Earnings Call Transcript - CAPR Q3 2022

Operator, Operator

Good day, ladies and gentlemen, and welcome to the Capricor Therapeutics Incorporated Third Quarter 2022 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. AJ Bergmann, Capricor Chief Financial Officer. Please go ahead.

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 those regarding, among other things, the efficacy, safety, and intended utilization of our product candidates, our future R&D plans, including our anticipated conduct and timing of preclinical and clinical studies, our plans to present or report additional data, our plans regarding regulatory filings, potential regulatory developments involving our product candidates, 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'll turn the call over to Linda Marbán, CEO.

Linda Marbán, CEO

Good afternoon, and thank you for joining us for our third quarter 2022 conference call. Today, I will provide updates on our Duchenne muscular dystrophy program and our exosome platform, as well as outline our priorities moving into 2023. Starting first with our cell therapy, CAP-1002, for the treatment of DMD. As a reminder, CAP-1002 is comprised of allogeneic cardiosphere-derived cells, or CDCs. CAP-1002 is not made up of stem cells, but rather is a stromal cell line that is an endogenous population of cells derived from cardiac tissue that are then expanded using proprietary methods into multiple doses of 150 million cells. Our current program for CAP-1002 is aimed at patients with advanced Duchenne muscular dystrophy for whom very few therapeutic options exist. This patient group is made up of about half of the DMD population or about 10,000 boys and young men in the United States. From a portfolio management perspective, we believe that should CAP-1002 be approved for this patient population, we would prioritize and consider expanding into younger patients with DMD as well as exploring other similar neuromuscular diseases. Consistent with our prior communications, we have three key priorities for our DMD program. First is the execution of our HOPE-3 Phase III pivotal trial. Second is continuing to engage with the FDA to bring CAP-1002 to patients as expeditiously as possible. And third is securing commercial partnerships outside the United States to ensure CAP-1002 reaches patients with DMD around the world. As previously presented, prior clinical experience shows CAP-1002's ability to potentially slow disease progression and preserve cardiac function as measured by changes in upper limb function and ejection fraction, which is known to be the gold standard in measuring heart health. In addition, evidence of disease modification was further supported by our HOPE-2 open-label extension study, otherwise known as OLE, with the 12-month data presented at a podium presentation at the Parent Project for Muscular Dystrophy Annual Meeting in June, as well as at a poster session at the World Muscle Society in October. Further, the safety profile of CAP-1002 in the OLE study continues to be consistent with our Phase II results and is now supported by over 100 intravenous infusions. Patients enrolled in our HOPE-2 OLE trial continue to be treated, and we expect to have at least two successive years of treatment with CAP-1002 in these patients. This data supports the potential long-term safety and durability of treatment with CAP-1002, as well as the possibility for it to serve as backbone therapy in DMD. Building on this momentum, we are happy to share positive updates on HOPE-3, our Phase III pivotal trial, which is a randomized, double-blind, placebo-controlled study. To ensure our trial is well powered, we plan to treat at least 68 patients at approximately 15 to 20 investigative sites in the United States. We are actively working with investigators and advocacy groups to drive enrollment and have enrolled 18 patients into the study as of today. We are encouraged by the pace of enrollments, and in addition to the eight active centers, plan to bring on additional sites by the end of the year. Our guidance remains on track for enrollment completion by the third quarter of 2023. An equally important priority for us is to continue engaging with the FDA on our regulatory pathway to approval as we actively enroll our Phase III program and progress toward potential registration. As part of our continuing engagement with the FDA, we have submitted, at their request, the full set of 12-month open-label extension data which, as I mentioned, was recently released. We will continue to provide updates on our discussions with FDA. As I mentioned last quarter, we began construction this summer to convert a portion of our San Diego lab base into a GMP manufacturing facility. We expect, subject to FDA approval of CAP-1002, that this facility will be able to support the early commercial launch of CAP-1002 as well as enabling tech transfer to scale up at larger manufacturing sites in the future. I am pleased to inform you that construction is nearing completion, and we plan to begin qualification and training runs for CAP-1002 in the first quarter of 2023. We see this facility as a versatile and cost-effective way to bring CAP-1002 to market efficiently. Additionally, in conjunction with these efforts, a meeting request for a pre-BLA CMC meeting with the FDA is in preparation. Turning to our commercial partnerships. As you may recall, we entered into a distribution and commercialization agreement with Nippon Shinyaku, or NS Pharma, earlier this year for distribution rights for CAP-1002 in DMD in the U.S. Our agreement