Linda Marban - President and Chief Executive Officer Leland Gershell - Chief Financial Officer.

Joe Pantginis - H.C. Wainwright.

Welcome to the Capricor Therapeutics' Third Quarter 2017 Financial and Business Highlights Conference Call. My name is Allie and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Later we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded.

I will now turn over the call to Leland Gershell, Chief Financial Officer. Please go ahead..

Thank you, Allie. A little while ago we announced our financial results for the third quarter of 2017 as well as provided an update on our business in a press release that we issued just after the market close. This press release is available on our website. Joining me on today's call are Dr.

Linda Marban, our President and Chief Executive Officer; and AJ Bergmann, our Vice President of Finance. 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 our product candidates, our future research and development plans including our anticipated conduct and timing of preclinical and clinical studies, our plans to present or report additional data, our plans regarding regulatory filings, and our possibly usage of existing cash and investment 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 and other risks are described in our periodic filings made with the Securities and Exchange Commission including our quarterly and annual reports. You are cautioned not to place undue reliance on these forward-looking statements and we disclaim any obligation to update such statements. With that, I'd now like to turn the call over to Linda..

Thank you, Leland. Good afternoon and thank you for joining us.

The last couple months have been exciting ones for us as we continue to forge ahead with our development of CAP-1002 for the of Duchenne muscular dystrophy, and we expect to be in position to initiate the HOPE-2 clinical trials in this indication in the first quarter of 2018 subject to regulatory approval.

As you may recall, our first clinical trial of CAP-1002 on DMD was the randomize open-label Phase 1/2 HOPE trial, which was safety trial but also showed promising signs of efficacy in later-stage Duchenne patients. In early October, we presented the six months data from HOPE at the World Muscle Society Congress held this year in St. Malo, France.

In HOPE, we showed Improvement in skeletal muscle function as reflected by scores on the performance of the upper-limb module, in particular with respect to the mid-level scores and also observed meaningful and potentially important improvement in cardiac muscle structure and function in patients treated with CAP-1002.

Of note, the mid-level subscale of the performance of the upper limb or mid-level PUL as it is commonly called is considered to be the most reliable index of skeletal muscle function in non-ambulant DMD patients.

These observations serve as clinical proof of concept for CAP-1002 as a potential therapy for Duchenne that is unique from any other therapies that are currently in development Now, let me remind you that the cells in CAP-1002 are immunomodulatory, anti-fibrotic and promote regeneration of new muscle.

The recognition that these interim data have garnered among key opinion leaders in the field, have enabled us to develop a stellar advisory board whose input has been invaluable to redefine our clinical development strategy, so that we can move it quickly as possible towards registration.

In doing so, a potentially important therapeutic option is being advanced for those in the later stages of the disease process. I would like to remind everyone that the 12 months results from HOPE will be presented next Wednesday morning at a late breaking session of the American Heart Association's annual meeting at Anaheim, California.

The presentation will be given by one of our principal investigator, Dr. Ron Victor of the Cedars-Sinai Heart Institute who has been working in the field of Duchenne muscular dystrophy for more than 15 years. Later that day, we will host a conference call and webcast in which Dr.

Victor will review the data for the benefit of those who will not be attending the AHA session in person.

In order to access details for this event, please look for the press release that we plan to issue that day which will also contain a summary of the 12 months HOPE results Our clinical team has been very focused on preparing for the HOPE-2 clinical trial of CAP-1002 and DMD driven by the belief that CAP-1002 represents a valuable potential option for Duchenne patients.

Irrespective of their genetic etiology or the stage of their disease, we have approached the HOPE-2 trial with the goal of demonstrating CAP-1002's ability to yield functional benefits for patients with DMD, which will be measured by a variety of functional endpoints, most importantly the mid-level PUL.

As planned, HOPE-2 will be a randomized double-blind placebo-controlled clinical trial that will evaluate CAP-1002 in boys and young men with Duchenne muscular dystrophy.

We designed the trials to be reflective of the suggestions made by the FDA during our pre-IND meeting in June, and we believe that HOPE-2 could serve as a registration filed if it's primary efficacy analysis shows statistically significant difference favoring CAP-1002.

We recently submitted an IND for HOPE-2 and expect to initiate the trial by the first quarter of next year.

In HOPE-2, study medication or placebo will be given using simple intravenous delivery at a frequency of every three months for one year, which is in contrast to the one-time intracoronary delivery that we had used in our prior clinical studies of CAP-1002, including in the first HOPE trial.

This dosing frequency is informed by a clinical and preclinical experience with the South and one that we believe offers a possibility of long-term therapeutic benefits. The perfective efficacy of IV infusion is supported by data from many preclinical studies we have conducted.

