Business Context and Reporting Period
Filing: Form 10-Q for the quarterly period ended September 30, 2013, filed November 12, 2013. The filing identifies the registrant as Capstone Therapeutics Corp., a development-stage biotechnology company; the request metadata refers to Capstone Holding Corp.
The company develops peptide and other molecular therapies for underserved medical conditions. Its principal current programs are AEM-28, being developed through the 60%-owned LipimetiX Development LLC joint venture for severe refractory and homozygous familial hypercholesterolemia, and AZX100, for which the company is seeking partnering or licensing opportunities. Internal operations have been reduced to a virtual operating model.
Financial Condition and Results
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| General and administrative expense | $245,000 in 2013 versus $480,000 in 2012 | $956,000 versus $1.297 million |
| Research and development expense | $958,000 versus $667,000 | $2.619 million versus $1.626 million |
| Net loss | $1.202 million versus $1.142 million | $3.399 million versus $2.830 million |
| Net loss attributable to Capstone stockholders | $1.202 million versus $951,000 | $3.206 million versus $2.639 million |
| Loss per share | $0.03 versus $0.02 | $0.08 versus $0.06 |
| Cash flow from operating activities | Not separately presented | $(3.026) million versus $(2.217) million |
The company reported no revenue in the periods presented. Operating margins and gross margins are not meaningful because the company has no revenue-producing operations and reports development-stage expenses.
- Cash and cash equivalents were $7.183 million at September 30, 2013, down from $10.205 million at December 31, 2012. Approximately $2.514 million was reserved for LipimetiX and unavailable for general company use.
- Total assets were $8.133 million, including $862,000 of net patent license rights. Total current liabilities were $206,000, consisting primarily of $200,000 of accounts payable.
- No debt balance is disclosed. The company and LipimetiX had no obligation to contribute additional funds to the joint venture or guarantee its liabilities.
- Net cash used in investing activities was $4,000 for the first nine months of 2013. There were no financing cash flows during the period.
- The company had 40,885,411 common shares outstanding as of October 31, 2013. Options and warrants to purchase 3,464,935 shares were outstanding at September 30, 2013.
Material Changes Versus the Prior Comparable Period
- Third-quarter G&A expense declined 49% year over year, and nine-month G&A expense declined 26%, primarily because of reduced office space and fewer employees.
- R&D expense increased 44% in the third quarter and 61% for the first nine months, principally because LipimetiX operating costs were consolidated. LipimetiX costs included in R&D were $840,000 in the third quarter and $2.255 million for the first nine months of 2013.
- Net loss increased 5% in the third quarter and 20% for the first nine months. Lower corporate overhead and $152,000 of other income were more than offset by higher joint venture development expenses.
- Operating cash use increased by $809,000, or approximately 37%, from the first nine months of 2012.
- On August 23, 2013, $800,000 was released from the LipimetiX escrow account. Additional escrow funds could be released in 2013 and 2014.
- Noncontrolling interest declined from $193,000 at December 31, 2012 to zero at September 30, 2013. Beginning after March 31, 2013, all joint venture losses were allocated to Capstone.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management estimated 2013 expenditures of approximately $4.0 million, including approximately $2.5 million for LipimetiX and excluding potentially significant qui tam litigation costs.
- The company expected LipimetiX to use its remaining approximately $2.5 million over the planned 27-month development period.
- Management stated that cash and short-term investments at September 30, 2013 were expected to fund presently projected requirements for the next twelve months. Additional substantial capital would be required to complete clinical trials and supporting work necessary for FDA approval.
- Potential future funding sources include equity or debt offerings, joint development arrangements, sales of development rights, and licensing transactions. Availability and terms are uncertain and could dilute existing stockholders.
- The AEM-28 program remains dependent on successful preclinical and clinical development, regulatory filings and approvals, financing, and potential partnering. The company had not commercialized a product and had accumulated approximately $153 million of net losses since becoming a development-stage company.
- The company is defending a qui tam lawsuit related to its former bone-device business. The government declined to intervene, no trial date had been set, and discovery was open. Management believed a material loss was not reasonably possible based on available information, but an adverse judgment could exceed the company’s financial resources and impair its ability to continue operations.
- The company disclosed no material changes to previously reported risk factors and concluded that disclosure controls and procedures were effective as of September 30, 2013.
Important Facts for Investors to Verify
- Confirm the registrant identity and whether the filing relates to Capstone Therapeutics Corp. or Capstone Holding Corp.
- Verify the availability of cash, particularly the $2.514 million reserved for LipimetiX and unavailable for general corporate use.
- Assess the cash runway against recurring operating losses, joint venture spending, and unquantified litigation costs.
- Review AEM-28 development milestones, escrow releases, clinical plans, regulatory status, and remaining joint venture funding.
- Evaluate AZX100 partnering prospects and the likelihood of additional development spending.
- Monitor the qui tam litigation for settlement, damages, legal costs, or any change in the company’s assessment of potential loss.
- Consider dilution and financing risk given the lack of revenue, accumulated deficit, outstanding options and warrants, and need for future capital.