Business Context and Reporting Period
The filing is Capstone Therapeutics Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2013. The company is a development-stage biotechnology company with no revenue-producing operations. Its principal activities were developing AEM-28 through the 60%-owned LipimetiX Development LLC joint venture, pursuing partnering or licensing opportunities for AZX100, and operating under a reduced, largely virtual model. The filing identifies the registrant as Capstone Therapeutics Corp., not Capstone Holding Corp.
Capstone reported 40,885,411 common shares outstanding as of April 30, 2013. It was classified as a smaller reporting company and reported that it was not a shell company.
Key Financial Metrics
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | None reported | None reported |
| General and administrative expense | $433,000 | $424,000 |
| Research and development expense | $912,000 | $556,000 |
| Total operating expenses | $1.345 million | $980,000 |
| Interest and other income, net | $157,000 | $4,000 |
| Net loss | $1.188 million | $976,000 |
| Net loss attributable to Capstone stockholders | $995,000 | $976,000 |
| Basic and diluted loss per share | $0.02 | $0.02 |
| Cash flow used in operating activities | $1.008 million | $661,000 |
| Cash and cash equivalents at period end | $9.201 million | $13.117 million |
At March 31, 2013, total assets were $10.460 million, including $9.201 million of cash and cash equivalents. Of the cash balance, $3.751 million was reserved for LipimetiX and unavailable for general corporate use. Current liabilities were $334,000, consisting primarily of $313,000 of accounts payable. The filing does not report debt. Patent license rights, net, were $941,000. The company had a substantial accumulated deficit of $179.092 million.
Because the company reported no revenue, gross margin and operating margin are not meaningful. Cash represented the primary source of liquidity, and total cash declined by $1.004 million during the quarter.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased 64% to $912,000, primarily because of LipimetiX operating expenses of approximately $831,000.
- General and administrative expense increased modestly from $424,000 to $433,000. Management expected future administrative expense reductions from occupying less office space beginning March 1, 2013.
- Net loss increased to $1.188 million from $976,000. Net loss attributable to Capstone stockholders increased to $995,000 from $976,000.
- Operating cash use increased to $1.008 million from $661,000.
- Interest and other income increased to $157,000, including approximately $152,000 received from the conversion of an insurance company from mutual to private ownership.
- Cash and cash equivalents declined to $9.201 million from $13.117 million at March 31, 2012 and from $10.205 million at December 31, 2012.
- The company continued its transition to a virtual operating model after reducing its workforce from 18 employees to two and winding down internal operations.
Outlook, Risks, Contingencies, and Unusual Items
Management estimated 2013 cash expenditures of approximately $4.0 million, including approximately $2.5 million by LipimetiX and excluding potentially significant qui tam litigation costs. Management expected cash and short-term investments at March 31, 2013 to fund projected cash and working-capital requirements for the next twelve months.
LipimetiX’s initial development plan was expected to extend for approximately 27 months through Phase 1a and Phase 1b/2a studies of AEM-28, subject to an IND filing and FDA-related milestones. Approximately $3.8 million of the company’s original $6.0 million contribution to the joint venture remained at March 31, 2013. Neither the company nor the noncontrolling interests were obligated to provide additional funding or guarantees, although the company could potentially absorb future joint venture losses after the noncontrolling equity is exhausted.
The company had ceased clinical development of AZX100 in dermal scarring but continued certain required or contracted activities and sought development partners or licensees for AZX100. Additional substantial capital would be required to complete clinical trials and supporting research needed for FDA approval. Potential funding sources included equity or debt offerings, joint development arrangements, asset sales, and licensing transactions, but availability and terms were uncertain.
The company was defending a qui tam lawsuit related to its former bone growth stimulation device business. The plaintiff sought civil penalties and treble damages that could exceed the company’s financial resources. Management believed the matter was not reasonably expected to have a material effect based on currently available information, but acknowledged that an adverse resolution could materially impair liquidity, financial condition, results of operations, and the company’s ability to continue operations. No trial date had been set, and discovery was open.
Management reported effective disclosure controls and procedures and no material changes to internal control over financial reporting. The filing stated that there were no material changes to the risk factors disclosed in the 2012 Form 10-K.
Important Facts for Investors to Verify
- Confirm the registrant identity: the supplied filing is for Capstone Therapeutics Corp., while the request metadata names Capstone Holding Corp.
- Verify the availability of the $9.201 million cash balance, particularly the $3.751 million reserved for LipimetiX and unavailable for general corporate use.
- Assess whether the projected $4.0 million of 2013 expenditures and the 27-month AEM-28 development plan remain adequately funded.
- Monitor the qui tam litigation, including potential damages, legal costs, and effects on liquidity and business continuity.
- Evaluate the feasibility and potential dilution or cost of obtaining additional capital for clinical development and FDA approval.
- Track AEM-28 IND and clinical milestones, LipimetiX spending, and the company’s ability to secure AZX100 partnering or licensing transactions.
- Review the company’s substantial accumulated deficit, lack of operating revenue, continued losses, and absence of a disclosed revenue-generating business.