with NS Pharma has several milestones built in prior to regulatory approval, and we are anticipating starting to trigger these in 2023 should we continue to execute according to plan. These milestone payments, if achieved, will further strengthen our balance sheet as we move towards the completion of HOPE-3 and towards potential commercialization. We are committed to maximizing the potential benefit of CAP-1002 and reaching patients globally in a timely manner. Therefore, we are actively pursuing additional partnership opportunities in Europe and Asia for CAP-1002 in DMD and we'll provide updates as these discussions mature. We believe these partnerships, if secured, will not only help expedite the path to potential approval in global markets, but will also support our balance sheet in a nondilutive fashion. We are very pleased with the progress for CAP-1002. We have a clear path forward and are well-positioned to deliver on our three main goals as we move into 2023. Now I'd like to turn to our exosome platform technology. We believe that our exosomes, which leverage nature's way of cellular communication and transportation, can serve as a novel drug delivery system with potentially broad therapeutic applications. We continue to make significant progress on the manufacturing and production of exosomes with an emphasis on ensuring scalability, reproducibility, and quality control. Building on the expertise and learnings from our core program in CAP-1002, for which the mechanism of action is mediated via exosomes, we have developed an extensive body of evidence and know-how on these three fronts. Our strong foundation has provided support for further downstream efforts for innovative therapeutic payload loading methods and tissue-specific targeting. Earlier this quarter, we announced the foundational data to support the use of exosomes as a potential first-in-class drug delivery platform. StealthX, as we have trademarked it, is a proprietary expression platform for exosomes that allows us to genetically modify a parent's cell line that then produces exosomes with specific proteins on the surface of the exosomes or other types of payloads inside the exosome. This StealthX technology is at the core of our exosome platform, and we intend to utilize it in two broad modalities: vaccinology and the precision delivery of therapeutics. Earlier this quarter, we presented our most advanced application of StealthX with the production of a true multivalent exosome-based vaccine or booster for COVID-19. Based on this unique StealthX platform, we are able to rapidly develop protein-based vaccines that elicit a potent immune response using a very low dose of antigen without the need for an adjuvant or lipid nanoparticle carrier. Our vaccine is a multivalent vaccine containing exosomes that express spike and exosomes that express nucleocapsid proteins on their surface, potentially allowing for both strong humoral as well as T cell immune responses. In preclinical studies, we have been able to observe neutralizing antibody activity against multiple serotypes, including Delta and Omicron. We also have demonstrated the power of the platform for multiplexing with StealthX-based vaccines, such as a combined flu plus COVID vaccine data, which we recently presented. Our StealthX platform has the potential to combine the best of both protein and mRNA vaccines. We believe that this platform will provide both the developmental speed of mRNA vaccines along with the potential superior immune activation of historical protein vaccines without the need to employ synthetic lipid nanoparticles. If our preclinical findings are recapitulated in human studies, we believe that StealthX has the potential to be a differentiated, next-generation vaccine platform. We look forward to providing more updates on this program as they become available. The tools that we are creating for a bioengineered exosome platform, including those used for StealthX, will support our efforts towards the development of precision delivery therapeutics. The ability to decorate the surface of exosomes with proteins or other ligands, as well as to load potential therapeutic molecules inside the exosome, coupled with their relatively low toxicity as compared to synthetic nanoparticles, allows us to explore a number of future potential therapeutic targets. As these programs develop, we will provide further updates. We are hopeful that both the StealthX vaccine as well as the therapeutic exosome platform may provide opportunities for partnering, collaboration, or business development, and we intend to make these potential alliances an increasing focus in our business development strategy alongside our efforts for possible partnerships for CAP-1002 in new territories. Approaching the end of 2022, Capricor is executing on its objectives and goals. We are enrolling our pivotal trial for CAP-1002 and engaging the FDA on our regulatory path forward and strengthening our relationship with NS Pharma while exploring OUS partnerships. Our exosome platform technology has progressed significantly and is now entering into a new phase of maturity with a platform business strategy for potential partnerships that can create a new future revenue stream. One year after moving into our San Diego facility, we have assembled a great team across the organization, and our hiring plan is nearing completion. We will continue to observe financial discipline across the organization and believe that our current organizational structure and balance sheet will support entering 2023 with strong momentum.

