Capricor Therapeutics, Inc.

financial results and corporate update call. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. As a reminder, this conference call is being recorded. I would now like to turn the conference over to our host, Mr. A.J. Bergman, Capricor's Chief Financial Officer.

Thank you. And thank you for joining today's call. 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, our plans to present or report additional data, our plans regarding regulatory filings, potential regulatory developments involving our product candidates, manufacturing capabilities, 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 and involve a number of risks and uncertainties that may cause actual results to defer 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. Your caution not to place undue reliance on these forward-looking statements, and we disclaim any obligation to update such statements. With that, turn the call over to Linda Marban, CEO.

Thank you, AJ. Good afternoon, and thank you for joining our first quarter 2023 conference call. Today, I will provide important updates on our Phase 3 DMG program, as well as our ExaZone platforms. We are pleased with the progress that we have made in the first few months of 2023 and believe we are well positioned to execute on our key priorities and reach multiple milestones throughout this year, which include continuing discussions with FDA regarding pathway towards the biologics license application for CAP 1002 in DMD, presenting 24-month follow-up data from our HOPE II open-label extension study in the second quarter of 2023, reporting the outcome of the interim analysis of HOPE III in the fourth quarter of 2023, as well as exploring opportunities for additional strategic partnerships outside of the United States and Japan to support the potential commercialization of CAP 1002 and DMD. We also are looking forward to the expansion of our ExaZone pipeline, focusing on securing partnerships as well as other opportunities for non-dilutive funding. Now, let me begin my remark today by providing an update on our recent FDA interactions. Earlier this year, under our RMAT designation, we held a Type B CMC, or Chemistry, Manufacturing, and Controls meeting with the FDA where we outlined our plans for production of commercial scale GMP Cap 1002. We were also able to outline plans for our potency assay and other release criteria in order to support the filing of the BLA, which is a great accomplishment. Although this meeting was focused on CMC aspects of our development program, there was a discussion about the possible need for some patients to be treated with product manufactured from our GMP San Diego site. That discussion has not yet been finalized and is still ongoing. I would like to reiterate that our goal is to work with FDA on the shortest path to filing a BLA. And to that end, we are currently working closely with them on this important issue and will provide updates on our clinical development plan as it becomes available. This now leads me to an update on our San Diego manufacturing facility for CAP 1002. As you know, we designed this facility within our R&D headquarters to be able to produce commercial-scale GMP CAP 1002 doses. We see this facility as a versatile and cost-effective way to potentially bring CAP 1002 to the market. I am pleased to inform you that we are on track to release GMP Cap 1002 doses in the third quarter of this year. Should Cap 1002 obtain market approval, we firmly believe that our ability to manufacture in-house will greatly increase our margins and support the early launch of this product. As this facility becomes fully operational, we will be able to provide more color on potential capabilities and production capacity for this site. Next, I would like to provide a clinical update on HOPE III. Our Phase III clinical trial continues to enroll well. As of today, we have 13 active sites and remain on track to enroll 68 patients by the second half of this year, which is the currently designed sample size. We're continuing to activate sites and plan to have additional targeted sites activated by the second quarter, which we believe is both a testament to the high level of engagement by our clinical trial sites, as well as our team's strategic execution. Our plans to conduct an interim analysis for sample size re-estimation and analysis of conditional power remains unchanged and we are on track to have these results available in the fourth quarter of this year. As I mentioned previously, we are working closely with the FDA to optimize the HOPE III clinical trial design and will provide updates on any feedback, once available, should any changes be necessary. In parallel, we continue to treat patients in the Open Label Extension, or OLE, portion of the HOPE II Phase II study. These patients are going to their fifth year of follow-up and going into a third year of OLE treatment. Further, while we continue to see efficacy in these patients, as previously presented, the safety profile of CAP-1002 in the OLE study continues to be consistent with our Phase II results and is now supported by well over 100 IV infusions. we continue to see a statistically significant as well as clinically relevant slowing down of disease progression for patients treated with CAP10 and 2, including for these patients who are initially on placebo compared with the natural progression of the disease. The data presented at both the 12 and 18 months showed an average of 65% slowing of disease progressions. And we plan to report the 24-month performance of the upper limb and cardiac function data at a medical conference in the second quarter of this year. We are thankful to the patients and their families for their continuous commitment to working with us on exploring the potential benefits of CAP-1002. We look forward to building on our body of positive data that further positions CAP-1002 as potential anchor therapy for DMD. Furthermore, we believe that combination therapies may be necessary for the long term to delay disease progression in DMD. Most likely, patients requiring a dystrophin replacement therapy will also need additional therapies that can attenuate inflammation, promote healthy muscle growth, and preserve cardiac function. We believe that CAP-10 or 2 can potentially be paired with any of the approved therapies and will likely be necessary to get the greatest benefit from the gene or exon skipping therapy. We stand with all of the patients with DMD whose only wish is that their disease does not get worse. Now turning to our commercial partnership strategy, as announced in February, we entered into a second agreement with Nippon Shinnyaku for the distribution rights to CAP 1002 for DMD in Japan, where we received a $12 million upfront payment and will potentially receive additional milestone payments of up to approximately $89 million and a meaningful double-digit share of net product revenue. We continue to work with Nippon Shinnyaku and look forward to continuing to leverage their expertise and infrastructure already established for Viltepso, their exon skipping drug, that is already approved in the U.S. and Japan. We are now focused on securing additional partners in other markets around the world with Europe being a key priority. Overall, we are delighted with the progress of our GMD program, and we look forward to further sharing updates from our interaction with FDA, our progress with HOPE III, and the development of potential additional partnerships in new territories. Now, briefly turning to our exosome platform technology, which leverages the natural cell signaling communication of the body, we are harnessing exosomes to serve as a novel drug delivery system with broad therapeutic applications. Our strong scientific foundation is supportive of further downstream efforts for innovative therapeutic payload loading methods and tissue-specific targeting. Our proprietary StealthX expression platform is at the core of our Exosome program and is focused on the development of two broad modalities, vaccinology and precision therapeutics. We recently published in Microbiology Spectrum a peer-reviewed journal of the American Society of Microbiology on StealthX, which in preclinical studies generated two potential vaccine candidates that independently and in combination induced a strong immune response against two SARS-CoV-2 proteins, spike and nucleocapsid. Using the StealthX platform, we have successfully developed a targeting strategy which will allow us to potentially expand our exosome program into precision-based therapeutics. While we are exploring many different therapeutic applications, we are currently working on targets in neuromuscular disease, which is an area of core strength for Capricorn. With our small team of experts working on exosomes, our current plans are to explore business development and partnering strategies as well as non-dilutive grant funding. We look forward to leveraging our Exosome platform to support the advancement of next-generation vaccines and innovative targeted therapeutics, and we'll provide updates on this program as they become available. In closing, we are pleased with the advancements across our DMD program and the growing body of data within our Exosome platform technology. We look forward to executing on our upcoming milestones. With that, I will turn the call over to Chief Financial Officer A.J. Bergman to run through our financial results. A.J.?

