Welcome to Capricor Therapeutics Second Quarter 2019 Financial Results and Corporate Update Conference Call. My name is Jerome and I'll be your conference operator for today's call. At this time all participants are in a listen-only mode. [Operator Instructions] Note that this conference is being recorded.

I will now turn the call over to Capricor’s CFO, AJ Bergmann. You may begin..

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're cautioned not to place undue reliance on these forward-looking statements and we disclaim any obligation to update such statements. With that, I will turn the call over to Linda Marbán, CEO..

Good afternoon, and thank you for joining us for our Q2 update call. We have indeed been very busy the last few weeks at Capricor as we continue to analyze the data from the interim analysis of the HOPE-2 clinical trial.

To remind you, we did an interim analysis on data from the HOPE-2 clinical trial, which was designed to test the safety and efficacy of CAP-1002 our cell therapy product in patients with later stage Duchenne muscular dystrophy. The purpose of the interim analysis was largely to optimize resource utilization.

In other words, to determine if there was a signal of bioactivity before we committed the time and capital necessary to complete the 84 patients double-blind placebo controlled trial.

To that end we collected data from 20-treated patients and the pre-specified interim analysis was done on 12 of those that have reached the six month time point, which means they had at least two doses of either 150 million cells or placebo, which was delivered intravenously.

The data that was presented was from the per protocol patient population or those that got their infusions on time. For the purposes of the interim analysis, there were six patients treated with CAP-1002 and six who received placebo.

Approximately, 80% of the patients were non-ambulant and demographic and baseline characteristics were similar between the two treatment groups.

So in summary, the data from the interim analysis suggest a CAP-1002 may potentially be a good therapeutic option to preserve skeletal, respiratory and cardiac muscle function at least in those patients who are in the later stages of the disease process.

To remind you, we saw improvements in the performance of the upper limb, mid-level otherwise known as the PUL, which is the ability to move the arm primarily at the level of the elbow. This data was presented at six months with a p-value of 0.0389 with a strong trend in the mid-level PUL at three months with a p-value of 0.0591.

The PUL is the measure used to assess skeletal muscle function in patients that are either no longer ambulatory or nearly unable to walk unassisted. So, primarily it is used in older boys and young men. If you are interested in viewing the complete presentation of the interim analysis, you can find it on our website.

We had seen improvements in the poll mid-level and Capricor’s previously completed Phase 1/2 HOPE-Duchenne [Audio Gap] effect on muscle function again. However, in addition to the PUL we and the Food and Drug Administration wanted to make sure that there would be additional measures of skeletal muscle function to validate the data from the PUL.

To that extent we also evaluated other measures of skeletal muscle performance such as grip strength and tip to tip pinch strength in the HOPE-2 clinical trial.

We again saw good data with the interim analysis showing improvements in these metrics with a p-value of 0.0389 at six months in grip strength and a strong trend in tip to tip pinch strength, both measures of muscle function in the arms.

We also showed trends in pulmonary measures such as peak expiratory flow percent predicted and inspiratory flow reserve, both of which are measures of diaphragmatic strength. These improvements are very important because if this is substantiated, patients with DMD might have longer times without a need for mechanical exist in ventilation.

We will continue to evaluate pulmonary function along with other potential efficacy endpoints as we continue to develop CAP-1002 for patients with later stage DMD. And finally similar again to the results seen in HOPE-Duchenne, we saw positive trends in systolic wall thickening both anterior and lateral.

Systolic wall thickening as measured by MRI and can be used as a biomarker to predict cardiac outputs in patients with DMD. In addition, we saw strong trends and increased myocardial mass which may hence add increased muscle mass and healthy new tissue in the heart. So as you can imagine, we are encouraged by this data.

There are strong signs of bioactivity of the cells and repeat dosing things seems to be beneficial. In other words, the data is better at six months after two doses of cells than at three months after just one dose. We have never been more enthusiastic about the potential opportunities for CAP-1002 in Duchenne muscular dystrophy.

So the question that we are getting most frequently is where do you go from here? Well, we've only had the data in our hands for a short time and we are still querying it to see what else we may be able to learn from it. But as you can imagine, we are highly motivated to move CAP-1002 back into the clinic as quickly as possible.

There are still many questions that need to be addressed, primarily centering around our regulatory strategy, as we will wait for guidance from the FDA before deciding how to proceed. So let me tell you what we do know.

First, we have reinitiated infusions in HOPE-2 and we'll continue to follow the 20 treated patients until they reach the 12th month time point, for which the HOPE-2 study was originally designed around. Second, we will switch the primary efficacy endpoint from the mid-level PUL version 1.2 to the mid plus distal level PUL and that is PUL version 2.0.

The reason for the switch is twofold. First, the FDA recommended the use of the 2.0 version of the PUL. They suggested that it had less variability and more reliability and could be clinically relevant.

