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CAPS > SEC Filings for CAPS > Form 10-Q on 12-Nov-2013All Recent SEC Filings

Show all filings for CAPSTONE THERAPEUTICS CORP.

Form 10-Q for CAPSTONE THERAPEUTICS CORP.


12-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following is management's discussion of significant events in the three and nine month periods ended September 30, 2013 and factors that affected our interim financial condition and results of operations. This should be read in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2012.


Overview of the Business

Capstone Therapeutics Corp. is a biotechnology company committed to developing a pipeline of novel peptides and other molecules aimed at helping patients with under-served medical conditions. Previously, we were focused on the development and commercialization of two product platforms: AZX100 and Chrysalin (TP508). We no longer have any interest in or rights to Chrysalin. On August 3, 2012, we entered into a joint venture, LipimetiX Development, LLC, (the "JV") to develop Apo E mimetic peptide molecule AEM-28 and its analogs.

In 2012 we wound down internal operations, ceased clinical development of AZX100 in dermal scarring, formerly our principal drug candidate, and moved to a more virtual operating model. Certain manufacturing and regulatory activities related to AZX100 that are required either from a statutory perspective or for reporting purposes, will continue. We are also performing limited pre-clinical studies with AZX100 in fibrosis. We are currently seeking development partnering or licensing opportunities for AZX100 in dermal scarring, pulmonary fibrosis and peridural fibrosis.

The JV intends to implement an initial development plan to file an IND (USA) and a CTA (Canada) and pursue FDA approval of AEM-28 as treatment for Severe Refractory Hypercholesterolemia and Homozygous Familial Hypercholesterolemia (granted Orphan Drug Designation by FDA in 2012). The initial funded development plan will extend through Phase 1a and 1b/2a clinical trials over an expected twenty-seven month period with a biomarker endpoint test targeting reduction of LDL cholesterol. The JV may also fund research or studies to investigate Apo E mimetic molecules, including AEM-28 and analogs, for treatment of acute coronary syndrome. For a description of the JV, please refer to Note B to our financial statements included in this Form 10-Q.

The Company intends to limit its internal operations in a virtual operating model while continuing our development partnering efforts for AZX100, investigating pre-clinical, clinical or other strategic options for AZX100, monitoring and participating in the management of LipimetiX Development LLC's AEM-28 and analogs development activities, and maintaining the required level of corporate governance and reporting required to comply with Securities and Exchange Commission rules and regulations.

Description of Current Peptide Drug Candidates

Apo E Mimetic Peptide Molecule - AEM-28

Apolipoprotein E is a 299 amino acid protein that plays an important role in lipoprotein metabolism. AEM-28 is a 28 amino acid mimetic of Apo E that contains a domain that anchors into a lipoprotein surface while also providing the Apo E binding domain that is removed by heparin sulfate receptors in the liver. AEM-28 as an Apo E mimetic has the potential to restore the ability of these atherogenic lipoproteins to be cleared from the plasma, completing the reverse cholesterol transport pathway, and thereby reducing cardiovascular risk. This is an important mechanism of action for AEM-28. For patients that lack LDL receptors (Homozygous Familial Hypercholesterolemia, HoFH), or have Severe Refractory Hypercholesterolemia, AEM-28 may provide a therapeutic solution. Our joint venture has an Exclusive License Agreement with the University of Alabama Birmingham Research Foundation for AEM-28 and certain of its analogs.

AZX100

AZX100 is a novel synthetic 24-amino acid peptide and is believed to have smooth muscle relaxation and anti-fibrotic properties. AZX100 has been evaluated for medically and commercially significant applications, such as prevention of hypertrophic and keloid scarring and treatment of pulmonary and peridural fibrosis. We filed an IND for a dermal scarring indication in 2007 and completed Phase 1a and Phase 1b safety clinical trials in dermal scarring in 2008. We commenced Phase 2 clinical trials in dermal scarring following shoulder surgery and keloid scar revision in the first quarter of 2009. During 2010 we completed and reported results for our clinical trials in keloid scar revision and substantially completed our Phase 2 clinical trial in dermal scarring following shoulder surgery. We completed and reported our Phase 2 clinical trial in dermal scarring following shoulder surgery in 2011. We have an exclusive worldwide license to AZX100.


Critical Accounting Policies

Our critical accounting policies are those that affect, or could affect our financial statements materially and involve a significant level of judgment by management. The accounting policies and related risks described in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 14, 2013, for the year ended December 31, 2012 are those that depend most heavily on these judgments and estimates. As of September 30, 2013, there have been no material changes to any of the critical accounting policies contained in our Annual Report for the year ended December 31, 2012.

Results of Operations Comparing Three-Month Period Ended September 30, 2013 to the Corresponding Period in 2012.

General and Administrative ("G&A") Expenses: G&A expenses related to our ongoing operations were $245,000 in the third quarter of 2013 compared to $480,000 in the third quarter of 2012. Administration expenses declined due to a decrease in our lease expenses caused by a reduction in office space occupied effective March 1, 2013 and the reduction from four employees to two employees in the second quarter of 2012.

Research and Development Expenses: Research and development expenses were $958,000 for the third quarter of 2013 compared to $667,000 for the third quarter of 2012. Our research and development expenses increased in the third quarter of 2013 compared to the same period in 2012 due to the inclusion of operating expenses of LipimetiX Development, LLC, which totaled (net of intercompany transactions) $840,000 for the three months ended September 30, 2013, and $457,000 for the three months ended September 30, 2012.

