Capricor Therapeutics(CAPR) - 2021 Q3 - Quarterly Report

Special Note Regarding Forward-Looking Statements Forward-Looking Statements Disclaimer The report contains forward-looking statements with inherent risks and uncertainties that may cause actual results to differ - Forward-looking statements involve substantial risks and uncertainties, and actual results may differ materially from expectations[6][7][9] - The company does not undertake to update forward-looking statements unless required by law[10] - Data, estimates, and forecasts from independent industry publications are used but not independently verified by the company[11] PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and accompanying notes for Capricor Therapeutics, Inc Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (September 30, 2021 vs. December 31, 2020) | Metric | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :---------------------------------- | :----------------------- | :----------- | | Cash and cash equivalents | $40,839,158 | $32,665,874 | | Total Current Assets | $41,298,245 | $33,677,083 | | Total Assets | $43,100,521 | $34,618,796 | | Total Current Liabilities | $2,988,292 | $2,971,282 | | Total Liabilities | $6,364,551 | $6,419,012 | | Total Stockholders' Equity | $36,735,970 | $28,199,784 | Condensed Consolidated Statements of Operations and Comprehensive Loss Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) | Metric | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $0 | $16,863 | $244,898 | $252,420 | | Research and development | $2,513,915 | $2,629,267 | $9,307,512 | $5,711,896 | | General and administrative | $1,800,630 | $1,301,673 | $5,496,186 | $4,049,955 | | Total Operating Expenses | $4,314,545 | $3,930,940 | $14,803,698 | $9,761,851 | | Loss from Operations | $(4,314,545) | $(3,914,077) | $(14,558,800) | $(9,509,431) | | Total Other Income (Expense) | $382,738 | $3,953 | $726,804 | $30,335 | | Net Loss | $(3,931,807) | $(3,910,124) | $(13,831,996) | $(9,479,096) | | Comprehensive Loss | $(3,931,807) | $(3,910,124) | $(13,831,996) | $(9,478,339) | | Net loss per share, basic and diluted | $(0.17) | $(0.20) | $(0.61) | $(0.68) | | Weighted average shares, basic and diluted | 23,095,375 | 19,801,841 | 22,731,638 | 13,958,507 | Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - Nine Months Ended September 30, 2021 | Metric | Common Shares | Stock Amount | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity | | :---------------------------------- | :------------ | :----------- | :------------------------- | :------------------ | :------------------------- | | Balance at December 31, 2020 | 20,577,123 | $20,577 | $116,216,966 | $(88,037,759) | $28,199,784 | | Issuance of common stock, net of fees | 3,365,349 | $3,368 | $19,972,425 | — | $19,975,891 | | Stock-based compensation | — | — | $2,185,542 | — | $2,185,542 | | Stock options exercised | 5,683 | $6 | $6,643 | — | $6,649 | | Net loss | — | — | — | $(13,831,996) | $(13,831,996) | | Balance at September 30, 2021 | 24,149,155 | $24,149 | $138,581,576 | $(101,869,755) | $36,735,970 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30 | Metric | 2021 | 2020 | Change (2021 vs 2020) | | :------------------------------------------ | :----------- | :----------- | :-------------------- | | Net cash used in operating activities | $(11,181,741) | $(6,212,413) | $(4,969,328) | | Net cash provided by (used in) investing activities | $(827,615) | $5,727,327 | $(6,554,942) | | Net cash provided by financing activities | $20,182,640 | $31,886,098 | $(11,703,458) | | Net increase in cash and cash equivalents | $8,173,284 | $31,401,012 | $(23,227,728) | | Cash and cash equivalents at end of period | $40,839,158 | $35,300,340 | +$5,538,818 | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures for the financial statements, covering accounting policies, equity, and commitments Note 1. Organization and Summary of Significant Accounting Policies This note outlines Capricor's business, basis of presentation, and significant accounting policies including liquidity and COVID-19 impacts Description of Business - Capricor Therapeutics, Inc is a biotechnology company developing transformative cell and exosome-based therapeutics for a broad spectrum of diseases[30] - The company has multiple active drug and vaccine candidates in various stages of development[30] Basis of Presentation - Unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP and Form 10-Q instructions[31] - Interim results are not necessarily indicative of the results expected for the full year[31] Basis of Consolidation - Consolidated financial statements include the Company and its wholly-owned subsidiary, with all intercompany transactions eliminated[33] Liquidity - The Company's cash and cash equivalents increased to