Greetings, and welcome to the Capricor Therapeutics Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr.

AJ Bergmann, Chief Financial Officer. Please go ahead, sir..

Thank you. 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 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 will turn the call over to Linda Marbán, CEO..

Thank you, AJ. Good afternoon and thank you for joining us for our third quarter conference call. Today I will provide an update on our two pipeline programs. First, CAP-1002, which is our allogeneic cell therapy currently in late-stage clinical development to treat Duchenne muscular dystrophy and severe COVID-19.

I will also provide an update on our emerging platform technology involving exosomes as drug delivery vehicle. First I will discuss CAP-1002 and DMD. In late September, we presented our final data from the HOPE-2 Phase 2 clinical trial at a late-breaking session of the World Muscle Society.

The data conclusively showed that the trial had its primary efficacy endpoints of the Performance of the Upper Limb or PUL mid level 1.2 and more importantly suggested clinical relevance with a difference in decline of 2.6 points between treated and placebo patients.

To remind you, FDA has said that a one point change will be considered clinically relevant. Patients in HOPE-2 were largely non-ambulant and in the later stage of the disease process for which very few therapeutic options exist.

Data from the placebo-controlled trial show that these patients that received CAP-1002 had a 71% slowing of the decline of mid-level upper limb function that means arm hand – arms function as measured by the performance of the upper limb or PUL, which suggest a strong impact on functional ability.

Additionally, and of great importance is that we also showed significant improvements in cardiac function as measured by ejection traction and end systolic index volume would suggest that treatment with CAP-1002 could slow the decline in the cardiac function associated with the cardiomyopathy of DMD, one of the leading causes of death in patients with Duchenne muscular dystrophy.

The data also shows significant improvements in the full PUL 2.0. Wish to remind you is total shoulder, arm and hand function and is the updated version of this important test. Importantly, it is also the primary efficacy endpoint of HOPE-3, our planned Phase 3 pivotal trial.

I am also pleased to share with you today that the FDA has cleared HOPE-3 to proceed. We will be aiming to enroll approximately 70 patients in the randomized, double-blind, placebo-controlled study across approximately 25 in the United States. At this time, we have initiated site selection and initial startup activities for this study.

As you know, we have secured important regulatory designations including RMATs or the Regenerative Medicine Advance Therapy designation and we qualify for a rare pediatric coupon voucher upon product approval. We remain committed to continue to work with FDA in our efforts to bring this important therapeutics to patients as quickly as possible.

In addition, the open-label extension portion of HOPE-2 is underway with 12 patients having already received at least four doses.

We are collecting safety data from these patients and following some of them using an optional DVA or Duchenne Video Assessment tool, which evaluates patients in their home setting and allows tracking of disease progression or attenuation using activities of daily living.

We presented some of this data at the Parent Project Muscular Dystrophy Meeting in late June 2021. The most notable aspect of that presentation was a video of a young man named Carlos [Ph] sitting up and then prior to being treated with CAP-1002 and another video of him attempting the same task ten weeks after being treated with CAP-1002.

This particular task has been highlighted by patients as having one of great impact on one’s quality of life. Here, a picture paints a thousand words and I highly recommend that you visit our website to see this video.

Additionally, many of the families whose sons are receiving CAP-1002 are reporting delays in disease progression and even improvements in function. We are hopeful, along with those families that CAP-1002 can improve the trajectory DMD.

Finally, I would like to highlight several important facts regarding the use of CAP-1002 for the treatment of DMD focusing first on the current dosing regimen and why we think HOPE-2 shows us positive clinical findings and also where CAP-1002 fits into the therapeutic arena to treat DMD.

Our first clinical trial in DMD, HOPE-Duchenne was designed as a single dose 75 million cells study with a one year follow-up. Cells were delivered directly to the heart via intracoronary catheterization. Patients for those with significant cardiac scars and were largely non-ambulant.

The data shows the greatest improvements in upper limb skeletal muscle strengths as measured by the performance of the upper limb 1.2 mid plus distal or arm and hand function in the first three months. This observation led to a change in our dosing frequency. We needed to dose every three months.

This could be more easily accomplished using intravenous or IV rather than intracoronary delivery. Therefore, based on extensive non-clinical studies, we were able to move to an IV delivery method and increase the dose to 150 million cells every three months.

HOPE-2 and HOPE-2 open label extension are the first clinical efforts in which patients received the calculated maximal effective dose of 150 million cells, four times a year or once every three months.

And the data showed sustained improvements in upper limb function, as well as significant improvements in cardiac function as we recently showed at World Muscle Society. Secondly, we also believe that CAP-1002 can be utilized with any other treatments for DMD.

Its mechanism of action to reduce the inflammation and corresponding fibrosis caused by DMD, as well as drive muscle stem cells to build healthy new muscle. This is necessary to combat DMD even if it is in the setting of possible gene therapies which are currently under investigation for DMD.

