Business Context and Reporting Period
Capricor Therapeutics, Inc. is a clinical-stage biotechnology company developing cell- and exosome-based therapies. Its principal programs include CAP-1002 for Duchenne muscular dystrophy (DMD) and severe or critical COVID-19, and exosome technologies including vaccine candidates and CAP-2003. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2020.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 |
|---|---|---|---|---|
| Revenue | $16,863 | $142,071 | $252,420 | $782,928 |
| Research and development expense | $2.63 million | $0.86 million | $5.71 million | $4.31 million |
| General and administrative expense | $1.30 million | $0.91 million | $4.05 million | $2.72 million |
| Operating loss | $3.91 million | $1.63 million | $9.51 million | $6.25 million |
| Net loss | $3.91 million | $1.61 million | $9.48 million | $6.17 million |
| Basic and diluted loss per share | $0.20 | $0.43 | $0.68 | $1.76 |
Revenue consisted primarily of government grant income and payments for supplying CAP-1002 doses to investigator-sponsored trials. The company has no commercial product sales.
- Cash and cash equivalents were $35.3 million at September 30, 2020, compared with cash and marketable securities of approximately $9.9 million at December 31, 2019.
- Working capital was approximately $33.2 million at September 30, 2020, versus $9.6 million at year-end 2019.
- Total liabilities were $5.8 million, including a $3.4 million CIRM liability and $318,160 of Paycheck Protection Program debt, of which $193,241 was current.
- Stockholders’ equity was $30.4 million at September 30, 2020, compared with $6.8 million at December 31, 2019. The accumulated deficit was $83.9 million.
- Net cash used in operating activities was $6.2 million for the first nine months of 2020, compared with $5.0 million in the prior-year period.
- Investing activities provided $5.7 million, primarily reflecting net sales and maturities of marketable securities.
- Financing activities provided $31.9 million, principally from equity sales and warrant exercises.
- Cash-based operating performance remained negative; meaningful margin analysis is not applicable because revenue was minimal and the company remains pre-commercial.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue declined 88% year over year, while nine-month revenue declined 68%. Management attributed the decline primarily to COVID-19-related delays in the CSMC-sponsored REGRESS and ALPHA trials and the timing of grant activity.
- Third-quarter R&D expense increased approximately $1.7 million, driven by exosome development, CAP-1002 technology transfer and manufacturing activities, and DMD and COVID-19 clinical development.
- Nine-month R&D expense increased approximately $1.4 million, while nine-month G&A expense increased approximately $1.3 million. Higher stock-based compensation contributed materially to the G&A increase.
- Net loss increased approximately $2.3 million for the quarter and $3.3 million for the nine months, despite lower loss per share because of the substantial increase in shares outstanding.
- The company sold shares under its May 2020 at-the-market program and received approximately $23.1 million of gross proceeds through November 12, 2020. It also received approximately $4.9 million of gross proceeds from a March 2020 warrant inducement.
- Shares outstanding increased from 5.2 million at December 31, 2019 to 20.2 million at September 30, 2020, reflecting equity issuance and warrant exercises.
Guidance, Outlook, Risks and Unusual Items
- Management estimated 2020 spending of approximately $4.0 million to $6.0 million for CAP-1002 DMD and COVID-19 development and approximately $3.0 million to $5.0 million for exosome preclinical and research activities.
- The FDA continued to encourage a Phase III CAP-1002 DMD study. The company was still discussing the development and regulatory pathway, while seeking a strategic partner and evaluating the funding required to proceed.
- The Phase 2 INSPIRE trial of CAP-1002 in severe or critical COVID-19 was accepted by the FDA and was expected to begin active enrollment in the fourth quarter of 2020. The planned study could enroll up to 60 patients.
- Seven severely ill COVID-19 patients received CAP-1002 under expanded access; four were discharged and three died. The company cautioned that efficacy was not demonstrated because of the small, uncontrolled sample and concomitant experimental treatments.
- The REGRESS study was placed on FDA clinical hold in March 2020 because of patient monitoring concerns; the hold was removed in August 2020 and the study was re-initiated. COVID-19 continued to delay testing and dose purchases in REGRESS and ALPHA.
- The company filed an IND for CAP-2003 in DMD in April 2020 and was evaluating next steps with the FDA. It was also developing two exosome-based COVID-19 vaccine candidates, which remained preclinical.
- Management stated that cash resources were expected to fund operations for at least the next twelve months, but the company expects continuing losses and substantial additional capital needs. Future financing may dilute shareholders or include restrictive terms.
- The CIRM award liability was approximately $3.4 million. The company had not decided whether to convert the award into a loan, which could require repayment of some or all awarded amounts.
- The $318,160 PPP loan bears interest at 1% and matures April 29, 2022. The company planned to seek forgiveness but could not assure that the loan would be forgiven in whole or in part.
- Approximately $34.9 million of cash deposits were uninsured at September 30, 2020. No material legal proceedings were reported.
Important Facts for Investors to Verify
- Whether the FDA and the company agree on a viable Phase III and BLA pathway for CAP-1002 in DMD, and whether a development or commercialization partner is secured.
- Enrollment, safety and efficacy results from the INSPIRE COVID-19 trial and the status of the CAP-2003 IND.
- The company’s cash runway relative to projected clinical, manufacturing and exosome-program spending.
- Future equity issuance under the May 2020 ATM program, warrant exercises, dilution and the remaining shelf capacity.
- The outcome of the PPP loan forgiveness application and the company’s eventual election regarding the CIRM award.
- The effect of COVID-19 on clinical enrollment, trial payments, supply chains, grant funding and operating expenses.
- Whether investigator-sponsored trial payments, including approximately $0.6 million remaining under the CSMC arrangements, are received and whether related trial delays continue.