Capricor Therapeutics, Inc. — Form 10-K Summary
Business context and reporting period
Capricor is a clinical-stage biotechnology company focused primarily on regenerative medicine and cardiovascular therapies. The filing covers the fiscal year ended December 31, 2015, with comparative 2014 results. The company had six candidates in development, led by CAP-1002, an allogeneic cardiosphere-derived cell therapy.
- CAP-1002: ALLSTAR Phase II enrolling; DYNAMIC enrollment completed; HOPE-Duchenne Phase I/II enrolling.
- Cenderitide: Phase II study completed in 2015; an additional study was initiated in 2016.
- Exosomes, CU-NP and cardiospheres: preclinical or not currently planned for clinical development.
- No product candidate had received regulatory approval, and the company had no product sales.
Financial performance and key metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total income | $5.5 million | $4.8 million | +$0.7 million |
| Collaboration income | $3.8 million | $4.2 million | -$0.4 million |
| Grant income | $1.7 million | $0.6 million | +$1.1 million |
| Research and development expense | $13.8 million | $7.8 million | +$6.0 million |
| General and administrative expense | $4.4 million | $3.0 million | +$1.4 million |
| Loss from operations | $(12.6) million | $(6.0) million | Loss increased |
| Net loss | $(12.9) million | $(6.2) million | Loss increased |
| Basic and diluted loss per share | $(0.81) | $(0.53) | Loss per share increased |
Approximate operating and net margins were negative 229% and negative 233%, respectively, based on reported total income. These margins are not commercially meaningful because reported income primarily consisted of grant income and the ratable recognition of the $12.5 million Janssen upfront payment, rather than product revenue.
| Liquidity and capital structure | December 31, 2015 | December 31, 2014 |
|---|---|---|
| Cash and cash equivalents | $5.6 million | $8.0 million |
| Marketable securities | $8.0 million | None |
| Cash, cash equivalents and marketable securities | $13.6 million | $8.0 million |
| Working capital | $7.5 million | $5.3 million |
| Total liabilities | $17.1 million | $19.9 million |
| Stockholders’ equity (deficit) | $(1.0) million | $(6.2) million |
- Cash used in operating activities was $10.8 million, compared with $1.0 million provided in 2014.
- Cash used in investing activities was $8.1 million, primarily reflecting purchases of marketable securities.
- Cash provided by financing activities was $16.5 million, principally from two 2015 private placements.
- The CIRM loan payable was $9.2 million, with $0.5 million of accrued interest. The balance was due in 2018 unless extended.
- Interest expense was $249,000, compared with $201,000 in 2014.
- Cash, cash equivalents and marketable securities totaled approximately $13.6 million, but the company stated that substantial additional capital would be required.
Material changes versus the prior comparable period
- R&D expense increased approximately 77%, driven primarily by clinical development, contract research, manufacturing and patient-related costs for CAP-1002 and Cenderitide.
- G&A expense increased approximately 45%, primarily due to higher stock-based compensation, compensation and recruiting costs.
- Grant income increased substantially as the DYNAMIC trial progressed.
- Operating cash flow deteriorated from positive $1.0 million to negative $10.8 million, largely because 2014 operating cash flow benefited from the $12.5 million Janssen payment.
- The company raised approximately $17.0 million through January and February 2015 equity placements, issuing approximately 4.5 million shares.
- Capricor’s common stock began trading on Nasdaq Capital Market under the symbol CAPR on March 9, 2015.
- ALLSTAR’s planned Phase II enrollment was reduced from up to 300 patients to approximately 120 based on statistical modeling. Management stated that the smaller study was expected to retain sufficient statistical power, but acknowledged that the assumptions might not be validated.
- DYNAMIC completed enrollment in April 2015; preliminary six-month data reported no major adverse cardiac events and showed encouraging, preliminary signals across several measures.
- The FDA granted orphan drug designation to CAP-1002 for Duchenne muscular dystrophy in April 2015.
Guidance, outlook, commentary and unusual items
- Management expected 2016 CAP-1002 development and manufacturing spending of approximately $10.0 million to $13.0 million.
- Expected 2016 Cenderitide development spending was approximately $0.5 million to $1.0 million.
- Expected 2016 exosome preclinical spending was approximately $1.0 million to $2.0 million.
- The company expected continuing and increasing losses and negative operating cash flows, with no product revenue expected for several years, if ever.
- Janssen held an option for an exclusive worldwide CAP-1002 license, potentially providing an upfront payment, milestones of up to $325.0 million and royalties if exercised. The filing does not state that the option had been exercised.
- The CIRM loan award could total approximately $19.8 million, but future disbursements were subject to enrollment, milestones, available funding and other conditions. The amount ultimately available was uncertain after the ALLSTAR enrollment reduction.
- In March 2016, after the reporting date, the company raised approximately $4.1 million gross, or approximately $3.9 million net, through common stock and warrants. It also received a $1.0 million CIRM disbursement and was approved for an approximately $3.4 million CIRM grant for HOPE-Duchenne, subject to definitive documentation.
- The company’s manufacturing activities relied on facilities at Cedars-Sinai Medical Center, a related party and significant stockholder. The filing states that the facility was not GMP approved, creating a potential constraint for later-stage development.
- The company reported no material pending legal proceedings and no off-balance-sheet arrangements.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2015. The auditor did not provide an internal-control attestation because Capricor was a smaller reporting company.
Principal risks and contingencies
- Dependence on additional financing; future equity issuance could materially dilute existing holders.
- Continuing operating losses, negative cash flow and uncertainty regarding the sufficiency and timing of available funding.
- Clinical trials may be delayed, fail to meet endpoints, produce adverse events or fail to support regulatory approval.
- Preliminary or early-stage results may not predict later-stage efficacy or safety.
- Regulatory approval is uncertain and may require additional studies, manufacturing changes or post-approval obligations.
- Reliance on CIRM, NIH, Janssen, licensors, clinical research organizations, contract manufacturers, organ procurement organizations and device suppliers.
- Potential loss or impairment of intellectual-property rights, license termination, patent challenges or infringement claims.
- Manufacturing capacity, contamination, donor-heart supply and facility access risks, including dependence on Cedars-Sinai.
- The CIRM loan requires repayment with interest and may carry a risk premium of up to 500% of the loan amount upon specified revenue thresholds.
- Janssen may decline to exercise its CAP-1002 license option.
- Market acceptance, reimbursement, product liability, competition, key-person dependence and stock-price volatility could adversely affect results.
Most important facts for investors to verify
- Current cash runway after the March 2016 financing, the $1.0 million CIRM disbursement and ongoing clinical spending.
- Actual remaining availability and conditions of the CIRM ALLSTAR loan award after the reduction in enrollment.
- ALLSTAR enrollment, six- and twelve-month MRI results, statistical assumptions and the timing of Janssen’s option decision.
- HOPE-Duchenne enrollment, definitive CIRM grant terms and CAP-1002 safety and efficacy data.
- Whether the CIRM loan will be repaid, extended or forgiven and the potential effect of interest and the revenue-based risk premium.
- Manufacturing readiness, GMP status, supply of donor hearts and the company’s plans for Phase III-scale production.
- Outstanding options and warrants, subsequent financing dilution and the company’s ability to fund operations without unfavorable financing or licensing terms.