Good day, ladies and gentlemen, and welcome to the Capricor Therapeutics Incorporated Third Quarter 2022 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. AJ Bergmann, Capricor 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.

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, potential milestone payments 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, 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'll turn the call over to Linda Marbán, CEO..

vaccinology and the precision delivery of therapeutics. Earlier this quarter, we presented our most advanced application of StealthX with the production of a true multivalent exosome-based vaccine or booster for COVID-19.

Based on this unique StealthX platform, we are able to rapidly develop protein-based vaccines that elicit a potent immune response using a very low dose of antigen without the need for an adjuvant or lipid nanoparticle carrier.

Our vaccine is a multivalent vaccine containing exosomes, that express spike and exosomes that express nucleocapsid proteins on their surface, potentially allowing for both strong humeral as well as T cell immune responses.

In preclinical studies, we have been able to observe neutralizing antibody activity against multiple serotypes, including Delta and Omicron. We also have demonstrated the power of the platform for multiplexing with StealthX-based vaccines, such as a combined flu plus COVID vaccine data, which we recently presented.

Our StealthX platform has the potential to combine the best of both protein and mRNA vaccines. We believe that this platform will provide both the developmental speed of mRNA vaccines along with the potential superior immune activation of historical protein vaccines without the need to employ synthetic lipid nanoparticles.

If our preclinical findings are recapitulated in human studies, we believe that StealthX has the potential to be a differentiated, next-generation vaccine platform. We look forward to providing more updates on this program as they become available.

The tools that we are creating for a bioengineered exosome platform, including those used for StealthX, will support our efforts towards the development of precision delivery therapeutics.

The ability to decorate the surface of exosomes with proteins or other ligands as well as to load potential therapeutic molecules inside the exosome, coupled with their relative low toxicity as compared to synthetic with the nanoparticles, allows us to explore a number of future potential therapeutic targets.

As these programs develop, we will provide further updates.

We are hopeful that both the StealthX vaccine as well as the therapeutic exosome platform may provide opportunities for partnering, collaborative or business development, and we intend to make these potential alliances and increasing focus in our business development strategy alongside our efforts for possible partnerships for CAP-1002 in new territories.

Approaching the end of 2022, Capricor is executing on its objectives and goals. We are enrolling our pivotal trial for CAP-1002 and engaging the FDA on our regulatory path forward and strengthening our relationship with NS Pharma while exploring OUS partnerships.

Our exosome platform technology has progressed significantly and is now entering into a new phase of maturing with a platform business strategy for potential partnerships that can create a new future revenue stream.

One year after moving into our San Diego facility, we have assembled a great team across the organization, and our hiring plan is nearing completion. We will continue to observe financial discipline across the organization and believe that our current organizational structure and balance sheet will support entering 2023 with strong momentum.

I will now turn the call over to AJ Bergmann, our Chief Financial Officer, for a more detailed update on the financials.

AJ?.

Thank you, Linda. This afternoon's press release provided a summary of our third quarter of 2022 financials on a GAAP basis. You may also refer to our quarterly report on Form 10-Q which we expect to become available shortly and will be accessible on the SEC website as well as the financial section of our company website.

As of September 30, 2022, the company's cash, cash equivalents and marketable securities totaled approximately $46.6 million compared to approximately $34.9 million on December 31, 2021.

We expect that based on the current operating plan and financial resources, that our available cash, cash equivalents and marketable securities will be sufficient to cover anticipated expenses and capital requirements into the second quarter of 2024.

Note that this expectation excludes any potential milestone payments under our exclusive commercialization and distribution agreement with Nippon Shinyaku that may become due. Turning now to the financials.

In the first 9 months of 2022, our net cash provided by operating activities was approximately $11.8 million driven by the $30 million upfront payment from Nippon Shinyaku.

For the third quarter of 2022, excluding stock-based compensation, our research and development expense was approximately $5.4 million compared to approximately $2.4 million in Q3 2021. Excluding stock-based compensation, our general and administrative expense was approximately $1.6 million in Q3 2022 and approximately $1.1 million in Q3 2021.

