Capricor Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2014. The interim financial statements are unaudited. Capricor is a development-stage biotechnology company focused primarily on cardiac therapies and had six drug candidates in development. Historical results reflect Capricor as the accounting acquirer in the November 2013 reverse merger with Nile Therapeutics.
Financial Performance and Position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total income | $1.04 million | $0.19 million | $2.08 million | $0.42 million |
| Collaboration income | $1.04 million | — | $2.08 million | — |
| Research and development expense | $1.86 million | $1.31 million | $3.24 million | $2.50 million |
| General and administrative expense | $0.67 million | $0.49 million | $1.51 million | $0.97 million |
| Loss from operations | $(1.48) million | $(1.62) million | $(2.67) million | $(3.05) million |
| Net loss | $(1.53) million | $(1.62) million | $(2.74) million | $(3.04) million |
| Loss per share | $(0.13) | $(0.16) | $(0.23) | $(0.29) |
| Operating cash flow | Not separately provided | Not separately provided | $5.33 million | $(1.81) million |
- Operating margins were negative because the company remains pre-commercial: approximately negative 142% for Q2 and negative 128% for the first six months, based on reported income.
- Cash and cash equivalents were $11.58 million at June 30, 2014, compared with $1.73 million at December 31, 2013. Marketable securities were $0.33 million, and restricted cash was $4.38 million.
- Total current assets were $16.41 million against current liabilities of $6.49 million, resulting in working capital of approximately $9.92 million.
- Total liabilities were $21.52 million, including $10.42 million of deferred income related to the Janssen agreement and $8.64 million of CIRM loan principal.
- Stockholders’ deficit increased to $(3.08) million from $(0.53) million at year-end 2013, primarily reflecting the six-month net loss.
- Cash increased by $9.85 million during the first six months, supported by the Janssen payment and CIRM loan proceeds. Investing activities used $0.16 million, while financing activities provided $4.69 million.
Material Changes Versus Prior Comparable Period
- Income increased substantially because Capricor began recognizing Janssen collaboration income from a $12.5 million upfront payment received in January 2014. The payment is being recognized ratably over the estimated performance period; $10.42 million remained deferred at June 30, 2014.
- Research and development expense increased 29% in Q2 and 29% for the six-month period, mainly due to higher clinical costs, patient and site expenses, operational support for the ALLSTAR trial, increased headcount, and collaboration work with Janssen.
- General and administrative expense increased approximately 35% in Q2 and 56% for the first six months, driven by professional fees, public-company compliance costs, increased headcount, and stock-based compensation.
- Net loss improved modestly despite higher operating expenses because of collaboration income. Interest expense increased to $80,031 for the first six months from $9,922, reflecting the larger CIRM loan balance.
- The company received approximately $4.69 million in net CIRM loan proceeds during the first half of 2014. A portion was restricted for approved ALLSTAR costs.
- Capricor entered into an exclusive exosomes license agreement with Cedars-Sinai Medical Center in May 2014 and a related-party facilities lease beginning June 1, 2014.
Guidance, Outlook, Risks and Unusual Items
- Management expected to spend approximately $7.5 million to $10.0 million during 2014 on CAP-1002 development, primarily for the Phase II ALLSTAR trial.
- Phase II ALLSTAR enrollment began in the first quarter of 2014. The trial was planned for approximately 300 patients and was designed to evaluate CAP-1002 in recent and chronic myocardial-infarction populations.
- Janssen held an exclusive option to license CAP-1002 and related cardiac cell therapies after review of six-month Phase II ALLSTAR follow-up results. If exercised, the arrangement could provide an upfront license fee, milestone payments of up to $325 million, and royalties; exercise was not assured.
- The company had no product sales and no approved products. Management stated that substantial additional financing would be required to continue development and operate until profitability, if ever.
- The CIRM loan carries interest, repayment obligations, and a potential risk premium of up to 500% of the loan amount upon specified revenue thresholds. Future disbursements depend on funding availability, milestones, and compliance with loan conditions.
- The company expected continued and potentially increasing losses as clinical and development programs expand. Cenderitide and CU-NP development remained subject to additional financing or a strategic transaction.
- Key risks include clinical-trial failure or delay, regulatory rejection, manufacturing and donor-tissue constraints, dependence on licensors and collaborators, intellectual-property challenges, limited manufacturing experience, and the need for additional capital that could dilute shareholders or impose debt restrictions.
- Approximately $16.0 million of deposits were uninsured at June 30, 2014. No material legal proceedings or off-balance-sheet arrangements were reported.
- Management concluded that disclosure controls and procedures were effective at the reasonable-assurance level as of June 30, 2014.
Most Important Facts for Investors to Verify
- Whether Janssen exercises its exclusive license option after receiving the applicable ALLSTAR follow-up results and the precise revenue-recognition period for the $12.5 million upfront payment.
- ALLSTAR enrollment, safety, efficacy, manufacturing, and six-month and one-year clinical readouts.
- Cash runway after separating unrestricted cash from $4.38 million of restricted CIRM funds and considering ongoing clinical spending.
- Terms, future availability, repayment risk, forgiveness conditions, and potential risk premium associated with the CIRM loan.
- Timing and terms of any future equity, debt, grant, licensing, or strategic financing, including possible shareholder dilution.
- Progress and financing requirements for CAP-1002, DYNAMIC, exosomes, cenderitide, and CU-NP, as well as the status of regulatory approvals.
- Compliance with royalty, milestone, development, and patent obligations under the University of Rome, Johns Hopkins, Cedars-Sinai, and Mayo license agreements.
- The effect of the reverse merger, concentrated ownership, outstanding options and warrants, and the company’s OTCQB trading status on dilution and liquidity.