Earnings Call Transcript - CAPR Q2 2023

Operator, Operator

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. 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.

AJ Bergmann, CFO

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.

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 Dr. Philip Gotwals and Dr. 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's 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 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 had the Type-B CMC, or Chemistry Manufacturing and Controls related meeting with the FDA, where we outlined our plans for production of commercial scale GMP CAP-1002. The outcome of this meeting was positive in that the FDA clearly outlined for us the deliverables necessary for the CMC portion of our BLA. As we previously reported, there was also 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 the 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 can attenuate disease progression, and they have continued to raise awareness of our program within the FDA, specifically CBER, 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. 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. I'm happy to share that the FDA seemed generally supportive of this plan. Currently, we are awaiting the final minutes from the FDA, which we expect this month. We have already had another informal meeting with the FDA to further design certain aspects of our program, and we are greatly 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. Based on the currently designed sample size of 68 patients, we are on track to be fully enrolled early in the 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, 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 observed; 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, showcasing both 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 in 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 we 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 sole development, leveraging 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 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 the 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 has overlapping areas with our focus. Additionally, Jonathan Tayco has joined us as Vice President of Program Management and Business Operations overseeing 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 therapeutics. 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 nanoparticles. We have focused a significant amount of time and energy on 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 products. To that end, I am 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 StealthX platform. We look further to exploring the applications of our StealthX platform as they expand into precision-based therapeutics and are working on 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 StealthX spike induced a strong immunization with the production of a potent humoral and cellular immune response. These effects were obtained with the administration of nanograms of protein and without an adjuvant or lipid nanoparticles to test the potential benefits of the 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 was no detectable immune competition between antigens by combining multiple targets in a single vaccine formulation. These results support the potential therapeutic utility and versatility of our StealthX platform in 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 the 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.

AJ Bergmann, CFO

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, the 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. The 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. The 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 for questions. Thank you very much.

Operator, Operator

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

Joe Pantginis, Analyst

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?

Linda Marban, CEO

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 the FDA has worked really closely with us. They're very supportive of this program; several of our patients' families have reached out to the FDA in order to ask them to take a really careful look at Capricor and help move the program forward because they feel that their sons are feeling and focusing better. We're confident that the answers that we get back from the FDA will be the best ones possible to move the products towards BLA.

Joe Pantginis, Analyst

That makes sense. For my next question, I'll frame it in a scenario context. You currently have the minutes that you’re waiting on, as well as the upcoming interim analysis in the fourth quarter for HOPE-3, which you mentioned is primarily based on futility. Does one of the potential scenarios involve the positive feedback from the minutes regarding the data you might see in the interim that could lead to an acceleration or favorable adjustment of the timeline for HOPE-3?

Linda Marban, CEO

Yes. That was a pretty impressive question, 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. The 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 for us. We're probably not going to use the interim for an 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 seek accelerated approval. I cannot disclose now how we might do that, but that is something we're definitely thinking about.

Joe Pantginis, Analyst

Got it. And I guess my other questions are more 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, and what does the patient pipeline look like for potential enrollment?

Linda Marban, CEO

Yes, Joe. Great question. So the screen fail rate, which has really come down a lot, thanks to our really very strong new clinical team that we put in place. The primary reason that people fail is typically that they don't meet the inclusion criteria of the performance of the upper limb score two to five. We typically see some of these guys whose scores are too low. Let me just say from a human level, it's heartbreaking because they have to have the ability to use their hand and bring it to their mouth unassisted. We probably get two or three calls a week from people saying, well, you know, 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 of energy around this open label extension data. At the PPMD meeting, we were by far one of the busiest booths, second only to Sarepta with the gene therapy. We are looking to build with Sarepta and all of the gene therapies that could come along as anchor therapy for CAP-1002. The families see it that way as well. We do not see any potential downturn in patient opportunities moving forward.

Joe Pantginis, Analyst

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. 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?

