Capricor Therapeutics, Inc.

Good day and welcome to the Capricorn Therapeutics second quarter 2022 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to AJ Bergman, CFO. Please go ahead, sir.

Thank you and good afternoon. 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, essential 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 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. We 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.

Good afternoon, and thank you for joining us for our second quarter 2022 conference call. Today, I will provide updates on our Duchenne muscular dystrophy program and our Exosome platform technology, as well as outline our priorities and path forward. This quarter has been productive on many fronts, and most notably, we achieved several key milestones across our lead program, CAP 1002, for the treatment of Duchenne muscular dystrophy otherwise known as DMD. To remind you, our current clinical initiative is aimed at treating DMD patients who are largely non-ambulant and in the later stages of their disease, and of course, for whom very few therapeutic options exist. This patient group comprises about half of the DMD population, or about 10,000 boys and young men in the United States. We have completed two successful clinical trials in DMD, and CAP-10-02 has proven to be safe and well-tolerated in over 200 patients to date. Now, let me walk you through some of the key highlights and recent updates. First, turning to HOPE-3, our ongoing Phase 3 pivotal study, which was initiated in the second quarter. which included site selection and activation of certified Duchenne care centers. HOPE-3 is a randomized, double-blind, placebo-controlled study with the goal to enroll 70 patients at approximately 15 to 20 investigative sites in the United States. In July, we reported the initiation of enrollment, and I am very pleased to inform you that as of today, we have enrolled seven patients. We have a growing list of interested candidates, and we are optimistic that we will now gain momentum in the recruitment of the trial. HOPE II, our Phase II study, which was published in The Lancet last year, together with the recent late-breaking open-label extension data presented at this year's Parent Project for Muscular Dystrophy, or PPMD, annual conference in June, are amplifying the interest in our HOPE III trials. Our current projections for enrollment are to be complete by the third quarter of 2023 or sooner. The promise of HOPE III builds on the recently reported HOPE II open label extension data, which continue to underscore the therapeutic potential of CAP 1002 and highlight its sustained safety and efficacy. Let me recap that data for you to highlight its relevance to our regulatory strategy and the clinical development of CAB 1002. HOPE II open-label extension was a very unique clinical study which allowed each patient to be used at their own control. First, we conducted HOPE II, where one group received placebo and one group received CAB 1002. Those results show statistical and clinically significant improvement in upper limb function in non-ambulant patients with DMD, as earlier mentioned and published. Then, all patients went off treatment into what we call the gap phase, which was approximately one year. All patients, no matter what group they were originally in, declined in upper limb function during the gap phase. Then, all patients went on CAP-1002 in the open-label extension part of the trial, and disease progression was attenuated up to 70%, most notable in those that were originally on placebo. What is also interesting is that the original CAP-1002 group declined off therapy at the same rate that the placebo group did, but entered the open-label portion of the trial with better upper limb function due to the fact that they had the benefit of one year of CAP-1002 in HOPE II. They started with better upper limb function and therefore finished with better upper limb function. This is exemplary of potential disease-modifying behavior of a therapeutic. We believe this data must be shown to FDA, both because of its statistical power and clinical benefit. but also because time is muscle. Based on this data set, every year that patients are off CAP 1002, they lose function that cannot be recovered. Based on our regulatory designations of RMAT, or Regenerative Medicine Advanced Therapy, and orphan disease designation, and also the importance of this data to people with DMD, we are requesting a meeting with FDA, which should occur this year to present this open label extension data, which we believe will further support our path forward towards potential regulatory approval. However, we remain focused on executing on our HOPE III clinical trial, which is slated to be our pivotal trial. To remind you, HOPE III's primary endpoint is the performance of the upper limb 2.0, a validated tool to assess skeletal muscle function and non-ambulant patients, and also the measure in which we saw statistically significant results in HOPE II and in HOPE II open-label extension. This meeting will complement a CMC meeting, which is required prior to BLA submission, which we are planning to hold later this year as well. Another key priority for our CAPTENDR2 program involves preparing for the future potential commercial launch, including the scale-up of manufacturing. While our current manufacturing site in Los Angeles is fully focused on supplying our HOPE III clinical trial, we are supplementing our manufacturing efforts by converting a portion of our San Diego labs to support potential early commercial launch. We see this facility as a versatile and cost-effective measure. Additionally, our manufacturing plan encompasses the work we have done with Lonza, as they may be an important part of our future scaled-up commercial plan for CAP-1002. As you know, we entered into a distribution and commercial agreement with Nippon Shin'yaku and its U.S. subsidiary, NS Pharma. and experienced and well-resourced commercial partner in the United States. NS Pharma has been a trusted DMD partner for the community and has already established a respected infrastructure to support patients and their caregivers. If approved, we believe Nippon Shinyaaku's leadership in this space will serve CAP-1002 well in reaching more eligible patients who could benefit from our therapy. As a reminder, Capricor's agreement with Nikon Shinnyaku came with a $30 million upfront payment to Capricor and has a potential to reach up to $705 million in milestone payments, some of which, if achieved, will be paid during the course of HOPE III. To maximize the potential benefit of CAP 1002 and reach patients globally, we will continue to explore ex-U.S. partnership opportunities. Our goal is to continue to execute on our regulatory, clinical, CMC, and business development goals, as I just outlined above, as we are committed to bringing CAP-10 or 2 to patients as quickly as possible. Turning now to our exosome technology. The last year has been focused on developing exosomes as a versatile platform for drug delivery and also on identifying potential applications. We have made significant progress in the manufacturing of exosomes as a competitive alternative to other lipid delivery systems with the additional benefit of having the potential to be targeted to a specific biomarker or cell type. Our targeted delivery platform can carry therapeutic payloads that are produced via an exogenous process for loading certain types of payloads, which is similar to what most in our space are doing. or via an endogenous loading process for other types of payloads, including proteins. This last approach relies on our proprietary technology, which allows for better consistency and preservation of the integrity of the cargo. We believe this positions Capicor to be able to attract potential partnerships and drive new therapeutic modalities. The emerging exosome platform will have potential applications in multiple domains, including vaccines, delivery of RNAs, including small interfering RNAs and antisense molecules, as well as other payloads. We have used our proprietary technology to develop an exosome-based vaccine with robust preclinical data. We plan on positioning this opportunity for partnering discussion. At present, Our focus is on the potential commercialization of CAP 1002 for DMT while we continue to develop our Exosome platform technology for future pipeline opportunities. By prioritizing our core programs, we have the ability to efficiently utilize our current cash position, which carries us into the second quarter of 2024 to deliver on important clinical and related milestones. I will now turn the call over to A.J. Bergman, our CFO, for a more detailed update on the financials.

