Greetings, and welcome to the Capricor Therapeutics Second Quarter 2020 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded Thursday, August 6, 2020. I would now like to turn the conference over to A.J. Bergmann, Chief Financial Officer. Please go ahead..

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 R&D 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 their 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. We disclaim any obligation to update such statements. With that, let's start the call and turn it over to Linda Marbán, CEO..

Good afternoon, and thank you for joining us for our second quarter update call. I have never been more excited by Capricor's path forward. While the world has been suffering with this horrible pandemic, the Capricor team has been working harder than ever to advance our product candidates and our pipeline.

I will begin my remarks with updates on our COVID-related programs. These include our CAP-1002 cell product for the treatment of patients with COVID-19, and our rapidly progressing bioengineered exosome platform technology.

To remind you, CAP-1002 is broadly immunomodulatory, and our working hypothesis is that it is able to tamp down the cytokine storm that is a transitional event differentiating mild COVID-19 symptoms from those that lead to pneumonia and multi-organ failure.

Our initial open-label experience were set with - where 7 patients with COVID-19 were treated with CAP-1002, supported the notion that CAP-1002 may modulate the hyperimmune response in COVID-19 patients.

While we are unable to definitively ascertain whether CAP-1002 improved patient outcomes, by analyzing blood samples and other tests, it was determined that CAP-1002 demonstrated identifiable improvements in certain patients, such as a decrease in white blood cell count, a decrease in IL-6, a decrease in C-reactive protein and/or a reduced reliance on supplemental oxygen.

We have concluded that the appropriate timing for treatment using CAP-1002 is in advanced patients who are showing early signs of cytokine storm, as demonstrated by oxygen desaturation and signs of systemic inflammatory response and early organ damage.

We do not believe that patients who have only mild symptoms or those patients who are already in the most advanced stages of disease and are respirator-dependent with end-stage organ failure are the best candidates.

We believe that catching patients who are heading downhill early and treating them with CAP-1002 represents the optimized timing to further study CAP-1002 therapy. Now open-label studies produce headlines but rarely provide definitive data to satisfy regulators and discerning clinicians.

Based on early experience, we are sufficiently confident to undertake a randomized placebo-controlled trial. We are committed to provide the highest standard of clinical data to the medical community.

A multicenter, randomized clinical trial is now being prepared and subject to final regulatory approval, will be our next clinical stage with CAP-1002 for COVID-19. We are excited about the prospects of getting this trial executed. Now today, I'm going to provide the first update on our rapidly advancing bioengineered exosome platform.

This too may have major potential application in the COVID-19 space. The developments in our COVID research are presenting opportunities for establishing a broad new platform for an array of other therapeutic opportunities down the road.

At present, however, we are laser-focused on COVID-19, and I have some remarkable breakthroughs that I am able to highlight. Now let me tell you about the exosomes. Exosomes are natural nanoparticles released by all cell types that are capable of delivering potent signals and even molecules to desired types of actions.

Now you have previously heard me discuss CDC-exosome as the active agent of our CAP-1002 cell therapy. Today, for the first time, I will discuss our novel engineered non-CDC-exosome.

What is remarkable about exosomes is that since they are nature's vehicles for intracellular communication, we can modify or bioengineer them to carry therapeutic molecules such as messenger RNAs, inhibitory small RNAs, proteins or even drugs.

Furthermore, exosomes can be engineered to carry specific markers, including receptor ligands or viral protein marker antigens on their surface. As such, exosomes are very well suited to be the basis of the next-generation of vaccines.

Specifically, they may be a more natural carrier of one or more messenger RNAs or they may be bioengineered to form virus-like particles, otherwise known as VLPs, that mimic infectious virion, but pose no risk of infection. At Capricor, there are 2 active vaccine projects underway which are making rapid progress.

While we are focused on COVID-19, this platform technology could be potentially adapted for other vaccines as well. We are very optimistic that one or more of the vaccines being developed under project Warp Speed will be demonstrated to be useful for the human population. That said, first generation products often leave room for improvement.

