AJ Bergmann - CFO Linda Marbán - President & CEO.

Joe Pantginis - H.C. Wainwright Alan Leong - BioWatch News.

Welcome to Capricor Therapeutics' Third Quarter 2018 Conference Call. My name is Latif and I will be your operator for today's call. [Operator Instructions]. I will now turn the call over to Capricor's CFO, AJ Bergmann..

Thank you. 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..

Thank you, AJ. Good afternoon. Thank you for joining us for our third quarter update and conference call. These are busy days at Capricor and we continue to strive forward in our DMD program as well as in the development of our exosome platform technology.

We are making good progress in both so I am delighted to provide you with some color on both of our program today. As you know we are actively enrolling HOPE-2 our potential registration clinical trial in Duchenne muscular dystrophy.

In that trial we will be dosing up to 84 DMD patients with either kept CAP-1002 or placebo every three months but the primary efficacy end point being the middle level performance of the upper limb otherwise known as the mid-level pull out one year after four doses. We currently have 11 sites across United States recruiting participants.

Patients and families are eager to get into the trial so we are doing our very best to continue the momentum in enrolling so that the sites can quickly treat as many patients as possible. What I can tell you is that the response by the patients in the DMD community to this trial has been overwhelmingly positive.

Recently we have had over 100 inquiries by prospective patients as to whether they may be eligible for HOPE-2.

One of the reasons for the overwhelming response is that as you may remember we are focusing on those later stage patients that are nearly or are already non-ambulatory and while we are looking to improve skeletal muscle function using the performance of the upper limb as an indicator we are also focusing on potential improvements in cardiac structure and function which is an important and heretofore unaddressed complication of DMD.

In fact one of the most common causes of death in patients with DMD is the cardiomyopathy or scar in the heart which leads to heart failure.

In addition our thought leaders tell us that if the gene therapy is successful in keeping patients with DMD on their feet longer the load on their hearts will increase substantially and there is likely to be further exacerbation of the cardiomyopathy.

We believe that CAP-1002 could be important and perhaps necessary to counteract the worsening of the heart disease associated with DMD in the face of gene therapy and HOPE-2 we will get an idea of how the cells can ameliorate skeletal and cardiac muscle function.

One of our goals is to build CAP-1002 to be used in conjunction with gene therapy and some of our key opinion leaders believe that reduction in fibrosis prior to gene therapy in later stage patients may be advantageous and make them more able to generate healthy new muscle.

Only time and data will tell but we remain enthusiastic about the use of CAP-1002 in DMD as we only have the only therapy to-date that we are aware of any way that has shown improvement in scar and cardiac function in later stage patients with DMD.

As we announced yesterday we will be meeting with the FDA before the end of the calendar year to discuss HOPE-2, this meeting is very important in the clinical development of CAP-1002 as there will be our initial in person meeting as part of our [indiscernible] designation.

Thus far the FDA has been very instructive and we look forward to receiving their further comments. As you know we have designed HOPE-2 with the idea that it could potentially be a registration trial. At our [indiscernible] meeting we plan to discuss the entire clinical development plan for CAP-1002 and DMD.

However by far the most important topic will be elaborating on the utilization of the performance of the upper limb otherwise known as pull as a primary efficacy end point.

We and others working in the DMD field are very excited about this validated measure designed for those who are non-ambulant or nearly such to determine strength in the shoulders, arms and hands.

As we have discussed before the use of the upper limb is very important to the patients because it allows them to maintain their independence, what is notable is that it is also a clinically relevant end point which potentially could lead to full approval. The other topic that we will discuss in detail is the CMC or the manufacturing of the product.

We want to make sure that if we have a positive trial and the FDA approves HOPE-2 as a registration trial we will be ready for commercialization as soon as possible.

The team at Capricor has been working hard preparing for this meeting and we are looking forward to working closely with the FDA on the development of CAP-1002 for Duchenne muscular dystrophy. Now let's switch gears for a moment as I would like to update you on our expanding exosome program.

