Capricor Therapeutics, Inc. — Q3 2018 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 filing covers the quarter and nine months ended September 30, 2018; financial statements are unaudited.
The principal active programs were CAP-1002, including the HOPE-2 trial in Duchenne muscular dystrophy, and CAP-2003, which remained in preclinical development. The company had no commercial product sales.
Financial highlights
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total income | $0.2 million, versus $0.3 million | $1.0 million, versus $2.2 million |
| Research and development expense | $3.1 million, versus $1.9 million | $9.2 million, versus $8.2 million |
| General and administrative expense | $1.3 million, versus $1.1 million | $3.8 million, versus $3.5 million |
| Loss from operations | $(4.2) million, versus $(2.6) million | $(12.0) million, versus $(9.6) million |
| Net loss | $(4.1) million, versus $(2.7) million | $(11.9) million, versus $(9.9) million |
| Loss per share | $(0.14), versus $(0.12) | $(0.41), versus $(0.44) |
| Net cash used in operating activities | Not presented for the quarter | $(10.1) million, versus $(11.6) million |
At September 30, 2018, cash and cash equivalents were $4.4 million, marketable securities were $6.0 million, restricted cash was $0.4 million, and total current assets were $11.4 million. Total liabilities were $5.3 million, including a $3.4 million CIRM liability. The company reported approximately $9.5 million of working capital and $7.0 million of stockholders’ equity.
Investing activities provided $1.7 million in the first nine months, primarily reflecting net sales and maturities of marketable securities. Financing activities provided $6.3 million, including $6.2 million of net proceeds from the October 2017 at-the-market equity program and $0.1 million from stock-option exercises.
The company had no conventional long-term debt outstanding after forgiveness of approximately $15.7 million of principal and accrued interest under the CIRM loan in December 2017. The remaining $3.4 million CIRM award liability may be converted into a loan or may require repayment depending on future decisions and compliance with award terms.
Material changes versus the prior comparable period
- Third-quarter R&D expense increased approximately $1.2 million, principally because of CAP-1002 clinical development activities, including HOPE-Duchenne and HOPE-2.
- Nine-month R&D expense increased approximately $1.0 million, as higher HOPE program costs more than offset reduced ALLSTAR clinical development spending.
- Collaboration income fell to zero from $1.4 million for the nine-month comparable period because Janssen declined to exercise its exclusive license option in 2017 and the related agreement’s income had been fully recognized.
- Cash, cash equivalents and marketable securities declined to approximately $10.4 million from approximately $14.1 million at December 31, 2017, despite equity financing proceeds.
- Common shares outstanding increased to 30.75 million at September 30, 2018 from 26.27 million at December 31, 2017, primarily from ATM issuance and option exercises.
- Subsequent to quarter-end through November 13, 2018, the company sold an additional 318,487 shares under the ATM program for approximately $0.3 million of net proceeds.
Guidance, outlook, commentary and risks
- Management expected to spend approximately $8.0 million to $10.0 million during 2018 on CAP-1002 clinical development and manufacturing, and approximately $2.0 million to $4.0 million on CAP-2003 preclinical and related research.
- HOPE-2 enrollment began in April 2018. The trial is expected to enroll approximately 84 participants, with 12-month results estimated for the third quarter of 2020, subject to enrollment and resource availability.
- Management stated that current resources were expected to fund operations into the second quarter of 2019, but were insufficient to support operations for at least twelve months from the filing date. The filing therefore disclosed substantial doubt about the company’s ability to continue as a going concern.
- The company may seek additional equity or debt financing, grants, licensing transactions or strategic collaborations. Additional equity could substantially dilute existing stockholders, while financing may not be available on acceptable terms.
- Management may reduce spending by slowing R&D programs, reducing headcount and imposing budget restrictions if necessary.
- CAP-1002 has FDA Orphan Drug, Rare Pediatric Disease and RMAT designations, but these designations do not assure clinical success or regulatory approval. CAP-2003 remained preclinical, and the filing did not specify when an IND would be submitted.
- The company disclosed no material legal proceedings and no off-balance-sheet arrangements. It also reported effective disclosure controls as of September 30, 2018.
- Since November 9, 2018, the common stock had traded below Nasdaq’s $1.00 minimum bid-price requirement, creating a potential delisting risk if the deficiency continued.
Important facts for investors to verify
- Whether additional financing was obtained and whether it extended the stated runway beyond the second quarter of 2019.
- Actual HOPE-2 enrollment, interim futility analysis timing and clinical results relative to the projected third-quarter 2020 12-month results.
- Whether the CIRM award was converted into a loan, repaid, forgiven or otherwise modified, and the resulting effect on liquidity.
- Remaining availability and subsequent use of the October 2017 ATM program, including dilution and average issuance prices.
- Compliance with CIRM grant milestones, co-funding requirements and potential revenue-sharing or repayment obligations.
- Nasdaq listing compliance and any subsequent reverse split, bid-price deficiency notice or other listing action.
- Regulatory, manufacturing and licensing milestones for CAP-1002 and CAP-2003, including the extended December 31, 2019 deadline for an exosome-program IND under the CSMC license.