Good afternoon, ladies and gentlemen and welcome to the Capricor Therapeutics Second Quarter 2023 Financial Results and Corporate Update Call. At this time all lines are in a listen-only mode. Following the presentation we’ll conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to our host, Mr. AJ Bergmann, Capricor's Chief Financial Officer..

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, plans to present or report additional data, our plans regarding regulatory filings, potential regulatory developments regarding our product candidates, manufacturing capabilities, potential milestone payments and other 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'll turn the call over to Linda Marban, CEO..

Thank you, AJ. Good afternoon, and thank you for joining our second quarter 2023 conference call.

Today, I would like to begin by reiterating our deep commitment to optimizing patient focused medicine and in the first half of 2023, we continued to make steady progress across our pipeline and are well positioned to deliver on important clinical and regulatory milestones for our Duchenne Muscular Dystrophy program, as well as continue to advance our exosome platform technology.

I am extremely pleased with the recent additions of two new members to our Board of Directors with the additions of doctors Philip Gotwals and Paul Auwaerter. Dr.

Gotwals most recently served as the Global Head Vice President of Business Development and Licensing at Novartis Institutes for Biomedical Research and has nearly 30 years of experience in drug development, research, corporate strategy, and business development. Dr.

Auwaerter brings over 30 years of internal medicine and infectious disease experience as the Sherrilyn and Ken Fisher Professor of Medicine at the Johns Hopkins University School of Medicine, serving as the Clinical Director for the Division of Infectious Diseases and Director of the Sherrilyn and Ken Fisher Center for Environmental Infectious Diseases.

Both Dr. Gotwals and Auwaerter deep industry experience will be invaluable as we continue to enhance our strategic and business development priorities across both of our programs.

Our late stage clinical development program CAP-1002 in patients with DMD continues to advance through development and key priorities, including enrollment of our Phase 3 HOPE-3 clinical trial which I will give more details on in the next few minutes, as well as continuing discussions with the FDA regarding the proposed path towards submissions of a biologics license application.

Building on this momentum, we believe we are well positioned to execute our corporate executives throughout -- objectives throughout the remainder of the year. I will now dive into our programs and provide an update on recent activity. Let me provide you an update on our recent FDA interactions.

Earlier this year, as part of our RMAT designation, we have the Type-B CMC, or Chemistry Manufacturing and Controls related meeting with FDA, where we outlined our plans for production of commercial scale GMP CAP-1002.

The outcome of this meeting was positive and that FDA clearly outlined for us to deliverables necessary for the CMC portion of our BLA.

As we previously have reported, there also was a discussion concerning the possible inclusion of additional patients who would need to be treated with product from our San Diego GMP facility in order to support commercial product manufacturing at this site.

As this request would have likely extended the timeline for the completion of our pivotal trial and therefore the time to BLA. We requested a subsequent Type-B clinical meeting with FDA to determine if there was a more efficient and expeditious path to BLA due to the great unmet medical need of this patient population.

The advocacy community believes, as we do, that CAP-1002 attenuate disease progression, and they have continued to raise awareness of our program within the FDA, and specifically [CBER] (ph) and as the FDA continues to highlight the importance of patient perspective, they have continued to pay close attention to our program.

To that end, the FDA granted our request to discuss our program in more detail. And this meeting occurred in July of this year. The goal was to further outline a plan for an expedited path to BLA for CAP-1002 for the treatment of later stage DMD. And I'm happy to share that FDA seemed generally supportive of this plan.

Currently, we are awaiting the final minutes from FDA, which we expect this month. We have already had another informal meeting with FDA to further design certain aspects of our program, and we are greatly appreciated of -- appreciative of the FDA's guidance to optimize the HOPE-3 clinical trial design to support our path to potential approval.

Next, I'll provide an update on HOPE-3, our Phase 3 clinical trial. I am very pleased to inform you that as of today, we have randomized 48 subjects across 17 active sites. And based on the currently designed sample size of 68 patients, we are on track to be fully enrolled early in fourth quarter of this year.

Furthermore, we remain on track to conduct an interim analysis on HOPE-3 in the fourth quarter of this year, which will primarily focus on a futility analysis.

I am very enthusiastic about the rate of enrollment which has been strong throughout the summer, I'm propelled by the positive feedback from patients and families, including the anecdotal reports of disease attenuation. Additionally, we are extremely pleased by the safety profile of CAP-1002 and the overall support of our investigators and families.

Now for an update on our most recent HOPE-2 open label extension or OLE results presented at this year's Parent Project for Muscular Dystrophy annual conference. To remind you, we presented positive statistically significant two year follow-up results from this study.