approximately $40.8 million as of September 30, 2021, from $32.7 million at December 31, 2020[35] - Future expenditures and capital requirements are substantial and depend on R&D, manufacturing, and commercialization costs[38] - The Company will require substantial additional capital and cannot assure availability on favorable terms[39][40] Business Uncertainty Related to the Coronavirus - COVID-19 has impacted clinical trial enrollment, contract performance, workforce stability, and supply chain[41] - The Company received a $318,160 PPP loan in April 2020, which was forgiven in April 2021[42][81] - The Company recorded $367,168 in Employee Retention Credit (ERC) as other income for the nine months ended September 30, 2021[43] Use of Estimates - Financial statements require management to make estimates and assumptions, particularly for stock-based compensation expense[44][45] Cash and Cash Equivalents - Highly liquid investments with a maturity of less than 30 days at purchase are considered cash equivalents[47] Marketable Securities - All marketable securities are classified as available-for-sale, carried at estimated fair values[48] Property and Equipment - Property and equipment are stated at cost and depreciated using the straight-line method over 5 to 7 years[49] - Depreciation expense was $164,887 for the nine months ended September 30, 2021, compared to $98,567 for the same period in 2020[49] Property and Equipment, Net | Category | September 30, 2021 | December 31, 2020 | | :------------------------ | :----------------- | :---------------- | | Furniture and fixtures | $55,440 | $48,676 | | Laboratory equipment | $2,294,559 | $1,473,708 | | Leasehold improvements | $47,043 | $47,043 | | Less accumulated depreciation | $(883,467) | $(718,580) | | Property and equipment, net | $1,513,575 | $850,847 | Intangible Assets - Intangible assets are amortized over 5 to 15 years; all capitalized intellectual property was fully amortized as of September 30, 2021[50] - Amortization expense was $2,165 for the nine months ended September 30, 2021, compared to $3,247 for the same period in 2020[50] - No impairment was recorded for goodwill and intangible assets for the nine months ended September 30, 2021 and 2020[51] Leases - The Company adopted ASC Topic 842, requiring recognition of most leases on the balance sheet with a right-to-use (ROU) asset and lease liabilities[52][55] - All current leases for office and laboratory space are classified as operating leases[56][57] Revenue Recognition - The Company applies ASU 606, Revenue from Contracts with Customers, for all contracts[59] Government Research Grants - Government research grants are recognized as income when related expenses are incurred, but the CIRM Award is classified as a liability[60] Miscellaneous Income - Revenue from miscellaneous income is recognized upon delivery of doses developed from past R&D efforts[61] Research and Development - R&D costs are expensed as incurred, amounting to approximately $2.5 million for Q3 2021 and $9.3 million for the nine months ended September 30, 2021[62] Comprehensive Income (Loss) - Comprehensive loss was approximately $3.9 million for Q3 2021 and $13.8 million for the nine months ended September 30, 2021[64][65] - Other comprehensive income (loss) is related to net unrealized gain (loss) on marketable securities[65] Clinical Trial Expense - Clinical trial expenses are accrued based on the progress of the trial, patient progression, and timing of services[66] - Accrual estimates depend on timely and accurate reporting from CROs and other third-party vendors[66] Stock-Based Compensation - Stock-based compensation expense is recognized based on estimated fair values using the Black-Scholes model[67][68] - Key assumptions for the Black-Scholes model include expected volatility, expected term, and dividend yield[68] Basic and Diluted Loss per Share - Basic and diluted loss per share are computed by dividing net loss by the weighted-average number of common shares outstanding[69][70] - Warrants and options to purchase 3,968,546 shares (2021) were excluded from diluted EPS calculation due to their anti-dilutive effect[70] Fair Value Measurements - Carrying amounts of cash, accounts payable, and accrued expenses approximate fair value due to short maturity[73] Recent Accounting Pronouncements - The Company adopted ASU 2019-12 (Income Taxes) in Q1 2021, which did not have a material impact on financial statements[74] - Other recent pronouncements are not believed to have a material impact[75] Note 2. Note Payable This note details the Paycheck Protection Program (PPP) loan received by Capricor and its subsequent forgiveness - Capricor received a $318,160 PPP loan in Q2 2020, which was used for covered payroll costs[76] - The loan was forgiven by the SBA in April 