Capricor Therapeutics, Inc. — 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 principal active programs are CAP-1002, being evaluated in the HOPE-2 DMD trial, and CAP-2003, in preclinical development. The filing covers the three and nine months ended September 30, 2019; interim financial statements are unaudited.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Revenue | $0.14 million | $0.22 million | $0.78 million | $1.02 million |
| Operating expenses | $1.77 million | $4.39 million | $7.03 million | $13.04 million |
| Operating loss | $(1.63) million | $(4.17) million | $(6.25) million | $(12.02) million |
| Net loss | $(1.61) million | $(4.14) million | $(6.17) million | $(11.93) million |
| Basic and diluted loss per share | $(0.43) | $(1.35) | $(1.76) | $(4.13) |
| Operating cash flow | Not separately provided | Not separately provided | $(5.04) million | $(10.09) million |
Revenue consisted primarily of government grant income and payments for providing investigational cell doses to CSMC-sponsored trials. The company has no commercial product sales. Approximate operating margins were negative 1,146% for Q3 2019 and negative 799% for the first nine months of 2019; these margins are not economically meaningful because revenue is minimal and primarily noncommercial.
- Cash and cash equivalents were $6.83 million at September 30, 2019, compared with $4.26 million at December 31, 2018. Including restricted cash, total cash was $7.06 million.
- Working capital was approximately $6.33 million, versus $7.22 million at year-end 2018.
- Marketable securities declined from $3.00 million at year-end to zero, primarily reflecting conversion into cash.
- Total liabilities were $4.34 million, including a $3.38 million long-term CIRM liability. The filing does not identify conventional interest-bearing debt as a material liability.
- Net cash provided by financing activities was $4.57 million, primarily from common-stock sales. The company had 4,174,856 shares outstanding at September 30 and 4,246,225 shares outstanding as of November 8, 2019.
Material changes versus the prior comparable period
- Q3 revenue decreased approximately 35% year over year, while nine-month revenue decreased approximately 23%, primarily because fewer grant programs were active and grant activity timing changed.
- Q3 operating expenses fell approximately 60% and nine-month operating expenses fell approximately 46%. R&D expense declined mainly because of the timing of CAP-1002 clinical activities and lower CAP-1002/CAP-2003 spending; G&A declined because of lower stock-based compensation, reduced headcount, and lower investor-relations and legal expenses.
- Net loss improved by approximately $2.5 million in Q3 and $5.8 million for the first nine months, but the company remains loss-making and cash-flow negative.
- The company implemented expense reductions in the first quarter, including slower R&D activity, headcount reductions, and budget restrictions.
- On June 4, 2019, the company completed a one-for-ten reverse stock split intended principally to regain compliance with Nasdaq’s minimum bid-price requirement.
- Capricor completed all CIRM Award milestones and final close-out documentation during 2019. The $3.4 million CIRM balance remains recorded as a liability because repayment or conversion into a loan may be required.
Guidance, outlook, commentary, and risks
- Management expected 2019 CAP-1002 clinical-development spending of approximately $4.0 million to $5.0 million and CAP-2003 preclinical and research spending of approximately $1.0 million to $2.0 million. Actual spending depends on FDA discussions, financing, clinical results, and other factors.
- Management stated that available cash was expected to fund operations through at least the second quarter of 2020, largely depending on decisions regarding the DMD program. However, cash on hand was not sufficient to fund current operations for at least the next 12 months from the filing date; the filing therefore reports substantial doubt about the company’s ability to continue as a going concern.
- The company expects to require substantial additional capital through equity or debt financing, government grants, licensing, asset sales, or strategic collaborations. Additional equity could materially dilute shareholders, while debt or licensing transactions could impose restrictive or unfavorable terms.
- CAP-1002 HOPE-2 enrolled 20 patients. The company reported positive interim top-line results across several measures, but stated that the interim and later data were not conclusive and that final data could differ materially.
- Following two serious immune reactions in prior HOPE trials, the company instituted steroid and antihistamine premedication. Approximately 40 subsequent infusions were administered with one serious adverse event requiring overnight observation.
- The FDA was not supportive of an accelerated-approval pathway at the time of the reported meeting, although it supported continued development and a potential Phase III trial of up to 70 patients. Final meeting minutes were still pending, and the company anticipated presenting final 12-month HOPE-2 data in the second quarter of 2020.
- Nasdaq notified the company in August 2019 that stockholders’ equity had fallen below the $2.5 million requirement under Listing Rule 5550(b)(1). Equity was above the threshold in this filing, but Nasdaq had not yet confirmed that compliance was regained or likely to be maintained. Delisting remained a risk.
- Additional sales under the August 2019 ATM program through November 8, 2019 generated approximately $1.1 million of gross proceeds; an additional 71,369 shares generated approximately $0.2 million after September 30.
- Other risks include clinical-trial failure or delay, regulatory nonapproval, manufacturing limitations, intellectual-property challenges, dependence on third parties, future dilution, and potential loss or conversion of licensed technology or CIRM-funded obligations.
Most important facts for an investor to verify
- Whether the company obtained sufficient financing to address the disclosed going-concern uncertainty and extend its cash runway beyond the second quarter of 2020.
- Whether Nasdaq confirmed compliance with Listing Rule 5550(b)(1) and whether compliance has been maintained.
- Final HOPE-2 12-month efficacy and safety results, including whether interim findings translate into clinically meaningful and statistically persuasive outcomes.
- The FDA’s final guidance on the CAP-1002 development path, including the requirements, timing, cost, and feasibility of a Phase III trial.
- Whether the CIRM liability will be repaid or converted into a loan, and the related interest, repayment, and revenue-sharing consequences.
- The pace and pricing of ATM equity sales, resulting dilution, and the company’s remaining authorized financing capacity.
- Progress and remaining funding under the Department of Defense grant for CAP-2003, and the timing of any potential IND submission.