Capricor Therapeutics, Inc. — FY2017 Form 10-K Summary
Business context and reporting period
Capricor Therapeutics is a clinical-stage biotechnology company developing biological therapies, primarily for Duchenne muscular dystrophy (DMD) and cardiac or inflammatory conditions. The filing covers the fiscal year ended December 31, 2017, with comparisons to fiscal 2016. Its lead candidate is CAP-1002, an allogeneic cardiosphere-derived cell therapy; CAP-2003, a CDC-derived exosome product, remains in preclinical development.
The company has no commercial products or commercial product sales. Its operations are funded primarily by equity offerings, government grants, collaboration proceeds and CIRM funding.
Financial performance and liquidity
| Metric | FY2017 | FY2016 | Change or comment |
|---|---|---|---|
| Total income | $2.7 million | $4.0 million | Down from lower collaboration income |
| Research and development expense | $10.8 million | $16.0 million | Down $5.2 million, primarily due to reduced clinical activity |
| General and administrative expense | $4.8 million | $4.9 million | Broadly stable |
| Loss from operations | $12.9 million | $17.0 million | Improved principally from lower R&D spending |
| Net income (loss) | $2.4 million | $(18.8) million | FY2017 benefited from non-cash CIRM loan forgiveness |
| Basic EPS | $0.10 | $(1.01) | Not indicative of recurring operating profitability |
| Cash used in operating activities | $14.2 million | $14.5 million | Continued substantial operating cash burn |
| Cash, cash equivalents and marketable securities | $14.1 million | $16.2 million | Excludes restricted cash |
| Working capital | $14.0 million | $13.2 million | Improved modestly |
| Total liabilities | $5.0 million | $22.8 million | Reduced largely by CIRM loan forgiveness |
| Stockholders’ equity (deficit) | $11.2 million | $(4.0) million | Improved largely from loan forgiveness and equity issuance |
Cash and cash equivalents were $6.1 million at year-end 2017, marketable securities were $8.0 million and restricted cash was $0.7 million. The company reported approximately $14.9 million of cash resources including marketable securities and restricted cash. The filing states that current cash and investments could support operations through at least the first quarter of 2019 if management implements operational adjustments, including slowing R&D, reducing headcount and imposing additional budget restrictions.
There was no meaningful recurring product revenue or operating margin. The $15.7 million forgiveness of the CIRM loan, consisting of $14.4 million of principal and $1.2 million of accrued interest, was recorded as other income and drove the reported net income.
Material changes versus the prior comparable period
- R&D expense declined from $16.0 million to $10.8 million as ALLSTAR, HOPE-Duchenne and DYNAMIC activities decreased or concluded.
- Collaboration income declined from $3.2 million to $1.4 million. Janssen declined to exercise its exclusive option on June 30, 2017, and all Janssen-related revenue was recognized by that date; Capricor retained full rights to CAP-1002.
- Grant income increased from $0.8 million to $1.1 million, while $0.2 million of other income was recognized for supplying CAP-1002 doses to CSMC-sponsored trials.
- The company terminated its Cenderitide and CU-NP natriuretic peptide program in February 2017 to focus resources on CAP-1002 and CAP-2003.
- The ALLSTAR trial was discontinued after an interim analysis found a low probability of achieving a statistically significant improvement in its primary infarct-size endpoint. Patients were transitioned to long-term follow-up.
- The CIRM loan balance was forgiven in December 2017 after the company abandoned the CIRM-funded ALLSTAR project, materially improving reported liabilities and equity.
- The company raised approximately $11.1 million net from common-stock issuances in 2017, including the March ATM program, a May private placement and the October ATM program.
- At December 31, 2017, 26.3 million common shares were outstanding, with 6.9 million stock options and 1.1 million warrants outstanding, creating potential dilution.
Pipeline, guidance and management outlook
- HOPE-Duchenne Phase I/II was completed. In an exploratory analysis, 8 of 9 lower-functioning CAP-1002 patients had sustained or improved motor function at 12 months versus 0 of 9 usual-care patients; the company cautions that the results were based on a small study and included post-hoc analyses.
