Leland Gershell - CFO Linda Marban - CEO.

Ted Tenthoff - Piper Jaffray Joseph Pantginis - Roth Capital Partners Swayampakula Ramakanth - H.C. Wainwright.

Good afternoon ladies and gentlemen and welcome to Capricor Therapeutics Third Quarter 2016 Financial Results and Business Highlights Conference Call. At this time, all participants are in a listen-only-mode. Later we will conduct question-and-answer session and instructions will follow at that time.

As a reminder today's conference call is being recorded. I'd now like to turn the conference over to your host, Dr. Leland Gershell, the company's Chief Financial Officer. Please go ahead..

Thank you, operator. Good afternoon and thank you all for joining us on today's call. Our press release providing a corporate update and details of the company's financial results for the quarter ended September 30, 2016 was issued a short time ago. This press release is available on our website at capricor.com. Joining me today on call are Dr.

Linda Marban, Capricor's Chief Executive Officer, and AJ Bergmann Vice President of Finance. As a reminder, during today's call we will be making certain forward-looking statements.

These statements may include statements regarding among other things the efficacy, safety and intended utilization of the company's product candidates, our clinical and non-clinical plans, our plans to present or report additional data anticipated conduct and timing of future clinical trials, plans regarding regulatory filings, future research and development and possibly usage of existing cash and investing resources.

These forward-looking statements are based on current information assumptions and expectations that are subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements.

These are other risks are described in our periodic filings made with Securities and Exchange Commission including our quarterly and annual report. You are caution not to place undue reliance on these forward-looking statements and the company disclaims any obligations to update such statements. With that it is my pleasure to turn the call over to Dr.

Linda Marban, Capricor's Chief Executive Officer.

Linda?.

Thanks, Leland and good afternoon. Thank you for joining us as we review our financial results for the third quarter of 2016 and provide an update on our development programs. I'll review some recent company highlights and then Leland will summarize our third quarter financials and our successful stock offerings that we completed in September.

In the third quarter, Capricor achieved a significant milestone in our clinical development program for patients with Duchenne muscular dystrophy otherwise known as DMD. As we completed enrollments in the randomized HOPE-Duchenne clinical trial.

This trial is evaluating our lead product candidate CAP1002 in boys and young men with DMD associated cardiomyopathy. DMD is a congenital disorder caused by a mutation in the gene the code for dystrophine approaching why play the critical role in muscle. Just as the lack of dystrophine leads to progressive skeletal muscle weakness.

It also leads to progressive deterioration of the heart muscle. Every person with DMD will develop heart disease, it is really just a question of when. CAP-1002 is based on a unique cell type known as the cardiosphere derived cells that has been clinically shown to significantly reduced scar and significantly increase viable myocardial.

And we have data from the MDX mouse model of DMD showing significant improvements in cardiac functions and in exercise capacity. We also have preclinical data that illustrates that CAP-1002 improved cellular energetic, which we believe it is primary mechanism of action.

The demand for treatment options that can address the cardiomyopathy and DMD as well as for therapies that are mutation agnostic was evidenced by the rapid rate of enrollment in our HOPE trial.

HOPE took only six months to enroll 25 patients at three centers in the United States and we were able to accommodate only a fraction of those who may have been eligible. We believe we are making substantial in roads toward directly treating a devastating complications of DMD.

In the HOPE trial, 13 subjects were randomized to receive CAP-1002 and 12 subjects were randomized to usual care with no infusion.

This is very important from a regulatory perspective, because it will allow direct comparisons between those treated with CAP-1002 and those who did not receive cells and can help determine if CAP-1002 is effective in treating the cardiomyopathy.

While the primary goal of HOPE is to evaluate safety and tolerability, we will also explore the potential efficacy of CAP-1002 in DMD. Through measurements made by magnetic resonance imaging or MRI, we will collect structural and functional data on the heart.

We will also evaluate performance on the six minute walk test, as well as scored on the Performance of the Upper Limb or PUL test and on the Pediatric Quality of Life Inventory. To-date the HOPE trial’s Data Safety and Monitoring Board has completed four safety reviews, recommending that the trial continue without change.

This is in line with the cumulative safety record from the over 100 patients who have been treated with CAP-1002 across our clinical trials. We are now looking forward to the top-line six month readout from HOPE, which we expect to report early in the second quarter of 2017.