In fact, we've presented some of these data just last month at the Cell and Gene Meeting on the Mesa in La Jolla, California, for which the results show that IV administration of cardiosphere-derived cells, the research grade version of CAP-1002 dose, dependently increases both exercise capacity and diaphragmatic function in an animal model of Duchenne muscular dystrophy the MDx mice.

The clinical trial primary efficacy endpoint will compare the change in upper limb function from baseline to 12 months according to scores on the mid-level PUL.

A PUL is a validated outcomes' instrument that is designed to assess upper limb motor function in patients with DMD and may be applied to those with preserved walking abilities as well as those who have lost ambulation.

It is also an endpoint that is clinically relevant and therefore could be eligible for registration as opposed to a physiological surrogate which is why we view the changes observed in the middle of a PUL and HOPE as very encouraging. As we recently announced, Dr.

Craig McDonald at the University of California, Davis has agreed to serve as national principal investigator for this important clinical trial. Dr.

McDonald is an internationally-recognized thought leader in the clinical management of neuromuscular diseases including muscular dystrophy and in the development of novel outcome measures for DMD clinical trials.

We are presently initiating clinical startup activities and we anticipate announcing the commencement of the trial once we randomize the first patient. In addition, to the late-breaking clinical results that will be presented by Dr.

Victor next week, we will be presenting a poster at the AHA meeting that will further define the physiological mechanisms of action of CAP-1002 and report on observations we have made with respect to the immunomodulatory activity of the cell.

Furthermore, later this week, we look forward to presenting a poster at the Action Duchenne International Conference in the United Kingdom that will provide results on immunogenicity studies we have conducted, and which provides support for the repeat dosing of CAP-1002.

Apart from our development of CAP-1002 for DMD, I'd like to mention that we are supplying the cells for evaluation in two investigator-initiated clinical trials in cardiovascular disease they're currently recruiting, one in heart failure with preserved ejection fraction called rigorous HFpEF and one in pulmonary arterial hypertension called Alpha.

Both of these trials are being sponsored by the Cedars-Sinai Heart Institute.

In each of these settings, the same progenitor cell type featured in CAP-1002 has been reported to induce beneficial changes in animal models of the relevant disease, moreover these effects could reflect the potent anti-inflammatory and anti-fibrotic potential of the cells consistent with our observations in preclinical models of DMD.

Now, finally I'd like to spend just a moment on the development of our extracellular vesicles or EV's, which we'll also referred to as exosomes.

We continue to conduct pre-clinical studies on our EVs, which we have named CAP-2003 in a variety of orphan indication and expect to submit an IND for CAP-2003 for the rare pediatric condition known as hypoplastic left heart syndrome or HLHS in 2018.

We have an NIH-supported program to conduct pivotal preclinical studies of CAP-2003 and then to conduct an early-stage clinical trial in this important orphan indication. What I can tell you now is that the preclinical data is very promising, and we look forward to treating patients in the near future.

On a final note, we believe that the CAP-2003 maybe a potentially powerful therapeutic because it can render the benefits of our cellular candidate without itself being a live cellular product. With that I would like to now try to call over to Leland for his review of our financials. Thank you..

Thank you, Linda. This afternoon's press release provided a summary of our third quarter 2017 financials on a GAAP basis. You may also refer to our quarterly report Form 10-Quarter, which we expect to become available in the next few days and will be accessible on the SEC website as well as in the financial section of our company website.

At September 30, 2017, we held cash, cash equivalents and marketable securities totaling approximately $13.9 million, as compared to approximately $16.2 million at December 31, 2016. We expect our current resources to fund our operations through the third quarter of 2018.

In the third quarter of 2017, our net cash use in operating activities was approximately $3.2 million. Excluding stock-based compensation, our research and development expense was approximately $1.7 million in 3Q 2017, compared to $4.6 million in 3Q to 2016.

The decrease in R&D expense is primarily attributable to the completion of certain clinical activities. Again, excluding stock-based compensation our general and administrative expense was approximately $800,000 in 3Q 2017, compared to $900,000 in the same quarter last year. And with that, I will now turn the call back over to Linda.

Linda Marban Thank you, Leland. We look forward to your participation on our call next Wednesday in which Dr. Victor will review the 12 months of data. The call will also feature Dr. Michael Taylor, an expert in the field of cardiac magnetic resonance imaging. Dr.

Taylor is with the Cincinnati Children's Hospital Medical Center which was also an investigational site for the HOPE clinical trial. I will now turn the call over to the operator who'll open the call up for questions.

Operator?.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Joe Pantginis. Please go ahead..

Hey, guys, its Joe from H.C. Wainwright. Hope, you are doing well, and looking forward to next week. Few questions, if you don't mind, first having to do with HOPE-2. I know it's not finalized yet, but still - first will the 12-month data impact the design at all..