Thank you, Linda. This afternoon's press release provided a summary of our second 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 in the financial section of the company website. As of June 30, 2022, the company's cash, cash equivalents, and marketable securities totaled approximately $51.4 million, compared to approximately $34.9 million on December 31, 2021. As Linda mentioned, we believe that based on our current operating plan and financial resources, we expect 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. Turning now to the financials, in the first half of 2022, our net cash provided by operating activities was approximately $17.5 million, driven by the $30 million upfront payment from Nippon Shinnyaku. For the second quarter of 2022, excluding stock-based compensation expenses, our research and development expense was approximately $4.7 million, compared to approximately $3.4 million in Q2 2021. Excluding stock-based compensation, our general administrative expense was approximately $1.4 million in Q2 2022 and approximately $1.2 million in Q2 2021. Net loss for the first half of 2022 was approximately $14.9 million, compared to a net loss of approximately $9.9 million for the first half of 2021. With that, we will now open the lineup for questions.

Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's press star 1 to ask a question. We'll take our first question from the line of Joe Pantanus with HC Wainwright. Please go ahead. Your line is now open.

Hi, Linda and AJ. Good afternoon. Thanks for taking the question. So a couple questions, actually. So first... I wanted to get a little more color or detail. Now, obviously, the answers will be predicated on what the FDA says, but how would you describe your wish list or goal for what you hope to get out of your upcoming FDA meeting where you said the primary goal is to present the OLE data? Are you looking to change the potential launch dynamic, have it potentially come to market earlier? I mean, what is the ultimate goal here?