Net loss for the first 9 months of 2022 was approximately $21.3 million compared to a net loss of approximately $13.8 million for the first 9 months of 2021. We will now open the line up for questions..

[Operator Instructions] We'll take our first question from Alan Leong with BioWatch News..

Let's suppose something, even if you don't get the partnerships -- and by the way, I've always been amazed, Linda, at how you've been able to keep things nondilutive over the years.

So let's kind of play with this, so if you don't get the partnerships and things are a bit delayed, the amount of bridge that you need, the amount of financing you need, and correct me if I’m wrong, you're not looking at much, even the milestones -- cost side milestones payments then come along, things got delayed a little bit and the partnerships have delayed a bit.

But that's just my conjecture. I wonder if you could reflect off of that a bit..

Yes. Happy to, Alan. I mean we're being very judicious with our financial expenditures. Obviously, a lot of energy is going into HOPE-3.

The enrollment progress, which we're very pleased with, is critical to maintaining a nice cash position as we move through the completion of enrollment and then through the top line results as well as the interim analysis. So I guess my long-winded answer to that question is we are going to continually be disciplined.

We're going to put our energy and focus on our Duchenne program as well as expanding the exosome program, in a very careful way. We're very hopeful that should things continue as planned, that these milestone payments under our Nippon Shinyaku agreement, will become due, which will help support that.

And kind of the third piece to that is there's other opportunities for partnering CAP-1002 outside of the United States and exosomes, of course. So we're looking all around. We're well aware of the current financial status of the market.

But I think from a cash management perspective, we're doing everything we can to put the right energy into our programs..

Yes. I asked to smile about coming at the StealthX program. You have a number of aerospace and military companies out your way that hold blackbox projects almost sounds like one of those..

That's how we see the exosomes is working because they invade detection by the immune system and deliver targeted messages to specific cell types. So it's very strategic on our part. We see it as a very military strike of the exosome, so to speak..

Interesting. Well, let me ask you about -- because you mentioned vaccinology and precision delivery of therapeutics. I probably can be classy and just ask one question and -- test others if I can. The precision delivery of therapeutics. When you mention that, it almost sounds like it could be a business development exercise.

Let me ask you, are you looking at existing drugs that sorely need better delivery? Or are you looking at in-house development? Are you looking at some combination of both?.

Yes. So we haven't guided on how we're going to be building this. But what I can say sort of in general concept is that both are very ripe targets. There's a lot of drug delivery that we've been wanting as a biotech industry, pharma industry, even before that, to get the on the cell membrane, we now have a tool to do that.

The exosome can allow targeted delivery of all kinds of molecules including, for instance, lipidic molecules that previous drug delivery systems haven't been able to do. So we're looking at stuff that's out there that may need a sort of a kick in terms of working better or being able to use lower doses, for instance.

Some of these compounds are extraordinarily toxic systemically, but if you can use targeted delivery, you may be able to really reduce the toxicity profile.

And we've been able to demonstrate that with the StealthX with the vaccine that we're developing, which is we're able to use nanogram amounts of the protein, the spike protein as well as the nucleocapsid protein, nanogram amounts, which allows us to be really well positioned for multiplexing of vaccines and other targets.

So we can use really small amounts to drive big biology, and that's one of the things we're excited about. So we're looking at it both from a BD perspective and also from an internal development perspective..

Let me ask one quick question because I seem to recall you won't -- AJ, you mentioned -- both of you mentioned having begun manufacturing and you have to support early commercial launch and you have -- you pushing out a part of the San Diego location for that. You got enough for early commercial relations Great. It gets it out there.

Are you tempted, if you're successful, if you get that first one through the FDA, are you tempted to capture revenue and margins by building another?.

Yes. So that's an issue, Alan, that we talked about in our strategic planning of the program. We're remaining agnostic right now to the large-scale commercial development of CAP-1002. Our current plan include using the facility within our footprint for launch.