- CAP-1002 received FDA Orphan Drug and Rare Pediatric Disease designations for DMD. The FDA granted RMAT designation in February 2018, after the reporting period.
- HOPE-2 was in start-up, with enrollment planned for the second quarter of 2018. The planned randomized, double-blind trial was expected to enroll approximately 84 DMD patients at 10–15 U.S. sites, with 12-month results anticipated in the first half of 2020, subject to enrollment and other factors.
- Management estimated 2018 CAP-1002 clinical-development and manufacturing spending of approximately $8 million to $12 million.
- Management estimated 2018 CAP-2003 preclinical and related research spending of approximately $2 million to $4 million, partly offset by NIH and Department of Defense grants.
- In November 2017, Capricor entered into a Master Services Agreement with WuXi for CAP-1002 development, manufacturing and testing, including technology transfer toward potential later-stage or commercial manufacturing.
- The company’s CSMC manufacturing facility was not approved as a cGMP facility for commercial production. The facility lease was extended through July 31, 2018, with an option through July 31, 2019.
- Capricor expects continued operating losses and negative operating cash flow and will require substantial additional capital. Potential funding sources include equity or debt financing, grants, licensing and strategic collaborations.
Key risks, contingencies and unusual items
- CAP-1002 and CAP-2003 remain unapproved; clinical, regulatory and commercial success is uncertain, and early-stage or small-trial results may not predict later outcomes.
- The company has no commercial revenue and may never achieve profitability. Additional equity financing could materially dilute existing stockholders.
- Clinical-trial enrollment, adverse events, efficacy failures, regulatory holds, manufacturing failures and changing FDA requirements could delay or terminate development.
- Manufacturing depends on a leased CSMC facility, donor hearts from organ procurement organizations and third-party manufacturing capabilities. Commercial-scale or Phase III production will require additional cGMP capacity.
- Capricor relies on exclusive licenses from the University of Rome, Johns Hopkins University and Cedars-Sinai Medical Center. Failure to meet payment, diligence, spending or development obligations could jeopardize these rights.
- The CIRM HOPE grant was recorded as a liability because the company may be required to repay some or all of the award or elect to convert it into a loan. The CIRM liability was approximately $3.4 million at year-end.
- Government grants remain subject to milestone achievement, reporting, co-funding and other compliance requirements. The CIRM award may require revenue sharing, including a potential royalty on future net commercial revenue.
- At year-end, approximately $14.5 million of deposits were uninsured. The company also had concentrated ownership, with insiders and holders of at least 5% collectively owning more than 40% of outstanding shares.
- No material pending legal proceedings or off-balance-sheet arrangements were reported. Management stated that disclosure controls and internal control over financial reporting were effective, and the smaller-reporting-company exemption applied to the auditor’s internal-control attestation.
Most important facts for investors to verify
- Reconcile reported FY2017 net income with the $15.7 million non-cash CIRM loan forgiveness and assess recurring operating losses separately.
- Verify current cash, marketable securities, restricted cash, quarterly burn rate and the timing of additional financing needs.
- Track HOPE-2 initiation, enrollment, interim-futility analysis, safety data and the planned first-half-2020 results.
- Review whether CAP-1002 manufacturing has transferred successfully to WuXi and whether adequate cGMP capacity exists for later-stage trials.
- Assess the consequences of Janssen’s decision not to exercise its option, including Capricor’s ability to fund and commercialize CAP-1002 independently.
- Monitor CIRM grant obligations, potential repayment or conversion of the remaining CIRM liability and any associated revenue-sharing requirements.
- Evaluate dilution from the October ATM program, outstanding options and warrants, and subsequent equity sales reported through March 20, 2018.
- Distinguish exploratory, post-hoc HOPE-Duchenne findings from confirmatory evidence required for regulatory approval.