Yeah, I mean, our ultimate goal, Joe, and first of all, great talking to you and looking forward to seeing you in September. Our ultimate goal is to get Cap Center to market and to these DMG kids as quickly as possible. As I said in my talk, and I've been saying now for a few weeks, time is muscle. What became very clear And the open-label extension data is when they were off CAP-1002, they declined, and as soon as they go back on CAP-1002, they get better. The placebo patients were on the steady course of decline, similar to natural history, for two straight years, the year on placebo and the year on GAP. And then as soon as they went on CAP-1002, we saw the delay of the decline of the disease process by about 70%. We think this data is extraordinary. We think it is a representative of disease-modifying activity. We are going in strong to the FDA to show this data, and we are excited to work with them to bring this to approval as quickly as we possibly can.

And the muscle data certainly speak for itself in my belief. So I guess I'll ask it in another way as I'm thinking about it. So with regard to the commercialization dynamics, So is there a potential, I mean, let's just call it swing for the fences at this point with regard to, you know, does CAP 1002 have the potential to be on the market prior to the readout of HOPE III? And when I say on the market, I mean something like maybe a managed access program on a patient-by-patient basis based on the data you look to present.

Yeah, so our goals right now are very focused. The building blocks are in place to get CAP 1002 ready for commercialization. That means meeting with the FDA regarding the CMC, making sure that we are BLA ready, presenting the open label extension data to the FDA, getting their feedback, and then we'll decide Our path forward there, what's the best path forward? The exciting thing with our regulatory designation of RMAT, we really get preferred access to FDA. So they're going to work with us on this. And certainly everybody that we've shown the data to is excited by it. And anecdotally, the patients are saying they're definitely feeling and functioning better. And so they're going to stand up and say and sometimes even shout the same thing. So certainly we've put the team in place. We've got the manager there, and if anybody knows, they know I'm a big baseball fan, so swinging for the fences is not something I'm afraid to do.

There you go. Okay. And then I guess with regard to either concomitant timing of the meeting or a separate meeting with regard to CMC, I'm glad you are planning ahead with regard to your manufacturing and supplementing out of San Diego Lab. I'm glad you made those comments. How would you potentially project your needs beyond that from a manufacturing standpoint?

In terms of the manufacturing, we're working on that plan right now. We have the facility, as I just announced, that we are building as part of our San Diego labs here. It is a relatively low-cost option, which affords us a tremendous opportunity for not only getting this product ready for BLA, but also for commercial launch. We'll evaluate, along with our partner NS, the need as it becomes more apparent, and we'll keep everybody updated on our plans for that as we move forward.

Got it. And then just lastly, because obviously the future has a lot of exosomes being discussed. So you mentioned a couple things here and in your press release too, you know, that you're going to be looking for some preclinical data, maybe get a little more visibility about what kind of things we might see without necessarily tipping your hand. And you said you also have a potential partnering candidate in the form of a vaccine candidate. Is that something that apart from your COVID candidate that you've discussed previously?

Yeah, it's sort of a twist on the COVID candidate, so I can't really talk too much about it right now because we're really working very hard with our IP and legal teams to make sure we're protected on every level. What I can tell you about this is it's going to be very exciting because it takes the exosomes, which you know we've been working on for a long time, We've standardized the manufacturing of such so that they can be scaled up and manufactured in a way that would make them competitive with any lipid delivery system out there. But we can put a targeting molecule on the outside and we can put custom payloads on the inside the current vaccine candidate. is similar to a recombinant protein vaccine, but has the advantage of being able to be made into other types of vaccine candidates very quickly. So we use COVID sort of as our model system, rapidly available and something that we've been working on for a while, but in reality could be translated to any infectious disease or other types of utility where a protein-based vaccine might be necessary or desired.

Got it. And my last question, if you don't mind, and it's actually kind of important, I think, just based on the current biotech environment, which looks like it's starting to bounce back, but cash is king right now. So being able to have a balance into the second quarter of 2024 speaks volumes. So I wanted to address one of your comments in the press release and AJ's comments about excluding potential strategic uses of this capital. Is this something that would look to expand your pipeline externally from an external source or further expand an exosome program or I guess what kind of things could we look at if that would be one of the options you consider?

