Prokidney Corp.: Form 10-Q for the period ended Sep 30, 2023

As used in this Quarterly Report on Form 10-Q, the “Company”, the “Registrant”, “we” or “us” refer to ProKidney Corp. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes that appear elsewhere in this report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, assumptions and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in the Risk Factors section of the Annual Report on Form 10-K filed with the Securities and Exchange Commission, and elsewhere in this report under “Part II, Other Information—Item 1A, Risk Factors.” Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities, potential results of our drug development efforts or trials, and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Overview

We are a clinical-stage biotechnology business with a transformative proprietary cell therapy platform capable of treating multiple chronic kidney diseases using a patient’s own cells isolated from the patient intended for treatment. Our approach seeks to redefine the treatment of chronic kidney disease (“CKD”), shifting the emphasis away from management of kidney failure to the restoration, preservation or improvement of kidney function to stop or delay progression of CKD. Our lead product candidate, which we refer to as REACT, is designed to preserve kidney function in a CKD patient’s diseased kidneys. REACT is a product that includes selected renal cells (“SRC”) prepared from a patient’s own, autologous, renal cells. SRC are formulated into a product for reinjection into the patient’s kidneys using a minimally invasive outpatient procedure that can be repeated if necessary. Because REACT is a personalized treatment composed of cells prepared from a patient’s own kidney, there is no need for treatment with immunosuppressive therapies, which are required during a patient’s lifetime when a patient receives a kidney transplant from another, allogeneic donor.

We are currently conducting a Phase 3 development program and multiple Phase 2 clinical trials for REACT in subjects with moderate to severe diabetic kidney disease. We also recently completed a Phase 1 clinical trial for REACT in subjects with congenital anomalies of the kidney and urinary tract (“CAKUT”). REACT has been generally well tolerated by subjects with moderate to severe diabetic kidney disease in Phase 1 and 2 clinical testing to date. It has also been shown to preserve kidney function and limit kidney injury in subjects based on measurements of iohexol renal clearance and urinary albumin-to-creatinine ratio (“UACR”). REACT has received regenerative medicine advanced therapy (“RMAT”) designation from the United States Food and Drug Administration (the “FDA”).

Since our inception, we have devoted substantially all of our resources to raising capital, organizing and staffing our Company, business and scientific planning, conducting discovery and research activities, acquiring or discovering product candidates, establishing and protecting our intellectual property portfolio, developing and progressing REACT and preparing for clinical trials, establishing arrangements with third parties for the manufacture of component materials, and providing general and administrative support for these operations. We do not have any product candidates approved for sale and have not generated any revenue from product sales.

Recent Developments

On November 10, 2023, the Company’s board of directors terminated, without cause, Tim Bertram, Ph.D., Chief Executive Officer of the Company, effective November 15, 2023 (the “Effective Date”), following which Dr. Bertram is expected to continue to serve as a consultant of the Company. On the Effective Date, and pursuant to the terms of Dr. Bertram’s employment agreement, Dr. Bertram will also resign from the Board of Directors of the Company. In addition, on November 10, 2023, our board of directors appointed Bruce Culleton, MD, as Chief Executive Officer and director of the Company, as of the Effective Date.

RMCL-002

RMCL-002 is an ongoing Phase 2, prospective, randomized, double-arm, deferred treatment, open-label, repeat dose, safety and efficacy study of REACT in subjects with CKD caused by type 2 diabetes.

The first subject was enrolled in this study in February 2017, and subjects are now undergoing follow-up. The primary objective of this study is to assess the safety and efficacy of up to two REACT injections given approximately six months apart in Type 2 diabetic patients with eGFRs between 20 and 50 ml/min/1.73m2, with both doses delivered into the biopsied kidney using an outpatient, minimally invasive, percutaneous approach under conscious sedation. Patients were eligible to receive up to two doses of REACT of 3x106 cells/g-KWest.

