Capricor Therapeutics, Inc. — Q2 2023 Form 10-Q Summary
Business Context and Reporting Period
Capricor is a clinical-stage biotechnology company developing cell- and exosome-based therapies, primarily CAP-1002 for Duchenne muscular dystrophy (DMD). The filing covers the quarter and six months ended June 30, 2023. CAP-1002 remained in Phase 3 development, and the company had no approved products or commercial product sales.
Key Financial Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $3.9 million | $6.9 million |
| Revenue, prior year | $0 | $0 |
| Research and development expense | $8.8 million | $16.5 million |
| General and administrative expense | $2.8 million | $6.4 million |
| Operating loss | $7.7 million | $15.9 million |
| Net loss | $7.4 million | $15.1 million |
| Net loss per share | $0.29 | $0.60 |
| Operating cash flow | Not separately provided | $(5.2) million |
Revenue consisted of clinical development income recognized from the $30.0 million U.S. distribution agreement with Nippon Shinyaku. The company also received a $12.0 million upfront payment under a Japan distribution agreement, which remained deferred revenue because the related performance obligation had not yet been identified.
- Cash and cash equivalents: $9.8 million at June 30, 2023.
- Marketable securities: $28.0 million, primarily short-term U.S. Treasuries.
- Total cash, cash equivalents and marketable securities: approximately $37.8 million, versus $41.4 million at December 31, 2022.
- Working capital: approximately $3.8 million, versus $19.3 million at year-end 2022.
- Total liabilities: $43.3 million, including $32.5 million of deferred revenue.
- Stockholders’ equity: $2.7 million, versus $11.8 million at December 31, 2022.
- Accumulated deficit: $152.2 million.
- Conventional borrowings were not identified. Liabilities included a $3.4 million CIRM liability and $2.2 million of operating lease liabilities.
Material Changes Versus the Prior Comparable Period
- Revenue increased from zero to $3.9 million in the quarter and $6.9 million year to date as the company recognized consideration from the U.S. Nippon Shinyaku agreement.
- Quarterly R&D expense increased 78% to $8.8 million; year-to-date R&D expense increased 63% to $16.5 million. The increase primarily reflected HOPE-3, the HOPE-2 open-label extension, CAP-1002 manufacturing scale-up, higher headcount and facility expansion.
- Quarterly G&A expense increased 21% to $2.8 million; year-to-date G&A expense increased 25% to $6.4 million, driven substantially by higher stock-based compensation and facility costs.
- Net loss increased modestly from $7.1 million to $7.4 million for the quarter and from $14.9 million to $15.1 million for the six-month period.
- Operating cash flow changed from $17.5 million provided in the prior-year six-month period to $5.2 million used, primarily because the prior period benefited from the $30.0 million U.S. upfront payment.
- The company raised $2.1 million net through its at-the-market program during the first six months and had sold approximately $14.7 million cumulatively under the program through August 7, 2023.
Guidance, Outlook, Risks and Unusual Items
- Management expected existing cash, cash equivalents and marketable securities to fund operating expenses and capital expenditures through the third quarter of 2024, excluding potential additional Nippon Shinyaku milestones. Management also stated that resources were sufficient for at least the next twelve months.
- HOPE-3 had randomized 48 patients across 17 active sites, with enrollment of up to 68 patients expected to be completed in the fourth quarter of 2023. An interim futility analysis was also expected in the fourth quarter.
- Management expected 2023 CAP-1002 DMD program spending of approximately $15 million to $20 million and exosome program spending of approximately $2 million to $4 million.
- The San Diego commercial-scale GMP manufacturing facility was completed in the first quarter, with clinical doses anticipated to be available in the third quarter of 2023.
- The company held FDA Type-B meetings regarding manufacturing and the potential biologics license application pathway. Regulatory requirements, including potential additions or changes to HOPE-3, remained subject to FDA feedback.
- The Japan agreement provided potential additional development and sales milestones of approximately $89 million, while the U.S. agreement provided potential milestones of up to $705 million. These amounts were not included in revenue because recognition remained subject to probability assessments and other conditions.
- The company stated that it will require substantial additional capital. Additional equity financing could dilute existing holders, while debt or partnering transactions may impose restrictive terms or require relinquishing rights.
- The company remained dependent on clinical success, regulatory approval, manufacturing scale-up, third-party vendors, intellectual property protection and future financing. COVID-19-related supply chain effects could continue to affect operations.
- No material legal proceedings or material changes to previously disclosed risk factors were reported.
- The CIRM award liability was approximately $3.4 million. Capricor had not decided whether to convert the award into a loan, which could require repayment of some or all of the award.
- After quarter-end and through August 7, 2023, the company sold an additional 12,006 shares under the ATM program for gross proceeds of approximately $57,700.
Important Facts for Investors to Verify
- Progress, enrollment completion and interim-analysis results for the HOPE-3 Phase 3 trial.
- FDA feedback on the proposed regulatory pathway, commercial-scale manufacturing requirements and any changes required to HOPE-3.
- Actual cash burn, runway and the timing and terms of any required capital raise.
- Recognition schedule for the remaining approximately $20.5 million of U.S. distribution agreement performance obligations and the $12.0 million Japan upfront payment.
- Whether CAP-1002 receives regulatory approval and whether Nippon Shinyaku milestones or product-revenue sharing become realizable.
- Manufacturing readiness and the ability to produce compliant commercial-scale CAP-1002 doses.
- Potential dilution from the remaining ATM capacity, stock options and warrants.