Earnings Call Transcript - CAPR Q2 2022

Operator, Operator

Good day and welcome to the Capricor Therapeutics' Second Quarter 2022 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. A.J. Bergmann, CFO. Please go ahead, sir.

Anthony Bergmann, CFO

Thank you and good afternoon. 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 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 second quarter 2022 conference call. Today I will provide updates on our Duchenne muscular dystrophy program and our exosome platform technology, as well as outline our priorities and path forward. This quarter has been productive on many fronts and most notably, we achieved several key milestones across our lead program, CAP-1002 for the treatment of Duchenne muscular dystrophy, otherwise known as DMD. To remind you, our current clinical initiative is aimed at treating DMD patients who are largely non-ambulant and in the later stages of their disease, and of course, for whom very few therapeutic options exist. This patient group comprises about half of the DMD population or about 10,000 boys and young men in the United States. We've completed two successful clinical trials in DMD and CAP-1002 has proven to be safe and well-tolerated in over 200 patients to date. Now, let me walk you through some of the key highlights and recent updates. First, turning to HOPE-3, our ongoing Phase III pivotal study, which was initiated in the second quarter, which included site selection and activation of certified Duchenne centers. HOPE-3 is a randomized double-blind placebo-controlled study with the goal to enroll 70 patients at approximately 15 to 20 investigative sites in the United States. In July, we reported the initiation of enrollments and I am very pleased to inform you that as of today, we have enrolled seven patients. We have a growing list of interested candidates and we are optimistic that we will now gain momentum in the recruitment of the trial. HOPE-2, our Phase II study, which was published in The Lancet last year, together with the recent late breaking open label extension data presented at this year's Parent Project for Muscular Dystrophy, or PPMD Annual Conference in June, are amplifying the interest in our HOPE-3 trial. Our current projections for enrollments are to be complete by the third quarter of 2023 or sooner. The promise of HOPE-3 builds on the recently reported HOPE-2 open label extension data, which continue to underscore the therapeutic potential of CAP-1002 and highlight its sustained safety and efficacy. Let me recap that data for you to highlight its relevance to our regulatory strategy and the clinical development of CAP-1002. HOPE-2 open label extension was a very unique clinical study, which allows each patient to be used as their own control. First, we conducted HOPE-2, where one group received placebo and one group received CAP-1002. Those results showed statistical and clinically significant improvement in upper limb function in non-ambulant patients with DMD, as earlier mentioned and published. Then, all patients went off treatment into what we call a gap phase, which was approximately one year. All patients, no matter what group they were originally in, declined in upper limb function during the gap days. Then all patients went on CAP-1002 in the open label extension part of the trial and disease progression was attenuated up to 70%, most notable in those that were originally on placebo. What is also interesting is that the original CAP-1002 group declined off therapy at the same rate that the placebo group did, but entered the open label portion of the trial with better upper limb function due to the fact that they had the benefit of one year of CAP-1002 in HOPE-2. They started with better upper limb function and therefore, finished with better upper limb function. This is exemplary of the potential disease-modifying behavior of a therapeutic. We believe this data must be shown to the FDA, both because of its statistical power and clinical benefit, but also because time is muscle. Based on this dataset, every year that patients are off CAP-1002, they lose function that cannot be recovered. Based on our regulatory designations of RMAT, or Regenerative Medicine Advanced Therapy and orphan disease designation, and also the importance of this data to people with DMD. We are requesting a meeting with the FDA, which should occur this year to present this open label extension data, which we believe will further support our path forward towards potential regulatory approval. However, we remain focused on executing on our HOPE-3 clinical trial, which is slated to be our pivotal trial. To remind you HOPE-3's primary endpoint is the performance of the Upper Limb 2.0, a validated tool to assess skeletal muscle function in non-ambulant patients, and also the measure in which we saw statistically significant results and HOPE-2 and in HOPE-2 open label extension. This meeting will complement a CMC meeting, which is required prior to BLA submission, which we are planning to hold later this year as well. Another key priority for our CAP-1002 program involves preparing for the future potential commercial launch, including the scale up of manufacturing. While our current manufacturing site in Los Angeles is fully focused on supplying our HOPE-3 clinical trial, we are supplementing our manufacturing efforts by converting a portion of our San Diego labs to support a potential early commercial launch. We see this facility as a versatile and cost-effective measure. Additionally, our manufacturing plan encompasses the work we have done at Lonza, as they may be an important part of our future scaled up commercial plan for CAP-1002. As you know, we entered into a distribution and commercial agreement with Nippon Shinyaku and its U.S. subsidiary NS Pharma, an experienced and well-resourced commercial partner in the United States. NS Pharma has been a trusted DMD partner for the community and has already established a respected infrastructure to support patients and their caregivers. If approved, we believe Nippon Shinyaku's leadership in this space will serve CAP-1002 well, enriching more eligible patients who could benefit from our therapy. As a reminder, Capricor's agreement with Nippon Shinyaku came with a $30 million upfront payment to Capricor and has a potential to reach up to $705 million in milestone payments, some of which, if achieved, will be paid during the course of HOPE-3. To maximize the potential benefit of CAP-1002 and reach patients globally, we will continue to explore ex-U.S. partnership opportunities. Our goal is to continue to execute on our regulatory, clinical, CMC, and business development goals as I just outlined above, as we are committed to bringing CAP-1002 to patients as quickly as possible. Turning now to our exosome technology. The last year has been focused on developing exosomes as a versatile platform for drug delivery and also on identifying potential applications. We have made significant progress in the manufacturing of exosomes as a competitive alternative to other lipid delivery systems with the additional benefit of having the potential to be targeted to a specific biomarker or cell type. Our targeted delivery platform can carry therapeutic payloads that are produced via an exogenous process for loading certain types of payloads, which is similar to what most in our space are doing, or via an endogenous loading process for other types of payloads, including proteins. This last approach relies on our proprietary technology, which allows for better consistency and preservation of the integrity of the cargo. We believe this positions Capricor to be able to attract potential partnerships and drive new therapeutic modalities. The emerging exosome platform will have potential applications in multiple domains, including vaccines, delivery of RNAs, including small interfering RNAs and antisense molecules, as well as other payloads. We have used our proprietary technology to develop an exosome-based vaccine with robust preclinical data. We plan on positioning this opportunity for partnering discussion. At present, our focus is on the potential commercialization of CAP-1002 for DMD, while we continue to develop our exosome platform technology for future pipeline opportunities. By prioritizing our core programs, we have the ability to efficiently utilize our current cash position, which carries us into the second quarter of 2024 to deliver on important political and related milestones. I will now turn the call over to A.J. Bergmann, our CFO for a more detailed update on the financials.