Each of the Warp Speed programs has its own pros and cons. A discussion of each program is beyond the scope of this call, but I would like to highlight our progress and some of the differences between Capricor's and other's strategies. We are investing in 2 unique vaccine products that have now advanced through animal studies.

Both use exosomes derived from human cells as the active carrier for the payload. The exosome messenger RNA vaccine can be differentiated from other messenger RNA-based vaccines in 2 important ways. First, we formulate the messenger RNA vaccines using the exosome, which are safe, non-toxic and of biologic origin.

This differentiates our approach from those that are using chemically derived lipid nanoparticles, liposomes or other synthetic nanoparticles, many of which have been associated with adverse reactions, immune responses that limit lipid dosing and limited ability to enter human cells.

Now second, we load the exosomes with multiple messenger RNA molecules designed to elicit potent cellular and humoral antibody responses to all 4 structural proteins of SARS-CoV-2. Spike, which we've all heard about, but also nucleocapsid, N; membrane, M; and envelope, E.

This is critically important as all 4 proteins are targets of the immune response to SARS-CoV-2 infection. And what's more, any specific vaccines have been proven effective at preventing other coronavirus infections.

Furthermore, the messenger RNAs present the spike receptor binding domain, N protein and the soluble portions of the M and E protein in forms that are optimized for exosomal display and MHC for major histocompatibility complex presentation, with the goal of stimulating a broad-based and long-lasting cellular immunity to the virus.

In contrast, the other vaccines are unable to elicit immune responses to N, M or E and instead are only capable of eliciting an immune response to the spike protein.

While we agree that spike is a critical component of any rational vaccine strategy and is incorporated in our approach as well, we believe that a broader-based approach that elicits immune responses to N, M and E will have better outcomes.

I am happy to say that studies in mice have confirmed that the exosomal messenger RNA vaccine induces strong immune responses to both spike and to the viral N protein, establishing the basic principle of exosome-mediated mRNA vaccination.

This is an important advance in exosome bioengineering and validates the use of the exosome platform for messenger RNA delivery in general and vaccination, in particular. Now the second vaccine candidate is a structural mimic of a virus particle, often refer to as a true virus-like particle, VLP, as I stated earlier, or viral exosome.

This vaccine is generated by inducing human cells to produce exosomes containing all 4 structural proteins. The VLP producing cell lines assembles the F, N, M and E proteins into exosomes that have the same basic protein and membrane composition as the actual virus.

However, the big difference between these VLPs and a virus particle is that the VLPs pose no risk of infection because they have no viral genomic RNA. This means they are completely safe to manufacture, safe to store and safe to administer.

To the body's immune system, however, this VLP vaccine looks just like the virus and is therefore, the closest one can come to a killed virus vaccine, a class of vaccine that has been proven to be effective against animal coronaviruses.

We are hopeful that our ongoing preclinical research will continue to yield exciting results, and it is our goal to bring these products rapidly forward in their development. Furthermore, the work we are doing in bioengineered exosomes is establishing a platform not only for vaccines but for the development of other potential therapeutic candidates.

I will, however, leave this discussion to another time given our present intense focus on COVID-19. I will have further updates on this program very soon. Finally, I would like to provide you with an update on our CAP-1002 for Duchenne muscular dystrophy program. As we have previously presented, we had very positive data in our HOPE-2 clinical trial.

And while it was a small trial, the positive results suggest a high likelihood that CAP-1002 improves both skeletal and cardiac muscle function in Duchenne muscular dystrophy. While the FDA has previously stated that a Phase III clinical trial is necessary, we have continued to present the case for an accelerated approval.

Our position is based on the strong data sets with respect to both the performance of the upper limb and improved cardiac function relative to the placebo-controlled group, as well as the excellent safety record of CAP-1002.

In the present COVID environment, it is unlikely that we would be able to undertake a Phase III trial but would seek some form of partnerships should we not prevail in our discussions with the FDA.

We believe that for the older boys treated in HOPE-2, all of whom are steroid-dependent and mostly non-ambulant, CAP-1002 will present an excellent option to modify the intractable downhill clinical trajectory that leads to increased dependence on caretakers and ultimately to death.

