CAPRICOR THERAPEUTICS, INC. quarterly report, Q2 FY2020

Capricor Therapeutics, Inc. — Form 10-Q Summary

Business Context and Reporting Period

Capricor is a clinical-stage biotechnology company developing cell- and exosome-based therapies. The filing covers the quarter and six months ended June 30, 2020. Lead programs included CAP-1002 for Duchenne muscular dystrophy (DMD) and severe COVID-19, and exosome-based therapies and vaccine candidates. The company had no commercial product sales.

Financial Position and Performance

Metric	Three Months Ended June 30, 2020	Three Months Ended June 30, 2019	Six Months Ended June 30, 2020	Six Months Ended June 30, 2019
Revenue	$49,864	$410,353	$235,557	$640,857
Research and development expense	$1.93 million	$1.64 million	$3.08 million	$3.46 million
General and administrative expense	$1.61 million	$0.83 million	$2.75 million	$1.81 million
Operating loss	$(3.49) million	$(2.07) million	$(5.60) million	$(4.62) million
Net loss	$(3.48) million	$(2.05) million	$(5.57) million	$(4.57) million
Basic and diluted loss per share	$(0.23)	$(0.59)	$(0.51)	$(1.35)

Cash and cash equivalents were $36.3 million at June 30, 2020, compared with $3.9 million at December 31, 2019. Cash, cash equivalents and marketable securities totaled approximately $36.3 million at June 30, 2020 versus $9.9 million at year-end 2019.
Working capital was approximately $34.6 million and stockholders’ equity was $31.7 million at June 30, 2020.
Cash used in operating activities was $3.2 million for the first six months of 2020, compared with $3.4 million in the prior-year period.
Investing activities provided $5.9 million, primarily from the net sale and maturity of marketable securities.
Financing activities provided $29.7 million, including approximately $20.2 million of gross proceeds from the May 2020 ATM program, approximately $4.9 million from warrant exercises, and $318,160 from a Paycheck Protection Program loan.
Total liabilities were $5.5 million, including a $3.4 million CIRM liability and $318,160 of PPP debt, of which $139,927 was current and $178,233 was long-term.
Approximately $35.8 million of deposits were uninsured at June 30, 2020.

Material Changes Versus Prior Comparable Period

Second-quarter revenue declined approximately 88% year over year, primarily because COVID-19 delayed or suspended sponsor-funded clinical activities and related dose purchases.
Six-month revenue declined approximately 63% year over year. Grant revenue decreased because the Department of Defense award was nearing completion, while miscellaneous clinical-trial revenue declined because of delays and the REGRESS clinical hold.
Second-quarter R&D expense increased approximately 17%, reflecting spending on the COVID-19 exosome vaccine program and CAP-1002 manufacturing, partly offset by lower HOPE-Duchenne, HOPE-2 and HOPE-OLE clinical-development costs.
Second-quarter G&A expense increased approximately 94%, primarily due to higher stock-based compensation, salaries, investor relations and legal expenses.
Six-month R&D expense decreased approximately 11%, while six-month G&A expense increased approximately 52%.
The share count increased substantially through equity sales and warrant exercises. Shares outstanding increased from 5.2 million at December 31, 2019 to 19.7 million at June 30, 2020, creating material dilution for existing holders.

Guidance, Outlook, Risks and Unusual Items

Management expected to spend approximately $4.0 million to $6.0 million during 2020 on CAP-1002 development for DMD and COVID-19, and approximately $3.0 million to $6.0 million on exosome research and preclinical programs. Actual spending depends on regulatory decisions, clinical plans, funding and potential partnerships.
The FDA encouraged a Phase III CAP-1002 study for DMD, but the company was still discussing the development and regulatory pathway. Management also initiated technology transfer activities with a global contract manufacturing organization.
CAP-1002 was administered to seven hospitalized COVID-19 patients under expanded access; four were discharged and three died. The company cautioned that efficacy was not demonstrated because of the small sample, concurrent experimental treatments and lack of a control group. A randomized, placebo-controlled Phase II study of up to 60 patients was being planned, subject to FDA approval.
The REGRESS investigator-sponsored study was placed on FDA clinical hold because of concerns regarding patient monitoring and adverse-event reporting. The timing, or whether, the hold would be released was uncertain. The ALPHA study was delayed by COVID-19.
The company filed an IND for CAP-2003 in DMD in April 2020 and was evaluating additional information requested by the FDA. It also pursued two preclinical exosome-based COVID-19 vaccine candidates.
The $318,160 PPP loan bears interest at 1% and matures April 29, 2022. Principal and interest payments were scheduled to begin November 29, 2020, subject to potential forgiveness. The company believed the proceeds were eligible for forgiveness but could not assure full or partial forgiveness.
The CIRM liability was approximately $3.4 million. Capricor had not decided whether to convert the award into a loan; conversion could require repayment of some or all awarded amounts.
The company stated that it will require substantial additional capital to fund operations and clinical development. Additional financing may be unavailable or dilutive, and failure to obtain funding could delay, curtail or terminate programs.
COVID-19 posed risks to trial enrollment and conduct, sponsor payments, supply chains, workforce stability, grant disbursements and access to financing. No material legal proceedings or off-balance-sheet arrangements were reported.

Important Facts for Investors to Verify

Progress toward FDA alignment and financing for a potential Phase III DMD study of CAP-1002.
FDA authorization, enrollment and results of the proposed randomized COVID-19 study.
Status of the REGRESS clinical hold and the delayed ALPHA study, including the approximately $0.6 million of potential remaining compensation.
Actual cash burn, remaining ATM capacity and the timing and terms of any additional equity or debt financing.
Whether the PPP loan receives forgiveness and whether the CIRM award is converted into a repayable loan.
Potential dilution from the 2.3 million outstanding stock options and 292,698 warrants at June 30, 2020, as well as future equity issuance.
Development and regulatory progress for CAP-2003 and the exosome-based vaccine candidates.