Welcome to Capricor Therapeutics' Second Quarter 2018 Conference Call. My name is Catherine and I will be your operator for today's call. [Operator Instructions]. I will now like to turn the conference 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 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 would like to turn the call over to Linda Marbán, CEO..

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

We are making good progress in both so I'm delighted to provide you with some color on both programs today.

As you may know we are actively enrolling HOPE-2 our potential registration and clinical trial in Duchenne muscular dystrophy, in that trial we will be dosing up to 84 later stage DMD patients with either CAP-1002 or placebo every three months with the primary efficacy endpoints being the middle level performance of the upper limb or otherwise known as the mid-level pool at one year after four doses.

We currently have multiple sites initiated and open for enrollment and expect to have all 12 sites open and enrolling by the end of the calendar year. Patients and families are eager to be a part of this trial so we are doing our best to get the sites up and running so that they can quickly treat as many patients as possible.

In fact we recently hosted a webinar with PPMD the Parent Project of Muscular Dystrophy and were able to have Dr. Craig McDonald, the National PI of the HOPE-2 trial speak to the DMD community about CAP-1002 and its promise in treating DMD. What was notable and also gratifying was the number of people that called in.

PPMD reported that there was a near record number of people that called in to hear about HOPE-2 and Dr. McDonald talked about the effects of CAP-1002 in the HOPE-1 trial as well its pre-clinical efficacy and immuno-modulation, muscle repair and improvement in bio [Technical Difficulty] as evidenced by increased cellular energy.

These are hopeful days for patients with DMD. There are some important preliminary clinical data that suggest gene therapy is working to replace dystrophin and the boys who have received these treatments are doing better than they have ever done in the face of this terrible disease.

However the war against DMD is hardly over, in fact as Winston Churchill famously said it is not the end it is not even the end of the beginning or the beginning of the end but it perhaps the end of the beginning.

Why is that true in treating in DMD? Well there are still many unanswered questions about gene therapy including the durability of the effects, the possibility of immune complications specially in older patients and of course the ability to manufacture adequate amounts to treat all the boys that may need it.

It is thought that gene therapy may potentially alter the course of this disease but it is also recognized that these therapies are by no means a cure all and those patients that are farther along in the disease process may not respond as well as those who are younger and therefore already have greater preservation of muscles.

Our thought leader suggest that greater amounts of fibrosis that are present in the older boys may inhibit the effectiveness of the gene therapy which may lead out nearly half of the patients currently battling DMD, we are already non- ambulatory and have highly fibrotic muscle.

For these reasons we believe the CAP-1002 may be well positioned to provide some additional treatment benefit for DMD even for those patients who may be receiving a gene therapy as a CAP-1002 has done in pre-clinical and clinical studies to be strongly immunomodulatory and anti-fibrotic.

We are delighted to be part of the grounds and the development of potentially effective therapy to treat DMD.

And as you know we are even more motivated because we could potentially be the best option for the later stage patients who are fighting to maintain their independence as measured by their ability to use their arms and hands exactly the parameters we saw improvements in with the HOPE Duchenne trial, our first clinical trial in this space.

Furthermore we are working to establish that our cells can be used in conjunction with a gene therapies seeking a multiple shots on goal approach to treating DMD.

Remember the lack of dystrophin is only one aspect of this disease, there is also a significant inflammatory component that will require constant surveillance and therapeutic management for what CAP-1002 maybe ideally suited due to the immunomodulatory mechanisms of action of our cells.

As you know and as I've mentioned we are focusing on those later stage patients that are nearly or already non-ambulatory and are looking to improve skeletal muscle function using the performance of the upper limb as an indicator. In HOPE-2 we'll get an idea of how the cells can ameliorate skeletal as well as cardiac muscle function.

We have powered the study to detect the difference in the mid-level pool which the FDA is willing to accept as an approvable endpoint but we are also continuing to explore improvements in cardiac function which as you know is an important and heretofore unaddressed complication of DMD.

