AJ Bergmann - Chief Financial Officer Linda Marbán - President and Chief Executive Officer.

Joseph Pantginis - H.C. Wainwright.

Welcome to Capricor Therapeutics’ First Quarter 2018 Conference Call. My name is Brian and I will be your operator for today’s call. At this time, all participants are in a listen only mode. At the end of this call, we will open up the line for questions. [Operator Instructions] Note that this conference is being recorded.

I will now like to turn the conference call over to Capricor’s CFO, AJ Bergmann..

Thank you, and good afternoon everyone. Before we start, I would like to state that we will be making certain forward-looking statements during today’s presentation.

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, potential regulatory developments involving our product candidates and our possible uses 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 SEC, 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 would like to turn the call over to Linda Marbán, CEO..

Good afternoon and thank you for joining us for our 2018 first quarter earnings update. The first quarter has been a busy and productive one for Capricor.

The first and most important thing I will talk about today is the initiation of HOPE-2 our clinical trial investigating the use of CAP-1002 in boys and young men with Duchenne muscular dystrophy otherwise known as DMD. The first patients have now been treated and we are hoping that the trial will enroll briskly.

HOPE-2 is a very important trial because it may be the first potentially pivotal trial for an immunomodulatory treatment for DMD and also one specifically targeting the later stages of the disease process for which no current therapies exist.

Let me remind you that HOPE-2 is a randomized double-blind, placebo-controlled trial that will enroll up to 84 boys and nine men with advance stages of DMD. The most important inclusion criteria is the inability to [emulate] well or at all.

When I last looked on clinicaltrials.gov there were over 100 clinical initiatives in DMD but only four were available to those later stage patients. This highlights the huge unmet medical need in this patient population and we are delighted to think that we have something at Capricor that could potentially attenuate the progression of DMD.

One of my goals since we began to develop therapeutics for DMD was to become involved with the patients and their families in order to tailor their development of our clinical program to the need of the DMD community. I now sit on the Duchenne Biotechnology Council which is working with the FDA to fine tune endpoints in DMD.

One of the issues that has become increasingly clear which is reflected in data for many of the advocacy organizations and which was recently presented by [path for log] of PPMD the Parent Project Muscular Dystrophy at our research day and that is the non-ambulatory patients are not necessary eager to get back on their feet.

They have accepted motorized transport as their way of life, what is absolutely relevant to them is maintaining the use of their hands and arms, this represents independence. With the use of their hands and arms they can control their wheelchairs, they can eat, drink and groom themselves.

the value of this independence cannot be over stated and the DMD community is very motivated to see the development of more therapies here towards maintaining use of their hands and arms.

now you may remember, that one of the most compelling pieces of data from our earlier HOPE Duchenne trial was an improvement in the fall or the performance of the upper limb mid and distal level, a pre-specified end points that measures arm and hand strength.

This has become the primary efficacy end point in HOPE-2 and if we achieve the goal of significant improvement in this level then we may potentially have a first in class treatment for these patients. We believe this goal is within our reach in HOPE-2 and we know that DMD community is as excited as we are to see the outcome of this trial.

In HOPE-2 the patients will receive a dose of 150 million cells every three months delivered via simple intravenous delivery. So far, the cells have been delivered easily and with minimal inconvenience or discomfort to the patients. We design the trials this way so that it could be easily adoptable as a platform to deliver CAP-1002.

Using IV we can also deliver more cells and do it more frequently and we have shown pre-clinically that we can maximize the effect of the therapies that way.

Now I would like to take a few minutes to explain how we conclude it that we can deliver the same therapeutic benefit delivering the cells using IV as opposed to the intra-corner delivery that we did in HOPE Duchenne.

One of the observations that we made pre-clinically early on was that we saw market and significant improvements in treadmill running and MDx mice treated with cells delivered into their heart. Remember, the MDx mouse is the genetic model of the muscular dystrophy that is commonly used in experiments to build the therapeutic paradigm.

So, this lead to the conclusion that although the cells were delivered to the heart, somehow their benefit was transmitted to the skeletal muscle.

This simple observation led to an entirely new therapeutic paradigm recently started a series of experiments that first showed that we can derive the same benefit one of the cells were delivered intracoronary or directly to the heart or into the circulation using standard IV delivery.