2021, and the Company recognized a gain on forgiveness in Q2 2021[81] Note 3. Stockholder's Equity This note describes the Company's various equity programs, public offerings, and warrant inducements as key sources of capital ATM Programs and Other Offerings - The Company uses "at-the-market" (ATM) programs to sell common stock and has completed public offerings to raise capital[82] August 2019 ATM Program - This program expired on May 4, 2020, and was replaced by the May 2020 ATM Program[83] August 2019 ATM Program Summary | Metric | Value | | :-------------------- | :---------------- | | Shares sold | 360,316 | | Average price per share | ~$3.07 | | Gross proceeds | ~$1.1 million | | Commissions & fees | ~$0.1 million | May 2020 ATM Program - This program expired on June 21, 2021, and was replaced by the June 2021 ATM Program[84] May 2020 ATM Program Summary | Metric | Value | | :-------------------- | :---------------- | | Aggregate offering price | Up to $40.0 million | | Shares sold | 6,027,852 | | Average price per share | ~$6.15 | | Gross proceeds | ~$37.1 million | | Commissions & fees | ~$1.2 million | June 2021 ATM Program June 2021 ATM Program Summary (as of Sep 30, 2021) | Metric | Value | | :-------------------- | :---------------- | | Aggregate offering price | Up to $75.0 million | | Shares sold | 1,267,475 | | Average price per share | ~$5.89 | | Gross proceeds | ~$7.5 million | | Commissions & fees | ~$0.3 million | | Remaining to be sold | ~$67.5 million | December 2019 Financing December 2019 Public Offering Summary | Metric | Value | | :-------------------------------- | :---------------- | | Common stock issued | 531,173 shares | | Warrants to purchase common stock | 4,139,477 shares | | Pre-funded warrants | 3,608,304 shares | | Combined purchase price | $1.226 per share/warrant | | Aggregate purchase price | ~$5.1 million | | Net proceeds (after fees) | ~$4.4 million | | December 2019 Common Warrants outstanding (Sep 30, 2021) | 61,173 | March 2020 Warrant Inducement - The Company issued 4,000,000 new warrants in connection with the exercise of 4,000,000 December 2019 Common Warrants, generating gross proceeds of approximately $4.9 million[89][91] - New Warrants have an exercise price of $1.27 per share and a term of 5.5 years[89][90] - As of September 30, 2021, 65,000 March 2020 Placement Agent Warrants remained outstanding[91] Outstanding Shares - As of September 30, 2021, the Company had 24,149,155 shares of common stock issued and outstanding[92] Note 4. Stock Awards, Warrants and Options This note details the Company's stock option plans, warrant activity, and stock-based compensation expense Warrants Outstanding Warrants to Purchase Common Stock (September 30, 2021) | Type | Grant Date | Warrants Outstanding | Exercise Price per Share | Expiration Date | | :---------------- | :--------- | :------------------- | :----------------------- | :-------------- | | Common Warrants | 12/19/2019 | 61,173 | $1.10 | 12/19/2024 | | Common Warrants | 3/27/2020 | 65,000 | $1.5313 | 3/27/2025 | | Total | | 126,173 | $1.32 (Weighted Avg) | | Stock Options - The Company has five stock option plans with 3,836,588 options available for issuance as of September 30, 2021[94][103] - Stock options are granted with an exercise price equal to the closing price on the grant date and generally vest over one to four years[104] - Total unrecognized fair value compensation cost related to non-vested stock options was approximately $8.5 million as of September 30, 2021, expected to be recognized over ~1.5 years[111] Weighted Average Fair Value of Options Granted | Period | Weighted Average Fair Value per Share | | :---------------------------------- | :------------------------------------ | | Three months ended Sep 30, 2021 | ~$4.03 | | Three months ended Sep 30, 2020 | ~$5.23 | | Nine months ended Sep 30, 2021 | ~$3.40 | | Nine months ended Sep 30, 2020 | ~$3.91 | Black-Scholes Option-Pricing Model Assumptions | Assumption | September 30, 2021 | September 30, 2020 | | :------------------ | :----------------- | :----------------- | | Expected volatility | 123% - 124% | 104% - 123% | | Expected term | 6 years | 5 - 6 years | | Dividend yield | 0% | 0% | Employee and Non-Employee Stock-Based Compensation Expense | Category | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | General and administrative | $654,744 | $418,147 | $1,913,005 | $1,287,474 | | Research and development | $65,537 | $68,630 | $272,537 | $191,460 | | Total | $720,281 | $486,777 | $2,185,542 | $1,478,934 | Stock Option Activity (Nine Months Ended September 30, 2021) | Metric | Number of Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | | :---------------------------------- | :---------------- | :------------------------------ | :------------------------ | | Outstanding