Capricor Therapeutics, Inc. (CAPR) Earnings Call Transcript & Summary

Greetings, and welcome to the Capricor Therapeutics, Inc. Fourth Quarter and Full Year 2019 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, CFO, A.J. Bergmann. Please go ahead.

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 call. These statements may include statements regarding, among other things, the efficacy, safety and the 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 development involving our product candidate, 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, 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. We disclaim any obligation to update such statements. With that, I'll turn the call over to Linda Marbán, CEO.

Good afternoon, and thank you for joining us today for our Fourth Quarter and Full Year 2019 Financial Results and Corporate Update Call. Of course, before I get into the details of our call, on behalf of everyone at Capricor, I would like to express our concern for all of those who have been affected by COVID-19. We recognize these are difficult times for everybody. But what is encouraging is that we and science and medicine are coming together globally to fight this scourge is with this spirit that we at Capricor continue to move our programs forward. On that note, we are very pleased with the progress that we've made in 2019. And looking ahead, we are very enthusiastic about 2020. All of us at Capricor are driven to achieve our goal of bringing our lead product candidate CAP-1002 to patients for the treatment of Duchenne muscular dystrophy. And we are committed to expanding our exosome platform technology to treat a variety of disorders. As stated in our recent announcement, we are focusing on developing exosomal vaccines for a variety of indications, including those of viral origins. We feel that this is especially important in light of everything happening right now with COVID-19. On the call today, I will be providing an overview of the development of CAP-1002 for DMD, our exosome program with a specific focus on building a vaccine platform, the key events that occurred during the past year and our goals and objectives for 2020. First, I want to highlight some of our important accomplishments in 2019. In July of 2019, a significant achievement was the positive Phase II interim 6 months data results of our HOPE-2 clinical trial investigating CAP-1002 for Duchenne muscular dystrophy. We revealed these clinical trial results at the 24th International Congress of the World Muscle Society in a late breaking presentation. We were delighted to present and increase the visibility of CAP-1002 to this audience of professional experts, working in the area of neuromuscular disease. Following the receipt of this data, we met with the FDA in a Type B end of phase meeting, and we continue to have ongoing productive meetings with the FDA to discuss our study data and obtain the guidance on the development path forward that we are incorporating into our clinical and regulatory strategies. We also completed an approximate $5.1 million equity financing at the end of 2019 to strengthen our balance sheet. And I also want to highlight that we have received over $45 million in nondilutive capital since the inception of the company, and we plan to pursue additional funding opportunities to support our development as they become available. Now quickly, let's turn our lead -- let's turn to our lead drug candidate, our first-in-class biologic, CAP-1002, currently being investigated as a treatment for DMD and our positive 6-month interim results of the Phase II HOPE-2 clinical trial. Briefly, DMD is a genetic disease that affects approximately 200,000 boys and young men worldwide. This number includes 20,000 in the United States. This devastating genetic disorder causes muscle degeneration due to the lack of dystrophin, which is a protein in the muscle fiber membrane that acts as a cushion and kind of glue in muscle cells. The lack of dystrophin predisposes muscles to damage and make them unable to function properly. This muscle degeneration generally leads to death before the age of 30, most commonly from complications of the cardiomyopathy. Our study consists of Duchenne participants who mainly are nonambulant, which means they are primarily dependent on a wheelchair to get around. These are boys and young men typically between the ages of 12 and 28, and there are currently no approved products for these DMD patients. I cannot emphasize enough the dire need for an effective therapy for these boys and young men who are unable to walk and despite their challenges work to maintain the use of their arms, hands and shoulders for day-to-day life activities, which include feeding themselves, taking care of their basic hygiene needs like brushing their teeth. It is a battle that these boys and young men fight every day to keep their independence and minimize their reliance on other people, and it is a particular group of patients that CAP-1002 is now attempting to treat. Current gene therapies are limited and do not address many of these patients who suffer from the later