AJ Bergmann, CFO

Thank you, Linda. This afternoon's press release provided a summary of our third quarter of 2022 financials on a GAAP basis. You may also refer to our quarterly report on Form 10-Q which we expect to become available shortly and will be accessible on the SEC website as well as the financial section of our company website. As of September 30, 2022, the company's cash, cash equivalents, and marketable securities totaled approximately $46.6 million compared to approximately $34.9 million on December 31, 2021. We expect that based on the current operating plan and financial resources, our available cash, cash equivalents, and marketable securities will be sufficient to cover anticipated expenses and capital requirements into the second quarter of 2024. Note that this expectation excludes any potential milestone payments under our exclusive commercialization and distribution agreement with Nippon Shinyaku that may become due. Turning now to the financials. In the first nine months of 2022, our net cash provided by operating activities was approximately $11.8 million driven by the $30 million upfront payment from Nippon Shinyaku. For the third quarter of 2022, excluding stock-based compensation, our research and development expense was approximately $5.4 million compared to approximately $2.4 million in Q3 2021. Excluding stock-based compensation, our general and administrative expense was approximately $1.6 million in Q3 2022 and approximately $1.1 million in Q3 2021. Net loss for the first nine months of 2022 was approximately $21.3 million compared to a net loss of approximately $13.8 million for the first nine months of 2021. We will now open the line up for questions.

Operator, Operator

We'll take our first question from Alan Leong with BioWatch News.

Alan Leong, Analyst

Let's consider a scenario where you might not secure the partnerships. I'm truly impressed, Linda, by how you have consistently managed to keep things nondilutive through the years. So, if the partnerships don't materialize and there are some delays, how much funding would you need? If I'm correct, it seems like it wouldn't be much. Even if some milestone payments get pushed back due to the delays in partnerships, that's more of my speculation. Could you share your thoughts on this?

AJ Bergmann, CFO

Yes. Happy to, Alan. I mean we're being very judicious with our financial expenditures. Obviously, a lot of energy is going into HOPE-3. The enrollment progress, which we're very pleased with, is critical to maintaining a nice cash position as we move through the completion of enrollment and then through the top-line results as well as the interim analysis. So I guess my long-winded answer to that question is we are going to continually be disciplined. We're going to put our energy and focus on our Duchenne program as well as expanding the exosome program in a very careful way. We're very hopeful that should things continue as planned, that these milestone payments under our Nippon Shinyaku agreement will become due, which will help support that. And kind of the third piece to that is there are other opportunities for partnering CAP-1002 outside of the United States and exosomes, of course. So we're looking all around. We're well aware of the current financial status of the market. But I think from a cash management perspective, we're doing everything we can to put the right energy into our programs.

Alan Leong, Analyst

Yes. I asked to smile about coming at the StealthX program. You have a number of aerospace and military companies out your way that hold blackbox projects; almost sounds like one of those.

Linda Marbán, CEO

That's how we see the exosomes working because they evade detection by the immune system and deliver targeted messages to specific cell types. So it's very strategic on our part. We see it as a very military strike of the exosome, so to speak.

Alan Leong, Analyst

Interesting. Let me ask you about the precision delivery of therapeutics. When you mention that, it sounds like it could involve business development. Are you looking at existing drugs that need better delivery, or are you focused on in-house development, or perhaps a combination of both?

Linda Marbán, CEO

Yes. So we haven't guided on how we're going to be building this. But what I can say sort of in general concept is that both are very ripe targets. There are a lot of drug delivery advancements that we've been wanting as a biotech industry, pharma industry, and even before that, to get onto the cell membrane. We now have a tool to do that. The exosome can allow targeted delivery of all kinds of molecules including, for instance, lipidic molecules that previous drug delivery systems haven't been able to do. So we're looking at existing treatments that may need a sort of a kick in terms of working better or being able to use lower doses, for instance. Some of these compounds are extraordinarily toxic systemically, but if you can use targeted delivery, you may be able to really reduce the toxicity profile. And we've been able to demonstrate that with the StealthX with the vaccine that we're developing, which allows us to use nanogram amounts of the protein, the spike protein as well as the nucleocapsid protein, which enables multiplexing of vaccines and other targets. So we can use very small amounts to drive big biology, and that's one of the things we're excited about. So we're looking at it both from a business development perspective and also from an internal development perspective.

Alan Leong, Analyst

Let me ask a quick question. I recall you mentioned that you have started manufacturing to support the early commercial launch, and you are expanding part of the San Diego location for that. Do you have enough for early commercial relationships? If you are successful and get the first product approved by the FDA, are you considering building another to capture revenue and margins?