at December 31, 2020 | 2,361,873 | $1.89 | $4,236,737 | | Granted | 1,636,324 | $3.95 | | | Exercised | (5,883) | $1.39 | $22,761 | | Expired/Cancelled | (149,941) | $3.89 | | | Outstanding at September 30, 2021 | 3,842,373 | $2.69 | $5,737,004 | | Exercisable at September 30, 2021 | 1,454,788 | $1.92 | $3,161,020 | Note 5. Concentrations This note addresses the Company's cash concentration risk in uninsured bank deposits Cash Concentration - The Company maintained approximately $40.6 million of uninsured deposits as of September 30, 2021, across two financial institutions[112] - The Company believes it is not exposed to significant credit risk on cash, cash equivalents and marketable securities[112] Note 6. Government Grant Awards This note details government grant awards for the HOPE-Duchenne clinical trial and CAP-2003 manufacturing CIRM Grant Award (HOPE) - Capricor received a ~$3.4 million CIRM Award in 2016 to fund its Phase I/II HOPE-Duchenne clinical trial for DMD[113] - The CIRM Award is classified as a liability because Capricor has the right to convert it into a loan[116] - As of September 30, 2021, the liability balance for the CIRM Award was approximately $3.4 million[117] U.S. Department of Defense Grant Award - Capricor received a ~$2.4 million DoD grant in 2016 for developing CAP-2003 manufacturing, utilizing ~$2.3 million[118] - No revenue was recognized from this award in 2021, and final close-out documentation was completed in Q3 2021[118] Note 7. Commitments and Contingencies This note outlines the Company's commitments including leases, legal contingencies, and other funding obligations Leases - Capricor has a month-to-month lease for corporate offices and extended a facilities lease with CSMC through July 2022[119][120] - A new lease agreement for office and laboratory space in San Diego commenced October 1, 2021, with an estimated ROU asset/liability of ~$2.7 million[121] Future Minimum Rental Payments Under Operating Leases (as of Sep 30, 2021) | Year | Operating Leases | | :--- | :--------------- | | 2021 (3 month) | $32,120 | | 2022 | $74,946 | Operating Lease Expenses | Category | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Unrelated parties | $39,219 | $48,687 | $117,657 | $146,061 | | Related parties | $37,218 | $47,415 | $132,048 | $142,245 | Legal Contingencies - The Company is not currently a party to any material legal proceedings[127] Accounts Payable - Estimated liabilities are recorded for vendor payment disputes that are probable and estimable[128] Other Funding Commitments - The Company has agreements requiring future payments for licensed technology milestones or royalties[129][130] Employee Severances - The Board approved severance packages for specific employees, but no liability has been recorded as of September 30, 2021[131] Note 8. License Agreements This note details Capricor's license agreements for intellectual property related to its core technologies Capricor's Technology - CAP-1002 and Exosomes - Capricor holds exclusive license agreements for intellectual property related to cardiac-derived cells (CAP-1002) and exosomes[132] - The Company also has a non-exclusive license with JHU for COVID-19 imaging-based serology technology[132] University of Rome License Agreement - Capricor has an exclusive, worldwide, royalty-bearing license from the University of Rome, requiring annual minimum royalties of 20,000 Euros[134][135] - The agreement includes a right of first negotiation for new cardiac stem cell patents[134][136] The Johns Hopkins University License Agreements This section outlines Capricor's multiple license agreements with Johns Hopkins University for its core technologies License Agreement for CDCs - Capricor holds an exclusive, worldwide, royalty-bearing license from JHU for CDC technology[137] - Payments include an initial license fee, minimum annual royalties, and low single-digit running royalties on net sales[138] - Development milestone payments up to $1,850,000 are required, with $250,000 accrued as of September 30, 2021[138] License Agreement for Serology Diagnostic - Capricor has a non-exclusive, worldwide, non-royalty-bearing license from JHU for COVID-19 serology diagnostic technology[141] License Agreement for Exosome-based Vaccines and Therapeutics - Capricor entered an exclusive, worldwide, royalty-bearing license with JHU for exosome-mRNA vaccines and therapeutics[142] - The agreement includes an upfront license fee, development milestones, low single-digit royalties on sales, and a double-digit percentage of sublicense consideration[143] - Minimum annual royalties will be due starting the third year[143] Cedars-Sinai Medical Center License Agreements This section details Capricor's exclusive license agreements with Cedars-Sinai Medical Center for its core