Earnings Call Transcript - CAPR Q3 2023

Operator, Operator

Good afternoon, ladies and gentlemen and welcome to Capricor’s Third Quarter 2023 Financial Results and Corporate Update Call. This conference call is being recorded. I would now like to turn the conference call over to our host, Mr. AJ Bergmann, Capricor’s Chief Financial Officer. Please go ahead.

AJ Bergmann, CFO

Thank you. Good afternoon, everyone. Before we start, I would like to state that we will be making certain forward-looking statements during today’s call and 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 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 will turn the call over to Linda Marbán, CEO.

Linda Marbán, CEO

Thanks, AJ. Good afternoon. And thank you for joining us today. I’m extremely pleased with the progress we are making towards the development of our lead asset CAP-1002, for the treatment of Duchenne Muscular Dystrophy. As I begin the call today, I am delighted to inform you that we have reached our targeted enrollment goal for our HOPE-3 Phase 3 pivotal study, which is designed to enroll approximately 58 patients across the United States. Additionally, we are planning on announcing the outcome of our interim analysis from the study prior to the end of this year. The purpose of this important milestone will be to determine if the trial is futile or should continue as planned. The analysis is based on the six-month results. Reminder, our primary endpoint is based on one year. This blinded data will be presented to our DSMB, which will evaluate safety and efficacy and give us their decision as to whether the trial should continue as planned. Should the trial be determined not to be futile, this will trigger our first milestone payment under our U.S. agreement with Nippon Shinyaku. There are also other potential milestone payments leading up to an approval of a BLA that will continue to support our balance sheet, should we achieve them. As I have previously announced, the top-line results from Cohort A will be available in Q4 2024, and a subsequent BLA would be based on the full data set. However, we are now planning to reinvigorate our discussion with the FDA to determine if there is an opportunity to speed up the approval pathway for CAP-1002 now that our enrollment target for HOPE-3 Cohort A has been reached. We owe it to the patients and the community to move CAP-1002 towards approval as quickly as possible as everyone knows that time is muscle. Once a pull point is lost, it cannot be recovered. Now, this brings me to an overview of our recent Type-B clinical meeting with the FDA, which was announced in late Q3 and why we believe the outcome was important for the program. As you may recall, earlier in 2023, the FDA indicated that they wanted us to treat additional patients in the HOPE-3 study with the product manufactured at our San Diego GMP facility. There were two main outcomes from this meeting. Number one, the results of the HOPE-3 Cohort A will support the filing of a BLA; and number two, the FDA approved the design of an additional cohort of patients, now referred to as Cohort B, to support the inclusion of our new San Diego facility for commercial manufacturing and enrollments as planned, which is to begin imminently. It is very important to keep in mind that Cohort B and the data that we generate from it will not be required for initial registration of CAP-1002 for DMD. Over the last several years, Capricor has carefully and diligently invested resources in this program, bringing CAP-1002 through three successful clinical trials, building two manufacturing facilities, securing RMAT, orphan drug and rare pediatric designations from the FDA, in addition to securing commercialization partnerships for the U.S. and Japan markets. These strategic deals were carefully negotiated and potentially bring in over $700 million in additional cash to Capricor, which would fuel future product, potential expansion of CAP-1002 and allow us to strategically invest in the further development of our exosome pipeline. This is the vision that I have for Capricor, which would transform our organization from a development-stage therapeutics company into a world-class commercial and R&D operation. I realize much has to be done and accomplished before that time. But now that we have completed our target enrollment in Phase 3, we are moving closer to that vision. To this point in our history, we have remained disciplined across the organization, not only in the management of cash and resources, but also with respect to our priorities, as we have developed CAP-1002. We made the early decision to invest in the clinical development of CAP-1002 while managing our manufacturing operations in a just-in-time manner. Now that we have shown promising data in multiple clinical trials, we are focusing on scaling up and out our manufacturing capabilities to produce larger quantities of CAP-1002 to meet FDA requirements and market demand, if approved. Our GMP manufacturing facility in San Diego has approximately $3 million to build and equip. As is the case with all companies, launching a complex biologic such as CAP-1002 requires us to expand operations to include experts in cell manufacturing, quality, compliance and regulatory affairs, which is reflected in the current structure of the organization. Capricor has raised approximately $145 million in equity capital, in totality throughout our company’s history, both private and public over the past 15 years. And with approximately $15 million in cash resources factoring in our most recent financing and Q3 financials, this gives us a runway into 2025. The dollars invested in CAP-1002 for DMD have strengthened many aspects of our program, most notably the ability to understand the mechanism of action of CAP-1002, recognizing that one of the hindrances to the approval of cell therapies has been an inadequate potency asset. We are pleased that the FDA supports our potency program, which is an important step towards approval. With the path paved by DMD, we are now planning product expansion into diseases with similar pathophysiology. We believe in CAP-1002’s potential to be a transformational treatment for patients with diseases of inflammation and fibrosis. Second to that, we are judiciously building our exosome platform technology to become a next generation drug delivery platform. Now with that said, let’s quickly turn to an update on our exosome technology. While our primary focus has been on advancing the development of CAP-1002, we remain committed to our exosome technology as part of next-generation drug delivery platform. Currently, we are pursuing two avenues of opportunity. One is our vaccine program using StealthX, our proprietary platform that is useful for engineering select proteins, either inside or on the surface of the exosome. For our vaccine program, one of our aims is to secure either a partnership or a non-dilutive source of funding to speed clinical development. Currently, there is significant interest in its exosome-based vaccine platform and we are in active discussions with several parties. We remain focused on that mission. The other aspect of our platform uses StealthX to develop therapeutics by harnessing exosomes as the delivery vehicle. The program requires loading of specific cargos into exosomes with targeting moieties on the outside of the exosome, essentially to tell it where to go. Currently, in collaboration with an undisclosed pharma company, we are investigating the therapeutic perspective of this platform. The foundational work has the potential to set the stage for future therapeutic options with exosomes. Initial data from this ongoing study was presented recently at this year’s World Muscle Society Conference. Proof-of-concept results demonstrate that a muscle targeting moiety can be engineered on the surface of exosomes, as demonstrated by the presence of a labeled ASO, which is antisense oligonucleotides, and used as representative cargo in the lower limbs of mice post-intravenous injection. Repeated doses of the loaded exosomes show enhanced targeting based on the initial PK study. This suggests that repeat dosing using our engineered exosomes has the potential to effectively enhance delivery, further differentiating our therapeutic approach from lipid nanoparticles. I look forward to providing more information on this important area as it becomes available. Now finally, on the corporate side, we raised approximately $23 million this quarter to support our balance sheet into 2025. This strategic financing was anchored by Nippon Shinyaku, further cementing our strong relationship and their commitment to Capricor. Part of the reason for the fundraise was we had to expand our team in order to prepare for the submission of a BLA. The work required to prepare a late-stage clinical asset is significant, and we are fortunate to have found a team that is experienced in driving programs to approval in the biologic space. Finally, in our effort to expand Capricor’s team of experts, we are pleased to announce the appointment of Michael Kelliher to our Board of Directors. Most recently, Michael served as Group Vice President of M&A and Business Development at Horizon Therapeutics, now part of Amgen. He brings to Capricor expertise in business and strategic development. We look forward to Mike’s contributions to our team. Overall, I want to thank you for your support for our program and our company. We are very much looking forward to the next several months as we will be announcing the outcome from the interim analysis as well as continuing our interactions with the FDA. I will now turn the call over to AJ to go through our financials. Thank you.