Thank you, Linda. This afternoon's press release provided a summary of our first 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 the company website. As of March 31, 2023, the company's cash, cash equivalents, and marketable securities totaled approximately $45.2 million, compared to approximately $41.4 million on December 31, 2022. Based on our current operating plan, the company's cash position is expected to be sufficient to support operations into the fourth quarter of 2024. I would also like to note that this expectation excludes any potential milestone payments under exclusive commercialization and distribution agreements with Nippon Shinnyaku that may become due. Turning briefly to the financials, in the first quarter of 23, our net cash provided by operating activities was approximately $4.2 million. For the first quarter of 2023, excluding stock-based compensation, our research and development expense was approximately $7.2 million compared to approximately $4.9 million in Q1 2022. Again, excluding stock-based compensation, our general and administrative expenses were approximately $1.8 million in Q1 2023 and approximately $1.9 million in Q1 2022. Net loss for both the first quarter of 23 and 22 was approximately $7.8 million. And with that, we will now open the line up for questions. Thank you.

Thank you, AJ. Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question is from Joe Pensionis from HC Wainwright. Please go ahead.

Good afternoon, everyone. This is actually Matt on for Joe. Thanks for taking our questions and just a couple from us. The first one I have was ahead of our, I guess, following your conversations with the FDA regarding cap two, not two commercialization, are there any additional rate limiting steps that you guys heard or came up with that we should be aware of moving forward?

Rate limiting steps in terms of what? In terms of commercialization?

Yes, correct. Yeah, yeah.

None that we're aware of at this time. We're working closely with FDA, both on the CMC front and also on the clinical development front. And at this point, we feel very encouraged by the attention being paid to CAP-10 or 2 by the agency. They recognize the value of CAP-10 or 2 potentially to patients with CMD. And at this point, we are full speed ahead.

Okay, perfect. Good to hear. And then my second one is regarding the Exosome platform. I know you may not be able to comment But do you have any additional details or updates regarding the principal development timeline for that platform?

Yeah, so right now we're working internally on building that platform therapy. We haven't publicly announced specifically what we're working on, but what I can tell you is that the data is very encouraging in terms of its ability to target to specific cell types as well as the vaccine platform that we recently published in Microbiology Spectrum. We're exploring, as I mentioned in my prepared remarks, both partnerships and also non-dilutive funding opportunities. What I can tell you is that we believe that this technology will ultimately support the exosome as nature's drug delivery system and its ability to drive biology without toxic consequences.

Okay. Great. Thanks again for taking my questions. I'll go back in the queue.

Thanks, Matt. As a reminder, it is star one to ask a question. The next question is from Aiden Husanov from Lattenburg. Please go ahead.

Hi. Good afternoon, everyone. Linda, AJ, thank you very much for providing updates on the quarter. I have a couple of questions. First, I wanted to start from sort of industry-wide question. I think very soon, probably tomorrow, there will be Sarepta's ad comm meeting about the DMZ gene therapy. So, my question is, do you think there will be any read-across, any spillover effects regarding how we should think about the FDA regulatory path for DMZ therapies in general, and how this may affect CAP-1002?