Yeah, Joe, happy to take a little bit of that question. I mean, obviously, we're being judicious with our cash spend. I think we have a nice runway into the second quarter. as we just articulated, of 2024. And, you know, really we're prioritizing what our current mission is focused on CAP 1002 for DMD and the exosome pipeline right now in a preclinical status. So it's obviously out there and we're considering all options, but we're going to do our best to effectively manage our burn rate moving forward.

Got it. Thank you, guys.

Thanks, Joe. Take care. Operator, do we have another question? Hello? Hi, Allen.

Again, start one if you'd like to ask a question or make a comment.

Hello? Yeah, go ahead, Allen. It's open. Okay.

I'm sorry, I couldn't hear anything for a bit. Linda, AJ, good to talk to you. And Linda, I'd like to pursue something that was mentioned earlier. And there was an off time for the treatment condition during the interim period, and the functioning looks like it continues its descent even after CAP-1002 is restored. How do you envision the treatment group might look like if it didn't go off treatment for that interim period? And with that, feel free to provide any additional thoughts you had about the need for continuous treatment.

Yeah, thanks, Alan. Great to talk to you. Obviously, that's the question that we're looking forward to answering as we continue to move this program forward. You know, what we know from HOPE II, the first clinical program called HOPE Duchenne, and what we're believing we will see in HOPE III is that being on CAP II delays the progression of the disease. But again, let me emphasize, time is muscle. they don't get the function back. Once it's lost, it appears to be lost. So we delay progression. We delay it about 70%. If you want to think about that in sort of a temporal way, you can think that out of a year of function, we're preserving eight months. And when you add that up over time, it's a very significant improvement in the trajectory of decline. We also believe that CAP-1002, based on its mechanism of action, which has been published and discussed, will perform well with gene therapies, with exon skippers, other potential therapeutics that are coming along the pathway and the development for DMD. So it's not going to be a one or the other, but a both scenario. And so we are very much looking forward to seeing the fact that we can kind of maintain patient study for years, hopefully. This is a you know, rest of your life kind of therapeutic the way we're envisioning it right now, which just to highlight, half of the patients with DMT right now are non-ambulant. That's 10,000 patients. That makes 10,000 boys approximately eligible for four times a year dosing, starting between 10 and 15 years of age and going until 25 or 30 years of age, which is now when they typically pass away. Could be longer if everything works well. So, this is a long-term therapeutic option for DMG, very safe as well.

If I can ask some fine lines on the intent on adding commercial capacity for CAP-1002. Longer term, do you see it as a co-manufacturing at the same time with Lonza? or just a backup or something you see even larger, longer term as you continue expanding to the United States and elsewhere?

As you can imagine, Alan, we were incredibly excited by the open label extension data It literally put our program in terms of preparing for commercial launch on fast forward. We are now evaluating options for scaling up and scaling out manufacturing. They've already been sort of put the building blocks in place. How that's going to be enacted as we begin to move into the market, we will be able to better assess as we get closer to that. The reason that we decided to build this facility here in our San Diego labs is because it allows us right now to make doses that are commercial ready. So we're already preparing for commercial launch. And that's going to help us, hopefully, with our regulatory strategy, as well as getting CAP-10-02 into patients that need it as rapidly as possible.

Dr. Seidig, I'm rooting for you. I talk to patients from around the world, and they're actually a tracking and are excited about this trial. So good luck and hope to see you soon.

Thanks, Alan. Do well. Thanks, Alan. Operator, I think you might have some technical difficulties.

If you can hear us, we're going to turn the, I think that's the end of the questions, and we're going to make some closing remarks.

Thank you for joining us today.

In summary, we are pleased with our progress in Q2, and we will continue to provide updates on our interactions with FDA on CAP Center 2, as well as our engineered exosomes program. We are more encouraged than ever about the outlook of the company, and over the next several months, we plan to provide further updates on our progress at various conferences, including the H.C. Wainwright Global Healthcare Conference, the Cantor Fitzgerald Cell and Genetics Medicine Conference, both being held in September, as well as the Extracellular Vesicle-Based Therapeutic Development Summit in October, where we are featured in several presentations. Before we conclude today's call, I would like to thank our team at Capricorn, our investors, and the many people who have been supportive along the way, including our patients and their families.

Once again, thank you for joining us today. This concludes today's conference. Thank you for your participation. You may now disconnect.