Anthony Bergmann, CFO

Thank you, Linda. This afternoon's press release provided a summary of our second 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 the company website. As of June 30th, 2022, the company's cash, cash equivalents, and marketable securities totaled approximately $51.4 million compared to approximately $34.9 million on December 31st, 2021. As Linda mentioned, we believe that based on our current operating plan and financial resources, we expect that our available cash, cash equivalents, and marketable securities will be sufficient to cover anticipated expenses and capital requirements into the second quarter of 2024. Turning now to the financials in the first half of 2022, our net cash provided by operating activities was approximately $17.5 million, driven by the $30 million upfront payment from Nippon Shinyaku. For the second quarter of 2022, excluding stock-based compensation expenses, our research and development expense was approximately $4.7 million compared to approximately $3.4 million in Q2 2021. Excluding stock-based compensation, our general and administrative expense was approximately $1.4 million in Q2 2022 and approximately $1.2 million in Q2 2021. Net loss for the first half of 2022 was approximately $14.9 million compared to a net loss of approximately $9.9 million for the first half of 2021. With that, we will now open the line up for questions.

Operator, Operator

Thank you. We'll take our first question from Joe Pantginis with H.C. Wainwright. Please go ahead, your line is now open.

Joe Pantginis, Analyst

Hi Linda and A.J. Good afternoon. Thanks for taking the question. So, a couple of questions actually. So, first, wanted to get a little more color or detail. Now, obviously, the answers will be predicated on what the FDA says, but how would you describe your wish-list or goal for what you hope to get out of your upcoming FDA meeting, where you said the primary goal is to present the OLE data? Are you looking to change the potential launch dynamic, have it potentially come to market earlier? I mean, what is the ultimate goal here?

Linda Marbán, CEO

Our ultimate goal is to get CAP-1002 to market and into the DMD markets as quickly as possible. I've been saying for a few weeks that time is muscle. The open label extension data clearly showed that patients who were off CAP-1002 experienced a decline, but as soon as they resumed treatment, they improved. In contrast, the placebo group continued to decline steadily for two straight years—one year on placebo and another year in between—and then when they switched to CAP-1002, we observed a delay in the disease's progression by about 70%. We think this data is extraordinary and indicative of disease-modifying activity. We are very focused on presenting this data to the FDA and are eager to collaborate with them to obtain approval as swiftly as possible.