AJ Bergmann, CFO

Thanks, Linda. This afternoon’s press release provided a summary of our third quarter 2023 financials on a GAAP basis, and 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. Turning to the financials, let me start with our cash position. We ended September 30, 2023 with cash, cash equivalents and marketable securities of approximately $28.5 million. This excludes the $23 million in gross proceeds from the registered direct offering we completed in October that bolstered our cash position. Based on our recent operating results and current projections, we now expect our cash runway to extend into 2025, an extension from our prior guidance. In the third quarter of 2023, our commercialization revenue was approximately $6.2 million. That compares to approximately $1.6 million for the third quarter of 2022. Turning quickly to the expenses, excluding stock-based compensation, our research and development expenses were approximately $9.5 million for the third quarter of 2023, compared to approximately $5.4 million for the third quarter of 2022. The increase in expenses of $4.1 million was primarily due to increased clinical and manufacturing costs associated with our Phase 3 HOPE-3 trial. Excluding stock-based compensation, our general and administrative expenses were approximately $1.8 million for the third quarter of 2023, as compared to approximately $1.6 million for the third quarter of 2022. The increase of $200,000 was primarily due to increased facility and personnel costs. Our net loss was approximately $6.4 million for the third quarter of 2023 and 2022. And with that, let me turn it back over to Linda. Actually, open up the line for questions first before we do that. Go ahead, operator.

Operator, Operator

Your first question comes from Joe Pantginis from H.C. Wainwright. Please proceed.

Joe Pantginis, Analyst

Hey, Linda and AJ. Thanks for taking the question. Good afternoon. My first question, I’m going to start at the back end of your comments regarding exosomes. So just wanted to get a sense of what potential news flow in preclinical data we might be getting over the next 6 to 12 months. And secondly, I know you said there’s ongoing discussions right now, so there might be some confidentiality, but can you disclose what kind of vaccines you might be going after?

