The following is management's discussion of significant events in the
three-month period ended March 31, 2019 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, 2018.
Description of the Business
Capstone Therapeutics Corp. (the "Company", "we", "our" or "us") 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). In 2012, we terminated the
license for Chrysalin (targeting orthopedic indications). In 2014, we terminated
the license for AZX100 (targeting dermal scar reduction). Capstone no longer has
any rights to or interest in Chrysalin or AZX100.
On August 3, 2012, we entered into a joint venture, LipimetiX Development, LLC,
(now LipimetiX Development, Inc.), (the "JV"), to develop Apo E mimetic peptide
molecule AEM-28 and its analogs. The JV has a development plan to pursue
regulatory approval of AEM-28 or an analog, as treatment for Homozygous Familial
Hypercholesterolemia, other hyperlipidemic indications, and acute coronary
syndrome/atherosclerosis regression. The initial AEM-28 development plan
extended through Phase 1a and 1b/2a clinical trials and was completed in the
fourth quarter of 2014. The clinical trials had a safety primary endpoint and an
efficacy endpoint targeting reduction of cholesterol and triglycerides.
In early 2014, the JV received allowance from regulatory authorities in
Australia permitting the JV to proceed with the planned clinical trials. The
Phase 1a clinical trial commenced in Australia in April 2014 and the Phase 1b/2a
clinical trial commenced in Australia in June 2014. The clinical trials for
AEM-28 were randomized, double-blinded, placebo-controlled studies to evaluate
the safety, tolerability, pharmacokinetics and pharmacodynamics of six
escalating single doses (Phase 1a in healthy patients with elevated cholesterol)
and multiple ascending doses of the three highest doses from Phase 1a (Phase
1b/2a in patients with hypercholesterolemia and healthy volunteers with elevated
cholesterol and high Body Mass Index). The Phase 1a clinical trial consisted of
36 patients and the Phase 1b/2a consisted of 15 patients. Both clinical trials
were completed in 2014 and the Medical Safety Committee, reviewing all
safety-related aspects of the clinical trials, observed a generally acceptable
safety profile. As first-in-man studies, the primary endpoint was safety; yet
efficacy measurements analyzing pharmacodynamics yielded statistical
significance in the pooled dataset favoring AEM-28 versus placebo in multiple
lipid biomarker endpoints.
Concurrent with the clinical development activities of AEM-28, the JV has
performed pre-clinical studies that have identified analogs of AEM-28, and new
formulations, that have the potential of increased efficacy, higher human dose
toleration and an extended composition of matter patent life (application filed
with the U.S. Patent and Trademark Office in 2014).
The JV and the Company are exploring fundraising, partnering or licensing, to
obtain additional funding to continue development activities and operations.
The JV and the Company do not have sufficient funding at this time to continue
additional material development activities. The JV may conduct future clinical
trials in Australia, the USA, and other regulatory jurisdictions if regulatory
approvals, additional funding, and other conditions permit.
The Company, funding permitting, intends to continue limiting its internal
operations to a virtual operating model while monitoring and participating in
the management of JV's development activities.
Description of Current Peptide Drug Candidates.
Apo E Mimetic Peptide Molecule - AEM-28 and its analogs
Apolipoprotein E is a 299 amino acid protein that plays an important role in
lipoprotein metabolism. Apolipoprotein E (Apo E) is in a class of protein that
occurs throughout the body. Apo E is essential for the normal metabolism of
cholesterol and triglycerides. After a meal, the postprandial (or post-meal)
lipid load is packaged in lipoproteins and secreted into the blood stream. Apo E
targets cholesterol and triglyceride rich lipoproteins to specific receptors in
the liver, decreasing the levels in the blood. Elevated plasma cholesterol and
triglycerides are independent risk factors for atherosclerosis, the buildup of
cholesterol rich lesions and plaques in the arteries. AEM-28 is a 28 amino acid
mimetic of Apo E and AEM-28 analogs are also 28 amino acid mimetics of Apo E
(with an aminohexanoic acid group and a phospholipid). Both contain a domain
that anchors into a lipoprotein surface while also providing the Apo E receptor
binding domain, which allows clearance through the heparan sulfate proteoglycan
(HSPG) receptors (Syndecan-1) in the liver. AEM-28 and its analogs, as Apo E
mimetics, have 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 and its analogs. Atherosclerosis is the
major cause of cardiovascular disease, peripheral artery disease and cerebral
artery disease, and can cause heart attack, loss of limbs and stroke. Defective
lipid metabolism also plays an important role in the development of adult onset
diabetes mellitus (Type 2 diabetes), and diabetics are particularly vulnerable
to atherosclerosis, heart and peripheral artery diseases. Our joint venture has
an Exclusive License Agreement with the University of Alabama at Birmingham
Research Foundation for a broad domain of Apo E mimetic peptides, including
AEM-28 and its analogs.
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
22, 2019, for the year ended December 31, 2018 are those that depend most
heavily on these judgments and estimates. As of March 31, 2019, there have been
no material changes to any of the critical accounting policies contained in our
Annual Report for the year ended December 31, 2018.
Results of Operations Comparing Three-Month Period Ended March 31, 2018 to the
Corresponding Period in 2017.