We then followed up with very sensitive bio-distribution studies which shows that the cells were going immediately to the microvascular [lung] which has a tremendous amount of capacity, so there is minimal or no safety risk. Then exosomes, a form of extracellular vesicles which were released from their cells travel to the site of the muscle injury.

In pre-clinical investigations these exosomes have been shown to be strongly immunomodulatory and also capable of stimulating endogenous muscle repair.

It is well accepted that DMD is both a disease of both muscle degeneration due to the dystrophin deficiency and also one of inflammation where the death of the muscle is greatly accelerated due to inflammation. This is evidenced by the profound effect that steroids have had on the progression of the disease.

But just suppression inflammation is not enough. Muscle repairs itself by responding to signals of inflammation and that is where CAP-1002 is well suited as a treatment for DMD and other diseases of inflammation in fibrosis. We have spent the last two years defining the mechanism of action of CAP-1002.

It has been a journey of carefully planned and executed scientific investigation that has allowed us to build the model which shows that the cells do not engraft, but rather released growth factors, cytokines and exosomes that travel to the site of muscle injury and further that muscles includes heart as well as skeletal muscle where their primary mode of action is the modulation of the immune response.

So, let me explain how we believe the exosomes specifically mediate CAP-1002's mechanism of action. As we have been talking about for the last two years exosomes are filled with a unique cocktail of micro RNA, non-coding RNAs such as Y RNA as well as proteins in some DNA.

We know and have published preclinical data showing that the exosomes for CDCs can shift [macro fibers] from M1 which is an angry inflammatory state to M2 which is the anti-inflammatory pro-healing state. But we ask how does that happen.

While we have made a critical discovery that will also impact our ability to manufacture cells which are biologically active and just last week we presented this data at the International Society of Cell Transplantation or IFCT in Montreal, Canada which showed that three micro RNAs contained in the exosomes mediate cellular potency, it’s very clear from this data that alterations in the levels of the three micro RNAs can differentiate between cells that potent versus cells that are non-potent as measured by our potency assays.

This data is very important for us because we can now determine which cell banks can cause this very important M1 to M2 transition which lead to modulation of the immune response and promotes the healing of injured muscles. The circle is now complete.

we have observed the effects of the cells for years but now we can understand why they work and more importantly, we can predict which cell banks will work. Let me just say that all of the cell banks to be used in the HOPE-2 clinical trials have our potency criteria which is encouraging me to believe that we can see positive results from HOPE-2.

Now this is a good time to talk a little bit about our exosome program. You've heard me talk with excitement about the exosomes for a few years now, let me remind you that our exosomes are made from CDCs and are unique from other exosomes.

We have run head to head comparisons of CDC exosome to for instance MFC exosome and as we know and again presented last week at IFCT that not only are the contents different but CDC exosomes have worked better in every circumstance in which they have been tested by our team.

So, let’s consider why a CDC exosome might be better at immunomodulation and tissue repair than another type of naturally occurring exosome. In order to do that we have to look carefully at our source tissue which is the heart.

In our bodies, the heart is a very unique muscular organ, not only in the job that it does which requires it to be on and beating from early on [indiscernible] until our last breath, but it is also unique in its immune privilege, infection either viral or bacterial of the heart are very, very rare.

Despite the fact that every virus or bacteria that is in the circulation goes through the heart, they very rarely stick around, now add on to that the fact that cardiac cancer is extremely rare as well. A recent study published by the male clinic shows in an autopsy analysis only 7 out of about 12,000 people had heart cancer.

Male [indiscernible] sees one case per year in all the patients who come there and those cases are almost always late stage metastasis from other organs. Now why is this important when discussing CDC exosomes? We believe the CDCs are naturally occurring cells in the heart that mediate repair and modulate the immune response.

In other words, they are targeted to protect the heart. Using our proprietary isolation and expansions processes, we can make large dose with [these cells] and their corresponding exosomes so that we can potentially deliver this type of protection elsewhere in the body. We are investigating that now with the cells in Duchenne muscular dystrophy.

So, as you know one of the principles of success in a small company is to remain focused, we have done that with the cells and DMD.

Now that HOPE-2 is enrolling and our clinical team is managing that well, we can now focus on the development of the exosomes and now that we are armed with a greater understanding of their mechanism of action, we are prime to select the best indication or indications in which to use that.