Patients were randomized (1:1) to the active treatment group or the deferred treatment group (i.e., the control group) following kidney biopsy. Subjects in the active treatment group received their first REACT injection as soon as the REACT product was manufactured and shipped to the clinical site. After approximately six months, a second injection was given, as appropriate, into the biopsied kidney. In contrast, subjects in the deferred treatment group underwent a 12-month period of observation after kidney biopsy. The deferred treatment group allowed assessment of the rate of change in kidney function and co-morbidities in a non-injected group compared to the active treated arm. During this time, patients received contemporaneous, standard-of-care therapy for CKD while undergoing follow-up evaluations every three months, similar to subjects in the active treatment group. Consequently, the study design included a randomized control group receiving standard-of-care treatment for the first 12 months and a randomized, active treatment group which received up to two REACT injections and follow-up evaluations during the same period of time. After 12 months, subjects from the deferred treatment group were eligible to receive a series of up to two REACT injections given approximately six months apart, as appropriate, administered into the biopsied kidney. In both treatment groups, as per study protocol, if the eGFR of any subject fell below 20 ml/min/1.73m2, that subject would not receive their REACT injection, whether it was their first or second REACT injection.

The aggregate number of subjects enrolled for the Phase 2 clinical trial was 83 of which 41 subjects were enrolled into the active treatment group and 42 subjects were enrolled into the deferred treatment group. We are on track to complete all follow-up visits for all remaining subjects in the fourth quarter of 2023.

Updated interim data from the ongoing study were released in November 2023 and included data from the 83 patients enrolled. The interim dataset revealed a safety profile in line with previously reported data from earlier Phase 1 and Phase 2 trials, with tolerability similar to that of a routine kidney biopsy. Overall, the updated trial data demonstrated REACT’s potential for kidney function preservation in patients with advanced CKD caused by diabetes, with the most notable potential benefit shown in patients who had the highest risk of kidney failure (CKD Stage 4 with moderate to severe albuminuria). Albuminuria refers to the presence of an excess of the protein albumin in urine, which is a sign of kidney injury.

We expect to provide full data of our RMCL-002 Phase 2 study in the first half of 2024. Results from interim data may not be indicative of results from future data.

REGEN-007

REGEN-007 is an ongoing Phase 2, prospective, randomized, open-label, repeat dose, double-arm, controlled safety and efficacy study of REACT in subjects with type 1 or 2 diabetes and CKD.

The primary objective of this study is to assess the safety and efficacy of up to two REACT injections given approximately three months apart to patients with Type 1 and 2 diabetic kidney disease with eGFRs between 20 and 50 ml/min/1.73m2) and delivered into biopsied and non-biopsied contralateral kidneys using a minimally invasive percutaneous approach. This is compared to a single REACT injection followed by monitoring and a potential second injection delivered into the non-biopsied contralateral kidney using a minimally invasive percutaneous approach triggered by a 20% decrease in eGFR and/or a 30% increase in urinary albumin-creatinine ratio (UACR) delivered within approximately 60 days of the trigger being met. In previous Phase 2 studies, we injected REACT into the same kidney twice. Based on a generally favorable safety profile observed in previous studies, we are now proceeding with the injection of REACT into both kidneys in REGEN-007. We expect the data generated by REGEN-007 will enable us to better understand the impact of REACT on kidney function from injections in both kidneys.

We have completed enrollment in REGEN-007 with a total of 53 subjects. We anticipate reporting interim data from this study in mid-2024.

REGEN-016/proact 2 trial

REGEN-016 (proact 2) is a planned Phase 3, randomized, single-blinded, sham control arm, bi-lateral kidney dose, controlled efficacy study of REACT in subjects with Stages 3b and 4 CKD caused by type 2 diabetes (specifically eGFR between 20 ml and 44 ml min/1.73m2 with moderate to severe albuminuria (UACR between 300 and 5,000 mg/g)). This study will be implemented in clinical centers in Europe, Latin America, Asia-Pacific and some United States centers.

The primary objective of this study is to assess the efficacy of up to two REACT injections given three months apart and delivered into biopsied and non-biopsied contralateral kidneys using a minimally invasive percutaneous approach. Enrolled subjects will be stratified based upon stage of disease and standard of care (e.g., SGLT2 and/or MRA use) then randomized (1:1) to the treatment group or the “masked” sham control group prior to kidney biopsy. The total planned enrollment is 600 subjects.

The primary composite endpoint is the time from first injection to the earliest of:

• At least 40% reduction in eGFR, using the 2009 CKD-EPI serum creatinine equation, sustained for 30 days;
• eGFR <15 mL/min/1.73m² using the 2009 CKD-EPI serum creatinine equation, sustained for 30 days and/or chronic dialysis, and/or renal transplant; or
• renal or cardiovascular death.