Linda Marbán, CEO

Yes. So, thanks, Joe. Thanks for your questions. So, we are excited about the exosome program. It’s been perking along in the background. We have devoted most of our time and effort to CAP-1002, as everybody knows. But the data from the exosomes has been very positive and very exciting, including the ability to target, which has not really been shown before and was presented recently, as I mentioned, at World Muscle. So, in terms of milestones coming up in 2024, we do plan on continuing to advance this program. We’ve had a vaccine for COVID that’s been in development for quite some time. I think, the world has come to realize that there’s a lot to be left to understand about the vaccinology using mRNA. And so, the concept of using a protein-based vaccine that is easy to make, easy to manufacture, can be manufactured in just several months of time using native proteins. And using a non-toxic molecule such as the exosome is indeed something to be of great interest and certainly gives proof of concept for the program. So, that’s the type of vaccine we’re working on, same one, just looking for other opportunities for partnering for the therapeutic options as well as for the vaccine. The vaccine conversations are the farthest along at this point.

Joe Pantginis, Analyst

Got it. That’s helpful. Thank you. And my main question has to do with the DMD program, obviously, and I guess there’s a few working parts here. But look, following your Type B meeting, you had very, very important visibility about the path forward to be able to file in Cohort A and Cohort B. So I guess my question is maybe a little bit of a scenario analysis of your comment about still further potentially being able to accelerate the programs. And I guess, I would also focus my question around the upcoming interim analysis with your disclosure to the public revolve around sort of continuous planned or any potential data and any potential stopping rules you might be able to share with us. Thanks.

Linda Marbán, CEO

Thank you. Let me begin with the interim analysis, which is our next significant milestone set to take place before the year ends. This analysis will assess the trial for futility, where the Data Safety Monitoring Board reviews the data to evaluate safety and effectiveness against undisclosed metrics to determine if the trial can proceed as planned. We are eagerly awaiting the results and, based on our prior clinical work, we are optimistic that the trial will continue successfully. It will be a day of celebration when we receive confirmation from the DSMB that we can move forward. While we haven’t shared the specific metrics, we can assert that the standard futility analysis provides a strong indication that the trial should advance. Regarding the FDA, I found your question timely as I was considering my response. It seems fair to say that current interactions with the FDA are unpredictable for everyone. We can’t always anticipate their decisions on approvals. What we do know is that we have three positive clinical trials demonstrating improvements in upper limb performance in young men with late-stage Duchenne Muscular Dystrophy. Families are eagerly requesting CAP-1002, with anecdotal evidence suggesting their sons are experiencing better function and wellbeing. We now have a fully-enrolled Phase 3 trial, and the FDA has emphasized the necessity of this confirmatory trial before considering accelerated approval, which we have now achieved. We also have a strong relationship with the FDA, enhanced by our RMAT designation and proactive communication from families advocating for our treatment. As we engage with the FDA, we will explore every potential avenue for approval. With a fully-enrolled Cohort A and top-line data expected in a year, we are confident in our readiness for success, should the trial yield positive results.

Operator, Operator

Thank you. Your next question comes from Aydin Huseynov from Ladenburg. Please go ahead.

Aydin Huseynov, Analyst

Good afternoon, Linda and AJ. Congratulations with the progress this quarter and congratulations with completing the enrollment in Cohort A. I have a couple of questions. First, I want to start from milestone, potential milestone payment from Nippon Shinyaku. So your total potential sort of receivable from Nippon for the next several years, if the drug gets approved, is $705 million. So, can you give us a sense how much from that total amount Nippon may pay by the end of the year, if the DSMB decision will be positive? Is it $10 million, $20 million or $30 million? Can you give us overall just a sense of it?

AJ Bergmann, CFO

Yes. Thanks, Aydin. Right now, we are not at liberty to state the exact dollar figure affixed to that interim futility analysis. Of course, as it hopefully is achieved, we will put more granular details out. So, stay tuned for that. And so, that’s kind of where we are at now. In terms of the building milestones as we move forward towards approval, what we haven’t disclosed up to this point, but we are now at liberty to say is that, up to and including the time of approval is $100 million in potential milestones to Capricor. So, we are going to look to that to fuel, obviously, the expansion of CAP-1002 to Duchenne, as well as other efforts, in terms of product expansion. So, those milestones hopefully come due will total $100 million. Hopefully, that’s helpful.

Aydin Huseynov, Analyst

Yes. This is super helpful. I appreciate that, AJ. Just to clarify, it’s $100 million including approval milestone? So, I imagine that you get the approval…

AJ Bergmann, CFO

That’s correct. Yes, exactly. And look for our 10-Q to become available shortly, which will articulate this basically the same way I am saying it, but that should be put out there shortly.

