Capricor Therapeutics, Inc. — Q1 2019 Form 10-Q Summary
Business context and reporting period
Capricor is a clinical-stage biotechnology company developing cell- and exosome-based therapies, primarily for Duchenne muscular dystrophy and other rare disorders. The report covers the three months ended March 31, 2019; financial statements are unaudited and prepared under U.S. GAAP.
- Lead candidate: CAP-1002, principally in the Phase II HOPE-2 trial for Duchenne muscular dystrophy.
- Additional active program: CAP-2003, in preclinical development.
- The company has no commercial product sales; reported revenue consists primarily of grants and payments for investigational product supplied to related-party clinical trials.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $230,504 | $400,066 | Down $169,562 |
| Research and development expense | $1.811 million | $2.697 million | Down $0.886 million |
| General and administrative expense | $0.976 million | $1.390 million | Down $0.413 million |
| Total operating expenses | $2.788 million | $4.086 million | Down $1.299 million |
| Loss from operations | $(2.557) million | $(3.686) million | Improved $1.129 million |
| Net loss | $(2.519) million | $(3.672) million | Improved $1.152 million |
| Basic and diluted loss per share | $(0.08) | $(0.14) | Improved |
| Operating cash flow | $(1.608) million | $(3.418) million | Improved $1.810 million |
- Revenue declined primarily because of the timing of grant activities; miscellaneous income from CSMC-sponsored trials was approximately $0.1 million in both periods.
- Cash and cash equivalents were $7.170 million at March 31, 2019, compared with $4.259 million at December 31, 2018. The increase primarily reflected the conversion of approximately $3.0 million of marketable securities to cash and first-quarter equity proceeds.
- Total cash, cash equivalents and restricted cash were $7.355 million. Marketable securities were zero at March 31, 2019 versus $2.997 million at year-end.
- Working capital was approximately $6.403 million, down from $7.216 million at December 31, 2018.
- Total liabilities were $4.877 million, including a $3.376 million long-term CIRM liability. The filing does not report conventional bank debt.
- Stockholders’ equity declined to $3.740 million from $4.616 million, primarily due to the quarterly net loss, partially offset by equity issuance.
- First-quarter financing provided $1.433 million from common stock sales. The company issued 2,273,617 shares during the quarter, increasing outstanding shares to 33,661,346 at March 31, 2019.
Material changes versus the prior comparable period
- Operating expenses fell 32%, with R&D down primarily because of the timing of CAP-1002 clinical activities and lower CAP-1002/CAP-2003 development costs. G&A declined because of lower headcount, reduced investor-relations costs and lower stock-based compensation.
- Net loss narrowed by approximately 31%, and operating cash burn declined by approximately 53%.
- Revenue decreased approximately 42% year over year.
- The weighted-average share count increased to 32.9 million from 26.9 million, reflecting equity issuance and creating dilution risk.
- Management implemented expense reductions, including slowing certain R&D activities, reducing headcount and imposing additional budget restrictions.
Guidance, outlook, risks and unusual items
- Management expected to spend approximately $3.0 million to $5.0 million in 2019 on CAP-1002 clinical development and $0.5 million to $1.5 million on CAP-2003 preclinical and related research. Actual spending depends substantially on HOPE-2 and available financing.
- HOPE-2 had enrolled 20 patients. Following an anaphylaxis serious adverse event, dosing was temporarily held in December 2018; enrollment resumed after FDA and DSMB permission following implementation of a premedication strategy.
- Management planned a six-month interim analysis for certain enrolled patients, a pause in additional subject visits during the second quarter, and potential termination of under-enrolling sites. Further enrollment and completion of the original study depend on interim results and additional funding.
- The company stated that available cash was expected to fund operations into the fourth quarter of 2019, depending largely on HOPE-2 decisions, but that it did not have sufficient cash to support current operations for at least twelve months from the filing date. The filing therefore identified substantial doubt about the company’s ability to continue as a going concern.
- Management may seek equity or debt financing, grants, licensing or asset-sale transactions and strategic collaborations. Additional equity could materially dilute shareholders; financing may not be available on acceptable terms.
- The CIRM award is recorded as a $3.376 million liability because repayment may be required. The company had not decided whether to convert the award into a loan. Approximately $0.6 million remained available under grants and awards at March 31, 2019.
- After quarter-end and through April 23, 2019, the company sold 1,005,590 additional shares for approximately $0.5 million of net proceeds. The ATM program then expired.
- The company approved severance packages for full-time employees, potentially up to six months of base salary subject to conditions; no liability had been recorded at March 31, 2019.
- There were no material pending legal proceedings, and management reported no material change in previously disclosed risk factors.
Most important facts for investors to verify
- Whether the company secured sufficient post-quarter-end financing to address the disclosed going-concern uncertainty.
- Results of the planned HOPE-2 interim analysis, enrollment status, safety profile and any resulting changes to trial design or scope.
- Actual cash burn and remaining liquidity after the ATM program expired.
- Potential repayment, conversion terms or other obligations associated with the $3.376 million CIRM liability.
- Progress toward regulatory milestones for CAP-1002 and any IND plans for CAP-2003.
- Share-count changes, option and warrant overhang, and dilution from future equity financing.
- Terms and potential revenue from the CSMC-sponsored trials, including the estimated $2.1 million of compensation over several years.