Earnings Call Transcript - CAPR Q1 2021

Operator, Operator

Greetings. And welcome to Capricor Therapeutics First Quarter 2021 Earnings and Corporate Update Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I’d now like to turn the conference over to your host, Mr. AJ Bergmann. Thank you. You may begin.

AJ Bergmann, CFO / Host

Thank you. Before we start, I would like to state that we will be making certain forward-looking statements during today’s presentation. These statements may include statements regarding, among other things, the efficacy, safety and intended utilization of our product candidates, our future 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 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. These and other risks are described in our periodic filings as 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 CEO, Linda Marbán.

Linda Marbán, CEO

Good afternoon. And thank you for joining us for our first quarter 2021 corporate update call. We will begin today with an update on our Duchenne muscular dystrophy program, followed by an update on our exosome platform technology and our COVID-19 clinical program. We have several important updates on each of these programs and multiple key events we are looking forward to over the next several months. Let me begin with an update on our Duchenne muscular dystrophy program. One year ago, we reported positive topline data from our HOPE-2 clinical trial, which was a randomized double-blind placebo-controlled Phase II trial of CAP-1002, our cell therapy product, in non-ambulant boys and young men with advanced DMD. We saw improvements in skeletal muscle or upper limb, as well as improvement in cardiac function. This trial was focused on older patients with DMD who were primarily non-ambulant. It is important to understand the market size for CAP-1002 and DMD. There are approximately 20,000 boys and young men with this disease in the United States, who have limited to no other options available to them. Current estimates point to over half of the U.S. DMD population as being non-ambulant and potentially eligible for CAP-1002. If approved, we envision that CAP-1002 may be administered four times per year over many years. Over the past several years, our cell therapy product CAP-1002 has been given safely to over 200 patients and to approximately 35 DMD patients, for which we have gathered robust safety and efficacy data to date. Based on the strength of the data and our desire to be ready for commercialization of CAP-1002 should it be approved, we announced early in the first quarter of this year a collaboration with Lonza, a commercial manufacturing company, for the development of CAP-1002 for DMD and other potential indications. The collaboration aims to expand our ability and capacity to manufacture CAP-1002 for potential late-stage clinical trials and commercialization. Lonza operates in 120 sites and offices in more than 35 countries and has over 15,000 full-time employees. This collaboration with Lonza provides us with a partner who has world-class expertise in cell therapy manufacturing and an established track record of commercializing biologics. Now the path forward for CAP-1002 and DMD continues to be very exciting. And I would like to update you today on several key events that have occurred recently. First, we have submitted a new data package to the FDA based on the complete HOPE-2 data sets and analysis. And based on our RMAT designation, which allows preferred access and an expedited path to registration for cell and gene therapies, we have requested a Type B meeting to continue our discussions regarding our path towards registration for this product. We believe that based on the strength of the clinical data, an expedited path to registration might be warranted. To this end, we continue to explore ways to work with the FDA to accelerate the pathway to approval of the therapeutic for DMD. Now while we remain optimistic, we recognize that FDA may remain firm in their requirements for another clinical trial. To that end, we are engaged in discussions with various parties regarding a potential partnership opportunity for this program and we will keep you updated as to our progress on this front as well. We do anticipate further clarity on this program by the third quarter. Now, shifting gears for a moment, let’s talk about our exosomes, and specifically, our vaccine for SARS-CoV-2 commonly called COVID-19. We continue our efforts to develop a novel vaccine candidate for SARS-CoV-2. While we are grateful that the currently available mRNA vaccines are working so well, this is by no means a solved issue. Experts predict COVID will become endemic in the global population, and therefore annual or even semi-annual vaccines may be necessary to combat emerging variants or prolong protection from the virus. Our approach, which is multivalent and uses the exosome as a delivery vehicle, can potentially provide an alternative vaccine candidate to anything currently available or in development that we are aware of today. In addition, as we have been stating, the development of this vaccine product paves the way for expanded pipeline opportunities to use the exosomes as drug delivery vehicles, essentially nature’s lipid nanoparticles, whether for other infectious diseases or for therapeutics. Part of the clinical development of exosomes as delivery vehicles is to establish their regulatory pathway and we believe that we have done that through our work to date. Based on our recently submitted pre-IND, we received feedback from the FDA on our multivalent exosome mRNA vaccine. This feedback has given us the ability to focus on exactly what is necessary for approval of an IND. We are currently underway with IND-enabling studies, and as planned, we are aiming to submit an IND by the third quarter of this year. Based on our conversations with the National