And we have the only therapy to-date that we are aware of that has shown improvement in scar as well of cardiac function in later stage patients with DMD.

Interestingly 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 in counteracting the worsening of the heart associated with DMD. We eagerly await this important data along with the rest of the DMD community.

Should remind you we anticipate full enrollment in HOPE-2 in the second quarter of 2019 with data anticipated to be reporting out in the second quarter of 2020 based on the one year end point. There is an interim analysis built into the clinical protocol.

We will be discussing this interim analysis as well as many other topics at our first our [indiscernible] that regenerative medicine advance therapy designation leading with the FDA scheduled for this fall. While the clinical team is busy with HOPE-2 our research and development group have been working on our exosome based product known as CAP-2003.

We are pleased to see that the power of these nanometer side microvesicles are beginning to be recognized by the academic as well as the biotech communities. Essentially exosomes are being developed by us and others for three basic purposes.

First as a measurement or diagnostic tool whereby you obtain blood samples, isolate the exosomes and refine the understanding of the disease process. Second, as a therapeutic this strategy is one that we are pursuing with CAP-2003, the premise is that one can harness the power of the cell without using the fragile cells themselves.

This is the type of exosome found in 2003 brings all the promise of the cells without having to deal with the challenges of a living product.

To that end CAP-2003 is being investigated in multiple pre-clinical indications, not the least of which is to determine if CAP-2003 can help in trauma related injuries such as one might sustain on a battlefield where there are severe inflammation that get after such injury occur among many other adverse complications.

As previously announced we have entered into a co-operative research and development agreement with the USAISR or the United States Army Institute of Surgical Research who will conduct studies using our CAP-2003 product. We look forward to providing you an update on this exciting program as it becomes available.

Lastly, exosome may be used as delivery vehicles for proteins, genes and almost anything that can be packaged into the exosome with instructions for delivery. We are actively working on the premise that exosomes can be a delivery vehicle and expect to provide some interesting and exciting updates on this program in the very near future.

So as you can see these are busy and exciting days for Capricor and we look forward to continuing to update you on our ongoing DMD program as well as our expanding exosome program in the coming months. I will now 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 second 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 the company website.

As of June 30, 2018, the company's cash, cash equivalents and marketable securities totaled approximately $12.3 million, compared to approximately $14.1 million on December 31, 2017.

Based on our current plans and projections, Capricor expects that this cash, cash equivalents and marketable securities will fund its research and development programs and other operations into the second quarter of 2019. In the second quarter of 2018, our net cash used in operating activities was approximately $3.7 million.

Excluding stock-based compensation, our research and development expense was approximately $3.3 million in Q2 2018, compared to approximately $3 million in Q2 2017.

Again, excluding stock-based compensation our general and administrative expense was approximately $900,000 in both Q2 2018 and Q2 2017 And with that I will now turn the call back over to Linda..

Thank you, AJ. Thank you for joining us today and we will now open the line for questions..

[Operator Instructions]. Our first question comes from Jason McCarthy with Maxim Group. Your line is now open..

Couple of questions, first Linda could you discuss a little bit about the differences in patient populations and DMD? Capricor is targeting older patients I think word is gene therapy has not been able to target so far.

Gene therapy seems to be more on the earlier age patients but the data in that space has been really positive but I think limited in terms of time and their abilities well safety as you know.

Can you discuss a little bit where a cell therapy in addition to treating older patients and keeping them on their feet longer and may play a role in earlier age patients even potentially complementary with gene therapy or exon skipping approaches?.

So very good question. So CAP-1002 is uniquely positioned to be either adjunctive therapy used alongside gene therapy and the early stage or hopefully as we understand the gene therapy better in older patients or as a standalone and patients that either may not be able to get gene therapy or where gene therapy hasn't been effective for that.

