Capricor Therapeutics, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filed March 26, 2020. The company is a clinical-stage biotechnology issuer focused on CAP-1002, an allogeneic cardiosphere-derived cell therapy for Duchenne muscular dystrophy (DMD), and preclinical exosome technologies. Capricor has no commercially approved products or commercial product sales.
Business Context and Development Status
- CAP-1002 was being evaluated in the Phase II HOPE-2 trial for boys and young men with advanced DMD. Twenty patients were randomized, and six-month interim data showed improvements on several skeletal, pulmonary, and cardiac measures versus placebo.
- FDA discussions in October 2019 indicated that HOPE-2 was exploratory and did not provide substantial evidence of effectiveness to support a biologics license application. The FDA supported a Phase III program and subsequently indicated that full PUL 2.0 from baseline to 12 months could be a primary endpoint if clinical meaningfulness is demonstrated.
- Final 12-month HOPE-2 data were expected in the second quarter of 2020. Management planned to seek further FDA guidance and evaluate a potential Phase III trial and strategic partnership.
- Exosome programs, including CAP-2003 and engineered exosomes, remained preclinical. The company planned an IND filing for an exosome DMD program and had begun early work on an exosome-based COVID-19 vaccine platform.
Financial Performance and Liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $1.005 million | $1.671 million |
| Research and development expense | $5.142 million | $12.067 million |
| General and administrative expense | $3.597 million | $4.932 million |
| Loss from operations | $(7.734) million | $(15.327) million |
| Net loss | $(7.642) million | $(15.191) million |
| Net loss per share | $(2.06) | $(5.17) |
| Cash used in operating activities | $(6.822) million | $(13.862) million |
| Cash provided by financing activities | $9.178 million | $6.853 million |
| Cash, cash equivalents and marketable securities | $9.885 million | $7.256 million |
| Working capital | $9.647 million | $7.216 million |
| Total liabilities | $4.274 million | $4.631 million |
| Stockholders’ equity | $6.839 million | $4.616 million |
- 2019 revenue consisted primarily of approximately $0.5 million of grant income and approximately $0.5 million of income from supplying cells for CSMC-sponsored clinical trials.
- The company remained dependent on equity financings, grants, and other funding sources. It reported no commercial product revenue and expected to incur losses for the foreseeable future.
- December 2019 financing generated approximately $5.1 million of gross proceeds and approximately $4.4 million of net proceeds through common stock, pre-funded warrants, and common warrants. Additional 2019 ATM programs generated approximately $2.9 million of gross proceeds.
- The balance sheet included a $3.376 million CIRM liability. Management had not decided whether to convert the CIRM award into a loan, which could require repayment of some or all of the awarded amounts.
- Based on then-current estimates and subsequent warrant exercises, management stated that available resources were expected to fund operations through at least the end of 2021, although funding needs were highly dependent on the DMD program and additional capital could be required.
Material Changes Versus 2018
- Revenue declined by approximately $0.7 million, primarily because of lower grant activity and reduced enrollment-related income from CSMC trials.
- R&D expense declined by approximately $7.0 million as HOPE-Duchenne, HOPE-2, and HOPE-OLE activities wound down or progressed through later stages.
- G&A expense declined by approximately $1.3 million due to lower stock-based compensation, reduced headcount, lower investor-relations expense, and lower corporate costs.
- Net loss improved by approximately $7.5 million, and operating cash usage decreased by approximately $7.0 million.
- Cash and marketable securities increased by approximately $2.6 million, primarily due to approximately $9.2 million of net financing proceeds, partially offset by operating losses and investment activity.
- The company reduced its workforce by 21 employees in early 2019 to conserve cash and effected a one-for-ten reverse stock split in June 2019 to regain compliance with Nasdaq’s minimum bid-price requirement.
Guidance, Outlook, Risks and Unusual Items
- Management expected to spend approximately $2.0 million to $4.0 million in 2020 on CAP-1002 clinical development and approximately $2.0 million to $3.0 million on exosome preclinical and research activities. These estimates were contingent on trial results, FDA discussions, funding, and partnering.
- Two serious immediate immune reactions in prior HOPE trials led to a voluntary dosing hold in December 2018. After introduction of steroid and antihistamine pretreatment, approximately 40 HOPE-2 infusions were administered with one serious adverse event requiring overnight observation.
- The FDA placed the investigator-sponsored REGRESS trial on clinical hold. The company stated that the issue might involve inadequate patient monitoring following intracoronary infusion, but it was not clear whether the hold related to CAP-1002 or the procedure.
- Capricor’s manufacturing facility was suitable for investigational-stage production but was not a cGMP-approved facility for commercial manufacturing. A Phase III program or commercialization could require a contract manufacturer or significant facility investment.
- CSMC notified the company in the first quarter of 2020 that it was in default of the exosome license milestone requiring an IND filing. Unless cured by April 19, 2020, the license could be converted to non-exclusive or co-exclusive status or terminated.
- Subsequent to year-end, a March 2020 warrant inducement was expected to generate approximately $4.9 million of gross proceeds, before placement-agent fees and expenses, from exercise of 4.0 million existing warrants. The company issued 4.0 million new warrants with a $1.27 exercise price.
- COVID-19 created potential risks to trial enrollment, facility operations, supply chains, vendor performance, grant disbursements, and collections. The ultimate financial impact was not determinable when the filing was prepared.
- Key risks include the need for substantial additional capital, continued operating losses, clinical and regulatory failure, adverse immune reactions, manufacturing scale-up, dependence on third-party collaborators and licensors, intellectual-property challenges, dilution from equity and warrant issuance, and potential Nasdaq listing deficiencies.
Investor Verification Checklist
- Verify final HOPE-2 12-month results, FDA feedback, and whether a Phase III trial or BLA strategy was pursued.
- Verify whether Capricor filed the required exosome IND by April 19, 2020 and retained its exclusive CSMC exosome license.
- Reconcile post-year-end warrant exercises, new warrant issuance, shares outstanding, and resulting dilution.
- Assess current liquidity and operating runway against the cost of any Phase III trial and commercial-scale manufacturing requirements.
- Review the status and implications of the FDA clinical hold on the REGRESS trial and any additional CAP-1002 safety findings.
- Confirm the treatment and repayment terms of the $3.376 million CIRM liability.
- Evaluate the effects of COVID-19-related delays and whether Nasdaq listing compliance was maintained.