As you may recall, the HOPE-2 OLE study previously met its primary endpoint at the one year time points on the PUL version 2.0 scale.

At the 24 month time point, the data continued to show statistically significant differences in the PUL performance of the upper limb version 2.0 in the open label extension treatment group when compared to the original rate of decline of the placebo group from HOPE-2 after one year.

Even more profound were the cardiac findings we observe, while the natural history of DMD cardiomyopathy suggests a steady decline in cardiac function as measured by ejection fraction. In HOPE-2 OLE, we observed improvements in heart function in six of nine patients.

Over time, we also observed an increasing correlation with the performance of the upper limb version 2.0 and ejection fraction results.

The two year results from this open label study are tremendously impactful for DMD patients, so in cardiac and skeletal functional benefits, which underscores the potential long term benefits of CAP-1002 treatment in DMD.

The disease modifying potential, together with the favorable safety and tolerability profile, further positions CAP-1002 as a potential anchor therapy for DMD patients. We are thankful to the patients and their families for their continuous commitment to working with us on demonstrating the potential benefits of CAP-1002.

Now, turning to our partnership strategy. Now that we have secured commercial and distribution rights in the U.S. and Japan, with our partner Nippon Shinyaku, we continue to focus on securing additional partners in other markets around the world, with Europe being a key priority and now have several companies evaluating the opportunity.

Another focus I would like to briefly touch upon is the opportunity to evaluate new indications where CAP-1002 might provide benefits to additional patients.

While we haven't committed any resources to this development area yet, this opportunity would provide another potential avenue for partnering, licensing, or even soul development, leveraging on the capabilities we have built at Capricor for CAP-1002. Lastly, I would like to provide an update on our GMP manufacturing facility.

We have designed this GMP manufacturing facility to produce commercial scale GMP CAP-1002 doses. We see this facility as a versatile and cost effective way to bring CAP-1002 to market efficiently.

In anticipation of CAP-1002 obtaining market approval, we've built this facility because we believe having the ability to manufacture in-house will greatly increase our margins and will support the early launch of this product.

I am pleased to report that the San Diego facility is up and running, engineering runs are underway, and we remain on track to be able to release clinical doses in the third quarter of this year. Overall, I am very pleased with the progress of our DMD program.

We look forward to sharing further updates from our interactions with FDA, our progress with HOPE-3 and the development of potential additional partnerships in new territories. We have two new additions to our senior leadership team enhancing our regulatory and CMC internal expertise. Dr.

Yushi Feng has assumed his role as Vice President of Regulatory, overseeing all regulatory activities. Dr. Feng previously worked at the FDA, Waive Life Sciences, and Kodiak Biosciences. Each of these companies have overlapping areas with -- overlapping with our areas of focus.

Additionally, Jonathan Tayco has joined us as Vice President of Program Management and Business Operations over seeing CMC Development. Prior experience for Mr. Tayco included Kite Pharma, where he played an integral role in the BLA approval of Yescarta, one of the first approved cell therapy treatments for large B-cell lymphoma.

I am very pleased to welcome these two new members to our team. Now turning to our exosome platform technology, which leverages the natural cell-to-cell communication of the body.

We are harnessing exosomes to serve as a novel drug delivery system with broad therapeutic applications and our proprietary StealthX expression platform is at the core of our exosome program, which is focused on the development of two broad modalities, infectious disease, and precision therapeutic.

As previously stated, we believe that exosomes are the future of drug delivery. They are able to deliver contents directly to the cell, avoid detection by the immune system and can be targeted.

However, one of the issues that the field has been grappling with is the ability to manufacture a large volume of a relatively homogeneous formulation similar to lipid nano partials.

We have focused a significant amount of time and energy into manufacturing and targeting exosomes, and I am delighted to share with you that we have made paradigm shifting progress on these objectives. This development step allows for rapid and efficient development of future exosome product.

To that end, I'm very pleased to report that we have recently begun work with an undisclosed pharma company looking at enhancing delivery of ASOs using exosomes as the delivery vehicle. I look forward to providing more details on this in the coming months as this is a very important step for Capricor as we begin to leverage our platform StealthX.

We look further to exploring the applications of our StealthX platform as they expand into precision based therapeutic and are working in targets primarily in neuromuscular diseases at this time. Additionally, we recently published data in bioRxiv, a journal featuring two vaccine candidates that were generated with StealthX.