technologies License Agreement for CDCs - Capricor has an exclusive, worldwide, royalty-bearing license from CSMC for CDC technology[145][148] - Obligations include low single-digit royalties on sales and meeting certain spending and development milestones[149][150] - The agreement can be terminated for reasons including material breach or failure to exploit patent rights[151] License Agreement for Exosomes - Capricor holds an exclusive, worldwide, royalty-bearing license from CSMC for exosomes technology[153] - Obligations include a license fee, meeting development milestones, low single-digit royalties on sales, and a single-digit percentage of sublicense consideration[154][155] - Numerous amendments have added patent applications and modified deadlines, with failure to meet milestones potentially leading to termination[158] Sponsored Research Agreement with Johns Hopkins University - Capricor entered a Sponsored Research Agreement with JHU to fund research for its exosomes program[159] Note 9. Related Party Transactions This note discloses transactions with related parties, including lease agreements, consulting services, and clinical trial support Lease and Sub-Lease Agreement - Capricor leases facilities from CSMC (a related party) and previously had a sublease with a company wholly owned by a director[160][161] - Sublease income from the related party was $0 for the nine months ended September 30, 2021, compared to $20,000 in 2020[161] Consulting Agreements - Capricor has a consulting agreement with Dr Frank Litvack, Executive Chairman, for $10,000 per month[162] Payables to Related Party - Payments to CSMC for R&D, clinical trials, and rent were approximately $292,400 for the nine months ended September 30, 2021[164] Accounts Payable and Accrued Expenses to Related Parties (CSMC) | Date | Amount | | :----------------- | :----------- | | September 30, 2021 | $497,080 | | December 31, 2020 | $8,972 | Related Party Clinical Trials - Capricor provided CAP-1002 for two CSMC-sponsored clinical trials, receiving approximately $1.7 million in total compensation[165] - Revenue recognized from these trials was approximately $245,000 for the nine months ended September 30, 2021[165] - Enrollment for these studies is complete, and no further material revenues are expected[165] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition, operational results, liquidity, and critical accounting policies Overview - Capricor Therapeutics is a clinical-stage biotechnology company focused on developing cell and exosome-based therapeutics[169] Cell Therapy (CAP-1002) Program This section details the CAP-1002 cell therapy program's development for Duchenne Muscular Dystrophy and COVID-19 CAP-1002 - Duchenne Muscular Dystrophy Program - CAP-1002 is being investigated for immunomodulatory activity and cellular regeneration in DMD[170] - The Phase II HOPE-2 trial met its primary efficacy endpoint (Mid-level PUL 1.2) and secondary cardiac endpoints[170] - A Phase III trial protocol has been submitted to the FDA, but enrollment is contingent on securing a partner or additional capital[170] CAP-1002 - COVID-19 Program - An Expanded Access program for severe COVID-19 patients showed some biomarker improvements, but efficacy was not demonstrated[171] - The Phase II INSPIRE trial for severe/critical COVID-19 patients completed enrollment of 63 patients in November 2021[172][173] - The Company is actively seeking partners for the COVID-19 program[173] Exosomes Program This section outlines Capricor's exosome program, including vaccine development and therapeutic applications Exosomes-Based Vaccine - The Company is developing a multivalent exosome-mRNA vaccine candidate for COVID-19 prevention[175] - A pre-IND meeting with the FDA has occurred, and an IND filing is planned[175] Exosome-Based Therapeutics - Capricor is developing its exosomes platform as a next-generation therapeutic for delivering nucleic acids (e.g., mRNA)[176] - The Company recently licensed intellectual property related to exosome-mRNA vaccines and therapeutics from JHU[177] CDC-Derived Exosomes (CAP-2003) - An IND for CAP-2003 in DMD patients was filed, but the FDA has requested more manufacturing information[178] - CAP-2003 is also being evaluated for trauma-related injuries in collaboration with the U.S. Army[179] - The exosomes pipeline is supported by collaborations with JHU, DoD, NIH, and CSMC[180] Our Technologies This section describes Capricor's core technologies, Cardiosphere-Derived Cells (CAP-1002) and Exosomes Cardiosphere-Derived Cells (CAP-1002) - CAP-1002 is an allogeneic cardiac-derived cell therapy with immunomodulatory activity, being developed for DMD[183][187] - Preclinical studies show CDCs stimulate cell proliferation, blood vessel growth, and inhibit cell death/scar