We are committed to getting CAP-1002 for DMD to patients as quickly as possible and based on the strength of the data, we are evaluating the best way to move this program forward most expeditiously towards registration. We will provide updates on this program as they become available.

I would also like to take a moment here to thank the patients and their families for not only participating in our clinical trial, but also for their support in driving CAP-1002 forward to treat DMD.

Every email and text message that I receive from families who want CAP-1002 for their sons reminds me of the importance of our mission and the potential opportunities for CAP-1002 to treat DMD. I will now provide you with an update on INSPIRE, our clinical trial using a single dose of CAP-1002 to treat severe COVID-19 patients.

This is a trial that was designed to know approximately 60 patients with severe, but not critical COVID-19, which means that they are having trouble breathing, but are not yet requiring ventilation.

The trial was designed based on our treatment of a series of patients, relatively early in the pandemic which was published in the peer review journal, Basic Research in Cardiology and showed the potential b benefit of CAP-1002 in patients who are not already on ventilators. These are the patients we targeted in INSPIRE.

I am delighted to share today that enrollment in that trial is complete. The trial had a 90-day, primary safety endpoint as mandated by FDA and based on that timeline, we plan to release top-line data in the first quarter of 2022.

In conjunction with the United States Army Institute of surgical Research, we recently published data which show that the exosomes released by CAP-1002 had beneficial effects in trauma and the hyper inflammatory consequences of such, which is similar to the pathogenesis of severe COVID-19.

Based on that data, and the published mechanism of action of CAP-1002, we believe that CAP-1002 could be an important tool in treating those patients with respiratory compromise, but who are not yet in need of ventilatory support.

While a lot of progress has made in treating COVID, there are some very few options for this particular group of patients. We will provide updates on this important program as they become available. Now I would like to move on and spend a few minutes providing update on our exosome platform technology.

As we have been discussing for a while, we believe that exosomes may have an important future in biotechnology and should become a cornerstone in delivering payloads inside or across the cell membrane, whether it’s a nucleic acid such as RNA, proteins or even synthetic small molecule. Exosomes are nature’s delivery system.

They are non-toxic, non-immunogenic, and it can be targeted to specific cell types by taking advantage of the receptors on their surface that allow them to bind directly to a cell and deliver content safely inside.

For several decades, science has been wrestling with the concept that protein transcription and translation to be modified to address many diseases if RNA could get inside the cell and turn into protein.

To that end, the development of lipid nanoparticle to facilitate transmission as well as to protect the RNA from degradation had made the concept of RNA medicines possible. However, these lipids are not without significant problems, which potentially maybe solved by exosomes.

In order to develop a platform using exosomes to deliver RNA, and also demonstrate high fidelity poaching translation, we decided to develop a vaccine which would be an vision tool to assess loading and protein expression which shows COVID-19 as our first target for a couple of reasons. The first of course, is because of its societal relevance.

The second is that we believe that a unique vaccine which is multi-balanced or have more than one of the major viral proteins included as well as the fact that the mRNA would be delivered via exosomes to potentially convert stronger and longer lasting immunity.

The data from the non-clinical studies of this vaccine candidate has recently been published in the Journal of Biological Chemistry as being developed as either a de novo vaccine or a booster to support those vaccines that are already approved.

As we previously stated, we have shown that exosomes are less toxic than the LNPs or lipid nanoparticles used to deliver the currently approved vaccine and therefore maybe a good vehicle for other vaccines as well.

It is uncertain, but it is possible that many of the adverse effects of the lipid nanoparticle mRNA vaccines, most importantly, myocarditis maybe mediated by the lipid nanoparticle delivery system which leads open the opportunity for safer delivery vehicles in vaccinology moving forward.

We believe that the exosomes might be safer, as well as effective. In fact, we have recent data that shows inflammation in the hearts of animals injected with a lipid nanoparticle plus RNA.

The inflation is not present in the exact same exosome-based formulation with exactly the same RNA constructs suggesting less toxicity in the exosome RNA formulation. Our objective with our vaccine program is to establish the proof-of-concepts of our exosome platform for the larger vaccine industry.

We believe that many vaccines of the future, whether they’d be for infectious diseases or cancer, which is RNA as a substrate for antigen presentation to the immune system. We had specific pre-IND feedback from FDA on our vaccine candidates and we are now completing those studies necessary for an IND.

All of the data we have collected and the responses of the FDA support the future developments of our platform model loading exosomes whether for therapeutic developments or other vaccines.

Important to these development efforts, we have now relocated our R&D headquarters to San Diego, California and have assembled a strong team of scientists with expertise in exosome and RNA loaders. This team is working in a strategic manner to build and expand Capricor’s platform in 2022 and 2023.

As we have been messaging since we introduced the concepts of an engineered exosome platform, some of what we developed we will keep in-house for clinical developments and others we will aim to potentially license out to partners the desired exosome-based drug delivery.

