Linda Marbán - Chief Executive Officer Leland Gershell - Chief Financial Officer AJ Bergmann - Vice President of Finance.

Analysts:.

Swayampakula Ramakanth - HCW Timothy McInerney - Riverbank Capital.

Good afternoon and welcome to the Capricor Therapeutics’ Second Quarter 2016 Financial Results and Business Highlights Conference Call. As a reminder, this presentation contains Forward-looking statements and information that are based on the beliefs of the management of Capricor Therapeutics Inc.

as well as assumptions made by and information currently available to Capricor. All statements other than statements of historical facts included in this presentation are forward-looking statements including but not limited to statements identified by the words anticipates, believes, estimates and expects and similar expressions.

Such forward-looking statements also include any statements regarding the efficiency, safety, and intended utilization of Capricor’s product candidates, expectation of or dates for commencement of clinical trials, IND filings, plans regarding current and future collaborative activities and the ownership of commercial rights, expectations with respect to the expected use of proceeds from offerings and the anticipated effect of offering, similar plans or projections and other matters that do not relate strictly to historical facts.

These statements reflect Capricor’s current views with respect to future events based on what we believe are reasonable assumptions. However, the statements are subject to a number of risks, uncertainties and assumptions.

There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements.

More information about these and other risks that may impact Capricor’s business are set forth in Capricor’s Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission on March 30, 2016 and in its Registration Statement on Form S-3 as filed with the Securities and Exchange commission on September 28, 2015 and in its quarterly report on Form 10-Q for the quarter ended March 31, 2016.

Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those in the forward-looking statements. Further, Capricor’s management does not intend to update these forward-looking statements and information after the date of this presentation.

As a reminder, this teleconference is being recorded. For the benefit of those who maybe listening to the replay, this call was held and recorded on August 15, 2016. Since then, Capricor may have made announcements related to the topics discussed. So, please reference the Company’s most recent SEC filings and press releases.

It is now my pleasure to introduce your host Dr. Linda Marbán, CEO of Capricor Therapeutics. Please go ahead, ma’am. .

Good afternoon and thank you for joining us. With me today is Leland Gershell, our Chief Financial Officer and AJ Bergmann, our Vice President of Finance. I will review some recent corporate highlights and then Leland will summarize our second quarter financials.

The quarter was marked by a meaningful clinical progress for our lead cell therapy candidate, CAP 1002, as well as our exosome product CAP 2003 for which we recently announced the fist therapeutic indication that will pursue.

Let me begin with our exosome program in which we’ve had several recent and important accomplishments that I am so excited to share with you and with our exosome candidate CAP 2003 on the development path toward potentially becoming a valuable platform technology for multiple indications.

Many believe that exosomes represent the most exciting new class of potential therapeutic and diagnostic product to come on to the biotechnology seen since monoclonal antibodies and as many of you know, exosomes have been rapidly gaining attention in both academia as well as across the biotech industry.

Please reference the short slide deck that we’ve provided in conjunction with this call and I’ll be starting with Slide number 3. For those of you who may not be familiar with exosomes, they are membranes in close particles secreted by cells which contains bioactive molecules including proteins and RNAs.

They act to regulate the functions of neighboring cells and pre-clinical research has shown that exogenously administered exosomes can direct or redirect cellular activity. Nearly all cells secrete exosomes which vary on their biochemical and functional profiles in relation to the cells from which they originate.

Our exosome candidate CAP 2003 consists specifically of exosomes secreted by cardiosphere-derived cells otherwise known as CDCs.

As you know, CDCs themselves represent our clinical phase development pipeline and we’ve learned that CDCs exerts a therapeutic benefit that is their ability to reduce scars, therapeutic regeneration of damaged tissue and reduce inflammation primarily through the exosome particles that they secrete.

Over the last several months, motivated by findings of potent biological activities in several disease models that involve parts of the body outside of the heart, we’ve been focusing our attention on selecting an initial clinical indication for CAP 2003.

We’ve incorporated a few general considerations into our thinking which I’d like to share with you now. First and foremost, we sought to treat a condition that causes great suffering and for which no effective therapeutic options exists.

We also sought to select a disorder that would be reasonable for us as a small company to take through to potential approval and commercialization.

Finally, in addition to having a support of strong pre-clinical data in a relevant model, we sought to target CAP 2003 apart the body when the cells might not be a good treatment option and which would favor the effectiveness of the exosomes by providing direct cell to cell contact.