So basically what we've done and we were able to show this in HOPE-1 was that in these later stage patients that have an established cardiomyopathy and also a significant skeletal muscle deficit in that 80% of the patients in HOPE-2 were non-ambulant.

We were able to show improvement in the performance of the upper limbs specifically the mid-level which our thought leaders tell us is the most important level because of the way in which it changes and over time but also because of the strength that it can potentially confer on the boys and young men and maintaining their independence.

So we are developing CAP-1002 to use in DMD because of its powerful immunomodulatory activities, ability to help the immune system, make good decisions in terms of not breaking down the muscular dystrophy [ph], encouraging new muscle to be made and we know this because we've been able to see preclinical that new muscle cells are made and then also hopefully that will translate into the dated HOPE-2 where patients will have improvement in the performance upper limb.

The older patients represent about half of additional Duchenne community at any point in time so we're looking at about a prevalence of about 10,000 U.S. that are at this point qualifying for HOPE-2 by not being either ambulant or later stage of ambulation..

And just in terms of HOPE-2 you know you will measure obviously the primary [indiscernible] but you've discussed and Craig has in the webinar the immunomodulatory effect, anti-fibrotic effect and changes in bio-energetics as well.

Are those exploratory or even secondary endpoints that would be evaluated in HOPE-2?.

Yes, so Jason you know HOPE-1 gave us a really terrific opportunity where we saw a performance of the upper limb improvements in patients which gave us an ideal efficacy outcome measure that can lead to full approval so that's why we were able to power HOPE-2 as based on the performance of the upper limb mid-level and we are targeting it to be a registration trial which we will determine as we in the forward with the FDA of course.

The other side benefit of CAP-1002 are absolutely not to be minimized.

So the most important thing is we develop this therapy to be used to treat the cardiomyopathy associated with Duchenne which actually no other therapies have really shown evidence of improvement in any realistic way in these patients so we are absolutely laser focusing as a secondary endpoint on cardiac function and structure.

We also have some pulmonary measures built-in because we saw pre-clinically improvements in diaphragmatic functions and that might have translated to exercise capacity and of course we are looking indirectly at energetics by using some of these skeletal muscle improvers.

So to that end we are absolutely focusing not only on the primary efficacy endpoint which hopefully would lead us to quick registration and commercialization but also to the secondary endpoint that are as important to the function advocate..

Our next question comes from Bill Koski with BioWatch News. Your line is now open..

Couple of questions for you, the first is I was hoping if you could shed some color on the collaboration with army, what obligation is Capricor going carry forward and what are you looking at in terms of licensing and royalties, we need to yield any future licensing and royalty payments?.

Right now the relationship is truly on a research basis and so those types of specifics will be determined later on as the program becomes more developed..

Okay. Thank you.

It also looks like in some of the previous presentations you started using lot of [ph] exosome products at room temperature, is this your preferred product that you're hoping you can use in future trials and if you can speak kind of in broad terms about how the cost of goods compares for exosome product versus the cellular product?.

We are exploring all kinds of formulation opportunities with the exosomes now and that's part of this relationship with the army. Ideally we will want something that a med can [ph] carry in his or her pack that will be easy to use and quick to deploy. So we'll look forward to providing you with more information as formulation becomes available.

I don't think the exosomes are going to be one color in terms of what they're used for or how they're used, it will be indication specific and again that sort of will unfold over time. In terms of cost of goods we're anticipating that the cost of goods or the exosomes are going to be significantly less than for the cells.

We haven't sharpened our pencils and done those numbers yet but as we do we'll be able to provide more clarification again it will be probably indication specific..

[Operator Instructions]. And I'm showing no further questions at this time. I'd like to turn the call back to Ms. Linda Marbán for any closing remarks..

Thank you. We look forward to seeing you at various scientific and investor conferences through the course of the remainder of the year and with that we can disconnect the call. Thank you for your time..

Ladies and gentlemen thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day..