We can only hope that the FDA working with us helps us find an expedient path forward. We are appreciative that FDA has been willing to hear our arguments. Now currently, our main clinical focus is our COVID-19 therapeutics and on the development of vaccine programs with the further development of the exosome platform to follow. As A.J.

will update you in a moment, we are well capitalized to continue to deliver on our near-term milestones and are building a world-class scientific and product development team that is focused on the development of cell and engineered exosomes-based therapeutics. Now I'd like to thank you for your time and attention today.

As you can see, we have many milestones coming up and look forward to keeping you updated on these very important programs. I would like to now turn the call over to A.J. Bergmann, our CFO.

A.J.?.

Thanks, Linda. This afternoon's press release provided a summary of our second quarter ending June 30, 2020, financials on a GAAP basis. You may also refer to our quarterly report on Form 10-Q, which we expect to become available very shortly and will be available on the SEC website as well as the financial section of our website.

As of June 30, 2020, the company's cash, cash equivalents and marketable securities totaled approximately $36.3 million compared to approximately $9.9 million at December 31, 2019.

During the first half of 2020, Capricor has raised approximately $29.4 million in net proceeds from the sale of common stock and exercise of common warrants, comprised of approximately $19.5 million in net proceeds at an average price of approximately $6.59 under our ATM program and approximately $9.9 million additionally from the exercise of common warrants.

Now turning quickly to the financials. In the first half of 2020, our net cash used in operating activities was approximately $3.2 million. For the second quarter of 2020, excluding stock-based compensation, our research and development expense was approximately $1.8 million compared to approximately $1.6 million in Q2 2019.

Again, excluding stock-based comp, our general and administrative expenses was approximately $1 million in Q2 2020 compared to approximately $800,000 in Q2 2019. Net loss for the first half of 2020 was approximately $5.6 million compared to a net loss of approximately $4.6 million for the first half of 2019.

In summary, as we move forward, we continue to focus on the advancement of our core pipeline products, as Linda articulated. We will now open up the line for questions..

[Operator Instructions]. And our first question is from the line of Jason McCarthy with Maxim Group..

This is actually Naureen on for Jason this afternoon. Congrats on all the progress. I guess we'll start with a more specific question and then ask my other broader one. You mentioned that 7 patients were treated with CAP-1002 that had responses, it seemed with - when you did blood sample analyses.

How many patients did you see these responses with?.

We saw changes in blood levels in every patient that we treated. They all showed reduction in white blood cell counts, ferritin and some of the other markers of inflammation that I talked about a little bit earlier..

Okay. Great. And then in terms of the exosome program, can you kind of help us understand, when you read the literature, there seems to be two sides of it. There's some that believe it's a snapshot in time, which is really what exosomes are and the belief that it's not as effective. And then there's the opposite, that they do believe that it is.

So why would your approach be ideal for the indications that you have planned, if you can remind us?.

Yes. Thanks, Naureen. So thank you for giving me the opportunity to talk for a moment that there's exosomes that are being used clinically as a diagnostic tool. And I think that's what you're referring to. You take a sample of the patient's blood, and you can kind of see what's going on in their body.

Because remember, the most important thing about an exosome is that they are an intracellular communicator. They are the words of cells. So of course, you see a snapshot of what's going on within the human body. We have chosen for years to stay away from the diagnostic use of exosomes.

We're focusing both on the therapeutic use of exosomes and then, of course, now on the development of vaccines. So we're taking advantage of the fact that the exosomes speak the language of the cells and are nontoxic to the human body, but we are not sort of being passive bystanders and looking at what they may be telling the story of..

Great. And in terms of applying exosomes on the vaccine end, I was just curious, there's a recent JAMA article that discusses viral load in symptomatic children and adults, and it sounds like children that are aged 5 to 17 had similar viral load to adults, but those that are younger had even higher ones.

And obviously, there's a risk that these children could transmit the virus. So when contemplating a strategy with your exosome vaccine, ultimately, are you considering one can say ped population, given that unlike other - many other companies, you do actually have experience in that population with your DMD studies.

Would you imagine that to be safe enough to apply to this population as well?.

