Business Context and Reporting Period
Capricor Therapeutics, Inc. is a clinical-stage biotechnology company focused on cell- and exosome-based therapies for Duchenne muscular dystrophy (DMD) and other rare disorders. The Form 10-K covers the fiscal year ended December 31, 2018; it is an annual filing rather than a standalone fourth-quarter report.
- CAP-1002: Allogeneic cardiosphere-derived cells, with the primary active program in Phase II HOPE-2 for DMD.
- CAP-2003: Cardiosphere-derived extracellular vesicles/exosomes in preclinical development for inflammatory and trauma-related conditions.
- The company has no products approved for commercial sale and has generated no commercial product revenue.
Financial Performance and Liquidity
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Total revenue | $1.67 million | $2.67 million | Down approximately $1.0 million |
| Research and development expense | $12.07 million | $10.77 million | Up approximately $1.3 million |
| General and administrative expense | $4.93 million | $4.76 million | Up approximately $0.1 million |
| Loss from operations | $(15.33) million | $(12.86) million | Loss increased |
| Net income (loss) | $(15.19) million | $2.43 million | Turned to loss |
| Cash used in operating activities | $(13.86) million | $(14.23) million | Improved by approximately $0.4 million |
| Cash and cash equivalents | $4.26 million | $6.14 million | Down approximately $1.9 million |
| Marketable securities | $3.00 million | $7.98 million | Down approximately $5.0 million |
| Working capital | $7.22 million | $14.04 million | Down approximately $6.8 million |
| Total liabilities | $4.63 million | $5.05 million | Down approximately $0.4 million |
Total cash, cash equivalents, restricted cash and marketable securities were approximately $7.5 million at December 31, 2018, including $0.3 million of restricted cash. The company reported an accumulated deficit of approximately $66.7 million and stockholders’ equity of approximately $4.6 million.
Financing activities provided $6.85 million in 2018, primarily from net common-stock proceeds of approximately $6.71 million and stock-option proceeds of approximately $0.14 million. The company had no interest expense in 2018 and no outstanding CIRM loan payable; the prior CIRM loan balance was forgiven in 2017.
Revenue consisted of approximately $1.0 million of grant income and $0.7 million of miscellaneous income from providing CAP-1002 doses for CSMC-sponsored trials. Collaboration income from Janssen was zero in 2018 versus approximately $1.4 million in 2017.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because all Janssen collaboration revenue had been recognized by June 30, 2017. Grant income also decreased modestly, while miscellaneous income from CSMC-sponsored trials increased.
- R&D spending increased due largely to CAP-1002 clinical activities, including HOPE-Duchenne, HOPE-2 and HOPE-OLE, partially offset by lower ALLSTAR spending and lower other CAP-1002/CAP-2003 research costs.
- The 2017 net income was primarily caused by approximately $15.7 million of non-cash income from forgiveness of the CIRM loan. That item did not recur in 2018.
- Cash resources declined as the company continued funding operations and clinical development. Common shares outstanding increased from approximately 26.3 million at year-end 2017 to approximately 31.4 million at year-end 2018, reflecting equity financing and dilution.
- ALLSTAR long-term follow-up was terminated, and the company expects no further material expenses for that trial.
Guidance, Outlook, Commentary and Risks
- Management expected to spend approximately $3.0 million to $5.0 million in 2019 on CAP-1002 development, primarily HOPE-2, depending on interim results and available funding.
- Management expected to spend approximately $0.5 million to $1.5 million in 2019 on CAP-2003 preclinical and related research. Approximately $0.7 million remained available under a Department of Defense grant at December 31, 2018.
- HOPE-2 had enrolled 20 patients by the filing date. Following an anaphylaxis serious adverse event, dosing was voluntarily paused in December 2018. FDA and the DSMB subsequently permitted resumption after implementation of a premedication strategy.
- The company was evaluating a smaller HOPE-2 sample size, possible dosing changes and a six-month interim analysis. Interim data were expected in early third quarter 2019. Continued enrollment and completion depended on results and additional funding.
- The FDA confirmed support for the PUL 2.0 mid-level test as the primary efficacy endpoint but stated that clinically meaningful changes and additional supportive evidence would be needed for HOPE-2 to potentially serve as a registration study.
- CAP-1002 has FDA Orphan Drug, Rare Pediatric Disease and RMAT designations. These designations do not assure regulatory approval or commercial success.
- The company and its auditors reported substantial doubt about the company’s ability to continue as a going concern. Management stated that available cash was insufficient to support current operations for at least twelve months from the filing date, although the notes indicated current estimates could fund operations into the fourth quarter of 2019 depending on HOPE-2 decisions.
- Management implemented cost reductions, including a 21-employee workforce reduction in January 2019, slower R&D activity and additional budget restrictions. The CEO’s annual salary was reduced to $150,000 effective February 2019.
- Additional financing may be sought through equity or debt offerings, licensing or strategic transactions, or government grants. Equity financing could materially dilute existing shareholders, while debt or strategic transactions could impose restrictive terms or require relinquishing rights.
- The company’s CSMC manufacturing premises were not an FDA-approved cGMP facility for commercial manufacturing. Commercial-scale or Phase III production would require a third-party collaboration or a new or expanded facility.
- CSMC had the right, subject to notice and cure provisions, to convert the exclusive exosome license to non-exclusive or co-exclusive status or terminate it if the company failed to file an IND by December 31, 2019, unless the deadline was extended.
- Nasdaq notified the company in December 2018 that its common stock had traded below the $1.00 minimum bid requirement. The initial compliance deadline was June 24, 2019, subject to applicable Nasdaq remedies.
Most Important Facts for Investors to Verify
- Cash runway, restricted cash availability and the company’s ability to obtain financing before resources are exhausted.
- HOPE-2 interim results, final trial design, enrollment status and whether the anaphylaxis event or premedication strategy affects safety or development timing.
- Whether HOPE-2 can provide data adequate for registration and what additional studies the FDA may require.
- CAP-2003 preclinical progress, grant funding availability and the timing of any IND filing.
- Potential dilution from the ATM program, outstanding options and warrants, and future equity financings.
- Compliance with the CSMC exosome-license IND milestone and the status of manufacturing scale-up and cGMP readiness.
- Resolution of the Nasdaq minimum-bid deficiency and continued listing status.
- Terms and potential repayment or conversion implications of the approximately $3.4 million CIRM liability.