Institute of Allergy and Infectious Diseases, a part of the National Institutes of Health with whom we have been speaking about our vaccine program, we are considering the following strategies. Since a high percentage of the U.S. population will have been vaccinated by the fall and will likely be needing a booster, we are designing our Phase I vaccine clinical trial with the idea that it can be used in addition to currently available vaccines, as well as in a naive population. We still believe the path for vaccine development can be an important tool in prevention of SARS-CoV-2 and further the data we have published to date has shown that exosomes are less toxic than lipid nanoparticles and that the multiple proteins in the Capricor vaccine may potentially provide broader-based immunity to variants of COVID-19. We are designing the Phase I trial to be conducted in approximately 20 patients and it will likely provide a roadmap for this product and future vaccines using exosomes to deliver mRNA. We are hopeful that the FDA will support this plan. In addition, we will survey the landscape prior to the time of clinical trial initiation and evaluate if our vaccine candidate will be synergistic or beneficial when compared to the currently available vaccines. Various potential partners and our government agencies are intrigued by our approach. We will keep you updated on possible funding opportunities for this program. So please stay tuned for updates on that as well. Now I’m going to be turning to the expansion of our exosome platform technology. Earlier this month, we announced the execution of a worldwide exclusive license agreement with Johns Hopkins University focused on exosome-based vaccines and therapeutics to treat a broad spectrum of diseases. Expansion of our portfolio allows for rapid advances in the therapeutic development of exosomes as delivery vehicles and also continues to support the growth of our vaccine program. We have built a high-throughput relationship with the lab of Dr. Stephen Gould at Johns Hopkins University and this license agreement codifies the opportunity to translate innovative science into new products with an expanding intellectual property portfolio, which we will continue to strengthen. As we have worked with Dr. Gould over the past year, this relationship will create more opportunities for future licensing based on the work we do together. Now turning to our exosome therapeutic program, we can talk about the call that we had in March, we focused on some of the scientific work, which is ongoing in the Capricor lab, as we are focused on becoming a leading engineered exosome company. Our first targets, as we mentioned, are based on loading RNAs into the exosomes and focusing on our ultimate goal of generating formulations of engineered exosomes and mRNAs to potentially prevent and treat human diseases. We have been focused on building out our core R&D, product development and manufacturing teams to support the expansion of our technology, and plan to have one to two indications identified over the next few quarters for which we plan to file INDs. As you know, we began enrollment of a Phase II placebo-controlled double-blind trial in up to 60 patients with severe COVID-19 late last year. This is with CAP-1002, our cell therapy product. We have been selective in our inclusion/exclusion criteria, because we only want to treat those patients that we believe will benefit from CAP-1002. Let me remind you, the targeted patients are those that are in the hospital and need supplemental oxygen but are not ventilated. Our goal is to keep these patients off ventilation, because in many cases, once a patient is artificially ventilated for COVID complications, their prognosis worsens considerably. Many are too sick for therapeutic solutions to save by that point. We look forward to seeing the data, as our early clinical data suggests potential benefits in this population of patients. A very recent paper in the journal Nature, by Benjamin Izar and his colleagues showed that lung tissue from terminal COVID patients is filled with macrophages and other immune cells. We know from many preclinical studies that the exosomes from CAP-1002, the identified mechanism of action of the cells, change macrophages from an M1 towards an M2 expression profile. In other words, it turns them from inflammatory towards anti-inflammatory. The findings from this paper give me great hope for CAP-1002 in treating severe COVID. I expect to have data available in the third quarter of this year. Following receipt of this data, and if positive, we will plan to meet with FDA to discuss the next step in development. In summary, we have various exciting programs ongoing at different levels of development with multiple key milestones coming up over the next several months. We have over $40 million in cash to execute on our plans and are working on strengthening our senior management team to be able to execute on our strategic plans moving through 2021 and into 2022. Please stay tuned regarding the announcement of new leaders to our team. Earlier today, we had the opportunity to present at the American Society of Gene & Cell Therapy on the opportunity to use exosomes in SARS-CoV-2 vaccines. And next week, we are presenting a poster at the International Society for Extracellular Vesicles. Additionally, in June, we plan to present data at the PPMD conference to discuss our CAP-1002 program in DMD. Lastly, we have multiple publications in review with peer-reviewed journals and expect several key announcements over the next several months regarding our programs. I continue to be energized by the progress we are making both on our exosome platform and with regards to pursuing a pathway for CAP-1002 towards potential approval and commercialization. I will now turn the call over to AJ Bergmann, our CFO, for an update on the financials.