Through this arduous process, we selected graft-versus-host disease of the eye otherwise known as ocular GVHD as the initial indication for CAP 2003 development. Please direct your attention to Slide number 4 in which we provide some background on this condition.

Graft-versus-host disease is a medical complication that often follows the transplantation of tissues from a genetically different person and as the most associated with bone marrow transplants, a common treatment modality for certain cancers as well as for certain auto-immune diseases.

Immune cells in the transplanted bone marrow damage several parts of the eye including the glands that produce tears and mucous, as well as the conjunctiva or the white part of the eye.

These changes leads to a chronic inflammatory dry eye condition that can be very debilitating and for which current treatment options are limited and often inadequate for many patients, particularly those with the most severe form.

Approximately 8500 bone marrow transplants are performed each year in the United States and with OGVHD ocular graft-versus-host disease is believed to occur in about 40% or about 3400 inciting patients per year. These would be an addition to existing cases of OGVHD.

For your information, the mean survival in patients who have received a bone marrow transplant is approximately five years. Last month, we attended a pre-IND meeting with the FDA to discuss our tended development of CAP 2003 in ocular graft-versus-host disease and to receive agency feedback.

Among the many positive outcomes of this meeting, one was the agency’s willingness to allow us to support our IND application with data that we have already generated in a model of eye injury known as the alkali burn injury model. An animal model for the manifestation of the injury is very similar to OGVHD and in fact, it actually works.

So we are very optimistic that the encouraging results we have seen in this model can be recapitulated in people with OGVHD. I would like to review some of these results with you today. The design of our study is summarized on Slide 5.

One day following an alkali chemical-induced burn injury to the eye we’ve treated the studying animals with CAP 2003, applied either by a single one-time injection under the conjunctiva or the white part of the eye or topically three times per day in an eye drop or with vehicle control. We then made serial assessments over the course of three weeks.

Our assessments were based on a clinical tour developed by our team of ophthalmologists that was a sum of a score on six individual parameters and the total clinical score ranged from 0 to 20. On Slide 6, we show the mean clinical score that we collected at several time points.

Shown on the right side of slide 6 is the area of the corneal epithelial defect as detected by staining with fluorescein.

These data show that compared to vehicle control, CAP 2003 induces highly significant improvement in clinically meaningful measures of ocular injury and inflammation following alkali chemical burn while reducing the maximum overall severity of the condition.

CAP 2003 associated improvements were observed in degree and area of corneal opacification and new blood vessel formation on the surface of the cornea as well as two different measures that intraocular inflammation that are typically very difficult to treat clinically.

CAP 2003 also caused a highly significant improvement in the size of the corneal epithelial defect regarded by thought leaders as the most clinically relevant endpoint, because it is the one that is most highly correlated with quality of life measures.

As vehicle control treated eye, the size of the epithelial defects remains unchanged over time, but in CAP 2003 treated eye, it decreased significantly. At the present time, there are no pharmacologic agents approved for treating non-healing corneal epithelial defect in this study.

Furthermore, we are excited that CAP 2003 appeared to be effective in treating these injuries irrespective of delivery routes or dosing frequency. Our final pre-clinical studies will address issues of dosing frequency, so that we take the best product into the clinic.

Eyes treated with a single injection of CAP 2003 responded comparably to eyes treated with topical dosing of CAP 2003 eye drops for three times a day over 21 days following the injury.

This opens the doors potentially to both eye drops and physician administered ocular injections as are currently done with pharmacologic treatments for the back of the eye disorder as possible clinical delivery route in human patients.

The model we use in this study of CAP 2003, not only reflects injuries from alkali burn, but it’s broadly representative of moderate to severe inflammatory an/or traumatic diseases of the eye including ocular graft-versus-host disease, as well as inflammatory dry eye which can be observed in shogun syndrome, ocular Stevens Johnson syndrome and many others.

Our plan is to submit an investigational new drug application with OGVHD to the FDA to evaluate CAP 2003 in the clinic in the first half of next year. I’ll now move on to our ongoing clinical trials with CAP 1002, our lead therapeutic cell candidate.

As you may know, we are evaluating CAP 1002 for its potential to treat heart disease associated with Duchenne muscular dystrophy, also known as DMD as well as heart disease in adults.

