Capricor Therapeutics, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited quarterly report for the three and nine months ended September 30, 2017, filed November 13, 2017. Capricor is a clinical-stage biotechnology company developing cell-based and exosome-based therapies. Active development focused on CAP-1002 and CAP-2003; the company had no product sales.
Financial condition and results
| Metric | Three months ended Sept. 30 | Nine months ended Sept. 30 |
|---|---|---|
| Total income | $0.3 million in 2017 vs. $0.7 million in 2016 | $2.2 million vs. $3.1 million |
| Net loss | $2.7 million, or $0.12 per share, vs. $5.3 million, or $0.29 per share | $9.9 million, or $0.44 per share, vs. $14.3 million, or $0.81 per share |
| Research and development expense | $1.9 million vs. $4.7 million | $8.2 million vs. $13.4 million |
| General and administrative expense | $1.1 million vs. $1.3 million | $3.5 million vs. $3.8 million |
| Cash used in operating activities | Not separately provided | $11.6 million vs. $11.0 million |
Income consisted primarily of collaboration income, grants and other income. Janssen collaboration income was $1.4 million for the first nine months of 2017 and had been fully recognized by June 30, 2017. Grant income was $0.8 million, and other income was $52,500 for the nine-month period.
At September 30, 2017, cash and cash equivalents were $8.9 million, marketable securities were $5.0 million, and restricted cash was $0.6 million. Cash, cash equivalents and marketable securities totaled approximately $13.9 million, compared with approximately $16.2 million at December 31, 2016. Working capital was negative $1.5 million, versus positive $13.2 million at year-end, primarily because the CIRM loan and accrued interest were classified as current liabilities.
Total liabilities were $20.1 million, including $14.2 million of current CIRM loan principal and $1.2 million of accrued current interest. Stockholders’ deficit was $4.3 million. The company had approximately $14.1 million of uninsured deposits.
Investing activities provided $8.0 million, primarily from sales and maturities of marketable securities. Financing activities provided $8.6 million, including $8.3 million of net equity proceeds and $0.25 million of CIRM loan proceeds. Cash, cash equivalents and restricted cash increased by $5.0 million to $9.5 million during the first nine months.
Material changes versus the prior comparable period
- Net loss declined by $4.4 million for the first nine months, primarily because R&D expense decreased by $5.2 million as major CAP-1002 clinical activities progressed or wound down.
- Collaboration income declined by $1.1 million for the first nine months and ceased after the Janssen agreement terminated following Janssen’s June 30, 2017 decision not to exercise its exclusive license option.
- The company raised approximately $3.7 million in a May 2017 private placement and approximately $4.8 million through its March 2017 at-the-market program, issuing 3.7 million shares during the first nine months.
- R&D spending decreased because of reduced activity in ALLSTAR, HOPE-Duchenne, DYNAMIC and the discontinued Cenderitide program.
- In February 2017, the company terminated its Mayo license and discontinued Cenderitide and CU-NP development to concentrate on CAP-1002 and CAP-2003.
- In May 2017, an interim analysis found a low probability of ALLSTAR achieving its primary efficacy endpoint. Remaining patients were transitioned to long-term follow-up and further MRI analyses were abandoned.
Guidance, outlook, risks and unusual items
- Management expected to spend approximately $6.0 million to $10.0 million during 2017 on CAP-1002 development and manufacturing, and $2.0 million to $4.0 million on CAP-2003 preclinical and related research.
- The company planned to initiate another CAP-1002 DMD trial in the first quarter of 2018, subject to regulatory approval and available cash. It submitted an IND for the planned trial in October 2017.
- Management planned to commence CAP-2003 clinical development in 2018 and hoped to submit an IND for HLHS in 2018.
- The HOPE-Duchenne trial completed its second CIRM milestone in September 2017; management expected to report 12-month results in November 2017. The CIRM award provided approximately $3.4 million but requires company co-funding and may be converted into a loan or require repayment.
- The CIRM ALLSTAR loan had a principal balance of $14.2 million and accrued interest of $1.2 million, generally due in 2018 unless extended or forgiven. The loan also includes a potential risk premium of up to 500% of the loan amount upon specified revenue thresholds.
- The company stated that it will require substantial additional financing because it has no product revenue and expects continued operating losses. Additional equity financing could materially dilute existing holders; debt or strategic transactions may impose restrictive terms or require technology rights to be relinquished.
- On October 19, 2017, the company established a new $14.0 million ATM program. By November 10, 2017, it had sold 484,190 shares for approximately $1.2 million of gross proceeds.
- Nasdaq notified the company in June 2017 that it failed minimum market-value and bid-price requirements. The company regained compliance with both requirements on October 4, 2017.
- Janssen’s decision returned full CAP-1002 rights to Capricor but eliminated a potential strategic collaborator and related revenue opportunity.
Most important facts for investors to verify
- Available liquidity after the October 2017 ATM sales and the expected cash burn from planned CAP-1002 and CAP-2003 programs.
- Terms, maturity, potential forgiveness and any risk premium associated with the $14.2 million CIRM loan.
- HOPE-Duchenne 12-month results and the status of the planned DMD CAP-1002 trial and IND.
- Whether the company can secure additional financing without substantial dilution or unfavorable strategic terms.
- Regulatory and manufacturing readiness for CAP-1002, including the proposed open-label extension and contract manufacturing activities.
- Future Nasdaq compliance and the effect of continued share issuance on ownership and per-share value.