AJ Bergmann, CFO

Thank you, Linda. This afternoon’s press release provided a summary of our first quarter of 2021 financials on a GAAP basis. You may also refer to our quarterly report on Form 10-Q, which we expect to become available in the next few days; it will be accessible on the SEC website, as well as the financial section of the Capricor website. As of March 31, 2021, the company’s cash and cash equivalents totaled approximately $41.9 million, compared to approximately $32.7 million on December 31, 2020. Based on our current plans and projections Capricor expects cash and cash equivalents will fund our research and development programs and other operations through at least the second quarter of 2023. In the first quarter of 2021, our net cash used in operating activities was approximately $3.3 million and for the first quarter of 2021 excluding stock-based compensation, our research and development expenses were approximately $3.2 million, compared to approximately $1.1 million in Q1 2020. Again, excluding stock-based compensation, our G&A expense was approximately $1.3 million in Q1 2021 and approximately $900,000 in Q1 2020. Net loss for the first quarter of 2021 was approximately $5.2 million, compared to a net loss of approximately $2.1 million for the first quarter of 2020. Thank you very much for your time and attention today. We will now open the lines for questions.

Operator, Operator

Thank you. Our first question comes from Alan Leong with BioWatch News. Please proceed with your questions.

Alan Leong, Analyst

Hi, Linda. Hi, AJ. Thank you for taking my question. In your extended DMD package to the FDA, can we safely assume that the longer-term data has the same trends as we saw before? There’s no disconfirmation or contradiction from the earlier results?

Linda Marbán, CEO

Hi, Alan. Good to hear your voice. Yes. I’m carefully discussing what’s in the package and also in a submitted manuscript because of embargo policies. I will say that I am even more excited by the final data than I was by the topline data as happens sometimes in clinical trials. Once the database is locked, and you can do the final analysis, the data is fine tuned in a certain way. And I will just say that we believe more than ever that CAP-1002 is an effective treatment for the treatment of DMD.

Alan Leong, Analyst

Looking forward to the manuscript when it comes out. I wonder if you could help differentiate for my clients, because I get some questions. You have the engineered exosomes and you have the AzTECs platform. I know you’ve talked about the engineered exosomes, but can you just go into a little more color and why and differentiate these two platforms? And can you combine the capabilities? Really it’s just to compare the two and why you have a couple of different platforms there?

