Capricor Therapeutics, Inc. — FY2013 Form 10-K Summary
Business context and reporting period
Capricor Therapeutics is a development-stage biopharmaceutical company focused on regenerative medicine and cardiovascular therapies. The filing covers the fiscal year ended December 31, 2013, with comparative results for 2012. On November 20, 2013, Nile Therapeutics merged with Capricor, changed its name to Capricor Therapeutics, effected a 1-for-50 reverse stock split, and became the public parent. Capricor was the accounting acquirer; prior-period financial statements primarily reflect Capricor’s historical operations.
The lead program is CAP-1002, an allogeneic cardiosphere-derived cell therapy being evaluated in the ALLSTAR trial. Other candidates include CAP-1001, cardiospheres, cenderitide, and CU-NP. The Company had no product sales and remained dependent on grants, financing, and strategic transactions.
Financial performance and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Grant income | $0.5 million | $1.9 million |
| Research and development expense | $5.2 million | $2.6 million |
| General and administrative expense | $2.2 million | $1.4 million |
| Loss from operations | $(6.9) million | $(2.1) million |
| Net loss | $(8.9) million | $(2.1) million |
| Net loss per share | $(0.85) | $(0.21) |
| Cash used in operating activities | $(6.1) million | $(2.1) million |
| Cash and cash equivalents | $1.7 million | $0.2 million |
| Marketable securities | $0.3 million | $4.2 million |
| Restricted cash | $1.4 million | None |
| Total liabilities | $6.1 million | $0.5 million |
| Shareholders’ equity | $(0.5) million | $4.9 million |
The Company reported no commercial revenue, no operating margins, and continuing development-stage losses. Total cash resources, including cash equivalents and marketable securities, were approximately $2.1 million at year-end, excluding restricted cash. The Company had approximately $6.1 million of liabilities and $1.6 million of working capital.
Operating cash use increased by approximately $4.0 million, primarily because of increased clinical development activity. Investing cash flow was positive $3.8 million, largely reflecting sales and maturities of marketable securities. Financing cash flow was positive $3.9 million, primarily from CIRM loan proceeds.
Material changes versus the prior comparable period
- R&D expense approximately doubled to $5.2 million as CAP-1002 clinical development and manufacturing activity increased.
- G&A expense increased approximately $0.8 million, driven by higher compensation, rent, and merger-related professional fees.
- Grant income declined approximately $1.4 million because of grant timing and the approaching end of major grant periods.
- Net loss increased approximately $6.8 million, including a $1.9 million goodwill impairment charge related to the merger, $58,134 of CIRM-loan interest expense, and lower investment income.
- Cash and cash equivalents increased, but marketable securities declined substantially as investments were sold to fund operations. Restricted cash of $1.4 million represented CIRM funds reserved for ALLSTAR costs.
- The November 2013 merger changed the corporate identity, capital structure, ownership profile, and reporting presentation. Former Capricor stockholders owned approximately 90% of the combined company on a fully diluted basis.
Guidance, outlook, risks, and unusual items
- Management expected to spend approximately $7.5 million to $10.0 million during 2014 on CAP-1002, primarily for Phase II of ALLSTAR.
- ALLSTAR Phase I enrolled 14 patients, met its safety endpoints, and received clearance to proceed to Phase II. Phase II was expected to enroll approximately 300 patients and began enrollment in the first quarter of 2014.
- On December 27, 2013, Capricor entered into a collaboration and exclusive license option agreement with Janssen. The Company received $12.5 million on January 7, 2014, after year-end. If Janssen exercises its option, potential upfront and milestone payments may total up to $325 million, plus double-digit royalties; these amounts are contingent and not assured.
- CIRM agreed to provide up to approximately $19.8 million over three and one-half years for ALLSTAR Phase II. The award is a loan, not equity, and includes repayment obligations, interest, possible risk-premium payments of up to 500% of the loan amount upon specified revenue thresholds, financial milestones, and potential forgiveness provisions.
- The Company stated that it would require substantial additional capital and expected continuing losses and negative operating cash flow for the foreseeable future. Equity financing could dilute shareholders, while debt or licensing transactions could impose restrictive terms or require relinquishment of rights.
- Manufacturing and laboratory operations depend on month-to-month leased facilities and access to a Cedars-Sinai GMP facility. Loss of that access could materially delay clinical development and require significant investment in replacement facilities.
- All product candidates remained unapproved and at early development stages. Key risks include clinical-trial failure or delay, regulatory rejection, immunological reactions to allogeneic cells, manufacturing and donor-heart supply constraints, intellectual-property challenges, dependence on licensors and collaborators, competition, and limited liquidity.
- The Company had no material pending legal proceedings and reported no off-balance-sheet arrangements. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2013; the auditor did not provide an internal-control attestation because the Company was a smaller reporting company.
Investor verification checklist
- Verify the timing, restrictions, remaining availability, repayment terms, and potential risk premium under the CIRM loan.
- Verify receipt and accounting treatment of the $12.5 million Janssen payment in January 2014, as well as the conditions and economics of Janssen’s license option.
- Review ALLSTAR Phase II enrollment, funding status, clinical milestones, safety data, and the assumptions underlying the $7.5 million to $10.0 million 2014 spending estimate.
- Assess projected cash burn and the timing and terms of any required equity, debt, grant, or partnership financing.
- Review dilution from outstanding options and warrants, including 4.9 million outstanding options and 332,281 outstanding warrants at December 31, 2013.
- Evaluate the sustainability of access to Cedars-Sinai laboratory and GMP manufacturing facilities and the Company’s plans for later-stage or commercial manufacturing.
- Review the merger-related goodwill impairment, reverse-merger accounting, reverse stock split, and ownership concentration.
- Confirm that historical results are not fully comparable to future periods because of the November 2013 merger and the accounting-acquirer presentation.