Yeah, I think the entire biotechnology industry is going to be impacted by the results of the adcom. There's a lot of really interesting opportunities there, both for sort of the concept of does it work versus potential patient benefit, and then sort of anecdotal evidence versus actual statistically relevant evidence. All of this is coalescing into sort of a general concept of what does it mean to get approval, what is necessary for approval. We are all watching that carefully. What I can say specifically about CAP-1002 and DMD is we believe that ultimately the cocktail that will be right for DMD until it can be fixed in utero will be something to address the dystrophin mutation, but also to deal with the consequences of inflammation and muscle turnover or the degeneration of the muscle from utilization due to the dystrophin mutation itself. So, CAP Center 2 is being positioned really perfectly as combination therapy with any gene therapy or exon skipping technology because we're going to need that technology to help take care of both the skeletal muscle as well as the cardiac muscle implications. So let me elaborate on that for one more minute. Our data, which we published in the Lancet of the HOPE II clinical trials, showed important benefits in ejection fraction, which is how the heart meets the needs of the body. What has become clear in a lot of the gene therapy studies is that the heart is not being impacted in a positive way by the gene therapy. So there's going to be a disparate balance of skeletal muscle repair versus cardiac dysfunction, and physicians are talking about this actively right now. It's another way in which CAP-10 and 2 can continue to support and help to sustain quality and perhaps even quantity of life for these boys and young men with DMZ.

Thank you, Lynn. I appreciate your thoughts. Very, very helpful. And regarding the breakdown, so I know that you enrolled both ambulatory and non-ambulatory patients. Could you provide an update how many you enrolled so far as of today, if you could share that? And is there any way to understand what's the ratio ambulatory versus non-ambulatory patients so far?

Yeah, so we're not really quantifying them as ambulatory and non-ambulatory because we're not really stratifying for ambulation. What we're looking for in the inclusion criteria is based on the performance of the upper limb ability entry criteria, and we're focusing on an entry score of 2, which leaves room for decline as well as improvement, and an upper end score of 5, which again leaves room for improvement or decline. And so there are many, many people in late stage of ambulation that actually have significant deficits in the performance of the upper limb, and those are the patients we're focusing on. So we're not looking at ambulation versus non-ambulation in our stratification, but mostly upper limb preservation. And I will say, we had a really great opportunity to talk recently to a patient with Duchenne muscular dystrophy. His name is Elijah Stacey, and he's published a book called A Small If, if anybody's interested in his story. But he speaks extremely eloquently about the importance of maintenance of upper limb function and how many people, including Elijah and his brother, are both off their feet but still value their independence to want to maintain upper limb function. So we are laser focused on our patients. In terms of enrollment, while we're not disclosing numbers, what I can tell you is enrollment is going very well. We understand from the community and from our sites that families are very interested in CAP-10 or 2, and it makes sense. It's a once-a-quarter infusion that today has shown to be very safe in patients. And we expect to complete enrollment in the second half of 2023 to the number that we've previously disclosed of 68 patients in our randomized double-blind placebo-controlled trial, HOPE-3.

Yeah, thank you. Yeah, that makes sense. You know, clinical endpoints that eventually what is going to matter rather than micro-destructive production. Maybe if you could share, is there any updates on European partnerships? And does Nippon Shin'yaku have any appetite to market CAP-10-02 in Europe?

So our relationship with Nippon Shin'yaku is very strong. AJ and I had an opportunity to go visit their headquarters earlier this year, and we were very impressed by their attention to and interest in CAP-10-02, both from the U.S. perspective and also from the Japanese perspective. We're entertaining all kinds of conversations on the European rights that we certainly think that they're valuable, and we will select the right partner at the right time, which could possibly be Nipon Shinyako, but not exclusively looking at them at this time.

Okay. All right. And the last for me, you know, I'm trying to understand. are you planning to have any product or indication that you would commercialize on your own without partners? So if, if, yeah, so what would, what would that be product or indication?

Yeah, so we're constantly evaluating all of these opportunities. Of course, we plan on marketing some on our own as we continue to build CapTenno2. But right now, what we feel is best for the company is that we take it all the way to the door of commercialization and then the appropriate partner, in this case, Nippon Shinnyaku for CapTenno2 and DMD, has all the infrastructure in place to move it very quickly to hopefully a profit-generating center.

Okay. Thanks so much for taking my questions. Thank you.

Thanks. Stay well.

Thanks, Aiden.

Once again, if you have a question, please press star then 1.

This concludes the question and answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you, Operator, and thank you for all who joined us this afternoon and also those who listen later on or read the transcript. We thank all of our patients, all of the families, all of the advocacy groups, and everybody out there who's trying to deal with Duchenne muscular dystrophy, and we look forward to providing updates on our attendance at meetings as well as information regarding our progress in the future. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.