To remind you, CAP 1002 is an allergenic cardiac cell-based product candidate, which is able to promote the regeneration of normal heart tissue and promote reverse remodeling as reported in a large and growing body of peer reviewed scientific publication. First an update on our HOPE trial in DMD-associated cardiomyopathy.

This is a randomized Phase 1, 2 trial designed to evaluate CAP 1002 in boys and young men with Duchenne associated heart disease. The trial is randomized, open-label with a one-to-one randomization theme treated and standard of care controlled. It is one of the requirements of the FDA that we have concurrent control to compare to those treated.

We infused our first patient in HOPE in late February of this year and in June, we announced that we have surpassed the 50% enrollment point. We are pleased to say that this trial is now approaching the completion of its enrollment, which we expect to announce later this quarter.

In addition to safety, the participants in HOPE will be evaluated at several intervals to assess the efficacy of CAP 1002 according to a variety of structural, functional, and quality of life measures.

A key measure that we are following HOPE is cardiac fibrosis or the proportion of scar to muscle in the heart using serial magnetic resonance imaging or MRI.

The conversion of healthy and contractile heart muscle to stiff non-contractile scar tissue is a common final pathway that leads to heart failure not only in the setting of GMV, but also in more common conditions experienced by millions of adults in the US and around the world.

The demonstration that our cell therapy technology is able to significantly reduce scar tissue and improve function in several disease settings including advanced heart failure in adults as evidenced by our recently announced dynamic clinical trial data together with the demonstration of significantly improved heart function and exercise performance in the standard pre-clinical model of DMD in the MDX mouse supports our optimism on the potential for CAP 1002 to address the heart disease that occurs in conjunction with DMD.

I hope that you are as excited as I am to seeing the top-line six months data from HOPE-Duchenne in the first quarter of 2017. Just as a reminder HOPE is supported in part by a grant that we are rewarded from the California Institute of Regenerative Medicine or CIRM.

Additionally, the FDA has granted orphan drug designation to CAP 1002 for the treatment of DMD.

We are also nearing the full enrollment goal of 120 patients in our randomized placebo-controlled Phase II ALLSTAR clinical trial in CAP 1002 in patients who have cardiac dysfunction following a large myocardial infarction otherwise known as a heart attack.

ALLSTAR closely follows the design of the CADUCEUS trial, which lead to autologous cells despite having a sample size of only 25 patients CADUCEUS demonstrated a statistically significant reduction in scar size as well as the statistically significant increase in viable muscle at both the six and twelve months time points.

As per our agreement with Janssen Biotech, Janssen will have sixty days following the delivery of six month ALLSTAR data to exercise our options to license the exclusive worldwide development and commercial rights to CAP 1002 for use in certain cardiology indications.

In the event they exercise the option, we would receive from Janssen an initial license fee and then the eligible to receive additional milestone payments, as well as royalties on global sales. In total, Capricor has potentially received up to $325 million in milestones under this potential license agreement.

According to our current projection, we expect to receive Janssen’s decision before the end of the first half of 2017. Again, as we have previously disclosed, ALLSTAR is funded in part by a lot of work received from CIRM.

I’ll finish my review of our clinical programs by touching on DYNAMIC, the open-label trial of CAP 1002, which was conducted in patients with New York Heart Association Class III heart failure for which we’ve reported positive top-line 12 months results in June.

These rotations were markedly limited in their physical ability even if simple of timing of lighter steroids can make them so depressed and cause them to rest half way up. The 12 month DYNAMIC results indicate that a single infusion of CAP 1002 is able to improve cardiac function and I mentioned in patients out to one year.

Importantly, the change in median left ventricular ejection fraction from baseline to 12 months maintained its level of statistical significance shown as six months with a P value of 0.02 at both time points.

Achieving statistical significant improvement in ejection fraction widely recognize measure of the ability of the heart to meet the needs of the body as particularly meaningful, given the small sample size in DYNAMIC which enrolled 14 patients, and was not designed to measure efficacy.

The highest dose of CAP 1002 that was used in DYNAMIC which was 25 million cells used into each of the three main coronary arteries, 75 million cells in total is a same dose and administration being employed in our HOPE-Duchenne trial.

The safety profile of CAP 1002 in DYNAMIC was clean and I’d like to add that the HOPE trial has been recommended for continuation following both of its pre-specified Data Safety Monitoring Board review. As you may recall, the DYNAMIC study was sponsored in part from a grant award received from the NIH.