Earlier today, we issued a press release announcing our plans to expand our clinical development program of CAP-1002 within DMD. As we have previously presented, we observed a 34% increase in exercise performance in mice treated with CAP-1002 compared to controls.

An improvement that appears to go above and beyond the level that could be attributed to cardiac improvements alone. To understand this further, a series of experiments were conducted which revealed two important discoveries.

The first is that CAP-1002 directly benefits skeletal muscle performance, leading to a near doubling of the maximum force that can be generated, also known as tetanic contraction. The second is that these effects can be achieved by delivering the cells systemically.

There has been a great deal of scientific investigation conducted in the laboratories of our academic collaborators to delineate the mechanism of action of CDCs as a mediator of improved muscle physiology in the MDX mouse model of DMD.

We would expect that these remarkable findings will be the subject of a peer viewed scientific publication in the near future. As motivated by these findings, we are now in the planning stage of a clinical trial in which we’ll evaluate the ability of CAP-1002 to improve peripheral and respiratory muscle function in boys and young men with DMD.

In which the study medication will be given by systemic intravascular administration. We plan to commence this trial in 2017 subject to regulatory approvals and we will provide further details on timing and design as we get closer to its initiation.

I should add, that while we see improvements in cardiac function with systemic delivery, we continue to believe that intracoronary delivery as is being used in the HOPE trial is the best route of administration for the cardiomyopathy itself.

We believe we now have two important potential products, one for the cardiac muscles and one for skeletal muscle that are positioned to potentially address this chronic and ultimately fatal disease in boys and young men.

We also announced today that we plan to evaluate repeat dosage of CAP-1002 in patients who have received their first dose with the CAP-HOPE trail.

As we know DMD is a progress disease and while we believe a single dose of CAP-1002 has the potential to mitigate the effects of the disorder for some time we would expect that a sustainable response would require repeat dosing.

Our preclinical data show that we recapitulate contemplate the effect of CAP-1002 by giving another dose when we effect of the cells begin to whereof. Through a protocol amendment we hope to allow patients who have completed the 12 month follow-up period in the HOPE clinical trial and have responded to CAP-1002 to receive additional dosing.

By this we will begin to evaluate CAP-1002 as a longer term therapeutic options that maybe repeated dosed throughout person’s lifetime. While working hard on DMD we have also been busy in our other clinical program. Using the cells to treat the more common forms of heart disease such as heart attacks and congestive heart failure.

In September we considered enrolment in the Phase II ALLSTAR clinical trial with 134 patients enrolled. ALLSTAR is a randomized, doubled line, placebo-controlled clinical trial that is evaluating a single infusion of CAP-1002 in patients who have had a large scar in their left ventricular following the heart attack.

The trial is powered to detect reduction in scar size in the CAP-1002 group, relative to placebo at 12 months of follow-up as measure by MRI.

ALLSTAR closely follows the design of the CADUCEUS trial, which have 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.

Using autologous cells, ALLSTAR will be the first trail of its kind in which an off the shelf allogeneic cells is being used to treat ischemic heart disease at its force the scar. The correlation between scar size and four long-term outcomes including progression to congestive heart failure is well known.

And there is no current therapy that can reverse the heart muscle demand following a heart attack. The opportunities presented here for patients should not be underestimated. In June we reported positive top-line 12 months' results from the open-label Phase 1 dynamic trail.

And we recently presented the full data of the Transcatheter Cardiovascular Therapeutics Conference. The world’s premier meeting for intervention cardiologist, which was held in Washington, D.C.

DYNAMIC enrolled 14 patients with New York Heart Association Class III heart failure, which means these patients suffered market limitation in their physical activity as a result of their heart disease.

As we had reported, the patients in DYNAMIC demonstrated significant improvements in functional status and capacity, cardiac function and dimension and quality of life measured at six months and many of these trends continued out to one year post treatment.

Importantly, the change in median left ventricular ejection fraction maintained its level of statistical significant improvement from baseline to 12 months that is also been observed at six months with a P value equal to 0.02 at both time points.

I reiterate that the DYNAMIC population is different than the ALLSTAR population in the former patients had advanced Class III heart failure from both ischemic and non-ischemic heart disease. In ALLSTAR we are treating patients who are at high risk at developing heart frailer.