Joe Pantginis, Analyst

And the muscle data certainly speaks for itself in my belief, so I guess, I'll ask it in another way, as I'm thinking about it. So, with regard to the commercialization dynamic, so is there a potential, I mean, let's just call it a swing for the fences at this point with regard to does CAP-1002 have the potential to be on the market prior to the readout of HOPE-3? And when I say on the market, I mean, something like maybe a managed access program on a patient-by-patient basis based on the data you'd look to present?

Linda Marbán, CEO

Our current focus is clear; we have the essential components in place to prepare CAP-1002 for commercialization. This involves discussions with the FDA regarding Chemistry, Manufacturing, and Controls, ensuring we are ready for our Biologics License Application, presenting the open label extension data to the FDA, and obtaining their feedback to determine our next steps. The exciting aspect of our RMAT regulatory designation is that it grants us preferred access to the FDA, which will facilitate our collaboration. Everyone we’ve shared the data with is enthusiastic about it. Anecdotal feedback from patients indicates they feel and function better, and many have expressed this openly. We have assembled our team and appointed a manager. As a big baseball fan, I’m not hesitant to take bold steps.

Joe Pantginis, Analyst

There you go. Okay. And then, I guess, with regard to either concomitant timing of the meeting or a separate meeting with regard to CMC, I'm glad you're, you're planning ahead regarding your manufacturing, and supplementing out of San Diego lab. I'm glad you made those comments. How would you potentially project your needs beyond that from a manufacturing standpoint?

Linda Marbán, CEO

In terms of the manufacturing, we're working on that plan right now. We have the facility, as I just announced, that we're building as part of our San Diego labs. It is a relatively low-cost option, which affords us a tremendous opportunity for not only getting this product ready for BLA, but also for commercial launch. We'll evaluate along with our partner NS, the need as it becomes more apparent. And we'll keep everybody updated on our plans for that as we move forward.

Joe Pantginis, Analyst

Got it. And then just lastly, because obviously, the future has a lot of exosomes being discussed. So, you mentioned a couple of things here and in your press release too, that you're going to be looking for some preclinical data, maybe get a little more visibility about what kind of things we might see without necessarily tipping your hand. And you said you also have a potential partner in candidate in the form of vaccine candidate; is that something apart from your COVID candidate that you've discussed previously?

Linda Marbán, CEO

Yes, it's sort of a twist on the COVID candidate. So, I can't really talk too much about it right now because we're really working very hard with our IP and legal teams to make sure we're protected on every level. What I can tell you about this is it's going to be very exciting because it takes the exosomes, which you know we've been working on for a long time. We've standardized the manufacturing of such, so that they can be scaled up and manufactured in a way that will make them competitive with any lipid delivery system out there. But we can put a targeting molecule on the outside, and we can put custom payloads on the inside. The current vaccine candidate is similar to a recombinant protein vaccine, but has the advantage of being able to be made into other types of vaccine candidates very quickly. So, we use COVID, sort of, as our model system, rapidly available and something that we've been working on for a while, but in reality, could be translated to any infectious disease or other types of utility where a protein-based vaccine might be necessary or desired.

Joe Pantginis, Analyst

Got it. My last question is quite important given the current biotech environment, which seems to be recovering, but cash is crucial right now. Having a balance into the second quarter of 2024 is significant. I wanted to discuss one of your comments in the press release and A.J.'s remarks about potential strategic uses of this capital. Are you considering expanding your pipeline externally or further developing the exosome program? What options might you explore if that is a direction you consider?

Anthony Bergmann, CFO

Yes, Joe, happy to take a little bit of that question. I mean, obviously, we're being judicious with our cash spend. I think we have a nice runway into the second quarter of 2024. And really what we're prioritizing is our current mission focused on CAP-1002 for DMD and the exosome pipeline right now in a preclinical status. So, it's obviously out there, and we're considering all options, but we're going to do our best to effectively manage our burn rate moving forward.

Joe Pantginis, Analyst

Got it. Thank you guys.

Linda Marbán, CEO

Thanks Joe. Take care.