We've been talking about exosomes for several years now but recently they have come to the fore as the field realizes their potential as a therapeutic agent.

We first discovered exosomes when we were looking to explain the long term bio-activity of the cells and realize that they potentially have realized that the exosomes have tremendous possibilities as a platform therapeutic.

We began to look at them as a next product for Capricor and have been actively working on preclinical studies, investigating the use of exosomes for a variety of diseases.

We were not alone of course and the field is growing by leaps and bounds, several large investments were made in early stage exosome companies recently which shows that the investment community is beginning to realize the power of the little biological power pack.

To summarize there are three avenues by which exosomes can potentially be used as a product, one is as a diagnostic tool. Well we are not pursuing that route it would seem obvious that taking a small sample of blood and looking for what exosomes are released can potentially tell a lot about a disease state in a patient.

Second exosomes that are made from certain cell types such as CDCs could potentially be used as a standalone therapeutic in that they carry a variety of molecular tools that can be used to treat different diseases.

For instance for preclinically our exosomes have been shown to be very powerful in combating inflammation and fibrosis primarily through modulation of the macro [indiscernible], an important first responder in the immune system cascade to inflammation.

Recently we have shown data at several international meetings highlighting the positive effect of CDC exosomes on graft versus host disease for instance as an example of systemic inflammation.

We are now looking carefully at several opportunities for clinical development of the exosomes and finally we believe that the exosomes may potentially be used as a cellular delivery tool for a variety of therapies where they may be customized to deliver biomolecules, to drive biology or deliver gene therapies perhaps as an alternative to viruses.

These are early days but the potential is very exciting. Along those lines a few months ago we announced a collaboration with the United States Institute of Surgical Research located in San Antonio, Texas to study our exosome for use by the U.S. military and trauma related injuries.

These studies are well underway now and the very exciting preliminary data suggests that CDC exosome are very different in modulating the coagulation cascade than our MSC or mesenchymal stem cell derived exosome.

This data is very exciting for several reasons, one is that the bioactivity of the exosomes has been validated by an independent lab at USAISR. Secondly it shows that our CDC exosomes perform different functions than other types of exosomes which confirms that their unique contents may drive their bio-activity.

We are very excited to see the story unfold as more data is collected as to how we can turn this interesting observation into a potential therapeutic for warriors in the field.

We have other programs underway that will use the exosomes as a delivery vehicles that are too early to talk about but let me conclude by saying that we are excited about increasing our efforts in the field of exosome therapeutics.

So to conclude while we're actively enrolling HOPE-2 for DMD using CAP-1002 and preparing for our FDA meeting under our RMAT [ph] designation to continue the progress of that therapeutics we're also busy at the bench working to bring exosomes to the clinic as a platform for delivering cellular tools for healing that can potentially treat many diseases.

With that I will thank you for your time. I will now turn it back to our CFO, Mr. AJ Bergmann who will review our financial at this time..

Thank you, Linda. This afternoon's press release provided a summary of our third quarter 2018 financials on a GAAP basis, you may also refer to our quarterly report on Form-10Q which we expect to become available in the next few days and will be accessible on the SEC website as well as the financial section of our company website.

As of September 30, 2018 the company's cash, cash equivalents and marketable securities totaled approximately $10.4 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 marketable securities will fund its research and development programs and other operations into the second quarter of 2019. In the third quarter of 2018 our net cash used in operating activities was approximately $3 million.

Excluding stock based compensation our research and development expense was approximately $3 million in Q3, 2018 compared to approximately $1.7 million in Q3 2017. Again excluding stock based compensation our general and administrative expense was approximately $1 million in Q3, 2018 compared to approximately $800,000 in Q3, 2017.

And with that I'll turn the call back over to Linda..

Thank you, AJ. We're happy now to open up the line for questions..

[Operator Instructions]. Our first question comes from the line of Joe Pantginis of H.C. Wainwright..