A recent audit by the Company’s contracted Qualified Person (QP) to evaluate our readiness for release and distribution of REACT in the EU identified certain deficiencies in the documentation of the quality management systems to be addressed prior to release and distribution of product for EU clinical sites. Manufacturing is therefore paused while we optimize our capabilities to meet EU and global standards for our Phase 3 program and prepare for a transition to commercial manufacturing. We expect proact 2 will commence enrollment in the first half of 2024. No safety events have necessitated this pause.

REGEN-006/proact 1 trial

REGEN-006 (proact 1) is a Phase 3, randomized, single-blinded, bi-lateral kidney dose, sham control arm, controlled efficacy study of REACT in subjects with CKD caused by type 2 diabetes and is being amended to focus on a subset of patients with Stage 4 CKD (eGFR between 20 ml and 30 ml min/1.73m2) and late Stage 3b CKD (eGFR between 30 ml and 35 ml min/1.73m2 ) with moderate to severe albuminuria.

The primary objective of this study is to assess the efficacy of up to two REACT injections given three months apart and delivered into biopsied and non-biopsied contralateral kidneys using a minimally invasive percutaneous approach. The originally planned enrollment of 600 total subjects in this study will be increased to include the approximately 50 subjects already enrolled and who meet the planned amended trial eligibility criteria, for a total target enrollment of approximately 650 patients.

The primary composite endpoint is the time from first injection to the earliest of:

• At least 40% reduction in eGFR, using the 2009 CKD-EPI serum creatinine equation, sustained for 30 days;
• eGFR <15 mL/min/1.73m² using the 2009 CKD-EPI serum creatinine equation, sustained for 30 days and/or chronic dialysis, and/or renal transplant; or
• renal or cardiovascular death.

Subjects will be randomized (1:1) to the treatment group or the “masked” sham control group prior to kidney biopsy. REGEN-006 will be conducted in clinical centers in the United States, Canada, Australia, Mexico, Taiwan and the United Kingdom.

In concert with our pause of manufacturing to optimize our capabilities to meet EU and global standards for our Phase 3 program and prepare for a transition to commercial manufacturing, and based on the interim data from RMCL-002 and feedback from payer and health technology assessment (HTA) experts, we are proactively modifying REGEN-006 to increase probability of success. This includes a focus on patients at highest risk of kidney disease progression and who are of interest to payers due to the significant cost burden associated with their medical care. Based on feedback from our clinical sites, we also intend to incorporate additional administrative changes to improve operational efficiencies and clinical site engagement. No safety issues have required any of these protocol changes. We anticipate submitting protocol amendments for this study to regulatory agencies in early 2024 and anticipate reinitiating enrollment of subjects during the first half of 2024.

Commercial Manufacturing Strategy

In preparation for our commercial manufacturing needs in the event that REACT receives regulatory approval, through our wholly-owned subsidiary, ProKidney Acquisition Company, LLC, we completed the closing of the purchase of a 210,000 square foot facility and approximately 22 acres of land in Greensboro, North Carolina, in July 2023. Under the terms of the purchase agreement, we paid approximately $25.5 million in cash for the facility and property. In connection with the purchase, the city of Greensboro, North Carolina, Guilford County, North Carolina and the North Carolina State Economic Investment Committee have approved incentive packages under which ProKidney is eligible to receive, in aggregate, up to approximately $33.7 million in tax credits, as well as up to $1.9 million in energy credits from Duke Energy. Receipt of these incentives is based upon the achievement of certain milestones, including the creation of at least 330 new jobs on or before December 31, 2028, and project investment of approximately $458 million made, or caused to be made, by the Company in real and personal property by December 31, 2027.

Other Global Developments

In 2022, various central banks around the world (including the Federal Reserve in the United States) raised interest rates. While these rate increases have not had a significant adverse impact on the Company to date, the impact of such rate increases on the overall financial markets and the economy may adversely impact the Company in the future, including by making capital more difficult and costly to obtain on reasonable terms and when needed. In addition, the global economy has experienced and is continuing to experience high levels of inflation and global supply chain disruptions. We continue to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty resulting from the overall economic environment.