formation[184] - CDCs are small enough for intracoronary or peripheral venous infusion[185][187] Exosomes - Exosomes are nano-scale vesicles that mediate therapeutic activities like cell survival, proliferation, and tissue regeneration[188][189] - Preclinical data indicates CDCs mediate most therapeutic activities through exosome secretion[188] - Exosomes are considered a new class of therapeutic agents due to their size, low immunogenicity, and cell-free nature[189] Background on Duchenne Muscular Dystrophy - DMD is a rare, progressive muscular dystrophy affecting 15,000-20,000 males in the US[191] - DMD patients experience progressive muscle weakness, loss of ambulation, and abbreviated lifespan, with cardiomyopathy being the leading cause of death[192] Phase II HOPE-2 Clinical Trial - The HOPE-2 trial was a randomized, double-blind, placebo-controlled Phase II study in 20 DMD patients[193][194] - The primary efficacy endpoint was the Performance of the Upper Limb (PUL) test[195] - CAP-1002 was generally safe and well-tolerated, with hypersensitivity reactions mitigated by pre-medication[202] HOPE-2 12-Month Final Efficacy Data (CAP-1002 vs. Placebo) | Metric | Change from Baseline (Δ) | p-value | | :---------------------------------- | :----------------------- | :------ | | Skeletal-Muscle (Upper Limb Function) | | | | Mid-level PUL (version 1.2) | 2.6 | 0.01 | | Shoulder + Mid + Distal PUL (version 1.2) | 3.2 | 0.02 | | Shoulder + Mid + Distal PUL (version 2.0) | 1.8 | 0.04 | | Cardiac Function | | | | LV Ejection Fraction % | 4.0 | 0.002 | | LV End-Diastolic Volume, Indexed mL/m² | -12.4 | 0.03 | | LV End-Systolic Volume, Indexed mL/m² | -4.2 | 0.01 | | Creatine Kinase-MB (% of total CK) | -2.2 | 0.02 | Phase I/II HOPE-Duchenne Clinical Trial - The HOPE-Duchenne trial evaluated a one-time intracoronary infusion of CAP-1002 in 25 DMD patients[203] - 12-month data showed significant improvement in mid-distal PUL subscales for lower-functioning patients and reduced heart muscle scarring[204] - CAP-1002 was generally safe and well-tolerated in this trial[207] Regulatory Designations for CAP-1002 for the treatment of DMD - CAP-1002 received Orphan Drug, Rare Pediatric Disease, and RMAT designations for DMD[208][209][210] - These designations provide incentives such as market exclusivity and eligibility for a Priority Review Voucher[208][209] - RMAT designation expedites development and review, including potential for accelerated approval[210] CAP-1002 for the Treatment of SARS-CoV-2 - CAP-1002 is being investigated for SARS-CoV-2 treatment due to its potential to attenuate cytokine storm and cardiac complications[211] - Enrollment for the INSPIRE Phase II clinical trial in SARS-CoV-2 patients has been completed[211] CAP-1002 for the Treatment of Cardiac Conditions - The Company has completed trials for CAP-1002 in heart failure and post-MI cardiac dysfunction but has decided not to pursue these indications[212][213] - No further material expenses are expected for these cardiac programs[214] CAP-1002 - Investigator Sponsored Clinical Trials - Capricor provided CAP-1002 for two CSMC-sponsored trials, both of which have completed enrollment[215] - No further material revenues are expected from these investigator-sponsored trials[215] Exosomes Program (Detailed) This section details the expanded exosomes program, including vaccines, engineered platforms, and CDC-derived exosomes Exosomes-Based Vaccine Platform - The Company is developing exosome-based vaccines for COVID-19, aiming for multivalent exosome-mRNA vaccines[219][220] - Positive preclinical data for an exosome-mRNA vaccine approach was announced in December 2020, and an IND filing is planned[220] - A non-exclusive license for an imaging-based serology test platform for COVID-19 was obtained from JHU[221] Engineered Exosomes Platform - Capricor is actively developing an engineered exosomes platform for delivering nucleic acids, including mRNA[223] - Published data demonstrated exosome-mediated mRNA delivery with enhanced expression and lower toxicity compared to lipid nanoparticles[223] CDC-Exosomes (CAP-2003) - CAP-2003 has promising preclinical data in indications like DMD, sepsis, GVHD, and trauma[224] - An IND for CAP-2003 in DMD was filed, but the FDA requires more manufacturing information before potential acceptance[225] Financial Operations Overview This section reviews Capricor's financial operations, highlighting its reliance on equity financing and significant R&D expenses Revenue - The Company has no commercial product sales to date and does not expect to generate revenue for several years, if ever[227] Operating Expenses - R&D expenses include salaries, supplies, clinical trial costs, and manufacturing costs[228] - G&A expenses cover executive, finance, and administrative