Linda Marban, CEO

Yes. So I think the best way to answer that is we are very pleased with the progress of CAP-1002 and DMD. It seems clear that there is a disease-modifying and a very strong treatment effect that persists after years. Our patients have done well on repeated exposure. We have open label extension patients that are in their third year and coming into their fourth year of treatment. It is very safe, and the infusions are easy. We are opening the door internally to look at potential opportunities for CAP-1002. We're exploring those now and will provide updates as we have them on where we will likely deploy CAP-1002 next. If you're sort of looking into your crystal ball, we've seen really nice data in inflammatory cardiomyopathy, skeletal muscle disease, and neuromuscular disease. We know that CAP-1002’s primary mode of action is immunomodulatory and pro-regenerative. Therefore, we're going to continue to explore indications where the disease pathogenesis would be highlighted by those two processes.

Joe Pantginis, Analyst

Got it. Thank you, Linda. Appreciate it.

Linda Marban, CEO

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

Operator, Operator

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

Alan Long, Analyst

A.J., it's great to be back, and what wonderful commentary. Linda, your commentary extends way beyond the release, and I love to hear it. Also, shout 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?

Linda Marban, CEO

Are you referring to exosomes or CAP-1002 regarding the expansion of pilot manufacturing? It's great to hear your voice, Alan. I hope you are doing well.

Alan Long, Analyst

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

Linda Marban, CEO

Right. So they're similar, but different, obviously. With CAP-1002, we 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 closely with the FDA and their CMC group to ensure that the product is consistent with what we produce in the pilot facility, which is why we're working right now to get those out there and into the clinic. Yes, we expect that we could expand this. I won't envision it exactly how you are considering, which is to take 10 little pilot facilities and turn them into 100 little pilot facilities. It will be an expanded facility, but some manufacturing processes will be largely the same. Therapy manufacturing opportunities have really expanded in the past couple of decades, providing a lot of good prospects. 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 has held back exosomes is the challenge of producing a homogeneous product. We believe we have accomplished that by integrating the knowledge from lipid nanoparticles and other engineering constructs, and we are building a strong manufacturing paradigm that should also be scalable beyond just pilot plant expansion. That will involve larger bioreactors and so on as we move it forward.

Alan Long, Analyst

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 combination trials? Just if I read some of the literature correctly, if I'm wrong, feel free to correct me. There have been serious assertion issues for the current gene and cell therapies. If CAP-1002 potentially becomes one plus one equals three and not two. There's a lot of interest from those who are in that space. Can you further comment on that in general?

Linda Marban, CEO

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

Alan Long, Analyst

Yes.

Linda Marban, CEO

Yes, absolutely. This is one of the great opportunities in biotechnology, and pharma is well aware of it. I think everybody knows that lipid nanoparticles can only take you so far. We have been working as a field, and I say we because this even predates my own career in science, on delivery and targeted delivery of therapeutics. We know how important that is, and we can now harness something that the body makes naturally to do that. 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 wonderful exosomes. We think they mediate its mechanism of action, but we really want to turn exosomes into a drug product. 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 adding a code. Pharma is very interested in that, and we have a very active business development program right now. One of the main hurdles was this manufacturing step, which we have succeeded in doing. We look forward to great opportunities with the exosomes moving forward.

Alan Long, Analyst

Last question, but this is for AJ, I guess, for both of you. This will be a fun question, but it does raise interesting points. 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?

AJ Bergmann, CFO

Yes. Thanks, Alan. Nice to hear from you. Bringing in nondilutive capital is a big focus for us, as you heard Linda articulate, both from our approach to vaccinology and the next steps, which is targeted therapeutics. Where would we like to deploy it? 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 or potentially using exosomes as a targeted vehicle. That would be my wish list. Taking in nondilutive capital dollars is a big area where we're putting a lot of energy.

Linda Marban, CEO

Yes. So cash is king, especially as you are in product development mode. What we would definitely do is use it in a laser-focused way to move our programs forward. CAP-1002 is at the front of the line right now. All major dollars being spent or being funneled towards getting CAP-1002 approved, and then the leftover funds will 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 exosomes, that's where a good proportion of those dollars would go. We are focusing on what we need to do, AJ, and maintaining a very tight ship in terms of managing our resources. That explains why we've been able to stay alive through some pretty difficult times.

Alan Long, Analyst

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

Linda Marban, CEO

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

Operator, Operator

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.

Linda Marban, CEO

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.