In addition, although we have no operations in or direct exposure to Russia, Belarus, Ukraine, Israel and Palestine, we have experienced limited constraints in availability and increasing costs required to obtain some materials and supplies due, in part, to the negative impact of the Russia-Ukraine military conflict on the global economy, which contributed to global supply chain disruptions. To date, our business has not been materially impacted by the conflict; however, as the conflict continues or worsens, it may adversely impact our business, financial condition or results of operations.

Financial Operations Overview

Revenue

We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts for REACT or any other product candidates are successful and result in marketing approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such agreements.

Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with our research and development activities, including the development of REACT.

Research and development costs include:

• external research and development expenses incurred under agreements with CROs and other scientific development services;
• costs of other outside consultants, including their fees and related travel expenses;
• costs related to compliance with quality and regulatory requirements;
• costs of laboratory supplies and acquiring and developing clinical trial materials;
• payments made under third-party licensing agreements;
• personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expenses, for individuals involved in research and development activities; and
• facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, insurance and other internal operating costs.

We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated balance sheets as prepaid clinical or as a component of total accrued expenses and other. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative future use for the research and development. The capitalized amounts are recorded as prepaid clinical and are expensed as the related goods are delivered or the services are performed.

Research and development activities are central to our business model. We expect that our research and development expenses will increase significantly for the foreseeable future as REACT moves into later stages of clinical development.

The successful development of REACT and any product candidates we may develop in the future is highly uncertain. Therefore, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development and commercialization of any of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of REACT or potential future product candidates, if approved. This is due to the numerous risks and uncertainties associated with developing product candidates, many of which are outside of our control, including the uncertainty of:

• the timing and progress of non-clinical and clinical development activities;
• the number and scope of non-clinical and clinical programs we decide to pursue;
• our ability to maintain our current research and development programs and to establish new ones;
• establishing an appropriate safety-profile;
• the number of sites and patients involved in our clinical trials;
• the countries in which the clinical trials are conducted;
• per patient trial costs;
• successful patient enrollment in, and the initiation of, clinical trials, as well as drop out or discontinuation rates;
• the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA and comparable foreign regulatory authorities;
• the number of trials required for regulatory approval;
• the timing, receipt and terms of any regulatory approvals from applicable regulatory authorities;
• our ability to establish new licensing or collaboration arrangements;
• the performance of our future collaborators, if any;
• establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
• significant and changing government regulation and regulatory guidance;
• the impact of any business interruptions to our operations or to those of the third parties with whom we work;
• obtaining, maintaining, defending and enforcing patient claims or other intellectual property rights;
• the potential benefits of REACT over other therapies;
• launching commercial sales of REACT, if approved, whether alone or in collaboration with others; and
• maintaining a continued acceptable safety profile of REACT following approval.

Any changes in the outcome of any of these variables could mean a significant change in the costs and timing associated with the development of our product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development. We may never obtain regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries, bonuses, benefits and equity-based compensation expenses for individuals involved in our executive, finance, corporate and administrative functions, as well as expenses for outside professional services, including legal, audit, accounting and tax-related services and other consulting fees, facility-related expenses, which include depreciation costs and other allocated expenses for rent and maintenance of facilities, insurance costs, recruiting costs, travel expenses and other general administrative expenses.

We expect that our general and administrative expenses will increase significantly for the foreseeable future as our business expands and we hire additional personnel to support our operations. We also anticipate increased expenses associated with being a public company, including costs for legal, audit, accounting, investor and public relations, tax-related services, director and officer insurance, and regulatory costs related to compliance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) as well as listing standards applicable to companies listed on a national securities exchange.

Other Income (Expense)

Other income consists primarily of interest income earned on cash, cash equivalents and marketable securities.

Income Tax Expense

Income tax expense reflects federal and state taxes on income earned by our subsidiary that is organized as a C corporation for U.S. income tax purposes.

Results of Operations

Comparison of Three Months Ended September 30, 2023 and 2022

The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022 (in thousands):

Research and development expenses

The increase in research and development expenses of approximately $11.1 million was primarily driven by the following:

• increases in costs of $3.2 million related to equity-based compensation driven by additional grants of equity awards to employees;
• increases in cash-based compensation costs of approximately $2.3 million due to the hiring of additional personnel particularly in the areas of clinical development, quality and biostatistics as we move forward with our clinical programs;
• increases in costs of approximately $4.2 million related to proact-1 and proact-2 as proact-1 continues to enroll additional subjects and proact-2 continues to incur costs related to start-up activities; and
• increases in other research and development costs of approximately $1.2 million related to additional spending on manufacturing improvements and professional fees.

