Capricor Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarterly and six-month periods ended June 30, 2018; filed August 10, 2018. The unaudited statements cover the clinical-stage biotechnology company and its wholly owned subsidiary. Capricor is focused primarily on CAP-1002 for Duchenne muscular dystrophy and CAP-2003 exosome therapies. The company has no commercial product sales.
Financial Performance and Position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total income | $0.4 million in 2018 vs. $1.0 million in 2017 | $0.8 million vs. $1.9 million |
| Research and development expense | $3.4 million vs. $3.1 million | $6.1 million vs. $6.4 million |
| General and administrative expense | $1.2 million vs. $1.2 million | $2.6 million vs. $2.4 million |
| Loss from operations | $(4.2) million vs. $(3.4) million | $(7.8) million vs. $(6.9) million |
| Net loss | $(4.1) million vs. $(3.5) million | $(7.8) million vs. $(7.1) million |
| Basic and diluted loss per share | $(0.14) vs. $(0.16) | $(0.28) vs. $(0.33) |
| Operating cash flow | Not separately reported | $(7.1) million vs. $(8.4) million |
Revenue consisted primarily of government grant income and other income from supplying cell doses for investigator-sponsored clinical trials. Collaboration income from Janssen was zero in 2018 because all related revenue had been recognized by June 30, 2017 after Janssen declined its license option. Traditional operating margins are not meaningful because the company has no commercial sales and remains loss-making.
| Balance-sheet metric | June 30, 2018 | December 31, 2017 |
|---|---|---|
| Cash and cash equivalents | $6.3 million | $6.1 million |
| Marketable securities | $6.0 million | $8.0 million |
| Restricted cash | $0.5 million | $0.7 million |
| Working capital | $12.2 million | $14.0 million |
| Total liabilities | $4.7 million | $5.0 million |
| Stockholders’ equity | $9.6 million | $11.2 million |
Cash, cash equivalents and marketable securities totaled approximately $12.3 million at June 30, 2018, excluding restricted cash. The company had no interest-bearing debt outstanding; the prior CIRM loan was forgiven in December 2017. Long-term liabilities consisted primarily of the $3.4 million CIRM grant liability.
Cash Flow, Financing and Material Changes
- Operating cash use improved to $7.1 million from $8.4 million in the first half of 2017, but the company continued to generate substantial negative operating cash flow.
- Investing activities provided $1.8 million, primarily from net sales and maturities of marketable securities.
- Financing activities provided $5.3 million, including $5.1 million of net proceeds from the October 2017 at-the-market equity program and $0.1 million from stock-option exercises.
- The company issued 3.3 million shares under the ATM program during the first half of 2018. Through August 9, 2018, cumulative ATM proceeds were approximately $8.9 million from 5.1 million shares, with approximately $4.9 million remaining available.
- Shares outstanding increased to 29.99 million at June 30, 2018 from 26.27 million at December 31, 2017, creating dilution for existing holders.
- Second-quarter net loss increased primarily because 2017 included approximately $0.7 million of Janssen collaboration income, while 2018 included none. Six-month net loss also increased despite lower R&D expense.
- R&D expense increased year over year in the second quarter due primarily to CAP-1002 clinical development, including HOPE-2, but declined for the six-month period because of lower other CAP-1002 and CAP-2003 research spending.
Development Outlook, Risks and Unusual Items
- HOPE-2 enrollment for CAP-1002 in approximately 84 boys and young men with DMD began in April 2018. Interim futility analysis is planned, and 12-month results were estimated for the second quarter of 2020, subject to enrollment and other factors.
- Management expected 2018 CAP-1002 clinical development and manufacturing spending of approximately $8 million to $12 million, and CAP-2003 preclinical and research spending of approximately $2 million to $4 million.
- CAP-1002 had FDA Orphan Drug and Rare Pediatric Disease designations and received RMAT designation in February 2018. These designations do not assure approval or commercial success.
- CAP-2003 remained in preclinical development; the filing did not identify a clear expected IND submission date.
- Management stated that current cash and investments could last into the third quarter of 2019 if operational adjustments were made, including slowing R&D, reducing headcount and imposing additional budget restrictions. The company expects to seek additional equity, debt, collaboration or grant financing and warned that financing may be unavailable or dilutive.
- The CIRM HOPE award had a liability balance of approximately $3.4 million, including $0.5 million of restricted cash. Capricor had not decided whether to convert the award into a loan; repayment, revenue-sharing and other obligations may apply.
- Subsequent to quarter-end, the company raised approximately $1.1 million of net ATM proceeds through August 9, 2018 and extended its CSMC facilities lease through July 31, 2019 at $19,756 per month.
- Key risks include clinical-trial failure or delay, manufacturing and regulatory challenges, dependence on third parties, intellectual-property risks, need for additional capital, dilution, uncertain reimbursement and lack of product revenue.
- The filing reported no material legal proceedings, no material changes to previously disclosed risk factors and no off-balance-sheet arrangements.
Investor Verification Checklist
- Verify the pace, enrollment status and interim analysis results of HOPE-2, including whether the planned 2020 data timing remains achievable.
- Confirm cash runway against the company’s continuing operating cash burn and planned CAP-1002 and CAP-2003 spending.
- Review subsequent ATM issuance, remaining capacity and dilution to common shareholders.
- Assess the terms and potential repayment or revenue-sharing consequences of the $3.4 million CIRM grant liability.
- Distinguish grant income and investigator-sponsored cell-dose income from recurring commercial revenue.
- Monitor regulatory feedback, manufacturing readiness, clinical results and the potential timing of an IND for CAP-2003.
- Review related-party transactions and obligations involving CSMC, company directors and TrialTech Medical.