Sublicense Revenue: As described in Note 12 to the Financial Statements included
in the Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 22, 2019, the JV entered into a License Agreement (the
"Sub-License") with Anji Pharmaceuticals Inc. ("ANJI") to sublicense, under its
Exclusive License Agreement with the UAB Research Foundation, the use of the
JV's AEM-28 and analogs intellectual property in the Territory of the People's
Republic of China, Taiwan and Hong Kong (the "Territory"). The Sub-License calls
for an initial payment of $2,000,000, payment of a royalty on future Net Sales
in the Territory and cash milestone payments based on future clinical/regulatory
events. ANJI will perform all development activities allowed under the
Sub-License in the Territory at its sole cost and expense. The JV recorded the
receipt of the $2,000,000 payment as revenue in the second quarter of 2018.
Transaction costs related to the sublicense totaled $254,000 and were separately
stated on the Consolidated Statement of Operations included in the Financial
Statements included in the Annual Report on Form 10-K. There was no sublicense
activity in the first quarter of 2019 or 2018.
General and Administrative ("G&A") Expenses:G&A expenses related to our ongoing
operations were $188,000 in the first quarter of 2019 compared to $229,000 in
the first quarter of 2018. Administration expenses were higher in the 1st
quarter of 2018 than 2019 primarily due higher JV patent legal fees in 2018.
Research and Development Expenses: Research and development expenses were
$601,000 for the first quarter of 2019 compared to $301,000 for the first
quarter of 2018. Our research and development expenses increased due to the
availability of funds from the ANJI sublicense income received in 2018,
discussed above, but continues to reflect reduced spending as our development
activities of AEM-28 and its analogs were limited, as we attempt to obtain
Interest and other income (expense), net: Interest and other income (expense),
net was ($63,000) for 2019 compared to ($60,000) for 2018. The expense is
interest recorded on the Secured Debt and on the issuance of Warrants.
Net Loss attributable to Capstone Therapeutics stockholders: We incurred a net
loss in the first quarter of 2019 of $.9 million compared to a net loss of $.6
million in the first quarter of 2018. Net losses were comparable between periods
after considering the above comments. Our operations and the development
activities of AEM-28 and its analogs were limited, as we attempt to obtain
Liquidity and Capital Resources
With the sale of our Bone Device Business in November 2003, we sold all of our
revenue producing operations. Since that time, we have primarily relied on our
cash and investments to finance all our operations, the focus of which has been
research and development of our product candidates.
On August 3, 2012, we entered into a joint venture, to develop Apo E mimetic
peptide AEM-28 and its analogs. We contributed $6.0 million and through December
31, 2018 we have loaned an additional $1,740,000 (including deferred interest of
$140,000) to the JV. The JV raised $1,012,000 ($946,000 net of issuance costs)
in the JV's Series B-1 Preferred Stock and Warrant offering in August 2016. As
described in Note D to the Financial Statements included in this Quarterly
Report on Form 10-Q, the Company on July 14, 2017, raised $3,440,000, with net
proceeds of approximately $2,074,000, after paying off the Convertible
Promissory Notes, and transaction costs of $287,000. As disclosed in Note E to
the Financial Statements included in Quarterly Report on Form 10-Q, on May 2,
2018, our JV entered into a License Agreement which resulted in the receipt of a
$2,000,000 nonrefundable payment ($1,746,000 net of transaction costs). At March
31, 2019, we had cash of $1,092,000, of which $940,000 is held by our JV.
As described in our Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 19, 2019, on March 15, 2019, the Company entered
into the Second Amendment to Securities Purchase, Loan and Security Agreement
with Brookstone. The 2nd Amendment provides for additional advances to the
Company up to a Maximum Amount of $500,000 to be used for Company operations.
Advances made will be added to the secured debt and be subject to the terms and
conditions of the Securities Purchase, Loan and Security Agreement. At
Brookstone's sole discretion, the Maximum Amount of the advances may be
increased to an amount not exceeding $700,000. The Company borrowed $50,000 in
March 2019 against the Maximum Amount of $500,000.
We intend to continue limiting our internal operations to a virtual operating
model in 2019; however, without additional funding, we will also limit the
development activities of AEM-28 and its analogs. Lack of additional funding for
development activities of AEM-28 and its analogs could would impair our ability
to continue our current operations as planned.
Funding permitting, our planned operations in 2019 consist of continuing
monitoring and participating in the management of the JV's development
Our future research and development and other expenses will vary significantly
from prior periods and depend on the Company's decisions on future JV operations
and obtaining additional funding.
We will require additional funds if we choose to extend the development of
AEM-28 and its analogs. We cannot currently predict the amount of funds that
will be required if we choose to extend the development activities of AEM-28 and
its analogs and to continue operations. In any event, to complete the clinical
trials and supporting research and production efforts necessary to obtain FDA or
comparable foreign agencies' approval for product candidates would require us to
obtain 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.
The Company has a secured loan of $2,477,500, due October 15, 2020, from BP
Peptides, LLC, an entity that at March 31, 2019 owns approximately 34.1% of the
Company's common stock. Interest on the secured loan, at a rate of 6% per annum,
is payable on the maturity date of the secured loan.
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