Capricor Therapeutics, Inc. — Form 10-Q Summary
Business context and reporting period
Capricor is a clinical-stage biotechnology company developing cell-based and exosome-based therapies. Its active programs are CAP-1002, an allogeneic cardiosphere-derived cell therapy, and CAP-2003, a cardiosome-derived exosome product. The filing covers the quarter and six months ended June 30, 2017; financial statements are unaudited.
The company has no product sales and remains dependent on equity financings, government grants, CIRM funding and collaboration proceeds. As of August 10, 2017, 23,496,249 common shares were outstanding.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total income | $1.0 million in 2017; $1.1 million in 2016 | $1.9 million in 2017; $2.3 million in 2016 |
| Collaboration income | $0.7 million; $0.9 million | $1.4 million; $1.8 million |
| Grant income | $0.3 million; $0.2 million | $0.5 million; $0.5 million |
| Research and development expense | $3.1 million; $4.3 million | $6.4 million; $8.6 million |
| General and administrative expense | $1.2 million; $1.4 million | $2.4 million; $2.5 million |
| Net loss | $3.5 million; $4.7 million | $7.1 million; $9.0 million |
| Loss per share | $0.16; $0.26 | $0.33; $0.52 |
Six-month operating cash use was $8.4 million, compared with $9.1 million in the prior-year period. Investing activities provided $9.0 million, primarily from sales and maturities of marketable securities, while financing activities provided $3.9 million, including approximately $3.7 million of net proceeds from the May 2017 private placement and $250,000 of CIRM loan proceeds. Net cash, cash equivalents and restricted cash increased by $4.5 million.
At June 30, 2017, the company had $8.3 million of cash and cash equivalents, $4.0 million of marketable securities and $0.8 million of restricted cash. Total cash, cash equivalents and marketable securities were approximately $12.3 million. Working capital was a deficit of approximately $3.0 million, compared with positive working capital of $13.2 million at December 31, 2016.
Total liabilities were $20.8 million and stockholders’ equity was a deficit of $6.6 million. The CIRM loan principal was $14.2 million, classified as current, with accrued interest of $1.1 million; principal and accrued interest are due in 2018 unless extended or forgiven. Interest expense was $0.2 million for the first six months, versus $0.1 million in 2016.
Material changes versus the prior comparable period
- Six-month net loss declined by approximately $1.8 million, primarily because R&D spending decreased by approximately $2.3 million.
- R&D reductions reflected the timing of CAP-1002 clinical activities, reduced DYNAMIC activity and termination of the Cenderitide program, partly offset by increased CAP-2003 spending.
- Collaboration income declined because the Janssen upfront payment was being recognized over time and was fully recognized by June 30, 2017.
- Janssen notified Capricor on June 30, 2017 that it would not exercise its exclusive option for CAP-1002 and related products in cardiology. Capricor retained full rights to CAP-1002.
- The company issued 1,196,291 common shares in a May private placement for approximately $3.7 million gross proceeds.
- The CIRM loan was reclassified from long-term to current, materially reducing reported working capital. Management expects ultimate CIRM loan disbursements to be approximately 70% to 75% of the originally available amount.
- The company terminated its natriuretic peptide development program, including Cenderitide and CU-NP, to focus resources on CAP-1002 and CAP-2003.
Guidance, outlook, commentary and risks
- Management expected 2017 CAP-1002 development and manufacturing spending of approximately $6.0 million to $10.0 million, including the HOPE-Duchenne trial and a planned additional DMD study.
- Management expected 2017 CAP-2003 preclinical and research spending of approximately $2.0 million to $4.0 million and hoped to submit an IND for HLHS development in 2018.
- The ALLSTAR interim analysis indicated a low probability of achieving a statistically significant improvement in its 12-month primary infarct-size endpoint. Remaining subjects were transitioned to long-term follow-up and further MRI analyses were discontinued.
- Six-month HOPE-Duchenne interim results were described as generally safe and well tolerated, with certain exploratory cardiac and upper-limb findings favoring CAP-1002. Twelve-month top-line results were expected in the fourth quarter of 2017.
- Subject to regulatory approval and available cash, management planned another randomized, placebo-controlled DMD study beginning in the fourth quarter of 2017 using repeated intravenous dosing.
- In June 2017, the FDA indicated that the PUL test could potentially serve as the primary efficacy endpoint for future DMD studies supporting a BLA and that the existing nonclinical database could support an IND for repeat intravenous administration. These comments were not an approval or assurance of regulatory success.
- The company implemented budget reductions near the end of the second quarter and stated that substantial additional financing would be required. Additional equity financing could dilute existing holders; debt or licensing transactions could impose restrictive terms or require relinquishing technology rights.
- Nasdaq notified the company that its market value of listed securities was below the $35 million continued-listing requirement, giving it until December 26, 2017 to regain compliance. The company subsequently regained compliance with the minimum bid-price requirement, but delisting risk remained for the market-value deficiency.
- The CIRM HOPE award is subject to milestones, co-funding requirements and potential repayment or conversion to a loan. The CIRM ALLSTAR loan includes interest, milestone requirements and a potential risk premium of up to 500% of the loan amount upon specified revenue thresholds.
- Subsequent to quarter-end, the company sold 900,939 shares under its ATM program for approximately $1.3 million gross proceeds. CIRM also approved use of remaining HOPE award funds for technology-transfer activities supporting CAP-1002 manufacturing and a potential open-label extension, subject to regulatory approval.
Important facts for investors to verify
- Whether the company can raise sufficient capital to fund operations, the planned DMD study and CAP-2003 development before cash resources are exhausted.
- The timing and interpretation of the HOPE-Duchenne 12-month results and any subsequent FDA or regulatory actions.
- The implications of the failed-futility outcome in ALLSTAR for CAP-1002’s cardiac indication and future development strategy.
- The amount, repayment timing, forgiveness prospects and potential risk premium associated with the CIRM loan.
- Compliance with Nasdaq’s market-value requirement and any effects of further equity issuance on dilution and liquidity.
- Whether CIRM funding, NIH and DoD grants, and the planned manufacturing arrangements remain available subject to milestones and regulatory approvals.