I wanted to get a little more color regarding your upcoming meeting with the FDA under the RMAT status you were granted. Specifically what are you really looking to gain from this? I know you gave some particular details and I guess one of the things I was curious about you were talking about discussion about the end point here.

Is there any potential that the protocol or endpoints might be changed?.

So we're really looking forward to this meeting with the FDA, it's a kick off meeting under the RMAT designation as everybody may remember this is a special program granted to sell in gene therapy is in order to speed them through the approval process as fast as possible and provide sort of a guided way through.

So you know we have a variety of topics that we are going to be discussing we're going to be discussing the polls specifically some of the data rounded and some of the observations made in the comparison of 1.2 and 2.0, 2.0 was one of our secondary end points, 1.2 is a primary efficacy end point.

We are going to be talking with them about this validated measure that we believe very strongly in as well as the Duchenne community.

Some of the initial feedback is that the FDA is quite interested in learning more about the poll and seeing its power as a potential predictor of future activity in the patients and then we'll be discussing our chemistry manufacturing controls which is the manufacturing paradigm making sure that we're going along the lines towards the preparation of a biological license application or BLA.

And there's a variety of other topics that we'll be discussing with them. We don't anticipate at this point based on all of our initial feedback and then our pre-IND meeting any substantial changes in the program in terms of end point but of course we will reveal what the FDA says once we have clarity..

And if I could just switch to exosomes quickly, the US Army Institute program that you alluded to for trauma related injuries and what have you I was just curious and even for additional programs can you give any details regarding the characterization of 2003 regarding any potential signals I know you mentioned modulating the coagulation cascade, are there any particular signals that you can disclose regarding the properties of the exosomes and the signalling properties I should say?.

Yes so you know the exosomes are what I would like to call the cellular toolbox and they are packed by the sell that makes them to provide information and tools for battling the circumstances surrounding other cell types.

So when we take our CDCs and we collect the exosomes we are basically collecting and purifying and distilling down the bio activity of the cells into this very, very targeted API and then we're able to use them to deliver to different injury areas in order to hand healing and specifically to combat systemic inflammation where they seem particularly good.

In terms of the characterization absolutely this is one of the things that we've done over the past two years and I'm happy to provide more color in terms of some slides to you Joe or to anybody just interested in terms of what micro RNA's and in the CDC exosome while why RNAs which is a new type of small non-coding RNA, I mean how different these are characterization from the MSC exosomes which for instance have a lot of TRNA or otherwise known as Transfer RNA and some of the other components, some of the proteins that are involved, some of the signalling receptors on the surface of the exosomes are different and we've done a really what I think a stellar job identifying these as a very unique exosomes and so the reason the army data was so exciting to us is we've seen all of these hints that our exosomes are different from MSC exosomes and in terms of their molecular contents but now not only in our hands but in completely independent hands we see very different biologic response, not say that one maybe obviating the other but just saying that the ones that we have are very unique and now are packing them for uses of therapeutics..

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

This is Noriene [ph] on for Jason.

So we just have a really quick question more of a theoretical one is based on the pilot data and DMD, our expectation is that the probability we'll see positive data and HOPE-2 with CAP-1002 as a cell therapy approach but how are you thinking about the exosome platform coming quickly from behind you know is there some way or are you thinking about potentially switching cell therapy for the exosome platform in DMD, are you considering that at all?.

We have a lot of a really beautiful pre-clinical data that's actually been published showing the exosomes utility at least in treating the MDX mouse So we're not ruling out using the exosomes in Duchenne but I can tell you is the focus of our exosome program right now these are the systemic inflammation.

They really seem to be a very powerful and immuno-modulation and the preclinical data that we've collected and shown and graft versus host disease has really stimulated an entire program moving towards diseases of profound inflammation and again trauma as an example of that as well.