These two studies therefore are evaluating the effect of CAP-1002 at both ends of the progressive spectrums of myocardial damage. DYNAMIC was a dose escalating trail in which CAP-1002 was given at four dose levels ranging from 37.5 million cells to 75 million cells.

We observer that among the five patients who are in the highest dose group and therefore about 75 million cells of each, 40% had an improvement by one class to Class II NYHA heart failure at their 12 month follow-up and 60% had improved by two classes to Class I at this time point.

It is very encouraging to see such durable improvements following just [indiscernible] as patients with advanced heart failure are known to follow an inevitable course of heart failure progressions. These results also provide evidence of a dose response relationship.

As a reminder, all patients in our HOPE-Duchenne trial who received CAP-1002 did so at the same 75 million cell dose that was the highest use in the very positive DYNAMIC trial.

With regard to our agreement with the Janssen Biotech, which holds an exclusive license options on CAP-1002 for certain cardiology indications, we expect to hear of Janssen's decision by the middle of next year. This will follow our delivery to Janssen of six months interim data from ALLSTAR.

Before I move onto our preclinical program, I would like to conclude this portion of the call by talking about some important differences between the cell in CAP-1002 and other cell types that have been investigated in the context of heart disease.

We and our academic collaborators has in the last few years working to understand the mechanism of action of Capricor's CAP-1002 products, for which we now believe we have a good understanding. We can attribute a majority of their effect to the exosome that they release.

Using sophisticated measurement techniques such as nanostring and QPCR, we know the content of the exosome result in epigenetic modulation of cellular functions leading to reductions in inflammation in fibrosis, as well as increases in angiogenesis and myocardial regeneration.

We have also characterized the cell's extracellular markers, which correlate with their potency and differentiate them from other types of mesenchymal and hematopoietic stem cells that has been decided as potential therapeutics.

We believe that the biological profile and potency of the cells in CAP-1002 would strongly support their therapeutic potential for our target indications. Now I would like to turn your attention to our exosome program.

As you may recall on last quarter's call, we announced our [indiscernible] disease or OGVHD as the first clinical development opportunity for our exosome and that remains our goal. OGVHD is a potentially devastating orphan disease that is believed to occur in approximately 40% of patients who have undergone bone marrow transplantation.

This selection was supported by preclinical data, which demonstrated the ability of our exosomes to significantly improve clinically meaningful measures of ocular injury and inflammation. We expect to submit an IND to the FDA on CAP-2003 for OGVHD in the first half of 2017.

I would also like to briefly highly several grants that Capricor received recently, which will be year marked to our exosome program. At Capricor we actively pursue non-dilutive funding sources such as graft support our program. We continue to compete successfully at both the national and state levels in grant funding.

In September 2016, Capricor was approved four grant award from the U.S. Department of Defense in the amount of approximately $2.4 million to be used towards the scalable commercially ready process to manage our care CAP-2003.

And just last month we were awarded a grant of up to $4.2 million by the National Institute of Health to evaluate our exosome in children with hypoplastic left heart syndrome or HLHS.

HLHS is an orphan disease and a life threatening congenital defect of the heart that often results in heart failure and premature death despite several complex surgeries. According to the Centers for Disease Control and Prevention approximately 960 babies are born with HLHS in the US each year.

Many of the children survive with surgeries only to deal with heart failure as they age most notably from fibrosis. We believe that our exosome product, which has demonstrated the ability regenerate myocardial may be directly deliver to the heart during a surgical procedure to potential improve outcome in these total.

With these two grant awards, we now have two federally funded applications that will enable us to broaden the breadth and scope of our exosome programs.

Today Capricor has been awarded more than $30 million in grant and loan awards from government agencies to support the preclinical and clinical advancement of our cell and exosome candidates and this funding has been non-dilutive to shareholders.

I’d like to ask Leland so he can provide a brief update on our financials and discuss several corporate milestones achieved during the quarter..

Thank you, Linda. As Linda mentioned during the third quarter we strengthened our balance sheet with the closing concurrent public and registered direct offerings in which we raised just under $10 million in combined net proceeds. Thus far in 2016 Capricor has its [indiscernible].

We now have sufficient capital to advance CAP-1002 through several important clinical milestones, as well as to continue exploring our exosome technology in areas outside of cardiology.