Linda Marbán, CEO

Yeah. Thank you. So, we’re very careful to say that our engineered exosome platform is expanding because it is. So we can start with multiple different cell types and then drive the exosomes to do different jobs biologically. In certain cases, for instance, like with the SARS-CoV-2 vaccine, we’re starting with a standard HEK293-F cell, which is a commercially available cell line. It’s perfect for loading in those RNAs for the vaccine and just getting them where we need to go to derive an immune response. On the other side, the AzTECs are an engineered version of a CDC exosome or the exosomes that we believe are responsible for the mechanism of action of CAP-1002. Because we wanted to be able to ascertain that these can be made commercially, we actually have fabricated them using a standard cell line and then putting several molecular components inside so that we can drive that same benefit. Different uses—potentially one for therapy of inflammatory diseases, another potentially for vaccines, for treatment of monogenic diseases and other opportunities of custom loading. And we reserve the right to custom load the AzTECs as time goes on as well. So, this is a multi-pronged platform starting with the same basic component which is an exosome.

Alan Leong, Analyst

Thank you. And last question and this is really for AJ, I think, how do you see funding goals going forward? Over the years when there’s been kind of a margin, you have some general comments about how you approach this?

AJ Bergmann, CFO

Yeah. Sure. Thanks, Alan. Well, I think, you heard me say in our remarks, we’re in a great cash position for our current time and what we’ve laid out. We have over $40 million in the bank. And that will fund everything that we have planned right now from our Phase I vaccine trial to moving forward in the next steps of our Duchenne program, as well as advancing preclinically some of the candidates and areas that we’re thinking of taking the exosome technology. Obviously, we are going to be opportunistic, but we’re in a really good position right now to continue to deliver and hopefully lay out the progress for the milestones that you heard today. There are opportunities for non-dilutive funding and Capricor has been very successful in years past and we continue to pursue various options for that type of funding.

Alan Leong, Analyst

Well, thank you. Good luck in the future. I look forward to the things coming out from Q3. Thanks.

AJ Bergmann, CFO

Thanks, Alan.

Linda Marbán, CEO

Thanks, Alan. Be well.

Operator, Operator

Our next question comes from Joe Pantginis with H.C. Wainwright. Please proceed with your question.

Matt, Analyst

Good afternoon. This is Matt on for Joe this afternoon. Just a couple of questions for you. The first one, as you continue discussions with the FDA regarding muscular dystrophy, what do you consider to be the major limiting step at this point?

Linda Marbán, CEO

Can you clarify what you’re trying to ask? What is the major limiting step with FDA or for us? Help me understand that so I can answer for you.

Matt, Analyst

Yeah. No worries, particularly on your end. Do you think that there’s anything that with your conversations with the FDA that you guys can provide? Are you waiting on the FDA to come back to you quicker, because I think you can provide mean time that could slow down or speed up the process to move this forward?

Linda Marbán, CEO

Yeah. No. We are proceeding very quickly and expeditiously towards our goal of registration. We’re very lucky to have RMAT designation, which gives us preferred access to FDA and so we’ve been in ongoing dialogue with them over this very exciting data for a little bit of time now. So stay tuned for more exciting news on this program.

Matt, Analyst

Yeah. Great. Thanks for the clarification there. And then switching gears a bit, it’s very nice to see the Johns Hopkins agreement that you mentioned previously for exosomes and the progress you made up front. COVID vaccines are obviously one of your leads. I was wondering if you can give additional insight or be more specific about possible indications that you might be targeting that we can look for probably in the near future?

Linda Marbán, CEO

Yeah. So, thanks, Matt. We have been exploring multiple opportunities using the exosomes as a delivery vehicle. What we’ve learned and are really excited about is that you can take mRNA, you can put it inside of an exosome and then you can derive biology in terms of the translation of a protein into a full inactive protein. And we’ve been able to show that with the vaccine candidate in animals, driving expression, and ultimately, an immune response to the N nucleocapsid and the S spike protein. This has been published in bioRxiv and other online publications. We’ve also been able to show that there is an imaging mRNA called luciferase that if you put it in your exosome and you deliver it, not only is the luciferase protein expressed, but it has enzymatic activity, which allows us to drive that signal to light up and we can image and do all kinds of exciting biodistribution studies. In terms of indications, we have several that we are actively exploring and doing preclinical work on and we look forward to updating you as the time comes.

