Capricor Therapeutics, Inc. — Q1 2016 Form 10-Q Summary
Business context and reporting period
Capricor is a clinical-stage biotechnology company focused primarily on cardiovascular therapies. It reported unaudited consolidated results for the three months ended March 31, 2016, with comparison to the three months ended March 31, 2015. The company had six drug candidates in various development stages and no product sales.
The lead program was CAP-1002, being evaluated in the Phase II ALLSTAR trial for patients with prior myocardial infarction and the Phase I/II HOPE-Duchenne trial for Duchenne muscular dystrophy-associated cardiomyopathy. Other programs included Cenderitide, exosomes, CAP-1001, CU-NP and cardiospheres.
Key financial metrics
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Total income | $1.215 million | $1.788 million | Down $0.573 million |
| Research and development expense | $4.341 million | $3.807 million | Up $0.534 million |
| General and administrative expense | $1.085 million | $1.396 million | Down $0.311 million |
| Operating loss | $4.211 million | $3.415 million | Loss increased $0.796 million |
| Net loss | $4.266 million | $3.476 million | Loss increased $0.790 million |
| Comprehensive loss | $4.272 million | $3.480 million | Loss increased $0.792 million |
| Basic and diluted loss per share | $0.26 | $0.23 | Higher loss per share |
| Cash used in operating activities | $4.181 million | $2.052 million | Use increased $2.129 million |
Revenue consisted of $0.911 million of collaboration income from Janssen and $0.304 million of grant income. The implied operating margin was approximately negative 347%, and the implied net margin was approximately negative 351%, reflecting the company’s development-stage cost structure.
At March 31, 2016, cash and cash equivalents were $11.766 million and marketable securities were $2.498 million, for total cash, cash equivalents and marketable securities of approximately $14.3 million. Working capital was approximately $7.549 million. Total assets were $16.985 million, total liabilities were $18.068 million, and stockholders’ equity was a deficit of $1.083 million.
Debt included a $10.156 million CIRM loan payable and $0.571 million of accrued interest. The loan balance with accrued interest was due in 2018 unless extended. Deferred revenue related to the Janssen collaboration totaled $3.646 million and was classified as current at March 31, 2016.
Material changes versus the prior comparable period
- Total income declined 32%, primarily because grant income fell from $0.746 million to $0.304 million as the DYNAMIC trial moved from active enrollment to follow-up. Janssen collaboration income declined modestly from $1.042 million to $0.911 million.
- R&D expense increased 14% as clinical development, manufacturing and patient-related costs for CAP-1002 increased. Higher costs for ALLSTAR, HOPE-Duchenne and other research programs were partly offset by lower DYNAMIC and Cenderitide clinical costs.
- G&A expense decreased 22%, primarily due to lower stock-based compensation.
- Cash used in operations more than doubled, driven mainly by the higher net loss and the absence of the $0.9 million restricted-cash release recorded in Q1 2015.
- Investing activities provided $5.449 million in Q1 2016, primarily from $8.0 million of marketable-security sales and maturities, compared with $15.525 million used in Q1 2015 for marketable-security purchases.
- Financing activities provided $4.931 million, including $3.930 million of net equity proceeds and a $1.0 million CIRM loan draw. The company issued 1,692,151 common shares at $2.40 per share and warrants to purchase 846,073 shares at $4.50 per share.
- Shares outstanding increased to 17,952,323 at March 31, 2016 from 16,254,985 at December 31, 2015, creating dilution for existing holders.
Guidance, outlook, commentary and risks
- Management expected 2016 CAP-1002 development and manufacturing spending of approximately $10.0 million to $13.0 million, Cenderitide spending of approximately $0.5 million to $1.0 million, and exosome preclinical spending of approximately $1.5 million to $2.5 million.
- The ALLSTAR enrollment target was reduced from up to 300 patients to approximately 120 patients after statistical modeling indicated that the smaller trial could retain sufficient power for the MRI scar-size endpoint. The revised protocol was approved by the Data Safety Monitoring Board and submitted to the FDA in February 2016.
- On May 12, 2016, after quarter-end, Capricor and CIRM amended the loan agreement to link future disbursements to operational milestones. Management expected ultimately to draw approximately 70% to 75% of the original amount available, potentially reducing total debt, but loss or delay of funding could delay ALLSTAR.
- CIRM approved an approximately $3.4 million grant for HOPE-Duchenne, subject to definitive documentation, milestone-based disbursements and a company co-funding requirement of approximately $2.3 million. The award could be reduced if the co-funding requirement is not met.
- The company had no product revenue and expected to require substantial additional capital through equity or debt financings, grants, licensing or strategic collaborations. Management cautioned that financing may be unavailable or available only on unfavorable terms, and additional equity could materially dilute shareholders.
- The Janssen collaboration provided $12.5 million historically and included an option for Janssen to obtain an exclusive worldwide license to certain CAP-1002-related rights. If exercised, potential milestone payments could total up to $325 million, but the option remained contingent on future clinical data and Janssen’s decision.
- Key risks included clinical-trial enrollment and outcomes, manufacturing and regulatory requirements, intellectual-property protection, reliance on third-party contractors and funding sources, CIRM milestone and repayment obligations, future dilution, and the possibility that product candidates may never receive approval or generate revenue.
- No material legal proceedings were reported, and management stated that there were no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Confirm the final terms, milestone schedule and funding availability under the May 2016 CIRM Loan Amendment.
- Track ALLSTAR enrollment, the revised approximately 120-patient design, FDA interactions and six- and twelve-month clinical endpoints.
- Verify execution of definitive documents for the approximately $3.4 million HOPE-Duchenne CIRM grant and compliance with the approximately $2.3 million co-funding requirement.
- Assess cash runway against expected 2016 development spending and the company’s stated need for additional financing.
- Monitor the Janssen option deadline and any resulting license, milestone or royalty economics.
- Review outstanding warrants and options, including 1.082 million warrants and 6.122 million options outstanding at March 31, 2016, for potential dilution.