General and administrative expenses

General and administrative expenses were consistent between the three months ended September 30, 2023 and 2022 driven by the following:

• decreases in costs associated with the business combination (the “Business Combination”) between Social Capital Suvretta Holdings Corp. III and ProKidney LP (“PKLP”), including certain insurance costs of approximately $5.0 million, offset by
• increases in equity-based compensation of approximately $5.0 million related driven by grants of equity awards to employees during 2023.

Income tax expense

Income tax expense for the three months ended September 30, 2023 increased from the three months ended September 30, 2022 due to an increase in the effective tax rate driven by the change in the valuation allowance which was impacted by the timing of deductions for qualified research and development costs.

Comparison of Nine Months Ended September 30, 2023 and 2022

The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022 (in thousands):

Research and development expenses

The increase in research and development expenses of approximately $23.0 million was primarily driven by the following:

• increases in cash-based compensation costs of approximately $7.9 million due to the hiring of additional personnel in the areas of manufacturing and quality associated with the need to support our Phase 3 clinical trials and in the areas of clinical development and biostatistics as our development programs continue to progress;
• increases in equity-based compensation costs of approximately $7.0 million related to the issuance of additional equity awards made to employees;
• increases in costs of approximately $13.1 million related to proact-1 and proact-2, as proact-1 continues to enroll additional subjects and proact-2 continues to incur costs related to start-up activities;
• increases in costs related to our other clinical trials of approximately $2.2 million particularly driven by costs for REGEN-007 now that we have completed enrollment of that trial as well as start-up activities for REGEN-015;
• increases in costs of approximately $2.5 million related to additional spending on professional fees;
• increases in costs related to facilities and manufacturing improvements of $2.3 million; and
• increases in manufacturing material costs of $0.9 million, offset by;
• decreases in costs of $14.1 million related to equity-based payments for services rendered by a third-party which were adjusted to the fair value of the awards issued upon their grant date in the nine months ended September 30, 2022.

General and administrative expenses

The decrease in general and administrative expenses of approximately $18.5 million was primarily driven by the following:

• decreases in equity-based compensation of approximately $21.3 million, as such expense was higher for the nine months ended September 30, 2023 due to the sale of Class B-1 Units of PKLP at amounts less than their fair value offset by;
• increases in professional fees and insurance costs of approximately $1.6 million related to our operations as a public company; and
• increases in cash-based compensation expenses of approximately $1.2 million due to the hiring of additional personnel.

Income tax expense

Income tax expense for the nine months ended September 30, 2023 increased from the nine months ended September 30, 2022 due to an increase in the effective tax rate driven by the change in the valuation allowance which was impacted by the timing of deductions for qualified research and development costs.

Liquidity and Capital Resources

Sources of liquidity

Since our inception, we have not recognized any revenue and have incurred operating losses and negative cash flows from our operations. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all. From our inception through September 30, 2023, we funded our operations primarily through capital contributions from the holders of PKLP and the proceeds obtained through the Business Combination and related private placement financing.

We expect that our existing cash, cash equivalents and marketable securities held at September 30, 2023, will enable us to fund our operating expenses and capital expenditure requirements through 2024. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect.

We expect our expenses to increase substantially if, and as, we:

• initiate and continue research and clinical development of our product candidates, including in particular our clinical trials for REACT;
• incur third-party manufacturing costs to support our non-clinical studies and clinical trials of our product candidate and, if approved, its commercialization;
• seek to identify and develop additional product candidates;
• make investment in developing internal manufacturing capabilities; and
• seek regulatory and marketing approvals for our product candidates.