Matt, Analyst

Yeah. Great. It’s very exciting. Thank you again for taking my questions and congrats on all the progress.

Linda Marbán, CEO

Thank you.

Operator, Operator

Our next question comes from Mike Swamp with Polestar Capital. Please proceed with your question.

Mark Swamp, Analyst

Hi, Linda. It’s Mark Swamp. Nice to talk to you. Nice presentation. Quick—two quick questions. Is there any possibility of interim data analysis on the use of CAP-1002 in COVID-19 for the lung involvement?

Linda Marbán, CEO

Hi, Mark. It’s great to hear your voice. It has been a while. We are actively enrolling that study. We look to have full enrollment by Q3 and we have made the decision not to do an interim analysis based on the fact that the trial is enrolling well and we’d like to see the full dataset. So stay tuned, I know it’s hard for all of us to wait. But we really believe that the best way to do this is to get all the patients in and then take a good look at the data. The good news is our short endpoint. So it’s a 90-day endpoint, which is nice.

Mark Swamp, Analyst

Could you give us a little more granularity on how early in the course of the illness those patients are? Are they being randomized? The use of supplemental O2 is a bit of a vague criterion. Is there an effort to get them onboard early?

Linda Marbán, CEO

Yeah. Exactly. So, of course, we’d like to get in there as early as possible, but what we know unequivocally is that they seem to be most bioactive when there’s pretty active inflammation going on. So we look for reduced saturations of oxygen in the blood, patients needing PO2 or needing oxygen supplementation, but not needing ventilation. And we like to see them not needing ventilation imminently in the next 24 to 48 hours. There are several other inclusion/exclusion criteria that we can go through after this call or another time just for brevity. But essentially, to get to the point of your question, we’re trying to get them at the point where they’ve got active inflammation, attenuation of ability to breathe normally, but hopefully, not being so far gone that they have ARDS or multi-organ system failure or other severe pathologies.

Mark Swamp, Analyst

Are you tracking IL-6 levels on those patients as a consequence of the cardiac issues?

Linda Marbán, CEO

Yes. So we’re looking at several of the biomarkers: IL-1 alpha, IL-1 beta, IL-2, IL-6, IL-10, IL-12 and then ferritin and some of the others that have been correlated with outcomes.

Mark Swamp, Analyst

And just a quick shift—on the issue of the DMD trial, that’s a wonderful amount of cash on hand to have. Is the thinking still that embarking on a Phase III in DMD would be only with a partner?

Linda Marbán, CEO

Mark, we are really enthusiastic about our DMD program. I am holding back a little bit because we want to get this published in a major journal in our field—we feel that will power the data forward. We’re working with FDA. We don’t want to say anything publicly that could change the tenor of those very friendly interactions. But what I can say for sure is that, once we have clarity from the FDA—and the good news is, we expect that by the third quarter of this year—and the manuscript to be published, we will decide then what to do next with the program. We may decide to do the Phase III. We may partner it. We may partner some of it and do some of it ourselves. It really depends on the feedback we get from FDA. There’s also the opportunity in DMD of non-dilutive funding. There’s been support by the California Institute of Regenerative Medicine in the past. We haven’t ruled out the opportunity of going back and seeing if that would be a way of funding the program, should we want to do it that way.

Mark Swamp, Analyst

Wonderful. Okay. Really appreciate it, Linda. Thank you.

Linda Marbán, CEO

Thank you. Be well.

Operator, Operator

We’ve reached the end of the question-and-answer session. I’d like to turn the call back over to Linda Marbán for closing comments.

Linda Marbán, CEO

Thank you for joining us today on our first quarter call. We look forward to providing updates to you over the next several months on these exciting milestones. And please look for us presenting at the various meetings that I mentioned and be well in these very trying times. Thank you.

Operator, Operator

This concludes today’s conference. You may disconnect your lines at this time and we thank you for your participation.

Linda Marbán, CEO

Thank you.