At the end of the third quarter 2016 cash, cash equivalents and marketable securities totaled approximately $20.5 million, compared to approximately $13.6 million at December 31, 2015.

During the third quarter excluding the effect of stock-based compensation, we spent approximately $4.6 million in research and development expenses and approximately $900,000 in general and administrative expenses. And with that I will turn it over Linda for her closing comments..

Thank you, Leland. Our clinical development activities continue to gain momentum as we approach the end of the year. We look forward to keeping you updated on our progress including the top-line six month's results from HOPE-Duchenne early in the second quarter 2017 our next expected clinical milestones.

I will now turn the call over to the operator who will open up the line for questions.

Operator?.

Certainly. [Operator Instructions]. Our first question comes from Ted Tenthoff with Piper Jaffray. Please go ahead..

Great, thank you very much. And just want to get a little bit more understanding about the expansion in DMD. Congratulations on that that sounds really exciting.

Is this based on kind of new learnings from first set of boys, is this enriched the dataset? Are there any changes that you're making in terms of dosing or anything along those lines?.

Yeah Ted thanks, always great to hear from you. Yeah so this is the very exciting expansion for us.

And I think I mentioned this briefly in the call that when we were collecting some of the initial preclinical data we observed an increase in exercise capacity in the MDX mouse that was greater than what we would have expected to see based on the improvement in injection fraction.

And so this opened up an entire field of study that has largely been powered by the academic lab to look at the rationale behind that increase in exercise capacity and what we have found is you'll be hearing a lot more granularity on this data as it will be published hopefully in the next few months, where we show improvement in skeletal muscle functions from the delivery of the cells in the animals.

And so based on that we've been able to sort of build the paradigm where we think we'll be able to take it into the boys and young men for systemic administration. So for the second part of your questions, yes this opens up an entirely new avenue of therapeutics for us. One the cells will be delivered systemically.

We won't have to go in and do the inter-coronary infusion making it a much simpler process for these boys and young men. And two we’ll have a way of directly treating the skeletal peripheral muscle myopathy as well as continuing our HOPE program in cardiomyopathy.

We haven't yet seen the data from HOPE we'll see that early next year, the middle part of next year as we announced in the guidance today at the beginning of Q2. But we're hopeful that the cardiomyopathy will improve from that.

We're not sure what will happen with skeletal muscle we look forward to that new program and provide more information if it's come forward..

Good that's helpful. And then if I may, just with respect to exosomes, obviously a very exciting area building on your expertise in cell therapy, but as you've mentioned moving beyond cardiovascular medicine.

Can you give us a sense of sort of where this could delve and ultimately what your goals are with access on therapy?.

Yeah so as you said we are as excited as we possibly can be about the exosomes and their therapeutic potential. I mean it allow us the possibility for regenerate medicine without the cell.

And as you sort of remove them from their whole cells they then become relatively agnostic to where they are used to mediate their beneficial effect in terms of reducing inflammation, reducing fibers, improving angiogenesis, modulating the inflammatory responses in terms of the immune reaction and there is published data to support this.

In terms of where we are taking this program, the doors open for this to become a platform therapeutic with options in many areas, we are targeting orphan diseases where we can build the therapeutic program and build it toward commercialization ourselves.

The first program as we’ve announced is in the eye we are using the exosomes in hypoplastic left heart as an injunctive to the surgery to see if we can reduce the fibrosis and improve progressions in those kids, who know as well as our next stay tuned..

Excellent, very exciting. I look forward to seeing you at AJ next week and then at our health conference later in month..

You too, Ted. Thank you so much..

Thank you. Our next question comes from Joseph Pantginis with Roth Capital Partners. Please go ahead..

Hi, Linda, hi guys. Thanks for taking the question. Linda I was helping you could drive a little more into the mechanistic concepts regarding systemic delivery of these cells for the peripheral aspect.

Obviously we move past the original thoughts in cellular therapy that if the cell effect you’re talking a lot about the exosomes and the signaling that comes from this, but how are these cells able to exert their impact on say skeletal muscles being delivered systemically?.

So, I think we’re still investigating exactly how they get there to do what they do, but what we know is that the cells release exosomes and the exosomes lead to generation of cascade responses lead to the production of new healthy skeletal muscle as well.

So, again some of this data is to be disclosed in the future by the academic labs, but what we know for sure that if we inject cells systemically the mice are able to has better contraction of their skeletal muscle, they can run longer and further on treadmill.