Aydin Huseynov, Analyst

I appreciate that. Another question is about cohorts. Cohort A has completed enrollment with 58 patients. It seems like you will be starting the enrollment for Cohort B within a few weeks, possibly by the end of the year. Considering the holidays, do you believe it is still feasible to enroll patients in Cohort B by the end of the year, between now and January 1st?

Linda Marbán, CEO

So Aydin, were you on my team call yesterday, because this is what I asked my clinical team and they said that enrollment is going to be pretty robust before the end of the year. There’s nothing else in clinical trial right now for these later stage boys and young men with DMD, nothing with recent failures in the space and some of the other companies pulling back. And so, there’s a line out the door to get into Cohort B, and we’ll be delighted to welcome them and treat them even with the holidays coming up.

Aydin Huseynov, Analyst

This is encouraging to hear. Given that there are no other trials, it seems likely that you will proceed with enrollment. With the landscape for DMD evolving due to various treatments and approvals, do you think Cohort B will differ in any way from Cohort A, considering these will be different patients? Will there be any variability between the two cohorts in the future?

Linda Marbán, CEO

That’s a really interesting and provocative question, again, one we’ve debated a lot internally. And I think the short answer is no. We have the same inclusion exclusion criteria, the same requirements in terms of their meds and all of that. The only potential differences with the approval of the new deflazacort were also open to taking patients on that regimen, because many of them are switching due to a better safety profile. So, that’s really the only difference. We don’t think that’s going to mediate any difference in sort of the potential efficacy. We’ve talked at length to our KOLs, and sort of a steroid is a steroid is a steroid in terms of what it does physiologically. So, we’re very hopeful that the enrollment criteria will be virtually the same and Cohort B will very rapidly allow us to transition from sort of clinical scale manufacturing to commercial scale manufacturing.

Aydin Huseynov, Analyst

Thank you for that. It's quite helpful. I have another question regarding the potential expansion of CAP-1002. Other companies focused on DMD might face certain restrictions when trying to expand into different stages of DMD or other dystrophies or types of DMD patients. I noticed your corporate presentation includes a slide highlighting the potential expansion into early-stage DMD patients and subsequently into Becker muscular dystrophy. Can you help us understand what the potential endpoints for early-stage patients might look like with CAP-1002? It seems unlikely these patients would be excluded since they are generally more active and mobile. Could you provide some insight into how these endpoints could be defined?

Linda Marbán, CEO

Yes. So, it’s interesting. All of these patient-reported outcome measures have their strengths and weaknesses. I think everybody really believed very strongly in the NSAA, but very recently with the Sarepta data, there’s been a little question around the veracity of that measure. There’s time to rise, which is an interesting one. We haven’t designed that trial yet. Frankly, we’re going to talk to the FDA about label expansion potentially without more clinical work and then evaluate from there and use the advice of our key opinion leaders, who are used to working with these younger boys to help find the one that’s most effective in demonstrating the efficacy of CAP-1002 in these younger kids.

Aydin Huseynov, Analyst

The last question is about Becker dystrophy. In cases of Becker dystrophy, cardiomyopathy is a significant cause of mortality. It makes sense to focus on patients in the later stages. Could you explain how Capricor is in a stronger position compared to other companies that focus on dystrophies when addressing Becker dystrophy?

Linda Marbán, CEO

In terms of Becker dystrophy, one of the major manifestations of Becker muscular dystrophy are the cardiac implications. And of course, as you know, one of our major advantages over almost any other therapeutic that’s in investigation or approved for DMD is that we have cardiac benefits. So we are highly enthusiastic, if you can sort of use that terminology when you’re talking about treating a dread disease, about the opportunity for CAP-1002 in Becker muscular dystrophy and its cardiac implications.

Aydin Huseynov, Analyst

Thanks so much Linda and AJ. Congratulations again with the progress.

Linda Marbán, CEO

Thank you so much.

Operator, Operator

Thank you. There are no further questions at this time. I will now turn the call back over to Capricor’s management for their final remarks. Please proceed.

Linda Marbán, CEO

Thank you so much. Thank you so much. And thank you AJ. 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. I also just want to take a minute to thank our clinical operations team for doing an extraordinary job in getting this trial fully enrolled. And hopefully, once we continue to follow these patients and get the data, we’ll be able to have an approved therapeutic for these later-stage Duchenne patients. And I know that will be a day of celebration for the community as well as for us. We look forward to seeing you at upcoming meetings and hopefully, you’ll have a happy and healthy holiday season. Thank you so much.

Operator, Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you please disconnect your lines. Have a great day.