We have deepened the process with groups of key opinion leaders and our internal research and developing teams to target the right disease. The criteria we require as a rare disease with a high unmet medical need and one in which the primary pathological consequences is one of inflammation and fibrosis.

There are many conditions that meet these criteria, so we are currently narrowing the field and should select one soon. Now in the background, we have also been working on the formulation for the exosomes, which I'm very happy to say, seems to be ready for the clinic of course subject to regulatory approval.

We have been able to lyophilize the exosomes and also make them from an immortalized cell line which helps with quality attributes as well as reducing cost of goods sold significantly. Please stay tuned as we move our exosome program forward.

We are keenly aware that the exosomes have the potential to revolutionize regenerative medicine and that the benefits of the cells can be derived without meeting the solid cells. At Capricor, we were one of the first to enter the exosomes space, so we are excited about the possibility of bringing the exosomes to the clinic.

So, as you can see, these are exciting days for Capricor and we look forward to continuing to update you on milestones such as the HOPE-2 enrollment, our meetings with the FDA, that's our breakthrough therapy, breakthrough designation for cell therapies announcement of an exosomes indication and a clinical development plan for such as well as many of other milestones planned for 2018.

Thank you for your time. I will turn it back over to AJ to go over the financials. AJ..

Thank you, Linda. This afternoon’s press release provided a summary of our first quarter 2018 financials on a GAAP basis. You may also refer to our quarterly report on Form 10-Q, 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.

As of March 31, 2018, the company’s cash, cash equivalents and marketable securities totaled approximately $13.2 million, compared to approximately $14.1 million on December 31, 2017.

Based on our current plans and projections, Capricor expects that its cash, cash equivalents and marketable securities will fund its research and development programs and other operations into the first quarter of 2019. In the first quarter of 2018, our net cash used in operating activities was approximately $3.4 million.

Excluding stock-based compensation, our research and development expense was approximately $2.6 million in Q1 2018, compared to approximately $3.1 million in Q1 2017. Again, excluding stock-based compensation our general and administrative expense was approximately 1.1 million in Q1 2018 compared to approximately 900,000 in Q1 2017.

With that I will now turn the call back over to Linda and we will then open the lineup for questions..

Thank you, AJ. Just like to conclude with reminding everyone that we will be at BIO in Boston which will be held in early June. We look forward to seeing you there. With that thank you for joining us today. And now open the line for question. .

[Operator Instructions] And our first question comes from the line of Joseph Pantginis with H.C. Wainwright. Your line is now open. .

Linda now that you are officially a pivotal stage company, can you talk more to the pending conduct of the study, first, how patients are to be screened and anticipated top one or two reasons for screen failure. Thanks. .

Thank you, Joe, it's good to talk to you. So, the inclusion criteria was very carefully designed primarily using our steering committee and Craig McDonald, our national PI with a tremendous amount of experience in this patient population. We don’t have any data on screen fails, we’re expecting that the trial will enroll well. .

And just the second part of that question is, and I think it's somewhat rhetorical since it is IV but what special training, if any, did you need to provide to the clinical sites with regard to the infusions to ensure standardization?.

The beauty of switching to this standardizing method is that it requires very little specialized knowledge, most of the infusions are done in hospitals with infusion centers where the team has tremendous experience from using standard commercially available catheters and needles and so there really is nothing very special about it. .

[Operator Instructions]. Our next question comes from the line of Jason McCarthy from Maxim Group. Your line is now open. .

Hi guys this is [indiscernible] calling on behalf of Jason McCarthy. Thanks for taking my call. My question is in additional to PUL, are there other secondaries that could further support potential registration. [indiscernible] had multiple measures and [indiscernible] it got approved. .

Thank you and good to hear from you.

Of course, we built a significant and relevant number of secondary endpoints into the design of HOPE-2 which will allow us to measure among other things called muscle performance, the cardiac muscle performance as well as [respiratory] performance and all of those will be very carefully prespecified in our statistical analysis plan and looked at in totality with the data when its opened and the blind is revealed..

[Operator Instructions]. And I’m showing no further questions. I would now like to turn the call back to Linda Marbán CEO for any closing remarks. .

Thank you very much for your time today and we look forward to providing with updates on the second quarterly conference call. Have a good day. .

Ladies and gentlemen, thank you for your participation in today’s conference call. This does conclude the program. And you may all disconnect. Everyone have a great day..