CAPRICOR THERAPEUTICS, INC. quarterly report, Q2 FY2021

Capricor Therapeutics, Inc. — Q2 2021 Form 10-Q Summary

Business context and reporting period

Capricor is a clinical-stage biotechnology company developing cell and exosome-based therapeutics and vaccines. The filing covers the three and six months ended June 30, 2021; financial statements are unaudited and prepared under U.S. GAAP.

Primary programs include CAP-1002 for Duchenne muscular dystrophy and severe COVID-19, an exosome-based COVID-19 vaccine and engineered exosome therapeutics. The company has no commercial product sales.

Key financial metrics

Metric	Q2 2021	Q2 2020	Six months 2021	Six months 2020
Revenue	$0.204 million	$0.050 million	$0.245 million	$0.236 million
Research and development	$3.497 million	$1.927 million	$6.794 million	$3.083 million
General and administrative	$1.790 million	$1.610 million	$3.696 million	$2.748 million
Net loss	$4.748 million	$3.484 million	$9.900 million	$5.569 million
Loss per share	$0.21	$0.23	$0.44	$0.51
Operating cash flow	Not separately provided	Not separately provided	$(7.844) million	$(3.235) million

Revenue consisted primarily of miscellaneous income from supplying CAP-1002 doses for CSMC-sponsored trials; grant income was zero in both 2021 periods. Revenue was not sufficient to offset operating expenses, producing deeply negative operating margins.

Cash and cash equivalents were $38.1 million at June 30, 2021, compared with $32.7 million at December 31, 2020.
Working capital was approximately $35.6 million and total liabilities were $6.5 million.
Debt consisted of no outstanding note payable at June 30, 2021. The $318,160 Paycheck Protection Program loan was forgiven in April 2021, producing a $318,160 gain.
The balance sheet included a $3.4 million CIRM liability, which could require repayment if the company elects to convert the award into a loan.
Financing activities provided $13.615 million during the first six months, principally from common-stock sales. Stockholders’ equity increased to $33.4 million from $28.2 million at year-end 2020.
Stock-based compensation was $1.465 million for the first six months and represented a significant non-cash expense.

Material changes versus the prior comparable period

Second-quarter revenue increased by approximately $154,000, while first-half revenue increased by approximately $9,000. CSMC-sponsored trial activity resumed from COVID-19-related delays, but the REGRESS and ALPHA trials were completed and no further material revenue is expected from them.
Second-quarter R&D expense increased $1.570 million, or approximately 81%, and first-half R&D expense increased $3.711 million, or approximately 120%. Increases reflected CAP-1002 clinical development, exosome research, technology transfer and manufacturing activities.
First-half G&A expense increased approximately $947,000, primarily due to salaries, recruiting, stock-based compensation, insurance and other general expenses.
First-half net loss increased approximately $4.331 million, and operating cash use increased approximately $4.609 million.
The company issued 2.219 million shares during the first half through equity programs and other issuances, generating approximately $12.6 million net of fees; an additional 200,504 shares were issued in the second quarter for approximately $1.0 million net.
On June 21, 2021, Capricor established a $75.0 million ATM program. Through August 12, 2021, it had sold 142,475 shares for approximately $0.8 million gross proceeds, leaving approximately $74.2 million available under the program.

Guidance, outlook, commentary and risks

Management stated that cash resources were expected to fund operations for at least the next twelve months, but the company expects substantial additional capital requirements and continuing operating losses.
For 2021, management estimated CAP-1002 development spending of approximately $6.0 million to $8.0 million and exosome-program spending of approximately $6.0 million to $8.0 million. Actual spending depends on trial progress, regulatory decisions, manufacturing requirements, funding and partnering.
For CAP-1002 in DMD, Capricor began start-up activities for a proposed Phase III HOPE-3 trial, estimated at approximately 65 to 75 patients. The company does not intend to begin enrollment until it secures a partner or additional non-dilutive capital.
The INSPIRE Phase II COVID-19 trial was enrolling up to 60 patients, with top-line data expected in the near future as of the filing date. The company planned to discuss next steps with the FDA and was seeking partners.
The company planned, subject to regulatory approval, to file an IND for its exosome-mRNA COVID-19 vaccine in the fourth quarter of 2021.
The FDA requested additional manufacturing information for the CAP-2003 DMD IND; the company was evaluating next steps and had not established a clear development timetable.
Key risks include dependence on future equity, debt, grants or partnerships; potential shareholder dilution; clinical-trial and regulatory uncertainty; manufacturing and supply-chain constraints; COVID-19-related delays; intellectual-property license obligations; and the possibility that product candidates may never receive approval or generate commercial revenue.
The CIRM award carries potential revenue-sharing obligations and may be converted into a loan. The company also has milestone, royalty and sublicense-payment obligations under various license agreements.
Subsequent to quarter-end, Capricor entered into a San Diego office and laboratory lease beginning October 1, 2021, with base rent of approximately $0.6 million annually and a term through September 30, 2026.
The filing reported no material legal proceedings, no material changes to previously disclosed risk factors and no off-balance-sheet arrangements.

Important facts for investors to verify

Timing, financing and potential partnering for the HOPE-3 Phase III DMD program.
Top-line and confirmatory results from the INSPIRE COVID-19 trial and any resulting FDA requirements.
Regulatory progress and IND timing for the exosome-mRNA vaccine and CAP-2003.
Cash burn, remaining ATM capacity and the timing and terms of future financing.
Whether the CIRM award will be converted into a loan and the resulting repayment obligation.
Clinical-trial accrual estimates, manufacturing costs, license milestones and royalty obligations.
Future dilution from the ATM program, outstanding warrants and stock options.