Capricor Therapeutics, Inc. — Q3 2015 Form 10-Q Summary
Business Context and Reporting Period
Capricor Therapeutics is a development-stage biotechnology company focused primarily on cardiovascular therapies. Its six candidates include CAP-1002, Cenderitide, exosomes, CAP-1001, CU-NP and cardiospheres. The unaudited report covers the quarter and nine months ended September 30, 2015, with comparisons to the same 2014 periods.
CAP-1002 remained the lead program, with the Phase II ALLSTAR trial and DYNAMIC trial underway. HOPE-Duchenne was open for enrollment following FDA clearance and orphan-drug designation. Cenderitide Phase II enrollment was completed, and the company planned an additional small, higher-dose study.
Financial Position and Results
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Total income | $1.315 million | $1.301 million | $4.394 million | $3.385 million |
| Collaboration income | $0.911 million | $1.042 million | $2.865 million | $3.125 million |
| Grant income | $0.403 million | $0.260 million | $1.530 million | $0.260 million |
| Research and development expense | $3.193 million | $1.967 million | $10.427 million | $5.204 million |
| General and administrative expense | $0.973 million | $0.820 million | $3.295 million | $2.333 million |
| Net loss | $2.912 million | $1.544 million | $9.511 million | $4.289 million |
| Loss per share | $0.18 | $0.13 | $0.60 | $0.37 |
At September 30, 2015, cash and cash equivalents were $4.218 million, marketable securities were $12.999 million, and total cash, cash equivalents and marketable securities were approximately $17.2 million. Working capital was approximately $11.2 million, compared with $5.3 million at December 31, 2014.
Total liabilities were $17.957 million, including a $9.156 million CIRM loan payable, $4.469 million of deferred revenue, and $0.444 million of accrued interest. Stockholders’ equity was $1.926 million, compared with a deficit of $6.249 million at year-end 2014.
For the nine months, operating cash flow was negative $7.175 million, investing cash flow was negative $13.133 million, and financing cash flow was $16.492 million. Financing included approximately $17.0 million of net proceeds from two private placements. The investing outflow primarily reflected purchases of marketable securities.
Material Changes Versus the Prior Comparable Period
- Nine-month R&D expense approximately doubled to $10.4 million, primarily because of higher clinical, manufacturing and patient-related costs for CAP-1002 and Cenderitide, along with DYNAMIC, ALLSTAR and Janssen CMC activities.
- Nine-month G&A expense increased approximately $1.0 million, driven principally by higher stock-based compensation, headcount, compensation and recruiting costs.
- Nine-month net loss increased to $9.5 million from $4.3 million, and quarterly net loss increased to $2.9 million from $1.5 million.
- Grant income increased substantially to $1.5 million for the nine months, reflecting NIH funding associated with DYNAMIC. Collaboration income declined modestly as Janssen upfront consideration continued to be recognized ratably.
- Cash and cash equivalents declined because approximately $13.0 million was transferred into marketable securities; total cash and marketable securities increased materially following the equity financings.
- Shares outstanding increased from 11.7 million at December 31, 2014 to 16.3 million at September 30, 2015, creating dilution for existing holders.
Guidance, Outlook, Risks and Unusual Items
- Management expected 2015 CAP-1002 development and manufacturing spending of approximately $9.0 million to $11.0 million and Cenderitide development spending of approximately $0.8 million to $1.3 million.
- The company expected continued substantial and increasing losses and negative operating cash flow. It stated that additional capital would be required and that financing may come from equity, debt, licensing transactions, collaborations or grants, with no assurance of availability or favorable terms.
- ALLSTAR enrollment was slower than expected. The company was adding U.S. and Canadian sites and considered an interim analysis, subject to concurrence from interested parties including the FDA.
- The Janssen collaboration provided a potential exclusive license option for CAP-1002. If exercised, potential upfront and milestone payments could total up to $325.0 million, plus royalties; however, Janssen was not obligated to exercise the option.
- The CIRM loan carries repayment obligations, interest and a potential risk premium of up to 500% of the loan amount upon specified revenue thresholds. CIRM may delay or discontinue future disbursements if milestones, enrollment or other conditions are not satisfied. On September 30, 2015, Capricor Therapeutics became jointly and severally responsible under the loan agreement.
- The company has no product sales and no approved products. Clinical, regulatory, manufacturing, intellectual-property, reimbursement, collaboration and financing risks remain substantial.
- There were no material pending legal proceedings or off-balance-sheet arrangements reported. Management concluded that disclosure controls were effective and reported no material change in internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether approximately $17.2 million of cash, cash equivalents and marketable securities is sufficient to fund operations and clinical programs, given negative nine-month operating cash flow of $7.2 million.
- The current enrollment status, interim-analysis plans and clinical results for ALLSTAR, DYNAMIC and HOPE-Duchenne.
- Whether Janssen exercises its CAP-1002 license option and the resulting funding, development-cost and royalty implications.
- The timing and conditions of remaining CIRM loan disbursements, potential repayment, forgiveness provisions and risk-premium exposure.
- Future financing needs, potential equity dilution and the company’s ability to continue funding Cenderitide, CAP-1002, exosomes and other programs.
- The reliability of preliminary clinical data, manufacturing capacity and regulatory status, particularly because no candidate had received marketing approval.