And then we have the option to either tech transfer to a CDMO like Lonza who we've been working with the past few years, so they're prime to manufacture our product, or then to build facilities of our own. And all of that will be based on demand, market conditions, opportunity and all the factors that are not predictable just yet..

You've been generous with your answers, and good luck to both..

Thank you..

Thanks so much..

We'll take our next question from Aydin Huseynov with Ladenburg..

So I wanted to ask you regarding the HOPE-3 interim analysis in the middle of next year. So what kind of data we should expect there? Is it the same data as the top line data, but with limited number of patients? Or were you looking for specific milestones or signals of activity..

Yes. So currently, the interim analysis is built purely as a sample size reestimation. We don't want to ever lose out on the opportunity of achieving success in the clinical trial because we under enrolled a too few patients, so to speak.

So it will be a sample size reestimation where the DSMB, obviously, having access to unblinded data will give us the go ahead to continue to the end or to add a certain proportion number of patients. And that's fixed, so there's no risk of unblinding.

We chose to do an interim analysis such as that based on feedback from FDA that they really wanted to see this trial go all the way to the end without a data reveal. And so we're doing this exactly in a strategic fashion mandated by FDA. It's a small trial perspective-wise, 68 treated patients is what we're looking for at this point.

So my monitor to my team is heads down HOPE-3, and that's exactly what we're doing..

Okay. Got it. Got it. And in terms of the patients that have been recruited so far, I think you mentioned 18 patients. So can you describe these patients? Are these completely non-ambulatory patients or with partial ambulation? Just if you could give us some color on this..

Absolutely. Thanks for the question. So of course, all of the clinical trial criteria are on clinicaltrials.gov. So for anybody who is interested in catching up on that, that's available.

We're very careful to maintain an inclusion/exclusion criteria, which is very, very similar, in fact, one would say almost identical to HOPE-2 which, as everybody knows, from our publication in Lancet was very relevant both clinically in terms of clinical relevance as well as statistically significant improvement.

Currently, we look for patients that have a performance of the upper limb score of 2 to 5 as our inclusion criteria. They can sometimes be late-stage ambulatory and still have reduced upper limb function. The torso muscle sometimes can go before the leg muscles.

So our physicians and our physical therapists are highly trained in measuring upper limb function and then quantifying whether they qualify for our trial based on the performance of the upper limb..

Okay. Understood. Understood. And help me understand one thing, so most of the DMD drug are approved for sort of early stage of the disease. Your drug is intended for the late stage essentially for non-ambulatory patients. And we have some data regarding ex U.S. data or ex U.S.

sales of these early-stage drugs, but there's very limited understanding how this may look like for the late-stage drug like yours. And the reason I'm asking this is because of the ex U.S. BD opportunity. I'm trying to understand how the upfront and overall market may look like.

So if you could give us some color on this, just to better understand how the ex U.S. opportunity for advanced-stage drug may look like..

Absolutely. I'm going to take a step back and sort of address the first part of your question, which is the drug is not designed for the older or more impacted patients. They're our first targeted group of patients, but by no means do we think we're going to stop there.

As I mentioned in my remarks, and of course, we've been talking about internally for a while. The opportunity to treat these younger kids exist as well. And what we know is that CAP-1002 delays the progression of the disease. And so at whatever point, we can enter in and stop the progression of this very terrible disease, we'll do that.

So look for that in the future.

In terms of market share, if you look at the pathogenesis of the disease, the kids tend to go off their feet somewhere between 10 and 15 years of age -- and with current therapeutics primarily focusing on steroids and certain types of ventilation procedures, these people are living really to their late 20s or early 30s.

And so we're looking at somewhere between 50% of the patients and treating them 4 times a year for 15 or more years. So there's a very robust revenue opportunity both in the United States as well as outside the United States..

[Operator Instructions] We'll take our next question from Brian Corday with BullBear Partners..

I had a couple of questions and some clarity because I spoke with AJ right after the last report that came out, and I found some discrepancies in it. And I was wondering if you could give a little transparency on where you see approval with accelerated should you get it versus full review because I know some of those states didn't match up before.