Second, the data from the interim analysis supported the thinking of the FDA and that the data from both the PUL version 1.2 and version 2.0 moved in the same direction but that's the data utilizing the PUL version 2.0 was stronger and the signal was more consistent.

Indeed, PUL 2.0 seems to be the better tool at this time to assess efficacy in patients with later stage Duchenne muscular dystrophy.

And finally, we are in the process of scheduling a meeting with the FDA to discuss in its entirety the data that we have collected from the interim analysis and how to best move CAP-1002 back into the clinic into a trial that could be poised for registration. We expect that the meeting will occur early in Q4.

Before we leave today's call, I would like to just address the product in our pipeline, which is the exosomes. We've been talking about the exosomes for a while and we also continue to be excited and bullish about its potential in treating diseases of inflammation and fibrosis.

Since most of our preclinical data suggest that the bioactivity of the cells comes from the release of exosomes by the cells and the exosomes subsequent uptake by injured or damaged tissues. We are now aiming to move the exosomes from the bench to the clinic.

We have several indications that we're exploring at this time and are hopeful we will file an IND using exosomes as a therapeutic in the near future. The work we have done on the exosomes has largely been funded with the support of a grant from the Department of Defense.

And we also have an active collaboration with United States Army to develop the exosomes as a portable immunomodulatory agent. That study is moving quickly and we expect to have data soon. We will provide further updates on this program in the coming months. With that, I thank you for your time and attention.

I will turn the call over to AJ Bergmann, again our CFO who will give you a summary of the financial..

Thank you, Linda. This afternoon's press release provided a summary of our second quarter 2019 financials on a GAAP basis. You may also refer to our quarterly report on Form 10-Q, which we expect to become available on the next few days will be accessible on the SEC website as well as the financial section of our company website.

As of June 30, 2019, the company's cash, cash equivalents and marketable securities totaled approximately $5.9 million, compared to approximately $7.3 million on December 31, 2018.

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 2020.

In the first half of 2019, our net cash used in operating activities was approximately $3.4 million, excluding stock-based compensation, our research and development expense was approximately $1.6 million in Q2 2019, compared to approximately $3.3 million in Q2 2018.

Again excluding stock-based compensation, our general and administrative expense was approximately $800,000 in Q2 2019, compared to approximately $900,000 in Q2 2018. We continued to manage our expenses and direct our focus on our DMD and exosome programs. With that, I'll turn the call back over to Linda and then open up the line for questions..

Thank you, AJ. At this time, if you have a question, we are ready to take it..

[Operator Instructions] Your first question comes from the line of Jason McCarthy with Maxim Group. You are now live..

Hi everyone. It's Adheip on the line for Jason. Just had a couple of quick questions here. So since CAP-1002 is currently – as I understand, it's currently being administered with a prophylactic steroid and anti-histamines, would it be safe to assume that steroid prophylaxis would continue in later stage trials as well.

And additionally, would you be able to provide some color as to the dynamics of later stage trials?.

The answer to your first question, yes. We have no plans on changing the premedication regimen. It seems to be working very well and has been now used in many infusions. In terms of your question regarding the dynamics of later stage trials, I'm not sure I understand what you mean regarding dynamics.

Can you elaborate?.

Just if you could shed some color, I mean, I know it's a little – it's a little ahead, but if you could shed some color on maybe like the structure of future trials or anything like that and how you plan on like proceeding regarding next steps?.

Yes. So as I said, a few moments ago, we're really waiting now for guidance from FDA. So we're very excited about this data. It's very strong. We see it across multiple muscle groups, skeletal, respiratory and cardiac. So we think that there's definitely a strong signal that the cells are improving muscle function in these particular patients.

We want to take this data and its entirety to the FDA, show it to them and get feedback as to the fastest way to registration. We of course are doing some internal planning and working with our regulatory strategists to have options ready at hand. But please stay tuned for details on this program..

Great. Thanks. And one last quick question here.

So with regard to, again, like I guess next steps, is there a possibility of developing like a cell-free therapy for DMD at some point in the future or is it maybe a little too early to tell at this point?.

Yes. So our exosomes, which we've been working on for a while, we have seen tremendous amount of clinical utility ahead for them. DMD is not one of the areas that we were excluding so to say that in a more affirmative way, we are considering actively using exosomes for DMD that will remain in our decision-making matrix as we move the exosomes forward.

But as you can imagine, we're focusing most of our internal resources and also groupthink on the development of CAP-1002 for DMD right now..

Okay, great. Thanks a lot guys. Appreciate it..

Yes. Thank you..

[Operator Instructions] Your next question comes from the line of Emanuela Branchetti with H.C. Wainwright. You’re now live..

Hello, this is Emanuela for Joe Pantginis. Thank you for taking the questions.

