Capricor Therapeutics, Inc. — Q1 2017 Form 10-Q Summary
Business Context and Reporting Period
Capricor Therapeutics is a clinical-stage biotechnology company developing cardiovascular and other therapies. The company’s active programs are primarily CAP-1002, an allogeneic cardiosphere-derived cell therapy, and CAP-2003, a cardiosome-derived exosome product. The unaudited report covers the three months ended March 31, 2017, filed May 15, 2017.
- CAP-1002 was under evaluation in the Phase II ALLSTAR myocardial infarction trial and the Phase I/II HOPE-Duchenne trial.
- CAP-2003 remained in preclinical development, with an IND targeted for 2018 subject to regulatory progress.
- The company has no product sales and recognizes collaboration and grant income instead.
- In February 2017, the company terminated its Cenderitide and CU-NP development program to focus resources on CAP-1002 and CAP-2003.
Financial Results and Key Metrics
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Total income | $0.9 million | $1.2 million | Down $0.3 million |
| Collaboration income | $0.7 million | $0.9 million | Down $0.2 million |
| Grant income | $0.2 million | $0.3 million | Down $0.1 million |
| Research and development expense | $3.3 million | $4.3 million | Down $1.0 million |
| General and administrative expense | $1.2 million | $1.1 million | Up $0.1 million |
| Operating loss | $3.6 million | $4.2 million | Improved $0.6 million |
| Net loss | $3.7 million | $4.3 million | Improved $0.6 million |
| Net loss per share | $0.17 | $0.26 | Improved |
| Net cash used in operating activities | $4.7 million | $4.2 million | Use increased $0.5 million |
Gross or EBITDA margins are not meaningful because the company has no product revenue and operates at a loss. Stock-based compensation was $0.5 million in Q1 2017, compared with $0.3 million in Q1 2016.
Liquidity, Capital Structure and Debt
- Cash and cash equivalents were $2.8 million at March 31, 2017, compared with $3.2 million at December 31, 2016.
- Marketable securities were $9.0 million, down from $13.0 million at year-end 2016. Restricted cash was $1.1 million.
- Total cash, cash equivalents and marketable securities were approximately $11.7 million; including restricted cash, cash and investments were approximately $12.9 million.
- Working capital was approximately $10.2 million, compared with $13.2 million at December 31, 2016.
- Total liabilities were $21.3 million, including a $13.9 million CIRM loan, $3.1 million CIRM liability, $1.0 million accrued interest, and $0.7 million of current deferred revenue.
- The CIRM loan and accrued interest are due in 2018 unless extended. The company expects total CIRM loan disbursements to be approximately 70% to 75% of the original commitment because of reduced ALLSTAR enrollment and unmet milestones.
- Stockholders’ deficit was $7.2 million at March 31, 2017, compared with $4.0 million at December 31, 2016.
- Operating, investing and financing cash flows were $(4.7) million, $4.0 million and zero, respectively. The net decrease in cash, cash equivalents and restricted cash was $0.7 million.
Material Changes Versus the Prior Comparable Period
- R&D expense declined primarily because of lower DYNAMIC and Cenderitide clinical costs, timing of CAP-1002 trial expenditures, and termination of the Cenderitide program. Spending on exosomes and stock-based compensation increased.
- G&A expense increased mainly because of higher stock-based compensation.
- Collaboration income declined as the company recognized a smaller ratable portion of the upfront Janssen payment. Deferred revenue related to Janssen declined to $0.7 million from $1.4 million at December 31, 2016.
- Interest expense increased to $0.1 million from $0.07 million due to accrued interest on the CIRM loan.
- The company entered into a $5.0 million at-the-market equity sales agreement on March 31, 2017; no shares had been sold under the program by the filing date.
- In May 2017, after quarter-end, the company issued 1,196,291 shares at $3.10 per share for approximately $3.7 million in gross proceeds.
Guidance, Outlook, Commentary and Risks
- Management expected 2017 CAP-1002 development and manufacturing expenditures of approximately $6.0 million to $10.0 million.
- Management expected 2017 CAP-2003 preclinical and related research spending of approximately $2.0 million to $4.0 million.
- Top-line 12-month HOPE-Duchenne results were expected in the fourth quarter of 2017. The company was planning another DMD CAP-1002 trial, subject to regulatory approval and available cash.
- Janssen’s decision on its exclusive option for CAP-1002 was expected in the third quarter of 2017 following delivery of six-month ALLSTAR results. If exercised, Janssen would generally assume future development costs for the licensed indications.
- The filing reported positive six-month interim HOPE-Duchenne results, including safety findings and certain exploratory efficacy signals, but these results were not definitive efficacy evidence.
- After quarter-end, the company reported that an interim ALLSTAR analysis indicated a low probability of achieving statistical significance on the 12-month primary infarct-size endpoint. No safety signals were reported, and some ventricular-volume measures showed favorable trends.
- The company expects continuing losses and negative operating cash flow and states that substantial additional financing will be required. Additional equity financing could dilute existing stockholders, while debt or licensing transactions could impose restrictive terms or require relinquishing rights.
- CIRM funding is subject to operational and financial milestones and may be suspended or discontinued. The HOPE-Duchenne award requires approximately $2.3 million of company co-funding and may ultimately be converted into a loan or require repayment.
- The CIRM loan includes repayment obligations, interest, and a potential risk premium of up to 500% of the loan amount upon specified revenue thresholds.
- There were no material legal proceedings, no off-balance-sheet arrangements, and no material changes to previously disclosed risk factors.
Most Important Facts for Investors to Verify
- Whether the May 2017 financing and the $5.0 million ATM program provide sufficient liquidity relative to projected 2017 cash needs.
- The final ALLSTAR clinical results and the effect of the interim futility finding on CAP-1002’s development strategy.
- HOPE-Duchenne 12-month results, regulatory feedback, and any decision to commence an additional DMD trial.
- Janssen’s decision regarding its CAP-1002 exclusive license option and any resulting milestone or development funding.
- The amount and timing of remaining CIRM loan disbursements, the 2018 repayment requirement, and potential forgiveness or risk-premium obligations.
- The company’s ability to fund operations without substantial dilution or unfavorable licensing, debt or strategic transactions.