In addition, since the closing of the Business Combination we have begun incurring additional costs associated with operating as a public company, including significant legal, audit, accounting, investor and public relations, regulatory, tax-related, director and officer insurance premiums and other expenses. Developing pharmaceutical products, including conducting clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any product candidates or generate revenue from the sale of any product candidate for which we may obtain marketing approval. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of product that we do not expect to be commercially available for at least several years, if ever.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the public or private sale of equity, government or private party grants, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain additional funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or any commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. If we raise funds through strategic collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to our technology, future- revenue streams, research programs or product candidates or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our shares. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide. Because of the numerous risks and uncertainties associated with product development, we cannot predict the timing or amount of increased expenses, and there is no assurance that we will ever be profitable or generate positive cash flow from operating activities.

Cash Flows

Cash Flows for the Nine Months Ended September 30, 2023 and 2022

The following table provides information regarding our cash flows for the nine months ended September 30, 2023 and 2022 (in thousands):

Operating Activities

Net cash used in operating activities was approximately $64.7 million for the nine months ended September 30, 2023, reflecting a net loss of approximately $113.7 million and uses driven by changes in working capital of approximately $12.8 million. Such uses were partially offset by non-cash charges and gains on investments of $36.2 million. The non-cash charges primarily consisted of equity-based compensation expense of $37.2 million and depreciation and amortization expense of $2.7 million. The changes in working capital primarily relate to the timing of payments made to our vendors for services performed and the recognition of receivable amounts related to interest on our marketable security investments.

Net cash used in operating activities was approximately $61.3 million for the nine months ended September 30, 2022, reflecting a net loss of $123.6 million and uses driven by changes in working capital of approximately $5.5 million, partially offset by non-cash charges of $67.8 million. The non-cash charges primarily consisted of equity-based compensation expense of $65.5 million and depreciation and amortization expense of $2.2 million.

The approximately $3.4 million increase in cash used in operating activities for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily driven by an increase in net loss after adjusting for the non-cash charges and gains on investments of approximately $21.7 million offset by a decrease in the use of cash related to the timing of payments to our vendors and receipt of interest amounts due.

Investing Activities

Net cash used in investing activities was approximately $234.1 million and $1.4 million for the nine months ended September 30, 2023 and 2022, respectively. The cash used in investing activities during the nine months ended September 30, 2023 was primarily related to the investment of a portion of the proceeds raised through the Business Combination in marketable securities coupled with the purchase of land and a building in Greensboro, North Carolina.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2023 was an insignificant amount. Net cash provided by financing activities was $548.5 million for the nine months ended September 30, 2022 and relates to the sale of Class A and B-1 Units of PKLP during that period.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements. Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 2 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies, allowing them to delay the adoption of those standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, our consolidated financial statements may not be comparable to the financial statements of companies that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our ordinary shares less attractive to investors.

Interest Rate Risk

The Company’s exposure to changes in interest rates relates primarily to the Company’s investment portfolio. The goals of our investment strategy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we maintain a portfolio of cash equivalents and investments in a variety of securities that management believes to be of high credit quality. All securities in our investment portfolio are not leveraged and are, due to their short-term nature, subject to minimal interest rate risk. Because of the short-term maturities of our investments, we do not believe that an increase in market rates would have a material negative impact on the value of our investment portfolio.

Foreign Currency Risk

We do not have any material foreign currency exposure.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of September 30, 2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were effective in causing material information relating to us (including our consolidated subsidiaries) to be recorded, processed, summarized and reported by management on a timely basis and to ensure the quality and timeliness of our public disclosures pursuant to SEC disclosure obligations.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Changes to Internal Control over Financial Reporting

We previously reported a material weakness in our internal control over financial reporting related to the Company’s accounting for complex financial instruments, which condition existed prior to the Closing of the Business Combination. That material weakness has been remediated. There have been no other changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Website Availability of Reports and other Corporate Governance Information

The Company maintains a comprehensive corporate governance program, including Corporate Governance Guidelines for its Board of Directors, Board Guidelines for Assessing Director Independence and charters for its Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee. The Company maintains a corporate investor relations website, https://investors.prokidney.com/, where stockholders and other interested persons may review, without charge, among other things, corporate governance materials and certain SEC filings, which are generally available on the same business day as the filing date with the SEC on the SEC’s website http://www.sec.gov. The contents of our website are not made a part of this Quarterly Report on Form 10-Q.

Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows, and prospects. These risks are discussed more fully in the section entitled “Risk Factors” in our Registration Statement on Form 10-K filed with the SEC on March 28, 2023, as amended on April 27, 2023.