Anthony Bergmann, CFO

Operator, do we have another question?

Unidentified Analyst, Analyst

Hello.

Anthony Bergmann, CFO

Hi, Alan.

Operator, Operator

Our main focus is on CAP-1002 for DMD and the exosome pipeline, which is currently in preclinical status. While we are exploring all options, we are committed to effectively managing our burn rate going forward.

Unidentified Analyst, Analyst

Hello.

Operator, Operator

Yes. Go ahead Alan. It's open.

Unidentified Analyst, Analyst

Okay, I'm sorry, I couldn't hear anything for a bit. Linda, A.J., good to talk to you. And Linda, I'd like to pursue something that was mentioned earlier. There was an off-time for the treatment condition during the interim period, and the functioning looks like it continues its descent even after CAP-1002 is restored. How do you envision the treatment group might look like if it didn't go off-treatment for that interim period? And with that, feel free to provide any additional thoughts you had about the need for continuous treatment?

Linda Marbán, CEO

Yes, thanks, Alan, great to talk to you. Obviously, that's a question that we're looking forward to answering as we continue to move this program forward. What we know from HOPE-2, the first clinical program called HOPE-Duchenne and what we're believing we will see and HOPE-3 is that being on CAP-1002 delays the progression of the disease. But again, let me emphasize that time is muscle; they don't get the function back once it's lost; it appears to be lost. So, we delay progression; we delay it about 70%. If you want to think about that, in sort of a temporal way, you can think that out of a year of function, we're preserving eight months. And when you add that up over time, it's a very significant improvement in the trajectory of decline. We also believe that CAP-1002, based on its mechanism of action, which has been published and discussed, will perform alongside gene therapies with exon skipping and other potential therapeutics that are coming along the pathway and development for DMD. So, it's not going to be a one or the other scenario, but both. And so we're very much looking forward to seeing the fact that we can, kind of, maintain patients steady for years hopefully. This is a rest-of-your-life kind of therapeutic, the way one is envisioning right now, which just to highlight, half of the patients with DMD right now are non-ambulant; that's 10,000 patients, approximately eligible for four times a year dosing starting between 10 and 15 years of age and going until 25 or 30 years of age, which is now when they typically pass away but could be longer if everything works well. So, this is a long-term therapeutic option for DMD, very safe as well.

Unidentified Analyst, Analyst

Can you provide some details on the plan to increase commercial capacity for CAP-1002? In the long run, do you see this as a co-manufacturing arrangement with Lonza, or is it more of a backup option? Additionally, do you anticipate a larger scale operation as you expand in the United States and other markets?

Linda Marbán, CEO

As you can imagine, Alan, we were incredibly excited by the open label extension data. It literally put our program in terms of preparing for commercial launch on fast-forward. We are now evaluating options for scaling up and scaling out manufacturing. They've already been set; the building blocks are in place; how that's going to be enacted. As we begin to move into the market, we will be able to better assess as we get closer to that. The reason that we decided to build this facility here in our San Diego labs is that it allows us right now to make doses that are commercial ready. So, we're already preparing for commercial launch. And that's going to help us hopefully with our regulatory strategy as well as getting CAP-1002 into patients that need it as rapidly as possible.

Unidentified Analyst, Analyst

I'd like to slide again. Rooting for you. I talked to patients from around the world and they're actually tracking you and I are excited about this trial. So, good luck and hope to see you soon.

Linda Marbán, CEO

Thanks Alan. Be well.

Anthony Bergmann, CFO

Operator, it seems like you may be experiencing some technical issues. If you can hear us, we will conclude the questions and proceed with our closing remarks.

Linda Marbán, CEO

Thank you for joining us today. In summary, we are pleased with our progress in Q2 and we will continue to provide updates on our interactions with the FDA on CAP-1002 as well as our engineered exosomes program. We're more encouraged than ever about the outlook of the company and over the next several months, we plan to provide further updates on our progress at various conferences including the H.C. Wainwright Global Health Care Conference, the Cantor Fitzgerald Cell and Genetics Medicines Conference, both being held in September, as well as the Extracellular Vesicle-Based Therapeutic Development Summit in October, where we are featured in several presentations. Before we conclude today's call, I would like to thank our team at Capricor, our investors, and the many people who have been supportive along the way, including our patients and their families. Once again, thank you for joining us today.

Operator, Operator

This concludes today's conference. Thank you for your participation. You may now disconnect.