Linda Marbán, CEO

Yes. So that's an issue, Alan, that we talked about in our strategic planning of the program. We're remaining agnostic right now to the large-scale commercial development of CAP-1002. Our current plan includes using the facility within our footprint for launch. And then we have the option to either tech transfer to a CDMO like Lonza, who we've been working with over the past few years, so they're primed to manufacture our product, or then to build facilities of our own. And all of that will be based on demand, market conditions, opportunity, and all the factors that are not predictable just yet.

Alan Leong, Analyst

You've been generous with your answers, and good luck to both.

AJ Bergmann, CFO

Thank you.

Linda Marbán, CEO

Thanks so much.

Operator, Operator

We'll take our next question from Aydin Huseynov with Ladenburg.

Aydin Huseynov, Analyst

So I wanted to ask you regarding the HOPE-3 interim analysis in the middle of next year. So what kind of data should we expect there? Is it the same data as the top-line data, but with a limited number of patients? Or are you looking for specific milestones or signals of activity?

Linda Marbán, CEO

Yes. Currently, the interim analysis is built purely as a sample size reestimation. We don't want to ever lose out on the opportunity of achieving success in the clinical trial because we under enrolled too few patients, so to speak. So it will be a sample size reestimation where the DSMB, obviously, having access to unblinded data, will give us the go-ahead to continue to the end or to add a certain proportion of patients. And that's fixed, so there's no risk of unblinding. We chose to do an interim analysis like that based on feedback from the FDA that they really wanted to see this trial go all the way to the end without a data reveal. And so we're doing this exactly in a strategic fashion mandated by the FDA. It's a small trial perspective-wise, with 68 treated patients that we are looking for at this point. So my monitor to my team is heads down HOPE-3, and that's exactly what we're doing.

Aydin Huseynov, Analyst

Okay. Got it. Got it. And in terms of the patients that have been recruited so far, I think you mentioned 18 patients. So can you describe these patients? Are these completely non-ambulatory patients or with partial ambulation? Just if you could give us some color on this.

Linda Marbán, CEO

Absolutely. Thanks for the question. So of course, all of the clinical trial criteria are on clinicaltrials.gov. So for anybody who is interested in catching up on that, that's available. We're very careful to maintain an inclusion/exclusion criteria, which is very, very similar, in fact, one would say almost identical to HOPE-2, which, as everybody knows, from our publication in Lancet was very relevant both clinically in terms of clinical relevance and statistically significant improvement. Currently, we look for patients that have a performance of the upper limb score of 2 to 5 as our inclusion criteria. They can sometimes be late-stage ambulatory and still have reduced upper limb function. The torso muscle sometimes can go before the leg muscles. So our physicians and our physical therapists are highly trained in measuring upper limb function and then quantifying whether they qualify for our trial based on the performance of the upper limb.

Aydin Huseynov, Analyst

Okay. Understood. Understood. And help me understand one thing, so most of the DMD drugs are approved for sort of early stage of the disease. Your drug is intended for the late stage essentially for non-ambulatory patients. And we have some data regarding ex U.S. data or ex U.S. sales of these early-stage drugs, but there's very limited understanding of how this may look like for a late-stage drug like yours. And the reason I'm asking this is because of the ex U.S. BD opportunity. I'm trying to understand how the upfront and overall market may look like. So if you could give us some color on this, just to better understand how the ex U.S. opportunity for advanced-stage drug may look like.

Linda Marbán, CEO

Absolutely. I'm going to take a step back and sort of address the first part of your question, which is the drug is not designed for the older or more impacted patients. They are our first targeted group of patients, but by no means do we think we're going to stop there. As I mentioned in my remarks, and of course, we've been talking about internally for a while. The opportunity to treat these younger kids exists as well. What we know is that CAP-1002 delays the progression of the disease. And so at whatever point we can enter in and stop the progression of this very terrible disease, we'll do that. So look for that in the future. In terms of market share, if you look at the pathogenesis of the disease, the kids tend to go off their feet somewhere between 10 and 15 years of age, and with current therapeutics primarily focused on steroids and certain types of ventilation procedures, these individuals are living really to their late 20s or early 30s. So we're looking at somewhere between 50% of the patients and treating them four times a year for 15 or more years. So there's a very robust revenue opportunity both in the United States as well as outside the United States.

Operator, Operator

We'll take our next question from Brian Corday with BullBear Partners.