So if you could kind of touch on that..

Yes. So we have been pretty clear in our messaging. We continue to work with FDA. We have been broking the idea with them since HOPE-2, that we think that CAP-1002 would be an ideal candidate for accelerated approval, it's very safe, and also has tremendous efficacy.

And our current open-label extension data shows what we and others consider free disease modification. So time is muscle, and we want to get it to the patients as soon as possible. Now having said all that, FDA has been very clear on what they want us to do, what they told us to do is to do HOPE-3.

As I said a minute ago, I'll say it again, heads down HOPE-3. Our focus entirely is on enrolling this trial and achieving what FDA has asked us to do, which is to do an adequate, well-controlled Phase III clinical trial. However, we will not give up our conversations with them. We will continue to work with them.

We have designation as well as other types of preferred opportunities for accessing FDA. So we will, at certain targeted points, not yet disclosed, continue to meet with FDA and see if there is a way to push forward for accelerated approval, if that's helpful at all, Brian..

Right. No, what I was referring to is in the gentleman who was prior to my call, he had accelerated approval at 2025, I believe it was.

And if you were looking sooner than that, correct?.

Yes, yes. So I'm sorry, I didn't realize that that's what you're referring to. So forgive me for that. Yes, so our current plan is that we anticipate finishing enrollment in HOPE-3 by the third quarter of 2023. It's a 12-month set the clock and collect the data.

So that's the, call it, third to fourth quarter of 2024, and we're looking for BLA submission in the first quarter of 2025. So that -- it was not accelerated approval. Accelerated approval could come any point before that. That's our drop-dead date for when we anticipate to achieve an approval based on HOPE-3..

Right. Okay. I just wanted that clear because I know several people I've spoken to were confused by what was written outside of the company. Good. Now in terms of the follow-up videos that you were going to have for some of the patients, where are you at with that? Because I know that's so powerful to see..

Yes. So obviously, we've collected those videos, and we've been able to put some of them out there. We're using them primarily in our regulatory pathway. So we use them to quantify the clinically relevant improvement in function that we see mathematically a statistical assessment of the performance of the upper limb.

So it really is corroborating clinical meaningfulness or clinical relevance. Families, as you can imagine, are sensitive about those being released. So at appropriate times, we might be able to use those. But right now, we're using them primarily for regulatory approval..

Okay. My last question is, I know you've been looking at roughly $600,000, give or take, for a pricing structure.

And with pricing on other drugs in this space going up or potential, have you reformulated what you would want to charge for this, should you get approval?.

AJ, you want to take this one? ..

Yes. I mean, obviously, we're looking at that, Bryan, over the next -- the duration as we move towards potential approval, we'll evaluate that. I think $600,000 is right now on the base case of what we believe we could charge based on some early payer discussions we had.

I think you're aware of the current drugs on market are a little bit in excess of that. So I think it's a good price target, but of course, everything we can do in that arena, we will do the best of our ability..

Okay.

And one last question, I know you can't give a specific, but how many milestones prior to approval are there? You don't have to say what they are, but how many would we be looking at payment-wise?.

Yes. At this point, we're still not able to disclose more granular details of how many of them that they are. I think you did hear, though, hopefully, you caught in the remarks, that if we continue according to plan, in 2023, we should begin to trigger some of these milestones.

But unfortunately, I'm not in a position as of today to disclose the exact amount of milestones moving up to regulatory approval..

One last one, in terms of pre BLA to the FDA, do you think those discussions will continue until you get the readout? Or do you -- are they telling you to wait completely until then?.

No, no, no. So if you're talking about the pre-BLA CMC meeting, our plan is to get that done very early on in the process of next year and then continuing to work with FDA on our release criteria for the cells, and we anticipate that going very well..

[Operator Instructions] With no further questions in the queue, I will now turn the call back to Capricor management for closing remarks..

Thank you for joining us today. Before we conclude today's call, I, of course, would like to thank our patients and their families for their continued support. Once again, thank you for joining us today..

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect..