long as a micro-cap to large-cap story.

Position: in-the-money calls that I plan to keep rolling.