Exosomes are engineered to express influenza H3 or SARS-CoV-2 spike. When administered individually, both StealthX, H3 and Stealth X spike introduced a strong immunization with the production of a potent humeral and cellular immune response.

These effects were obtained with administration of nanograms of protein and without adjuvant or lipid nano particles to test the potential benefits of the [indiscernible] vaccine. Hemagglutinin H3 and SARS-CoV-2 spike proteins were individually engineered on the exosome surface and mixed before injection.

This combination approach also induced a strong immune response in mice, with both antibody and T-cell response.

Additionally, there were no detectable immune competition between antigens by combining multiple targets in a single vaccine formulations, these results support the potential therapeutic utility and versatility of our StealthX platform and addressing a broad range of infectious diseases.

Our current plans continue to focus on leveraging business development and partnering strategies as well as non-dilutive grant funding for our exosome platform technology.

In closing, we are pleased with the advancements across our organization as we remain focused on becoming a commercial scale company with CAP-1002 as our lead asset and development of our exosome technology. We are entering the second half of the year in a position of strength.

I look forward to working with our new board members and capitalizing on their deep industry experience and forward-looking vision which we feel will be invaluable as we continue to execute on the key priorities for CAP-1002 and our exosome platform.

Now with that, I will turn the call over to our Chief Financial Officer, AJ Bergmann to run through our financial results for the second quarter of 2023..

Thank you, Linda. This afternoon's press release provided a summary of our second quarter 2023 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 website.

As of June 30, 2023, the company's cash, cash equivalents and marketable securities totaled approximately $37.8 million compared to approximately $41.4 million on December 31, 2022. Based on our current operating plan, company's cash position is expected to be sufficient to support operations through the third quarter of 2024.

I would like to note that this expectation excludes any additional potential milestone payments under our exclusive commercialization and distribution agreements with Nippon Shinyaku that may become due, which would extend our cash runway. Turning to the financials.

Revenues for the second quarter of 2023 were approximately $3.9 million compared with zero for the second quarter of 2022. The primary source of revenue was from the ratable recognition of the $30 million upfront payment in accordance with our U.S. exclusive commercialization and distribution agreement we received from Nippon Shinyaku.

Moving to our operating expenses for the second quarter of 2023, excluding stock based compensation, our research and development expense was approximately $8.4 million compared to approximately $4.7 million in Q2, 2022.

Again, excluding stock based compensation, our general and administrative expenses were approximately $1.7 million in Q2, 2023, and approximately $1.4 million in Q2, 2022. Net loss for the second quarter of 2023 was approximately $7.4 million compared to a net loss of approximately $7.1 million for the second quarter of 2022.

Net loss for the first half of 2023 was approximately $15.1 million compared to a net loss of approximately $14.9 million for the first half of 2022. And with that, we will now open the line-up for questions. Thank you very much..

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions] Your first question comes from the line of Joe Pantginis from H. C. Wainwright. Please go ahead..

Hi. Good afternoon, Linda and AJ. Thanks for taking the questions. So I know there's a lot of working parts here. And I know my questions will revolve around some things that you might not be able to detail because the FDA minutes are not out yet, but I'm still going to ask them.

So with that said, I guess, as San Diego comes online this quarter, if I heard you correctly, do you have a general range of the number of patients that would be required from that facility to start with?.

Yes, Joe. Hey. Good to talk to you. And, you're correct. There's very little we can say until we get the final minutes. But what I can tell you is that, once we get them, we plan on doing a public release in some way either via press release and/or a call to sort of update the market and the community as to exactly the path forward.

What I can tell you is that, FDA has worked really closely with us. They're very supportive of this program, several of our patients' families have reached out to FDA in order to ask them to take a really careful look at Capricor, help move the program forward because they feel that their sons are feeling and focusing better.

And so, we're confident that the answers that we get back from FDA will be the best ones possible to move the products towards BLA..

That makes sense. And, I guess for my next question, it's sort of in the same realm, but I'll ask it sort of scenario based. So, you do have the type -- you do have the minutes that you're waiting right now. You also have the upcoming interim analysis in the fourth quarter for HOPE-3, which you said primarily based on futility.

However, in your -- does one of the potential scenarios include the positive feedback from the minutes with regard to the data you might see in the interim that could allow for the acceleration or resetting of the timeline positively for HOPE-3..

Yes. That was a pretty impressive question asked, Joe. Good work. I can tell you've been doing this a long time. So, the answer to that is, futility is the metric that we're looking at for the interim analysis.