salaries, professional fees, and insurance[229] - Non-cash stock-based compensation expense is recorded for stock options and warrants, expensed over their vesting period using the Black-Scholes model[230][231] Products Under Active Development - Expected R&D spending for CAP-1002 in 2021 is $6.0 million to $8.0 million[241] - Expected R&D spending for exosome technologies in 2021 is $6.0 million to $8.0 million[242] - Future expenditures are highly uncertain and depend on trial results, funding, and strategic partners[243] Results of Operations This section analyzes revenue and operating expenses for the three and nine months ended September 30, 2021, versus 2020 Revenue This subsection details changes in grant, miscellaneous, and other income for the reported periods Grant Income - The decrease in grant income is due to the expiration of the DoD Grant Award in September 2020[232] Grant Income | Period | 2021 | 2020 | Change | | :------------------------------ | :--- | :------- | :----- | | Three months ended Sep 30 | $0 | ~$17,000 | -$17,000 | | Nine months ended Sep 30 | $0 | ~$0.2 million | -$0.2 million | Miscellaneous Income - The increase in miscellaneous income was related to providing CAP-1002 for CSMC-sponsored clinical trials[233] Miscellaneous Income | Period | 2021 | 2020 | Change | | :------------------------------ | :----------- | :----------- | :------- | | Three months ended Sep 30 | $0 | $0 | $0 | | Nine months ended Sep 30 | ~$0.2 million | $0.1 million | +$0.1 million | Other Income - Other income for 2021 was related to the Employer Retention Credit under the CARES Act[234] Other Income | Period | 2021 | 2020 | Change | | :------------------------------ | :----------- | :--- | :----------- | | Three months ended Sep 30 | $0.4 million | $0 | +$0.4 million | | Nine months ended Sep 30 | $0.4 million | $0 | +$0.4 million | Operating Expenses This subsection analyzes changes in G&A and R&D expenses for the three and nine months ended September 30, 2021 General and Administrative Expenses - The increase in G&A expenses for Q3 2021 was primarily due to a ~$0.2 million increase in stock-based compensation[235] - The nine-month increase was mainly driven by a ~$1.0 million increase in salaries, recruiting, and stock-based compensation[236] General and Administrative Expenses | Period | 2021 | 2020 | Change | | :------------------------------ | :----------- | :----------- | :----------- | | Three months ended Sep 30 | ~$1.8 million | $1.3 million | +$0.5 million | | Nine months ended Sep 30 | ~$5.5 million | $4.0 million | +$1.5 million | Research and Development Expenses - The Q3 2021 decrease was due to a net ~$0.7 million decrease in CAP-1002 clinical development, offset by a ~$0.6 million increase in exosome R&D[237] - The nine-month increase was primarily due to a ~$1.9 million increase in exosome program R&D and a ~$1.3 million increase in CAP-1002 manufacturing[240] Research and Development Expenses | Period | 2021 | 2020 | Change | | :------------------------------ | :----------- | :----------- | :----------- | | Three months ended Sep 30 | ~$2.5 million | $2.6 million | -$0.1 million | | Nine months ended Sep 30 | ~$9.3 million | $5.7 million | +$3.6 million | Liquidity and Capital Resources This section discusses Capricor's liquidity, cash flow, and capital-raising efforts, highlighting the need for additional capital Financing Activities by the Company This subsection details the Company's equity financing activities, including ATM programs and public offerings June 2021 ATM Program - Initiated on June 21, 2021, for up to $75.0 million in common stock sales[255] June 2021 ATM Program Sales (June 21 - Sep 30, 2021) | Metric | Value | | :-------------------- | :---------------- | | Shares sold | 1,267,475 | | Average price per share | ~$5.89 | | Gross proceeds | ~$7.5 million | | Commissions & fees | ~$0.3 million | | Remaining to be sold | ~$67.5 million | May 2020 ATM Program - Initiated on May 4, 2020, for up to $40.0 million in common stock sales, which expired on June 21, 2021[256][258] May 2020 ATM Program Sales (May 4, 2020 - June 21, 2021) | Metric | Value | | :-------------------- | :---------------- | | Shares sold | 6,027,852 | | Average price per share | ~$6.15 | | Gross proceeds | ~$37.1 million | | Commissions & fees | ~$1.2 million | March 2020 Warrant Inducement - Generated ~$4.9 million in gross proceeds from the exercise of 4,000,000 warrants[259][261] - New Warrants have an exercise price of $1.27 per share and a 5.5-year term[259][260][261] December 2019 Public Offering - Issued common shares and warrants for aggregate proceeds of ~$5.1 million (net ~$4.4 million)[262] - As of September 30, 2021, 61,173 December 2019 Common Warrants remained outstanding[262] August 2019 ATM Program - Sold 360,316 common