Capricor Therapeutics, Inc. — FY2016 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2016; filed March 14, 2017. Capricor is a clinical-stage biotechnology company developing cardiac and inflammatory therapies. Its principal programs are CAP-1002, an allogeneic cardiosphere-derived cell therapy, and CAP-2003, a cardiosphere-derived cell exosome product.
Business Context and Development Status
- CAP-1002 was in the Phase II portion of the ALLSTAR trial for post-myocardial-infarction cardiac dysfunction and the Phase I/II HOPE-Duchenne trial for Duchenne muscular dystrophy-associated cardiomyopathy.
- ALLSTAR enrollment was completed in October 2016 with 142 randomized subjects, of whom 134 received CAP-1002 or placebo. The study had originally contemplated up to 300 patients, but the target was reduced to approximately 120 after statistical modeling.
- HOPE-Duchenne enrollment was completed with 25 patients in September 2016. The company expected six-month results in early Q2 2017 and 12-month results in Q4 2017.
- The Phase I DYNAMIC trial in advanced heart failure was complete. Twelve-month data showed statistically significant improvement in median left ventricular ejection fraction; two of 14 participants died from progressive heart failure before study conclusion.
- CAP-2003 remained preclinical. Management expected to submit an FDA Investigational New Drug application in the second half of 2017.
Financial Metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Total income | $4.0 million | $5.5 million | Down $1.5 million |
| Collaboration income | $3.2 million | $3.8 million | Down $0.6 million |
| Grant income | $0.8 million | $1.7 million | Down $0.9 million |
| Research and development expense | $16.0 million | $13.8 million | Up $2.2 million |
| General and administrative expense | $4.9 million | $4.4 million | Up $0.5 million |
| Loss from operations | $(17.0) million | $(12.6) million | Loss increased $4.4 million |
| Net loss | $(18.8) million | $(12.9) million | Loss increased $5.9 million |
| Net loss per share | $(1.01) | $(0.81) | Loss per share increased |
| Cash used in operating activities | $(15.8) million | $(10.8) million | Use increased $5.0 million |
The company had no product sales and no product revenue. The reported income consisted primarily of Janssen collaboration income and government grant income. A $1.5 million non-cash impairment charge was recorded for acquired in-process research and development assets related to Cenderitide and CU-NP.
Liquidity, Capital Resources and Debt
- Cash and cash equivalents were $3.2 million at December 31, 2016, compared with $5.6 million at December 31, 2015.
- Marketable securities were $13.0 million, and restricted cash was $1.3 million. Cash, cash equivalents, marketable securities and restricted cash totaled approximately $17.5 million.
- Working capital was $13.2 million, compared with $7.5 million in 2015. Total liabilities were $22.8 million, compared with $17.1 million.
- The CIRM loan payable was $13.9 million, up from $9.2 million, with accrued interest of $0.8 million. Principal and accrued interest were due in 2018 unless the loan was extended.
- The CIRM loan is subject to operational and financial milestones, and may include a risk premium of up to 500% of the loan amount upon specified revenue thresholds. The company expected to draw approximately 70% to 75% of the original CIRM loan commitment because of the reduced ALLSTAR enrollment target.
- Financing activities provided $18.6 million in 2016, including $13.9 million of net equity proceeds and $4.8 million of CIRM loan proceeds. The March and September 2016 equity financings increased shares outstanding to 21.4 million at year-end.
Material Changes Versus 2015
- Net loss increased from $12.9 million to $18.8 million, primarily due to higher clinical development spending, lower grant income, higher interest expense and the impairment charge.
- R&D spending increased 16%, driven mainly by ALLSTAR and HOPE-Duchenne clinical costs, manufacturing, contract research organizations and patient-related expenses.
- Operating cash burn increased from $10.8 million to $15.8 million.
- Cash and cash equivalents declined, while marketable securities increased by approximately $5.0 million.
- The company raised approximately $13.9 million net through equity offerings and issued warrants to purchase 846,073 shares at an exercise price of $4.50 per share.
- The company discontinued further development of Cenderitide and CU-NP and subsequently terminated the Mayo license agreement in February 2017. This decision resulted in the $1.5 million 2016 impairment charge.
- Stock-based compensation increased to $2.0 million from $1.6 million. Approximately 6.6 million stock options and 1.1 million warrants were outstanding at year-end.
Guidance, Outlook, Risks and Unusual Items
- Management expected 2017 CAP-1002 development and manufacturing spending of approximately $8 million to $12 million and CAP-2003 preclinical spending of approximately $3 million to $5 million.
- Janssen held an exclusive option to license CAP-1002 and related allogeneic CDC technology. The company expected Janssen’s decision in Q3 2017 after delivery of six-month ALLSTAR results. If exercised, potential upfront and milestone payments could total up to $325 million, plus royalties; the filing provides no assurance that the option would be exercised.
- The company expected continued substantial losses and negative operating cash flow and stated that substantial additional capital would be required. Additional equity financing could dilute stockholders, while debt or licensing transactions could impose restrictions or require relinquishing rights.
- CAP-1002 and CAP-2003 had not received regulatory approval. Clinical results may be negative, inconclusive or difficult to reproduce, and additional trials or regulatory requirements may be required.
- CAP-1002 and CAP-2003 were manufactured in a Cedars-Sinai facility that was not a current Good Manufacturing Practice-approved facility. Loss of access to the facility could delay clinical development and require significant investment in alternative manufacturing capacity.
- The CIRM HOPE award totaled approximately $3.4 million and required approximately $2.3 million of company co-funding. CIRM could suspend or cease funding if milestones or other conditions were not met.
- Related-party risks include leases, clinical trial activity and payables involving Cedars-Sinai, a significant shareholder and research collaborator. No material pending legal proceedings were reported.
Important Facts for Investors to Verify
- Review the complete ALLSTAR six-month and 12-month results, including the primary MRI endpoint, statistical significance and safety profile.
- Verify the HOPE-Duchenne top-line results and whether the planned DMD expansion proceeded.
- Confirm Janssen’s decision regarding its CAP-1002 license option and the financial terms, if exercised.
- Assess cash runway using the $15.8 million 2016 operating cash burn, planned 2017 spending and expected financing needs.
- Review the CIRM loan balance, milestone compliance, repayment or forgiveness provisions, risk premium and 2018 maturity or extension terms.
- Evaluate manufacturing readiness, cGMP requirements and the status of the Cedars-Sinai facility and any third-party technology-transfer arrangements.
- Consider dilution from outstanding options, warrants and future equity financings; the filing reports approximately 6.6 million options and 1.1 million warrants outstanding at year-end.