And then if we are going to do the granular experiment of directly injecting exosomes into the muscle we see the skeletal muscles was improved. So we know it's mediated by the exosomes.

We are working on the final doses now of how will get us there but we believe that the exosomes will circulate around and target the damage cellular processes in the skeletal muscle and hope to make them better..

That’s very helpful. Thank you.

And then with regard to HOPE the redosing concept is actually very exciting and I was wondering you said patients will be eligible if they showed benefit following 12 months of follow-up, do you know how you are going to define that?.

Yeah, so we have some hypothesis that we are kicking around with our thought leaders we are doing an imaging core meeting next week at the American Heart Association getting the real leaders in the space, Dr.

Michel Tailor from Cincinnati and Gerald Lever [ph] from Johns Hopkins and some of the other people in the study in the room to start kicking around what we would consider measures of improvement that’s important for everything from efficacy for the trial and how we proceed on a regulatory basis. And then also on how we proceed towards redosing.

I will say that we had thought leader meeting in Chicago a couple months ago that motivated this redosing paradigm where many of our colleagues that come into the room sat up and just noticed in the preclinical data and said it’s very exciting you can see recapulation in fact with synergy in terms of cardiac performance let’s give this a shot in boys and young men.

So we are very, very excited to continue the opportunity in those patients..

And my last question it’s somewhat tongue and cheek since you’re constantly generating information from your platform here whether it from ALLSTAR or what have you generating data from HOPE, how many times a week you guys speak to Janssen?.

So, I think somebody from Janssen are usually on these calls, what I can say is we speak to them very, very regularly we have a manufacturing committee that works together and they needs once a week if not more often from a senior leadership side we actually talk probably once a month..

There you go. No thank you very much guys..

Take care, thank you look forward to seeing soon..

Thank you. [Operator Instructions]. Our next question comes from Swayampakula Ramakanth with H.C. Wainwright. Please go ahead..

Thank you, good evening Linda. Congratulations on the progress when looking at CAP-1002 and especially looking into the new way of understanding CAP-1002 the intravascular.

So based on that can you think of other indications that you can utilize just outside of DMD or the CV indications that you're currently looking at?.

Absolutely RK and that's one of the most exciting parts of expansion of this program. We're able to take our cell and turn it into a platform therapeutic taking advantage of mechanism of action that we understand through exosomes.

And so for now it's Duchenne muscular dystrophy skeletal, peripheral muscle myopathies and other neuromuscular diseases, but who knows where we're going to be taking it following hopefully positive data in that space..

So then just following up on that, do you have any data in any other neuromuscular indications that you could talk about or is it in the progress that we should be looking out for such data in the near future?.

I would always encourage you to keep at an eye on us so what's coming up next. So we have very active R&D program and strong academic collaborator. So let's see where we're going..

Okay. And just kind of attempting on the same way, I would imagine that the intravascular administration requires a little higher dose than what you would do on the intra-tissue or intra-target tissue administration.

And if that is true, is there - what concerns would you have on the efficacy or safety when you are using it at a higher dose?.

Yeah so yes we plan on changing the dosing we haven't disclosed the doses yet or how we're going to be doing that we will be looking for regulatory guidance based on our preclinical and CMC type data. You will hear more about that in the future..

Alright.

And then the last question is on the intravascular administration the DMD patients maybe you said and I didn't catch it, but what sort of biomarkers or efficacy signals are you looking for in this early stage study?.

Yeah we'll provide guidance on that as we complete the protocol and initiate the clinical trial. What I can tell you now is that we're attracting the best thought leaders in the space people who have tremendous experience in Duchenne muscular dystrophy and treatment hub and understanding skeletal myopathies as well as the respiratory complications.

And they are helping us build the appropriate dosing and evaluation endpoints..

Okay, thank you. Thank you and congratulations on the progress..

Thank you. Look forward to seeing you soon..

Thank you. [Operator Instructions]. It appears we have no questions at this time. I’ll turn it back to Linda for any closing or final remarks..

Thank you for joining us on the call today. We appreciate your interest in Capricor and we look forward to seeing some of you in New York later this month at the Piper Jaffrey Healthcare Conference. Operator you may now disconnect..

Thank you. This does conclude today's conference. We appreciate your participation. You may disconnect at any time. And have a great day..