Net Loss: We incurred a net loss in the third quarter of 2013 of $1.2 million compared to a net loss of $1.1 million in the third quarter of 2012. The Net Loss from 2013 benefited from the effect of the reduction in internal operations, but this beneficial effect was offset by inclusion of the operating expenses of LipimetiX Development, LLC. Net Loss in the third quarter includes operating expenses of LipimetiX Development, LLC, which totaled (net of intercompany transactions) $840,000 for the three months ended September 30, 2013, and $457,000 for the three months ended September 30, 2012.

Results of Operations Comparing Nine-Month Period Ended September 30, 2013 to the Corresponding Period in 2012.

General and Administrative ("G&A") Expenses: G&A expenses related to our ongoing operations were $956,000 in the first nine months of 2013 compared to $1,297,000 in the first nine months of 2012. Administration expenses declined due to a decrease in our lease expenses caused by a reduction in office space occupied effective March 1, 2013 and the reduction from four employees to two employees in the second quarter of 2012.

Research and Development Expenses: Research and development expenses were $2,619,000 for the first nine months of 2013 compared to $1,626,000 for the first nine months of 2012. Our research and development expenses increased in the first nine months in 2013 compared to the same period in 2012 primarily due to the operating expenses of LipimetiX Development, LLC, which totaled (net of intercompany transactions) $2,255,000 for the nine months ended September 30, 2013, and $457,000 for the nine months ended September 30, 2012.


Interest and Other Income, Net: Interest and Other Income, Net, increased from $93,000 in the first nine months in 2012 to $155,000 in first nine months of 2013 due to the receipt of $152,000 in the first quarter of 2013 from the conversion of an insurance company, in which we were a policyholder, from mutual to private ownership, while the first nine months of 2012 included a gain of $80,000 from the sale of lab equipment.

Net Loss: We incurred a net loss in the first nine months of 2013 of $3.4 million compared to a net loss of $2.8 million in the first nine months of 2012. The Net Loss from 2013 benefited from effect of the reduction in internal operations and receipt of $152,000 in the first quarter of 2013 from the conversion of an insurance company, in which we were a policyholder, from mutual to private ownership, but these beneficial effects were offset by inclusion of the operating expenses of LipimetiX Development, LLC. Net Loss includes operating expenses of LipimetiX Development, LLC, which totaled (net of intercompany transactions) $2,255,000 for the nine months ended September 30, 2013, and $457,000 for the nine months ended September 30, 2012.

Liquidity and Capital Resources

We have historically financed our operations through operating cash flows and public and private sales of equity securities. However, with the sale of our Bone Device Business in November 2003, we sold all of our revenue producing operations. Since that time, we have relied on our cash and investments to finance all our operations, the focus of which has been research and development of our product candidates. We received approximately $100 million in cash from the sale of our Bone Device Business. On February 27, 2006, we entered into an agreement with Quintiles (see Note 15 to our Annual Report on Form 10-K filed with the Securities Exchange Commission on March 5, 2008), which provided an investment by Quintiles in our common stock, of which $2,000,000 was received on February 27, 2006 and $1,500,000 was received on July 3, 2006. In 2010, we received a tax refund of $1,009,000 from the tax year 2003, related to federal tax legislation recorded in the fourth quarter of 2009, and in 2010 we were awarded a Therapeutic Discovery Project federal grant of $244,000. In 2011, we received an Arizona State income tax refund for the 2010 tax year of $181,000. We also received additional Arizona State income tax refunds of $158,000 in 2012 for the 2011 tax year and $21,000 in 2013 for the 2012 tax year. We received net proceeds of $4,612,000 from the exercise of stock options during our development stage period, $176,000 from the sale of lab equipment and furniture and $152,000 from the conversion of an insurance company, in which we were a policy holder, from mutual to private ownership.

On August 3, 2012, we entered into a joint venture, LipimetiX Development, LLC ("JV") to develop Apo E mimetic peptide molecule AEM-28 and its analogs and we contributed $6.0 million to the Joint Venture. The Joint Venture has used $3.5 million of its cash through September 30, 2013. At September 30, 2013, we had cash and cash equivalents of $7.2 million, of which $2.5 million is held in, and reserved for use by, LipimetiX Development, LLC and unavailable for general use by the Company.

If we continue our plan to limit internal operations in a virtual operating model in 2013, we currently estimate that we will expend in the range of $4.0 million in 2013, which includes approximately $2.5 million by LipimetiX Development LLC, and excludes litigation costs related to the qui tam action, which cannot be estimated at this time and could be significant. We expect that the joint venture will expend the $6 million ($2.5 million remaining at September 30, 2013) over its planned twenty-seven month development period. Currently our planned operations in 2013 consist of continuing our development partnering efforts for AZX100, investigating pre-clinical, clinical or other strategic options for AZX100, monitoring and participating in the management of LipimetiX Development LLC's AEM-28 and its analogs development activities, and maintaining the required level of corporate governance and reporting required to comply with Securities and Exchange Commission rules and regulations.


Our future research and development and other expenses will vary significantly from prior periods and depend on the Company's decisions on its future AZX100 development plans, results of our efforts to create shareholder value with AZX100, LipimetiX Development LLC operations and qui tam litigation activity.

We anticipate that our cash and short-term investments at September 30, 2013 will be sufficient to meet our presently projected cash and working capital requirements for the next twelve months. However, to complete the clinical trials and supporting research and production efforts necessary to obtain FDA approval for product candidates would require us to obtain substantial additional capital. New sources of funds, including raising capital through the sales of our debt or equity securities, joint venture or other forms of joint development arrangements, sales of development rights, or licensing agreements, may not be available or may only be available on terms that would have a material adverse impact on our existing stockholders' interests. We cannot currently predict the amount of funds that will be required to bring the qui tam action to a final resolution.

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