We're not ruling anything out in terms of the therapeutic opportunity with Duchenne as using the exosomes and certainly one of the things I mentioned and I spoke of it briefly but it's going to become something you hear more from me about is using the exosomes as a delivery vehicle so it's entirely possible that we and others might decide to use the exosme to actually deliver the gene therapy, the micro dystrophin or perhaps even a full length dystrophin and take advantage of that opportunity as well..

[Operator Instructions]. Our next question comes from the line of Alan Leong of BioWatch News. Your line is open..

In general have you seen recent trends from the FDA about enabling accelerator or early registration from Phase 2 trials for IMAT, it's a relatively new policy and I'm curious about anything recent in terms of their pronouncements or whether they discernibly advance the policy executions with their discussions with the other regenerative companies..

Alan, it's an excellent question and these are early days. RMAT was just put into place a few short years ago and so we are one of the first set of companies that have received the RMAT designation and everybody including us are busy working with them and trying to bring our therapies forward.

I don't think we've seen any approvals with companies that have RMAT yet, please correct me if I'm wrong but I haven't seen that So we're focusing on what Capricor is doing, we're focusing on building the strongest clinical program that we can and we're hoping that we have the best possible luck in taking this to commercialization..

A couple really quick questions about the exosomes and they are almost theoretical. Do you see - you've been optimizing the formulation let me turn it around, do you see optimization of different exosome formulations for specific indications, it must be tempting at least for the scientists in the lab.

I mean before we talk about CAP-2003 but I've wondered if right now you're looking at the prospect of having more than just one product coming out..

Yes absolutely and that's exactly correct Alan.

What we've learned a lot about the exosomes in the past couple of years is that it's not a one size fits all by any stretch and they are powerful opportunities to deliver biological messages and so for each potential indication we have to look at the best way to get them to the site of the injury, the best way to quantify their delivery and then also what contents you are going to be delivering.

While we do know and what's really exciting unlike some of the data that we've seen with the cells where the cells we tended to reach the maximum benefit around the time we reached microvascular plugging or the opportunity for the maximal safe dose with exosomes the maximum safe dose is almost infinite, right if they are so tiny but we have seen asymptotic relationship in maximum therapeutic dose so you can overdose with exosome and so it's really nice they function much more like a small molecule, much more like a drug product where we can quantify dose delivery and then targeted to the disease of interest..

Now real quickly and I had to ask this, I think both of you are going to grin, I'm going to ask about a quick question about the using the exosome as a gene therapy carrier.

What would be some of the advantages? Because right off my head are making they may be reducing immunogenicity compared to the viral carriers or possibly even structuring the exosomes as a carrier and as a booster or additional therapeutic on top of the gene construct..

Yes so you're thinking about exactly as we are and I have to say the field as well so you know the exosomes are not recognized as formed by the body and so I think the general concept by us and others is that if you can pack the gene inside the exosome and they can cross into the cells without triggering an immune response you don't have the downstream risk of neutralizing antibodies and so repeat dosing becomes a very real possibility.

Now a lot of this data is hypothetical.

We do know and have recently shown that our exosomes are taken out beautifully by satellite cells which today we haven't seen any data that the gene therapies package in AAV virus can be taken up by the satellite cells, so the opportunity becomes even more dramatic if you end up getting the therapeutic to the site where it's most needed such as a satellite cell as opposed to myoblast.

In terms of using our exosomes which provide sort of additional opportunity for therapeutic benefit to deliver something is exactly how I'm thinking about it and that's why again some of this data like we have collected with the U.S.

Army is so potentially potent because if you have an exosome that independently is a good healer and then you are using it to deliver something you might be able to really have a maximum benefit opportunity..

Thank you. At this time I'd like to turn the call back over to CEO and President, Dr. Linda Marbán for any closing remarks.

Ma'am?.

Thank you, Latif and thank you all for joining us today. We look forward to updating you on our next quarterly conference call and to seeing around at very many meetings that Capricor is attending at this time. Thank you..

Thank you, ma'am. Ladies and gentlemen this does conclude today's conference. Thank you for your participation and have a wonderful day. You may disconnect your lines at this time..