Business Context and Reporting Period
Capricor Therapeutics, Inc. is a clinical-stage biotechnology company focused primarily on cardiovascular therapies. Its pipeline included six candidates, led by CAP-1002, an allogeneic cardiosphere-derived cell therapy, and Cenderitide. The company had no product sales and remained dependent on equity financings, grants, collaboration payments and debt financing.
This unaudited Form 10-Q covers the quarter and six months ended June 30, 2015, with comparisons to the corresponding 2014 periods.
Financial Results and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total income | $1.29 million, versus $1.04 million | $3.08 million, versus $2.08 million |
| Collaboration income | $0.91 million, versus $1.04 million | $1.95 million, versus $2.08 million |
| Grant income | $0.38 million, versus none | $1.13 million, versus none |
| Research and development expense | $3.43 million, versus $1.86 million | $7.23 million, versus $3.24 million |
| General and administrative expense | $0.93 million, versus $0.67 million | $2.32 million, versus $1.51 million |
| Net loss | $3.12 million, versus $1.53 million | $6.60 million, versus $2.74 million |
| Loss per share | $0.19, versus $0.13 | $0.42, versus $0.23 |
| Operating cash flow | Not separately provided | $(3.93) million, versus $5.33 million provided |
Net loss margins were approximately negative 242% of income for the quarter and negative 214% for the six-month period. The deterioration primarily reflected substantially higher clinical-development spending.
- At June 30, 2015, cash and cash equivalents were $5.04 million, marketable securities were $15.49 million, and restricted cash was $0.60 million. Cash plus marketable securities totaled approximately $20.5 million, compared with $8.0 million at December 31, 2014.
- Working capital was approximately $14.8 million, compared with $5.3 million at year-end 2014.
- Total liabilities were $19.14 million, including a $9.16 million CIRM loan payable, $6.38 million of deferred revenue, and $0.38 million of accrued interest.
- Stockholders’ equity improved to $4.56 million from a deficit of $6.25 million, primarily due to 2015 equity financings.
- Investing cash outflow of $15.55 million primarily reflected purchases of marketable securities. Financing cash inflow of $16.48 million primarily reflected approximately $17.0 million of net proceeds from two private placements.
Material Changes Versus the Prior Comparable Period
- Six-month R&D expense increased approximately $4.0 million, driven by active CAP-1002 and Cenderitide clinical trials, manufacturing and contract research costs, Janssen chemistry, manufacturing and controls work, and exosome development.
- Six-month G&A expense increased approximately $0.8 million, primarily from higher stock-based compensation, headcount and recruiting costs.
- Grant income increased by approximately $1.1 million for the first six months, reflecting NIH funding associated with the DYNAMIC trial.
- Operating cash flow changed from $5.33 million provided in the first half of 2014 to $3.93 million used in the first half of 2015. The prior-year inflow benefited significantly from the $12.5 million Janssen payment.
- The company issued 4,497,867 common shares in January and February 2015 for aggregate gross proceeds of approximately $17.05 million, before fees, increasing shares outstanding to 16,223,281 at June 30, 2015.
- Stock-based compensation increased to $0.92 million for the first six months from $0.19 million in the prior-year period.
Guidance, Outlook, Commentary and Risks
- Management expected 2015 CAP-1002 development spending of approximately $10 million to $14 million, primarily for the ALLSTAR Phase II and DYNAMIC trials.
- Management expected 2015 Cenderitide development spending of approximately $1 million to $2 million.
- ALLSTAR Phase II was designed to enroll up to 300 patients, but enrollment was slower than expected. The company was considering additional U.S. and Canadian sites and a potential interim analysis, subject to concurrence from interested parties including the FDA.
- DYNAMIC enrollment was completed in April 2015, with initial top-line results expected in late 2015. An additional Cenderitide cohort was planned, with initial top-line results expected in late 2015 or early 2016.
- CAP-1002 received FDA orphan-drug designation for cardiomyopathy associated with Duchenne muscular dystrophy in April 2015. The HOPE-Duchenne Phase I/II trial was designed to enroll up to 24 patients.
- Janssen held an exclusive option to license CAP-1002 and related technologies after delivery of six-month Phase II ALLSTAR follow-up results. If exercised, the arrangement could provide upfront and milestone payments of up to $325 million, plus royalties; exercise was not assured.
- The company expected continuing and increasing operating losses and negative operating cash flow. It stated that substantial additional capital would be required and that future financing might involve equity dilution, debt restrictions or unfavorable licensing terms.
- The CIRM loan carries repayment obligations, interest and a potential risk premium of up to 500% of the loan amount upon specified revenue thresholds. Future disbursements were subject to milestones, patient enrollment and availability of state funds, although certain forgiveness provisions may apply.
- The company reported no material pending legal proceedings, no material changes to previously disclosed risk factors and no off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Whether ALLSTAR enrollment improved and whether the interim analysis was conducted or accepted by the FDA.
- Results and safety data from the DYNAMIC and Cenderitide studies, including the additional Cenderitide cohort.
- Whether Janssen exercised its exclusive option and the resulting economics and development responsibilities.
- The timing and amount of additional financing required given continuing losses and planned clinical spending.
- The availability and conditions of remaining CIRM loan proceeds, repayment or forgiveness provisions, and potential risk-premium exposure.
- Actual cash consumption, marketable-securities liquidity and the company’s ability to fund operations and trials without substantial dilution.
- Potential dilution from 5.91 million outstanding stock options and 0.24 million warrants at June 30, 2015.