FDA has been pretty clear with us that they want to keep this trial very tightly regulated, really carefully monitored, because they believe in the product too, we can tell from their feedback from us -- for us. And so, we're probably not going to use the interim for accelerated approval opportunity.

I can tell you that I am laser focusing on opportunities where we may be able to take advantage of an earlier look to look for an accelerated approval. I cannot disclose now how we might do that, but that is something we're definitely thinking about..

Got it. And I guess my other questions are more -- are strictly logistical. So in the conduct of HOPE-3, you're obviously encouraged by the enrollment rates that you've been seeing, if I understand correctly.

What are the prominent reasons for screening failure of patients or what does the patient and also what does the patient pipeline look like for potential enrollment?.

Yes, Joe. Great question. So screen fail rate, which has really come down a lot, thanks to our really very strong new clinical team that we put in place. And the primary reason that people fail are typically is that they don't have inclusion criteria of the performance of the upper limb score two to five.

And so, we typically see some of these guys whose scores are too low. And let me just say from a human level, it's heartbreaking because they have to have the ability to use their hand and brand to their mouth unassisted.

And we probably get two or three calls a week from people saying, well, you know, if they -- what if they need help, what if they use their other hand to boost it? So people want CAP-1002 desperately. So that leads into the answer to your second question. The pipeline of potential patients is very rich.

There's a lot energy around this open label extension data. At the PPMD meeting, we were by far one of the busiest booths, second only to [Sarepta] (ph) with the gene therapy. And so, we are looking to build with Sarepta with all of the gene therapies that could come along as anchor therapy for CAP-1002. And so the families see it that way as well.

So we do not see, any potential turn down or downturn -- downturn in patient opportunities moving forward..

Got it. And then lastly, going away from HOPE-3 and DMD, you did give us a little bit of a tease again about additional CAP-1002 opportunities.

And I was just curious here, any potential for going back to any of the prior indications that you've worked on in the cardiovascular arena or any teasing you might want to give us now with regard to newer indications or is this a wait and see?.

Yes. So, I think the best way to answer that is, we are very pleased with the progress of CAP-1002 and DMD. I think it's very clear that there seems to be a disease modifying and a very strong treatment effect that persists after years. Our patients have done really well on a repeated exposure.

We have open label extension patients that are in their third year and coming into their fourth year of treatment. And so, it's very safe. The infusions are easy. So we are opening the door internally to look at a potential opportunities for CAP-1002.

We're exploring those now and we'll provide updates as we have them to where we will likely deploy CAP-1002 next.

But what I can tell you if you're sort of looking into your crystal ball, we've seen really nice data and an inflammatory cardiomyopathy skeletal muscle disease, neuromuscular disease, we know that CAP-1002’s primary mode of action is immunomodulatory and pro regenerative.

So we're going to continue to explore indications set so the disease pathogenesis would be highlighted by those two processes..

Got it. Thank you, Linda. Appreciate it..

Thanks, Joe. Take care. I'll see you soon..

[Operator Instructions] Your next question comes from the line of [Alan Long] from BioVoice News. Please go ahead..

A.J., it's great to be back and what wonderful commentary. Linda, your commentary extends way beyond the release and love to hear it. And also shot out to Joe, the last analyst, for a great question. I have a couple of sets of questions. You're into really low volume, high-margin products.

Although Linda, you taught my year about the breakdown into scalability.

Is the pilot manufacturing model a possible template for Capricor's future path for vertical integration? In other words, are you considering this your usual modus operandi going forward? You could simply replicate pilot-sized facilities, your products seem to be in that sweet spot.

I wonder if you could provide any commentary on that?.

Are you talking, Alan -- by the way, it's great to hear your voice. And I hope you're continuing to do well.

But are you talking primarily about exosomes or CAP-1002 in terms of pilot manufacturing expansion?.

Both. If I understand the manufacturing, you don't need a large footprint for either to accomplish what you need..

Right. So they're similar, but different, obviously. So with CAP-1002, we really have put several manufacturing scale out and scale opportunities in place so that we can reduce the footprint necessary and create more sales. That's been pretty effective, and that's largely been the focus of the transfer to the San Diego GMP facility.

We're working really closely with FDA and their CMC group in order to make sure that the product is the same as we produce in the pilot facility, which is why we're working right now to get those out there and into the clinic. So yes, we expect that we could expand this.

And I won't exactly be, as I think you're envisioning, which is we take 10 little pilot facilities and turn it into a 100 little pilot facilities. It will be an expanded facility, but some manufacturing processes will be largely the same. So therapy manufacturing opportunities has really expanded in the past couple of decades.