Yes. So just to remind you, we have 2 exosome-based formulations for our vaccine. One is the mRNA-loaded exosome. So we're taking a human exosome, and we're putting the 4 viral proteins inside in the messenger RNA. So that will likely lead to a humoral as well as a cellular immunity.

And the other approach is to make a virus-like particle, which is a standard method of vaccine production that's been around for a long time, but we've never been able to, as a field, take full advantage of because we haven't had the appropriate delivery vehicle. So the exosome is the perfect virus-like particle.

And the answer to your question is both of these types of vaccines could be wonderful for children. They're nontoxic. They're unlikely to be immunogenic. We're not going to be exposing them for instance to a virus that they couldn't see in the future. They're great for repeat dosing.

And yes, we have a lot of experience as a company with the pediatric population, so we're very comfortable with the idea of building towards children. Our current plan is to start the clinical work in adults. We'd like to make sure that we have treated that population first before we go to the very fragile child population or pediatric population..

Our next question is from the line of Alan Leong with BioWatch News..

Congratulations on the quarter. You mentioned - Linda, you've mentioned how T cell immunity is important, not just antibody response when you're dealing with the coronavirus. The popular media seems focused on antibody.

And can you explain why cellular immunity is important? And then on top of that, do you know anything about the T cell immunity in the animal models? Or is that still on deck?.

Yes. So, of course, we're looking at T cell immunity in the animal model. And what we're going to be doing is presenting a full picture of the responses to the two vaccine candidates very soon. So please stay tuned for that. We're really, really excited.

And T cell immunity is probably the unheralded hero of the immune response, right? Because it's where you harbor the opportunity to fight off future infections. So you have antibodies, the antibodies come up, antibodies come down, you have a memory response.

But in T cells, what you really have is the opportunity to say to these guys, you are not coming in here again. And so we are focusing hard on both the mediation of the cellular immunity, as you said, T cells, and then also the humora, which is the antibody response.

And please stay tuned, Alan, to the publication of this data as it becomes available..

You have an ongoing extension going on in the - with the recent Duchenne trial.

How and where would these extension results occur?.

If you're talking about the HOPE-2 open-label extension trial, which is the access to CAP-1002 for all the patients that were in the HOPE-2 trial, that is currently ongoing. We'll provide updates as that becomes available.

I think as everybody knows, getting kids into hospitals right now, to do something like a clinical trial is a risk that we're very aware of.

And in fact, part of our conversations with FDA regarding our request for accelerated approval has been the fact that doing clinical trials and bringing people into hospitals multiple times in a year just to test their limb strength may not be the best way to manage that population. Let's keep them home and safe..

And then excited about your exosome platform that you're building out. And in the past, you're right, I remember you talking about the CDC-derived exosomes.

Are you building a new platform off a variety of different sources? Are you pretty much - I hate using the term because it's not completely accurate, but are you pretty much building your own?.

So we are being opportunistic in the selection of the cell type for building the exosome. We became so excited a few years ago over the concept of building a bioengineered exosome. And I - I've said to my colleagues and almost anybody that will listen to me, exosomes are going to do to biotechnology what antibody therapy once did.

Antibody started off, what, 25 or 30 years ago. And now the 12 most drug - revenue-generating pharmaceuticals are antibody-based. And we think that exosomes are going to be that category of therapeutic opportunity. Because you can take them from different cell sources, and you can tell them where to go and how to deliver the contents.

And their markers on the outside allow them to bind with them and deliver content to the nucleus. So Bob Langer said about 10 years ago, the problem with all of these gene therapies is delivery, delivery, delivery. Well, well, Dr. Langer, we have a delivery vehicle for you..

[Operator Instructions]. And I will turn the call back to Capricor management at this time..

Thank you very much for your questions. We look forward to providing you updates in the coming months as we build on our recent progress. We expect 2020 to continue to be a productive and transformational year for Capricor. We are committed to becoming a leading company in the development of cellular and exosome-based therapeutics for diseases.

And as you know, we are always focused on achieving our next milestones. I want to thank our clinical investigators; our scientific advisory Board; Dr. Stephen Gould, who has made our bioengineered program a success to this point and moving forward; and my colleagues at Capricor for their steadfast dedication and outstanding efforts..

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines..