Capricor Therapeutics, Inc. — Q2 2016 Form 10-Q Summary
Business context and reporting period
Capricor is a clinical-stage biotechnology company developing regenerative-medicine and cardiovascular therapies. Its principal programs include CAP-1002, CAP-2003 exosomes, Cenderitide and CU-NP. The filing covers the three and six months ended June 30, 2016; financial statements are unaudited and prepared under U.S. GAAP. The company had six drug candidates in various development stages and no product sales.
Financial condition and key metrics
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total income | $1.13 million | $1.29 million | $2.34 million | $3.08 million |
| Research and development expense | $4.31 million | $3.43 million | $8.65 million | $7.23 million |
| General and administrative expense | $1.43 million | $0.93 million | $2.52 million | $2.32 million |
| Net loss | $4.69 million | $3.12 million | $8.96 million | $6.60 million |
| Loss per share | $0.26 | $0.19 | $0.52 | $0.42 |
| Operating cash flow | Not separately provided | Not separately provided | $(9.06) million | $(3.93) million |
Revenue consisted primarily of ratable collaboration income from Janssen and government grant income. Collaboration income was $0.91 million in Q2 and $1.82 million for the first half; grant income was $0.22 million in Q2 and $0.52 million for the first half.
At June 30, 2016, cash and cash equivalents were $8.85 million, marketable securities were $2.50 million and total cash, cash equivalents and marketable securities were approximately $11.4 million. Working capital was approximately $5.6 million, compared with $7.5 million at December 31, 2015. Total liabilities were $19.0 million, including $12.16 million of CIRM loan principal, $0.65 million of accrued interest and $2.73 million of current deferred Janssen revenue. Stockholders’ deficit was $5.12 million.
Investing activities provided $5.42 million in the first half of 2016, primarily reflecting $8.0 million of marketable-security sales and maturities. Financing activities provided $6.93 million, including $3.93 million of net equity proceeds and $3.0 million of CIRM loan proceeds. Approximately $11.5 million of deposits were uninsured at June 30, 2016.
Material changes versus the prior comparable period
- Q2 net loss increased approximately 50% to $4.69 million; first-half net loss increased approximately 36% to $8.96 million.
- First-half R&D expense increased approximately $1.42 million, driven primarily by CAP-1002 clinical development, manufacturing, contract research and patient-related costs, partially offset by lower DYNAMIC and Cenderitide costs.
- Q2 G&A expense increased approximately $0.51 million, primarily from higher stock-based compensation, investor-relations and corporate expenses, headcount and salaries.
- First-half grant income declined approximately $0.60 million because DYNAMIC trial activity had moved from enrollment in 2015 to later-stage follow-up in 2016. First-half collaboration income declined approximately $0.13 million.
- The company issued 1,692,151 common shares in March 2016 at $2.40 per share, generating approximately $3.93 million of net proceeds, and issued warrants for up to 846,073 shares at a $4.50 exercise price.
- CIRM loan principal increased from $9.16 million at December 31, 2015 to $12.16 million at June 30, 2016. Management expects total CIRM loan disbursements to be approximately 70% to 75% of the original commitment because of reduced ALLSTAR enrollment.
- Shares outstanding increased to 17,952,323 at June 30, 2016 from 16,254,985 at year-end 2015; options and warrants created substantial potential dilution.
Guidance, outlook, commentary and risks
- Management expected 2016 CAP-1002 development and manufacturing spending of approximately $10 million to $13 million, Cenderitide spending of approximately $0.5 million to $1.0 million and exosome preclinical spending of approximately $2 million to $3 million.
- ALLSTAR enrollment was reduced from an original target of up to 300 patients to approximately 120 patients. Janssen was expected to decide on its exclusive CAP-1002 license option in the first half of 2017 after receipt of six-month ALLSTAR follow-up results.
- Management expected to complete HOPE-Duchenne enrollment in the third quarter of 2016 and report top-line six-month results in the first quarter of 2017. CAP-1002 had FDA orphan-drug designation for Duchenne muscular dystrophy-associated cardiomyopathy.
- The company expected to file an IND for CAP-2003 in the first half of 2017 and initiate clinical development in 2017.
- Capricor stated that operating losses and negative operating cash flow are expected to continue and increase. It expects to seek additional equity, debt, grant, licensing or collaboration financing and warned that financing may be unavailable or unfavorable, potentially requiring expense reductions or curtailed operations.
- The approximately $3.4 million CIRM HOPE-Duchenne award requires approximately $2.3 million of company co-funding and is subject to operational milestones. CIRM may suspend or cease disbursements; the award may ultimately be treated as a loan and may involve revenue-sharing obligations.
- The CIRM ALLSTAR loan is subject to clinical, financial and other milestones, repayment obligations, interest and a potential risk premium of up to 500% of the loan amount upon specified revenue thresholds. The outstanding balance and accrued interest were due in 2018 unless extended.
- Subsequent to quarter-end, Capricor received a $2.0 million CIRM grant disbursement in July 2016 and a $1.75 million CIRM loan disbursement in August 2016.
- Key operating risks include clinical-trial failure or delay, regulatory uncertainty, manufacturing and intellectual-property risks, reliance on third-party collaborators, dependence on financing and potential dilution. No material legal proceedings or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Cash runway relative to the company’s $9.06 million first-half operating cash burn and planned 2016 development expenditures.
- Terms, milestone status and potential repayment or forgiveness of the CIRM loans and HOPE-Duchenne award.
- ALLSTAR enrollment progress, trial results and Janssen’s 2017 license-option decision.
- HOPE-Duchenne enrollment, CIRM co-funding compliance and timing of reported results.
- Future financing needs, equity dilution and the impact of 6.65 million outstanding options and 1.08 million outstanding warrants at June 30, 2016.
- The company’s ability to generate non-grant and non-collaboration revenue, since it had no product sales and stated that product revenue may not arise for several years, if ever.