Capricor Therapeutics, Inc. — 2019 Q2 Form 10-Q Summary
Business context and reporting period
Capricor is a clinical-stage biotechnology company developing cell- and exosome-based therapies, primarily for Duchenne muscular dystrophy and other rare disorders. The filing covers the quarter and six months ended June 30, 2019; financial statements are unaudited. The company had four drug candidates, with CAP-1002 and CAP-2003 in active development and no commercial product sales.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $410,353 in 2019 vs. $403,960 in 2018 | $640,857 vs. $804,025 |
| Research and development expense | $1.64 million vs. $3.39 million | $3.46 million vs. $6.09 million |
| General and administrative expense | $831,933 vs. $1.18 million | $1.81 million vs. $2.57 million |
| Operating loss | $2.07 million vs. $4.16 million | $4.62 million vs. $7.85 million |
| Net loss | $2.05 million, or $0.59 per share | $4.57 million, or $1.35 per share |
| Operating margin | Approximately negative 504% | Approximately negative 722% |
| Cash used in operating activities | $3.39 million in the first six months, compared with $7.11 million in 2018 |
At June 30, 2019, cash and cash equivalents were $5.89 million, restricted cash was $232,803, and marketable securities were zero versus $3.0 million at December 31, 2018. Total cash, cash equivalents, and restricted cash were $6.12 million. Working capital was approximately $5.08 million, total liabilities were $4.94 million, and stockholders’ equity was $2.36 million.
The principal long-term liability was a $3.38 million CIRM liability. The filing does not identify conventional interest-bearing debt. The CIRM award may be converted into a loan or may require repayment of some or all of the amounts awarded.
Material changes versus the prior comparable period
- Second-quarter revenue was broadly unchanged, while six-month revenue declined by approximately 20% because of lower grant income and timing of grant-related activities.
- R&D expense declined approximately 51% in the quarter and 43% year to date, primarily because of the timing of CAP-1002 clinical development activities and reduced spending on CAP-1002 and CAP-2003.
- G&A expense declined approximately 29% in the quarter and 30% year to date, reflecting lower stock-based compensation, reduced headcount, and lower investor relations, legal, and other general expenses.
- Net loss decreased from $4.12 million to $2.05 million for the quarter and from $7.80 million to $4.57 million for the six months.
- Cash increased from $4.26 million at December 31, 2018 to $5.89 million at June 30, 2019, primarily due to converting approximately $3.0 million of marketable securities to cash and receiving $1.98 million of net equity proceeds. The October 2017 ATM program expired in April 2019.
- The company completed a one-for-ten reverse stock split effective June 5, 2019, primarily to regain compliance with Nasdaq’s minimum bid-price requirement.
Guidance, outlook, risks, contingencies, and unusual items
- Management estimated that available cash would fund operations into the first quarter of 2020, depending substantially on decisions regarding the DMD program. The company stated that it did not have sufficient cash to support current operations for at least the next twelve months and disclosed substantial doubt about its ability to continue as a going concern.
- Management expects 2019 CAP-1002 clinical-development spending of approximately $4.0 million to $6.0 million and CAP-2003 preclinical and research spending of approximately $1.0 million to $2.0 million. These estimates depend on FDA discussions, funding, and clinical results.
- The company planned to resume per-protocol dosing in previously enrolled HOPE-2 patients after a safety review, but did not anticipate additional HOPE-2 enrollment. Future DMD development depends on FDA guidance and other factors.
- In July 2019, interim HOPE-2 results showed favorable preliminary results across several measures, but the filing cautioned that the analyses were based on small populations, p-values were nominal and unadjusted for multiple testing, and no definitive conclusions could yet be drawn.
- HOPE-2 dosing had previously been placed on voluntary hold after two serious immediate immune reactions. The company instituted steroid and antihistamine premedication; approximately 30 subsequent infusions produced one serious adverse event requiring overnight observation.
- In July 2019, the company established a new ATM program for up to $1.8 million. Through August 7, 2019, it sold 268,224 shares for gross proceeds of approximately $1.4 million, or about $1.3 million net of commissions and related expenses.
- The CIRM-funded project completed all milestones in June 2019, with final close-out documentation pending. Approximately $0.4 million remained available under government grants at June 30, 2019, and the NIH grant was closed during the second quarter.
- As of June 30, 2019, the company had approximately $5.6 million of uninsured deposits. It also maintained a $232,803 letter of credit as a corporate office lease security deposit.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether additional financing is available and sufficient to address the disclosed going-concern uncertainty, including the remaining capacity and proceeds from the July 2019 ATM program.
- Updated cash burn, operating runway, and the effect of CAP-1002 program decisions on expected 2019 and 2020 expenditures.
- Final HOPE-2 clinical results, safety findings, statistical significance, and the FDA’s position on whether the study could support registration.
- The ultimate treatment of the $3.38 million CIRM liability, including any conversion to debt, repayment obligation, revenue-sharing requirements, or other contingent payments.
- Whether the company can meet clinical, manufacturing, regulatory, intellectual-property, and funding milestones for CAP-1002 and CAP-2003.
- The dilution impact of equity financings, stock options, and other potentially issuable securities; 638,849 stock options were outstanding at June 30, 2019.