shares, generating ~$1.1 million in gross proceeds[264] - This program expired on May 4, 2020, and was replaced by the May 2020 ATM Program[264] Financing Activities by Capricor, Inc. This subsection details government grant awards received by the Company and their financial implications CIRM Grant Award - Capricor received a ~$3.4 million CIRM Award in 2016 for the HOPE-Duchenne clinical trial[265] - The award is accounted for as a liability due to the option to convert it into a loan[266] - As of September 30, 2021, the CIRM Award liability balance was approximately $3.4 million[267] U.S. Department of Defense Grant Award - Capricor received a ~$2.4 million DoD grant in 2016 for CAP-2003 manufacturing, utilizing ~$2.3 million[268][269] - No revenue was recognized from this award in 2021, and final close-out documentation was completed in Q3 2021[270] Off-Balance Sheet Arrangements - The Company did not have any off-balance sheet arrangements during the periods presented[271] Critical Accounting Policies and Estimates This section outlines critical accounting policies requiring significant judgment, including leases, revenue, R&D, and stock compensation Leases - The Company adopted ASC 842, recognizing ROU assets and lease liabilities for operating leases[273][275][276] - The Company elects to account for lease and non-lease components together for real estate leases[277] Revenue Recognition - The Company applies ASU 606, Revenue from Contracts with Customers, for all contracts[278] Grant Income - Grant income is recognized when reimbursable expenses are incurred[279][281] Miscellaneous Income - Miscellaneous income is recognized upon delivery of doses from past R&D efforts[282] CIRM Grant Award - CIRM grant disbursements are accounted for as long-term liabilities due to the right to convert the award into a loan[283] Research and Development Expenses and Accruals - R&D expenses are expensed as incurred[284] - Cost accruals for R&D activities are based on estimates of services received and efforts expended[285][286] - Estimates may differ from actual invoiced amounts, but no material adjustments have been recognized[285][289] Stock-Based Compensation - Non-cash stock-based compensation expense is recognized over the vesting period[290][291] - Fair value of stock options is determined using the Black-Scholes model[291] - Awards vest based on time-based or performance-based conditions, and forfeitures are accounted for upon occurrence[291][292][293] Clinical Trial Expense - Clinical trial accrual process estimates expenses from vendor contracts and clinical site agreements[294] - Accrual estimates are based on patient progression and trial timing, adjusted if actual results differ[294] Recently Issued or Newly Adopted Accounting Pronouncements - The Company adopted ASU 2019-12 (Income Taxes) in Q1 2021, which did not have a material impact[297] - Other recent accounting pronouncements are not expected to have a material impact[298] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risk, primarily from interest rate sensitivity Interest Rate Sensitivity - The Company's market risk exposure is primarily from interest rate changes affecting marketable securities and cash[299] - The investment policy aims to limit risk by investing in high-rated credit issuers and short-term maturities[300] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and reports no material changes in internal controls Changes in Internal Controls over Financial Reporting - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2021[303] PART II — OTHER INFORMATION Item 1. Legal Proceedings The Company is not involved in any material pending or threatened legal proceedings - The Company is not involved in any material pending or threatened legal proceedings[306] Item 1A. Risk Factors This section refers to risk factors previously disclosed in the Company's Annual Report, stating no material changes - No material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[307] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the current report - Not applicable[309] Item 3. Defaults Upon Senior Securities This item is not applicable to the current report - Not applicable[311] Item 4. Mine Safety Disclosures This item is not applicable to the current report - Not applicable[313] Item 5. Other Information No other information is reported under this item - None[315] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q - The report includes exhibits such as merger agreements, certificates of incorporation, bylaws, officer certifications, and financial information in iXBRL format[317] Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q - The report is signed by Linda Marbán, Ph.D., Chief Executive Officer, and Anthony J Bergmann, Chief Financial Officer, on November 10, 2021[322]