Capricor Therapeutics, Inc. — Q1 2014 Form 10-Q Summary
Business context and reporting period
Capricor Therapeutics is a development-stage biotechnology company focused primarily on cardiac cell therapies and related technologies. The company reported results for the three months ended March 31, 2014. Historical financial statements reflect Capricor, Inc. as the accounting acquirer in the November 2013 reverse merger with Nile Therapeutics, Inc.
The company had six drug candidates in various stages of development and had not generated product sales. Its lead program, CAP-1002, entered Phase II enrollment in the ALLSTAR clinical trial during the first quarter of 2014.
Key financial metrics
| Metric | Q1 2014 | Q1 2013 | Change or context |
|---|---|---|---|
| Total income | $1.04 million | $0.23 million | Increase driven by $1.04 million of Janssen collaboration income; grant income declined to zero |
| Research and development expense | $1.37 million | $1.19 million | Increase primarily from CAP-1002 clinical activity |
| General and administrative expense | $0.85 million | $0.47 million | Increase from merger-related professional fees, public-company compliance costs and higher headcount |
| Loss from operations | $1.19 million | $1.43 million | Improved due to collaboration income |
| Net loss | $1.21 million | $1.42 million | Loss per share was $0.10 versus $0.14 |
| Cash flow from operating activities | $11.34 million provided | $1.18 million used | Primarily reflects receipt of the $12.5 million Janssen payment |
| Cash and cash equivalents | $12.98 million | $1.73 million at Dec. 31, 2013 | Substantial increase following Janssen payment |
| Marketable securities | $0.33 million | $0.33 million at Dec. 31, 2013 | Primarily U.S. Treasury securities |
| Restricted cash | $0.56 million | $1.40 million at Dec. 31, 2013 | Funds restricted for approved ALLSTAR trial costs |
| Total liabilities | $17.64 million | $6.07 million at Dec. 31, 2013 | Includes $11.46 million of deferred Janssen income and $3.96 million of CIRM loan principal |
| Accumulated deficit | $17.31 million | $16.10 million at Dec. 31, 2013 | Reflects continuing development-stage losses |
Working capital was approximately $7.73 million at March 31, 2014, compared with $1.63 million at December 31, 2013. Stockholders’ deficit increased to $1.66 million from $0.53 million. The filing does not provide a meaningful operating margin because the company has no product revenue and remains loss-making.
Material changes versus the prior comparable period
- Janssen paid Capricor $12.5 million under a December 2013 collaboration and exclusive license option agreement. The company recognized $1.04 million as collaboration income during the quarter and recorded the remaining amount as deferred income.
- Cash and cash equivalents increased by approximately $11.25 million during the quarter, primarily from the Janssen payment.
- R&D expense increased approximately $0.2 million as CAP-1002 Phase I/II clinical activities progressed.
- G&A expense increased approximately $0.4 million, principally due to merger-related legal, consulting and accounting costs, public-company compliance expenses and increased compensation.
- Grant income decreased from approximately $0.23 million to zero because of the timing and completion of certain grant-funded activities.
- Interest expense increased to approximately $25,000 from $4,000 as the CIRM loan balance increased.
- The company issued 3,112 shares upon stock option exercise and recorded $84,544 of stock-based compensation.
Cash flow, debt and liquidity
The company had approximately $13.3 million of cash, cash equivalents and marketable securities at March 31, 2014, excluding restricted cash. Management stated that substantial additional financing will be required until profitability is achieved, if ever. Expected funding sources include equity or debt financing, government grants and loans, and strategic collaborations or licenses.
The CIRM loan award permits aggregate disbursements of approximately $19.8 million to support Phase II of ALLSTAR. The recorded loan payable was approximately $3.96 million at March 31, 2014. The loan bears interest based on LIBOR plus 2%, includes potential repayment and risk-premium obligations, and may be forgiven only if specified conditions are met. CIRM may stop future disbursements if milestones or other conditions are not satisfied.
In May 2014, after the reporting period, the company received an additional CIRM disbursement of approximately $4.68 million. The filing states that approximately $13.6 million of deposits were uninsured at March 31, 2014.
Guidance, outlook, risks and unusual items
- Management expected to spend approximately $7.5 million to $10.0 million during 2014 on CAP-1002 development, primarily the Phase II ALLSTAR trial.
- ALLSTAR Phase II was planned as an approximately 300-patient, double-blind, randomized, placebo-controlled study measuring infarct size and cardiac-function endpoints.
- Janssen held an exclusive option to license CAP-1002 and related products. If exercised, the agreement could provide an upfront fee, milestone payments of up to $325 million and royalties, but the option had not been exercised as of the filing date.
- The company expected continuing and increasing losses and negative operating cash flow as clinical and preclinical programs expand. It did not expect product revenue for several years, if ever.
- Further development of cenderitide and CU-NP depended on additional capital or a strategic transaction; management was evaluating whether to continue those programs.
- Key risks include clinical-trial failure or delay, regulatory approval uncertainty, manufacturing and clinical-vendor dependence, intellectual-property protection, the need for substantial additional financing and potential dilution or restrictive debt terms.
- The CIRM loan carries a potential risk premium of up to 500% of the loan amount upon achievement of specified revenue thresholds and is subject to financial and development milestones.
- The company recorded a $1.9 million goodwill impairment in 2013; no additional goodwill impairment was recorded in Q1 2014.
- No material legal proceedings or material changes to previously disclosed risk factors were reported.
- Subsequent events included a new three-year related-party research-facilities lease with Cedars-Sinai Medical Center, with rent of approximately $15,461 per month initially and approximately $19,350 per month beginning in the seventh month.
Most important facts for investors to verify
- Whether Janssen exercises its exclusive license option and the resulting timing and amount of any license, milestone or royalty economics.
- ALLSTAR Phase II enrollment, clinical execution, six-month and one-year results, and regulatory or trial-design developments.
- Actual cash burn after excluding the one-time $12.5 million Janssen payment and the timing of future CIRM disbursements.
- The company’s ability to fund CAP-1002 and other programs without substantial equity dilution or unfavorable debt terms.
- The repayment, forgiveness and potential risk-premium provisions of the CIRM loan.
- Future recognition of the $11.46 million of deferred Janssen income and the assumptions supporting the performance period.
- Exposure to related-party transactions, including Cedars-Sinai licensing, lease and payable arrangements.
- Clinical, regulatory and intellectual-property risks associated with CAP-1002, exosomes, cenderitide, CU-NP and other pipeline candidates.