This concludes my update on our R&D program and now I’d like to ask Leland to provide a brief update on our financials.

Leland?.

Thank you, Linda. This afternoon's press release provides financial details for the second quarter ended June 30, 2016. The press release is available on the company website at capricor.com.

In the second quarter of 2016, excluding the effect of stock-based compensation, we spent approximately $4.1 million in research and development activities and $1.0 million in general and administrative. As of June 30, 2016, we had approximately $11.4 million in cash, cash equivalents and marketable securities.

We currently expect our cash balance to fund our operations through at least the first quarter of 2017. And with that, I will turn it back over to Linda..

Thank you, very much Leland. We are looking forward to announcing the completion of enrollment in both HOPE-Duchenne and ALLSTAR later this quarter and to their readouts in early 2017.

Also, we will be featuring a more complete dataset of the 12 month DYNAMIC results at the Transcatheter Cardiovascular Therapeutics Conference, better known as TCT this fall. I will now turn the call over to the operator who will open up the line for questions. Thank you.

Operator?.

[Operator Instructions] We will go ahead and take our first question from Joe Pantginis with Roth Capital Partners. Please go ahead. Your line is open. .

Hi, Linda. Hi, guys, thanks for taking the question. Linda, I first wanted to ask you about ALLSTAR and the upcoming decision process from Janssen.

What is your plan with regard to releasing the news to the investment community? Will you disclose the results from ALLSTAR or will it all be depending on what Janssen decides to do?.

Yes, so, that only has a little bit to do with Janssen, Joe. First of all, thank you, always good to hear your voice and look forward to capping up in person soon. The decision will be made primarily in conjunction with DSMB, the Diagnosis Safety and Monitoring Board of the company, which will decide whether or not we can release top-line data or not.

A lot of it will have to do with making sure the patients see treatment through all the way through to their one year endpoint. So, we want to be sensitive to the needs of the patients that are in the trial and the company will follow along those all I am sure everybody out there and not least including myself is excited to see the ALLSTAR data. .

Got it. That’s helpful. And if I could just switch over to HOPE MD obviously this has some very large potential, especially since its independent and could be complementary to the Exon Skipping technology.

So I guess, I would ask it this way, first from a high level standpoint, what are you looking to see with regard to efficacy in HOPE MD? And then, I guess more granular, what are you looking at with regard to the findings that you saw in the MDX model with regard to exercise benefits beyond the cardiac benefits and how that might be able to translate to HOPE MD patients?.

That is again, yes, in regard to your first question, what we are really looking for is the stabilization or improvement in the amount of scar in heart in the boys and young men that are getting the therapy.

So, I think, many of you have heard me present, and we’ve talked a lot about the fact that the scar increases in a linear fashion once it gets rolling leading ultimately to decrement in function and decompensated heart failure.

What we are looking to do is stabilize that process and look for the scar to actually stop increasing as it were – or in fact improve. So we’ll be excited to see those results. In terms of the cell to muscle opportunity, we are paying careful attention to some of those functional matters that we’ve built into HOPE MD.

We are looking at the performance of the upper limb as well as some other indicators of function improvements such as the six minute walk has been a variety of others.

The reason for this is, as you may recall, the mice ran rather and longer, in fact 50% improvement in treadmill running time compared to their littermates who did not get self and this improvement was greater than what would be expected based on that improvement in cardiac performance.

So that has led to an entire body of investigation in the academic lab, which I believe that which was shown at the American Heart Association last November, that in the animals that were treated with the cells in their heart had improvement in the contractile function of a leg muscle.

So we are continuing to watch this very carefully and are very excited at the potential systemic implications of the cells in DMD..

That’s great. Thank you very much..

Thanks, Joe. Take care. .

[Operator Instructions] Our next question comes from Swayampakula Ramakanth. Please go ahead. Your line is open..

Thank you. Good afternoon, Linda. This is RK from HCW.

How are you doing?.

Good, RK, how are you?.

Good, good.

So, just for us to understand a little bit about this new indication that you are going for CAP 2003, how large is the ocular GVHD market? And what needs to be done if/or what additional growth – from the trial that you are saying you won’t file till the first half of 2017?.

Sorry, I didn’t hear the second part of your question, you faded out.