I was wondering, if you have the timeline in mind for the future updates of the current HOPE-2 study like would they – would these updates be treated by a specific data or a number of patients or do you have a conference in mind or a venue, you would like to unveil the data in the future?.

Yes. Thank you, Emanuela. Good to talk to you and please say hi to Joe for us. So an answer to your question, we shut down enrolling into the HOPE-2 trial in anticipation of the interim analysis.

So it was a planned and pre-specified interim analysis where we also want to step further and unblinded ourselves for the data so that we can make the best decisions how to move the program forward. As I stated now few times, we're very enthusiastic about what the data has shown us.

And we're going to be following the directors of the FDA as to how to move the whole program forward. So in terms of updates on data, I don't have that at this time. With HOPE-2, we feel that it's done its job to this point by giving us the data from the interim analysis and we'll continue to provide developments on where the program is going.

In terms of presentations, we of course will provide updates to the community when we make the decision as to where and when and how to present more data. But you can be assured that that will be occurring..

Okay. Thank you. And just last question, I was wondering if you can give us an idea of what other acceptable endpoint would be important for the FDA for a potential registration like we know that the skeletal muscle function measurement and the PUL 2.0 is an approvable endpoint.

Do you have any idea as to whether cardiac measurements would be important to respiratory measurements or quality of life assessment today, what are you thinking?.

We had a meeting with FDA as part of our RMAT designation last December, where they very clearly outlined for us what they thought it would take for a registration to occur. One of them was using the PUL 2.0 was the primary efficacy endpoint.

Our interim analysis data has borne fruit in terms of showing us that that would be in fact the best primary efficacy endpoint and as you correctly stated, it is an approvable endpoint. So that's exciting. We had several other secondary and some exploratory endpoints that looked enticing in the interim analysis.

Those will also be presented to FDA as we potentially develop the clinical plan for registration. What I can tell you is that we'd like to see more things on our label besides skeletal. It's still up to determination of how that's going to be measured and determined..

Okay, great. Thank you very much..

Thank you. Emanuela..

Your next question comes from the line of Alan Leong with BioWatch News. You’re now live..

Hi Linda and hi, AJ. Thanks for taking my question. I think the last person kind of asked it, but I'd love to take it from a different angle.

When you talked to the foundations and dystrophy associations, what do you hear from the parents and others about the kinds of research that they'd like to see happen? Where are the holds for advancing solutions for muscular dystrophy..

In general Alan?.

Yes..

Well DMD is a fatal disease. There is no cure and really no treatment for all patients except for steroids, which have been shown to be very effective. So, I think the community recognizes the control of inflammation above and beyond what steroids can do.

And it would also be very nice if they could have control of inflammation without the side effects of steroids. And then of course addressing the underlying, dystrophin mutation, which ultimately is what destroys the cells.

And the field is rife right now with companies that are trying to do both, develop anti-inflammatories, that could be used in conjunction with or in lieu of steroids and also those that could potentially address the dystrophin mutation.

I do think that the community realizes, as well as the Food and Drug Administration that it's going to be, a poly-pharmacy type of solution for DMD. This is a genetic disease with far reaching physiologic consequence.

And so, I think the community wants to see that being embraced and every effort being made to help their kids live longer, fuller lives. And so, we of course are at the front of the line in terms of working on the immunomodulatory capabilities of the therapeutic paradigm for DMD.

We have the first data, I believe in a randomized placebo controlled trial where we actually see statistical significance of between treated and placebo. And again, in these later stage patients where there was absolutely nothing for them. So as far as I'm concerned, the community feels that we are, the leaders in this space at this point..

Yes. I know you've talked about how good your position as a potential companion therapy. I actually still get questions and I wonder if you can comment again how your current therapy fits with the other treatments that are in late stage or the one that's approved..

Yes. So, the patients that receive CAP-1002 in the clinical trial can be on Exondys 51 if they happen to have that mutation and are on that therapy as long as they're on it for stable length of time to establish that drug and it’s impact. We certainly can be used with Exondys 51, the one that's approved.

In terms of other things for the later stage patients, I'm not aware of anything that's being used specifically for the later stage patients except for CAP-1002.

And as far as I know, there are no clinical trials that are active right now, where they are getting treated, with the idea of improving symptoms, skeletal muscle function and those with the advanced disease those non-ambulant patients.

So, of course we expect that someday we may be useful along with the gene therapy and we know that we can be used with gene therapy because we've done some preclinical testing of that and have validated that..

Well thank you very much. I continue to root for you all..

Thank you. [Operator Instructions] I'm showing no further question at this time. I would now like to turn the conference back to Linda Marbán..

Thank you. Thank you for joining us this afternoon. I will look forward to seeing you this fall at various conferences and please continue to look for updates on our clinical program for CAP-1002 in DMD and our exosome program. Thank you..

Ladies and gentlemen, this concludes today's conference. Thank you for participation and have a wonderful day. You may now all disconnect..