As our platform matures, we believe this is the most strategic way to monetize this opportunity.

We believe that the groundwork we are laying will facilitate future development of our exosome platform and this is even more relevant in the current setting for RNA delivery is coming to the forefront in the biotechnology and we believe our engineered exosome platform technology will enable Capricor to become a leader in the space.

In closing, I want to thank you for your supports. We look forward to providing continuing updates on all of our programs. Again, thank you. I will now turn the call over to AJ Bergmann, our CFO for an update on the financials. .

Thank you, Linda. This afternoon’s press release provided a summary of our third quarter of 2021 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 September 30, 2021, the company’s cash and cash equivalents totaled approximately $40.8 million, compared to approximately $32.7 million on December 31, 2020. Based on our current pipeline and operating plan, the company’s cash position is expected to be sufficient to support operations for at least two years. Turning now to the financials.

Over the first nine months of 2021, our net cash used in operating activities was approximately $11.2 million. For the third quarter of 2021, excluding stock-based compensation, our research and development expense was approximately $2.4 million, compared to approximately $2.6 million in Q3 2020.

Again, excluding stock-based compensation, our general and administrative expense was approximately $1.1 million in Q3 2021 and approximately $900,000 in Q3 2020. Net loss for the first nine months of 2021 was approximately $13.8 million compared to a net loss of approximately $9.5 million for the first nine months of 2020.

We will now open the line up for questions.

Operator, will you please open the line up for questions?.

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

Hi, Linda and AJ, good afternoon. Thanks for taking the question. A few questions if you don’t mind. Let’s start with HOPE-3. Obviously, the path forward for this study is iterative lots of FDA feedback and discussions that you’ve had. Previously, you’ve discussed you may be not moving forward with this study unless it’s in the hands of a partner.

Today you are talking about evaluating potential options.

So I guess, I’ll ask the question this way, is this something that you could potentially now bring forward yourself based on the FDA feedback and the cash runway that you delineated today?.

Thanks, Joe. It’s always a pleasure to hear from you. Thank you so much. So, are incredibly encouraged by the data from HOPE-2. And we are now developing the plan to get HOPE-3 start and we are working on initiating the sites, getting startup activities going and we are poised to enroll patients.

So, we hope you and others will stay tuned to how we decide to that. .

Understood. Okay.

And I guess, however it moves forward, I guess, can you talk about the manufacturing readiness to be able to deliver products for the study and anything that’s still outstanding and when you look at the macro environment right now from a manufacturing standpoint, or any of your ongoing operations are there any impacts from the global supply chain issues?.

Yes. Thanks for that. No, we are very lucky that we had planned on manufacturing for HOPE-3 a while ago. So, in terms of supply chain, we are in very good shape. We are in good shape to begin the study at the BLA and there will be no issues regarding products.

In terms of the commercial development of the cells, we are working and continue to plan on working closely with FDA through HOPE-3 and into the BLA period, so that we are ready with commercial supply when the drug is launched. And so, this is an area of active activity for our team at this time. .

Got it. Got it. And then, it’s definitely nice to see a full enrollment of INSPIRE today.

Hey, a little forward-looking obviously, pending a positive data, is there anything that you can maybe describe as potential next steps?.

Yes. So, obviously, the data tells the story. So, we’ll be excited to look at the data ourselves and of course share it and based on what the data shows we will evaluate next steps and keep everyone update as to that plan. .

Got it. Got it. And then, I am certainly intrigued always with the exosomes platform. The platform that you have here and the BD potential around that, so, I guess, of course this depends on what cash spend that you have or don’t have around HOPE-3.

But since you have two years of cash right now, it seems like you’d be able to deliver a lot of both pre-clinical and potentially early clinical data over the next two years.

Is there some sort of framework that you can provide us to the level of visibility that the exosomes platform could deliver?.

Yes. So, we have been planning carefully to give the exosome to good runway. We have several targets that are in development including the vaccine that I spoke about today regarding for COVID and also for future vaccine development.

There are other programs that are in pre-clinical assessment as we speak and we look forward to providing update to that as it becomes available.

I will add here that the exosomes are now the platform upon which we’re building the delivery of biologics that’s in the nucleic acids such as RNA which our first target could be proteins, it could be small molecules, exosome display is also a possibility where you can coat the exosome on the outside of the protein and drive either other types of vaccines or potentially protein replacement therapy.

So, their opportunities are large. What we’ve been able to do is narrow it down to a few specific targets that we are actively engaged in and we’ll provide updates on that really in the first part of next year. .

Thank you, Linda. .

Thanks, Joe. .

Thank you. [Operator Instructions] There are no further questions at this time. I’d like to turn the call back over to Ms. Linda Marbán for closing remarks. .

Yes, thank you very much for joining us for our third quarter update. We look forward to providing updates as they become available on our pipeline program, CAP-1002 and the exosomes. And thank you for your time today. .

Thank you. This concludes today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day..