Business Context and Reporting Period
Capricor Therapeutics, Inc. is a clinical-stage biotechnology company developing cell- and exosome-based therapeutics, primarily CAP-1002 for Duchenne muscular dystrophy (DMD), and an early-stage exosome platform. The company has no approved products or commercial product sales. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022, compared with the comparable 2021 periods.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $0.0 million in 2022; $0.2 million in 2021 | $0.0 million in 2022; $0.2 million in 2021 |
| Research and development expense | $5.0 million vs. $3.5 million | $10.1 million vs. $6.8 million |
| General and administrative expense | $2.4 million vs. $1.8 million | $5.1 million vs. $3.7 million |
| Net loss | $7.1 million, or $0.29 per share, vs. $4.7 million, or $0.21 | $14.9 million, or $0.61 per share, vs. $9.9 million, or $0.44 |
| Cash flow from operating activities | $17.5 million provided in 2022 vs. $7.8 million used in 2021 |
- Cash, cash equivalents and marketable securities totaled $51.4 million at June 30, 2022, compared with $34.9 million at December 31, 2021.
- Cash and cash equivalents were $16.4 million, while marketable securities were $35.0 million, primarily consisting of U.S. Treasury securities.
- Working capital was approximately $33.1 million and stockholders’ equity was $18.7 million at June 30, 2022.
- Total liabilities were $39.3 million, including $30.0 million of deferred revenue and $3.4 million related to the CIRM award liability. The filing does not report conventional outstanding debt other than lease liabilities and potential CIRM repayment obligations.
- Cash used in investing activities was $36.0 million, primarily reflecting purchases of marketable securities and laboratory and leasehold improvements. Financing activities provided $42,471.
- The company recorded $2.2 million of stock-based compensation during the first six months of 2022, including $12.7 million of unrecognized expense expected to be recognized over approximately 1.5 years.
Material Changes Versus the Prior Comparable Period
- Revenue fell to zero because the Cedars-Sinai-sponsored clinical activities that generated approximately $245,000 of revenue in the first half of 2021 had completed or ceased enrollment.
- Operating expenses increased 44% in the second quarter and 44% in the first half, driven by higher clinical, product-candidate and exosome-program spending, increased headcount and salaries, business development costs, and stock-based compensation.
- Net loss increased approximately 50% in the second quarter and 51% in the first half of 2022.
- Operating cash flow improved primarily because Capricor received a $30.0 million upfront payment from Nippon Shinyaku under a new distribution agreement. The payment is recorded as deferred revenue and had not yet been recognized as revenue.
- The company invested substantially in marketable securities, ending with $35.0 million in such securities compared with none at December 31, 2021.
- Shares outstanding increased to 24,334,952 at June 30, 2022, from 24,185,001 at year-end 2021. No shares were sold under the ATM program during the first half of 2022.
Guidance, Outlook, Risks and Unusual Items
- Management estimated that approximately $51.4 million of cash, cash equivalents and marketable securities would fund operating expenses and capital expenditure requirements into the second quarter of 2024. Management also stated that substantial additional capital will be required, particularly if clinical programs are expanded.
- For 2022, expected spending was approximately $9.0 million to $11.0 million for the CAP-1002 DMD program and $5.0 million to $6.0 million for the exosome program.
- The HOPE-3 Phase 3 DMD study was enrolling approximately 70 patients at 15–20 U.S. sites. Management expected enrollment completion by the third quarter of 2023 and topline data by the third quarter of 2024.
- Capricor planned to request an FDA meeting in the fourth quarter of 2022 regarding HOPE-2 open-label extension data and the potential registration pathway.
- The January 2022 Nippon Shinyaku agreement appoints Nippon Shinyaku as exclusive U.S. distributor of CAP-1002, subject to regulatory approval. Capricor remains responsible for the HOPE-3 trial and manufacturing. Potential additional development and sales milestones total up to $705.0 million, but their receipt is uncertain.
- The $30.0 million Nippon Shinyaku upfront payment is allocated to the HOPE-3 performance obligation. The company planned to begin recognizing revenue in the third quarter of 2022 based on study progress.
- Capricor reported positive HOPE-2 results and positive one-year open-label extension results, but stated that final data may differ from preliminary or reported data and regulatory approval is not assured.
- The company discontinued further development of CAP-1002 for COVID-19 cytokine storm following INSPIRE Phase 2 results and did not anticipate further material expenses for that indication.
- COVID-19 may continue to affect trial enrollment, vendor performance, workforce stability, supply chains, financing, grant disbursements and development timelines.
- The company may need additional equity or debt financing, grants, licensing transactions or collaborations. Additional equity financing could dilute existing stockholders, while financing may not be available on acceptable terms.
- The CIRM award liability was approximately $3.4 million. Capricor had not decided whether to convert the award into a loan, which could require repayment of some or all of the awarded amount.
- As of June 30, 2022, approximately $51.1 million of cash and investments were uninsured. No material legal proceedings were reported, and management stated that there were no material changes to previously disclosed risk factors.
Most Important Facts to Verify
- Whether HOPE-3 enrollment, manufacturing scale-up and regulatory interactions progressed in line with the stated schedule.
- The amount and timing of revenue recognized from the $30.0 million Nippon Shinyaku upfront payment beginning in the third quarter of 2022.
- Actual cash burn and whether the projected funding runway into the second quarter of 2024 remains valid after clinical and manufacturing expenditures.
- Whether additional financing, collaboration proceeds or ATM sales become necessary and the resulting dilution or restrictions.
- Achievement of development and sales milestones under the Nippon Shinyaku agreement and the likelihood of receiving any portion of the potential $705.0 million.
- The company’s decision regarding conversion or repayment of the approximately $3.4 million CIRM award liability.
- Regulatory feedback and the confirmatory status of HOPE-2 and open-label extension results.