In terms of how large is the market, we are just getting to a score, but we are very excited at the potential opportunity as we mentioned about 40% of those patients that get bone marrow transplants develop the ocular implications and of those, a subset develops the severe version of it that would definitely be right and ready for a different type of therapeutic such as CAP 2003.

So we are exploring the size of the market right now and are very excited to be able to provide the therapies for these very, very debilitated patients. What was the second part of your question? I didn’t hear as to whether to some point..

Okay, so, how – what work needs to be done for you to file the IND, because you say you can’t – now you are planning to file in the first half of 2017.

So, what needs to be done, between now and then?.

Yes, so one of the reasons we’ve planned the pre-IND meeting when we did it to give a time to button up some of the things that we needed to do.

I can tell you that we are doing late-stage pre-clinical development, final study analyses that needs to be part of our application process as well as the late-stage CMC development that to make sure that we are in line with what the FDA would like us to do. So, once all those things are buttoned up, we will be ready to file our IND..

Okay, thank you.

And then on the Duchenne - HOPE-Duchenne, so how should we think about what the strategy would be for the company once, let’s say, you have quality data in the first quarter of 2017? How would you take this forward into registration?.

Yes, so, of course the first thing we will do is, we’ll go and meet with the regulatory agency and we’ll show them the data and we’ll move forward based on their recommendations. We will be very excited to do that and look forward to share that information with the street as that becomes available..

And would you be doing this yourself or you will need some partnership to help out for the development in the Duchenne indication?.

So, one of the beauties of the DMD program is that we can take it all the way it comes through to commercialization ourselves and we are building that plan as we speak it has been really for the past year. So our goal with this particular therapy is to take all the way through ourselves.

If an appropriate partner came along, or somebody wanting to join the closable party with us we would definitely listen to any opportunity, but our goal right now is to move it ourselves. .

Okay, and the last question is just, so, I am guessing that Janssen has been following you through the DYNAMIC study and have been watching all the data.

Is it not beneficial for them to jump ahead and work with you even before the ALLSTAR data comes out or do they – is there something that they are really looking for in the ALLSTAR data?.

Yes, so, I think, first thing they have been watching ourselves all the way and they have been working with us and have seen the DYNAMIC data and are very excited on the edge of their seats. In terms of moving faster, there is really no need to.

The plan was built around delivering the six months, so Janssen will be having sixty days after that to make the decision. Neither partner is in a hurry to get that timeline along. So, we are happy to wait and they are looking forward to the data as well. .

Okay, thank you very much. .

Thank you. Have a great day..

Thank you. And our next question comes from Tim McInerney with Riverbank Capital. Please go ahead. Your line is open..

Linda, good afternoon.

How are you?.

Hey, Tim, still on time.

How are you?.

I am doing fine, thank you.

If you could give a little bit more clarity on the data release around ALLSTAR, you make reference that the DSMB and delivery of data to Janssen, DSMB is a data safety – as we all know, either the trial will be deemed complete or not, what if any data would you deliver to Janssen, you are implying that you would in the first half of next year, and I would think that you would want to release that publicly as the material event for the company.

So, just trying to understand a little bit better about the mechanics of data release as was referenced in the first question. I know – I think the DSMB is just part of the equation. Maybe you can just paint a different picture there. So we can understand a little better possibly, I appreciate it. Thank you..

Yes, yes, Tim, certainly. So, here is the thing. ALLSTAR’s primary efficacy endpoint is one year measurement of scar size post therapy. So technically, we will be able to have data from our endpoint until a year after the last patient is treated. So, last patient plus one year.

When Janssen came in and did their analysis, they looked at the CADUCEUS data and realized that there was already trends towards the reduction in scar size at six months that was none again reflected at one year. So the agreement that we made with Janssen is that they can have an early look at the data.

They could see that six months data and could make their decision based on that, because we’ve got that, by that we would see relevant biologic improvement with the treatment in cells. What’s happened since then is that, the six months data maybe material for the company only if we are allowed to release it.

So we may not be able to release it, because of the fact that the endpoint is for one year. So we may have to hold on to it. .

Okay, thank you. I’ll catch up with you in the not too distant future, directly as well. I Appreciate it. Thanks..

Great, thanks. .

Thank you. [Operator Instructions].

Okay, so if we have no further questions, I’d like to thank you for joining us on the call today. Operator, you may now disconnect. .

And that does conclude today’s program. We like to thank you for your participation and have a wonderful day and you may disconnect at any time. .

Thank you..