Brian Corday, Analyst

I had a couple of questions and some clarity because I spoke with AJ right after the last report that came out, and I found some discrepancies in it. And I was wondering if you could give a little transparency on where you see approval with accelerated should you get it versus full review because I know some of those states didn't match up before. So if you could kind of touch on that.

Linda Marbán, CEO

Yes. So we have been pretty clear in our messaging. We continue to work with the FDA. We have been broaching the idea with them since HOPE-2 that we think that CAP-1002 would be an ideal candidate for accelerated approval; it's very safe, and also has tremendous efficacy. Our current open-label extension data shows what we and others consider free disease modification. So time is muscle, and we want to get it to the patients as soon as possible. Now having said all that, the FDA has been very clear on what they want us to do. What they've told us to do is to conduct HOPE-3. As I said a minute ago, I'll say it again, heads down HOPE-3. Our entire focus is on enrolling this trial and achieving what the FDA has requested from us, which is to do an adequate, well-controlled Phase III clinical trial. However, we will not give up our conversations with them. We will continue to work with them. We have designations as well as other types of preferred opportunities for accessing the FDA. So we will, at certain targeted points, not yet disclosed, continue to meet with the FDA and see if there is a way to push forward for accelerated approval, if that's helpful at all, Brian.

Brian Corday, Analyst

Right. No, what I was referring to is in the gentleman who was prior to my call; he had accelerated approval at 2025, I believe it was. And if you were looking sooner than that, correct?

Linda Marbán, CEO

Yes, I apologize for the misunderstanding. Our current plan is to complete enrollment in HOPE-3 by the third quarter of 2023. This will lead to a data collection period over 12 months, which means we aim to have everything ready by the third or fourth quarter of 2024, with a BLA submission expected in the first quarter of 2025. It's important to note that this is not for accelerated approval, although we understand that accelerated approval could be pursued at any time before that. This timeline is our target for achieving approval based on HOPE-3.

Brian Corday, Analyst

Right. Okay. I just wanted that clear because I know several people I've spoken to were confused by what was written outside of the company. Good. Now in terms of the follow-up videos that you were going to have for some of the patients, where are you at with that? Because I know that's so powerful to see.

Linda Marbán, CEO

Yes. So obviously, we've collected those videos and we've been able to put some of them out there. We're using them primarily in our regulatory pathway. So we use them to quantify the clinically relevant improvement in function that we see mathematically and statistically assess the performance of the upper limb. So it really corroborates clinical meaningfulness or clinical relevance. Families, as you can imagine, are sensitive about those being released. So at appropriate times, we might be able to use those. But right now, we're using them primarily for regulatory approval.

Brian Corday, Analyst

Okay. My last question is, I know you've been looking at roughly $600,000, give or take, for a pricing structure. And with pricing on other drugs in this space going up or potential, have you reformulated what you would want to charge for this, should you get approval?

Linda Marbán, CEO

AJ, do you want to take this one?

AJ Bergmann, CFO

Yes, we are considering that, Brian, as we approach potential approval. Currently, we believe we could charge around $600,000 based on initial discussions with payers. You may have noticed that existing drugs on the market are priced slightly higher. I think this target is reasonable, and we will strive to do our best in this area.

Brian Corday, Analyst

Okay. And one last question, I know you can't give a specific, but how many milestones prior to approval are there? You don't have to say what they are, but how many would we be looking at payment-wise?

AJ Bergmann, CFO

Yes. At this point, we're still not able to disclose more granular details of how many of them there are. I think you did hear, though, hopefully, you caught in the remarks, that if we continue according to plan, in 2023, we should begin to trigger some of these milestones. But unfortunately, I'm not in a position as of today to disclose the exact number of milestones leading up to regulatory approval.

Brian Corday, Analyst

One last question, regarding the discussions with the FDA before the BLA, do you believe those conversations will persist until you receive the readout? Or are they advising you to hold off completely until that point?

Linda Marbán, CEO

No, no, no. So if you're talking about the pre-BLA CMC meeting, our plan is to get that done very early on in the process of next year and then continue to work with the FDA on our release criteria for the cells, and we anticipate that going very well.

Operator, Operator

With no further questions in the queue, I will now turn the call back to Capricor management for closing remarks.

Linda Marbán, CEO

Thank you for joining us today. Before we conclude today's call, I, of course, would like to thank our patients and their families for their continued support. Once again, thank you for joining us today.

Operator, Operator

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.