So there's a lot of good opportunity there. So not exactly how you envision, but almost. In terms of exosomes, that is one of the areas of great pride for us.

As I mentioned in my prepared remarks, one of the things that have held back exosomes is how are you going to make the -- how are you going to make them halogeneous? How are you going to turn them into our product? And we believe that we have done that.

We've taken sort of the state-of-the-art and what is known about exosome making lipid nano particles as well as some of the other engineering constructs and are building a really good manufacturing paradigm that also should be buildable and not really pilot plant expansion.

That one will be more like big bubbling bioreactors and that kind of thing as we move it forward. But that's a procedure that can easily go from a couple of mils to 100 mils to leaders to larger volumes than that, that makes any sense to you out..

It does. You also caught my ear about the ASO undisclosed pharma interest. If I want to go more general, can I get more commentary on the general pharma and suitor interest? Because I've been watching this, how much [indiscernible] combination trials? Just if I read some of the literature, right, if I'm wrong, feel free to bat me on the head.

There's been a serious assertion issues for the current gene and cell therapies. And this where CAP-is our Top 100 potentially becomes one plus one equals three, and not two. There's a lot of interests from those who are in that space.

Can you further comment on that in general?.

You mean with the exosomes in terms of their partnering potential?.

Yes..

Yes, absolutely. So that's -- this is one of the great opportunities in biotechnology and pharma is well aware of it. I think everybody knows that lipid nano particles can only take you so far. We've been working as a field and I say we because this even predates my own career and science on delivery, a targeted delivery of therapeutics to cells.

We know how important that is, and we can now harness something that the body makes naturally to do that. And so that's why Capricor has really turned our focus in the past few years towards an engineered exosome platform, not working specifically with an exosome made by a cell CAP-1002 makes perfectly wonderful exosomes.

We think they mediate the mechanism of action of CAP-1002. But what we really want to do is turn exosomes into a drug product. And so, you engineer an exosome, you put what you want on the inside and you tell it where to go on the outside it's like putting in this code on it, and course pharma is very interested in that.

And we have a very active business development program right now. And one of the main hurdles was this manufacturing step, which we have succeeded in doing. So we look forward to great opportunities with the exosomes moving forward..

Last question, but this is for AG, I guess, for both of you. This will be a fun question, but it does get to some interesting things. You got $10 million more upfront cash from the last agreement.

If you got a grant or another agreement that brings in another $10 million, how would you like it used?.

Yes. Thanks, Alan. Nice to hear from you. I mean, obviously, bringing in nondilutive capital is a big focus for us, as you heard Linda articulate, both from a potential in our approach to vaccinology as well as the next steps, which is targeted therapeutics.

Where exactly would we like to deploy it? I mean if I had my wish list, it would be great to use that nondilutive capital to move into these types of new indications that we're hinting at here, whether it's new neuromuscular targets, potentially using the exosome as a targeted vehicle, that would be my wish list.

And taking those nondilutive capital dollars in the door is a big area that we're putting a lot of energy in.

I don't know if Linda want to articulate anything else?.

Yes. So cash is king, as you are in product development mode. And so, what we would definitely do is use it in a laser-focused targeted way to move our programs forward. So CAP-1002 is at the front of the line right now.

All major dollars being spent or being spent on getting CAP-1002 approved and then the few dollars left over, go towards the exosome program as we move that forward. If the dollars come in and are specifically requested to build a program, we would obviously work on that.

For instance, if there was a deal where they wanted to build engineered exosome, that's where a good proportion of those dollars would go. So to that end, we are focusing on what we need to do, AJ, maintain a very tight ship in terms of managing our resources, and that explains why we've been able to stay alive through some pretty difficult time..

Well, I look forward in the intermediate future, Linda, to walk in your office. The future looks bright for both of us and I'm pleased this is what I hear. Yes..

That's wonderful news. The future is bright for Capricor. But if the future is bright for you, that's great news, Alan. So let's see each other soon..

Thank you. Looking forward to it..

Take care Alan..

[Operator Instructions] There seems to be no further questions at this time. I'd now like to turn the call back over to Capricor management for any closing remarks..

Thank you. Overall, I am confident that the company's upcoming catalysts provide a solid foundation for execution and value creation. We remain focused on driving our late-stage clinical development program forward for CAP-1002 and DMD.

Before we conclude today's call, I want to extend my sincere appreciation to the clinicians, patients and their families who are working with us to bring CAP-1002 closer to potential approval. Again, thanks to everyone who joined us this afternoon, and now you may disconnect your lines..