Yes, the 12-month period will impact the design, has impacted the design, and you'll see that very soon as we come out with the data next week and what we are able to discern from that and then also when we were able to talk a little bit more about what HOPE-2 will entail..

Got it, and then with regard to the general, anymore regulatory hurdles that are left and if so, what they are?.

Do you mean in terms of initiating HOPE-2?.

Initiating like the design is finalized or any sort of startup activities or requiring the FDA's involvement?.

We have submitted an IND to the FDA, which we just announced a few minutes ago. It's under review now and we will be able to release the final design once we finish that review process with them..

Got it, and then when the actual study is ongoing, can you just remind us how the placebo is going to be masked?.

Yeah, so we have gone through a lot of years of making sure that they are in the same bios that are colored, so that nobody can see through them to see if there's anything in there. The cells are pretty well dissolved, so you can see through them, but just to be safe as sort of a multi-colored file that we store them in..

Got it and any things regarding viscosity?.

No, we have made sure over the years that the delivery of the placebo feels exactly the same to the physician delivering it as does the cells themselves..

Got it, and perfect. And then just the last two quick ones I guess, can you just describe the clinical supply readiness for the study and also the additional IFTs that are ongoing..

Yeah, so we of course have been working towards this file for a while. We are continuing to build our supply, we have adequate supply to begin the trial and keep it going for quite a while, we will continue to manufacture along the way.

What is really exciting is we're sort of gearing up towards commercialization of this product as we're actively involved in building out a transfer plan to have commercial doses ready at the time that we need it for the submission of the BOI.

So, we've been very busy at home here, not only with the designing of the new trial, but also getting the product ready for that commercial launch..

Got it, and then my last one if you don't mind. Thanks for your patience. You've been very successful on this front, do you have - can you describe the potential for additional non-diluted funding for the DMD program..

Yeah, thanks for asking, so we have really always worked hard to supplement any investor funds with non-diluted funding through graphing and so we're going to go after those aggressively for this very important clinical indication.

As you can imagine Duchenne muscular dystrophy is not an orphan disease, but it's one that that kills children, so many of the funding agencies are anxious to propel therapeutics forward as fast as they can, and we've got a great relationship with them. It's possible that we will go back to them.

We have had some luck with Department of Defense; we will possibly go back to the Department of Defense and we have a long history of NIH funding and so will take advantage of all those pathways..

Great, thanks a lot, Linda, appreciate it..

Thanks, Joe. Take care, look forward to see you soon..

And our next question comes from Allen long. Please go ahead..

Hi, Linda, thanks for taking my question.

You mentioned about two trials at Cedars-Sinai and I wonder if you can go ahead and differentiate or tell us about how those trials have helped progress clinical development and clinical science that you have?.

Thank you, Allen and thanks to your questions.

So, one of the mandates that we have is to help to pour the science behind the development of our clinical products, so while Capricor is laser focusing on Duchenne muscular dystrophy, we are happy to provide clinically relevant product to our partners at Cedars-Sinai for their experimental investigator-initiated trials both in HFpEF and pulmonary artery hypertension.

Now, one other things that's nice about that is because it's a qualified, well manufactured products under GMP regulations, this product is one that could be moved forward and either of these clinical indication should it look interesting to do so.

And the other thing - one more question, your exosome product is derived from the cardiosphere and could you comment - because I noticed it's being used outside of the cardiac system into other applications.

Can you comment on what makes your exosome product possibly deployed over the core system, and if you would like to comment on how it's a differentiator from all the other exosome products that are out there?.

Yeah, so the exosomes are derived from our cells. The exosomes themselves basically carry the therapeutic benefits of the cells without having any specific area which they need to go back to.

So, the exosomes now have becomes agnostic where they came from, but they carry very important immunomodulatory activities which we've demonstrated both scientifically and then also published in the peer review literature showing that this cells releases these exosomes, so then can go and stimulate healing by converting macro products from an inflammatory pay tours and anti-inflammatory stem [ph], as well as then stimulating new muscle generations and a variety of other healing processes including activation and also repair of mitochondrial pathways such as the power generator cell.

The exosomes are really the next generation therapeutics and I alluded to this in my comments a few moments ago, and we will be able to ultimately take the exosomes, take them as an agnostic to which cell them came from vitalize them , put them on a shelf and be able to pull them down to use in any types of variety of inflammatory and fibrotic diseases of which there are too many even to begin to mention, so this is really exciting and unique opportunity for the therapeutic development of a very new platform therapeutic in biotechnology..

You have some interesting stuff. We look forward to meeting you in the near future, thanks..

Yeah, Allen. Thanks so much..

[Operator Instructions] And as we have no further questions. That concludes today's call. Thank you for participating. You may now disconnect..