stages of this disease. Now let's look at the technology involved in CAP-1002 and the positive results of the Phase II clinical trial. First, let me remind you that CAP-1002 is Capricor's cell-based therapeutic candidate with the mechanism of action immunomodulatory, anti-fibrotic and has been shown to lead to generation of new muscle cells. The Phase II HOPE-2 trial, a randomized, double-blind, placebo-controlled trial in participants with DMD and reduced skeletal muscle function. The objective of the trial is to evaluate the safety and efficacy of CAP-1002 with a dosing regimen of 150 million cells delivered intravenously every 3 months in 20 patients at 9 sites in the United States. The mean age of the trial participants were 14.3 years. All patients were on stable corticosteroids and 80% of the patients were nonambulant. A significant milestone for the company was a positive Phase II HOPE-2 6-month clinical results from the interim analysis. Data from the interim analysis demonstrated that teenage boys and young men in the advanced state of DMD, saw improvements in skeletal, pulmonary and cardiac function after receiving 2 doses of CAP-1002. Patients showed improvements in the performance of the upper limb, a tool specifically designed for assessing shoulder, elbow and distal wrist and hand function. Additionally, independent tests assessing grip strength and tip to tip pinch strengths also showed positive results. Although we commenced the trial using the PUL 1.2 version as our primary efficacy endpoint, the FDA has suggested the use of the updated PUL 2.0 version as the primary efficacy endpoint, which would support a biologic license application formerly known as a BLA. We also evaluated the patients in HOPE-2 using the PUL 2.0. The PUL scale was designed to measure upper limb motor performance across the spectrum of severity of DMD and is specifically focused on patients who are unable to perform the 6-minute walk test. In this study, an improvement in pulmonary function was also observed. There was an improvement in cardiac function as measured by MRI, showing less thickening of the anterior and lateral wall of the heart. In patients with DMD, their heart declined progressively and they had impaired function in the later stages of the disease, improving systolic wall thickening suggest possible functional improvements that may be better understood once we see the 12-month data. This positive data is very promising for CAP-1002. We have shown positive outcomes from 2 clinical trials to date. The HOPE-2 clinical study is the first placebo-controlled clinical trial showing upper limb functional improvements in nonambulant DMD patients. As we have previously announced, Capricor has been granted Regenerative Medicine Advanced Therapy designation, known by the acronym RMAT, Orphan Drug Designation and pediatric rare disease designation by the FDA for CAP-1002 for the treatment of Duchenne muscular dystrophy. The goal of the FDA's RMAT designation, let me remind you, is to facilitate efficient development and review of cells and gene therapies. The RMAT designation provides benefit that includes more frequent meetings with the FDA to discuss the development plan of the product candidate and eligibility for rolling review and, of course, priority review. The RMAT designation has enabled us to collaborate more closely with the FDA, which is helpful in the development of CAP-1002. We are now awaiting the 12-month results from the HOPE-2 study, which we plan to announce in the second quarter of this year, as patients are undergoing their final assessments in the coming weeks. Following receipt of this data, if positive, we intend to meet with the FDA to discuss the next steps in this program. Our goal is to move this therapeutic towards registration as quickly as possible. Now I would like to turn your attention to the latest news on the expansion of our exosome technology. We recently announced our strategic plans to further develop and expand our exosome technology platform to create new vaccines and therapeutics. At the same time, we announced the appointment of Dr. Stephen Gould, a professor of biological chemistry at Johns Hopkins University as Capricor's Executive Consultant to direct and manage our exosomal-based therapeutic development initiatives. We are very excited about this important step in realizing the important -- the potential of our exosome technology platform under the leadership of Dr. Gould. Now let me tell you a little bit about Dr. Gould. He is an internationally recognized exosome expert, who brings an unparalleled understanding of exosome engineering to Capricor's exosome-based research and development program. Dr. Gould's team was the first to reveal the mechanistic link between exosome biogenesis and virus budding, the first to identify mechanisms of engine -- exosome engineering and the first to develop an exosome-based cancer therapeutic. Dr. Gould has published numerous research articles and cited reviews and several book chapters, received numerous public and private research grants, organized numerous scientific conferences and served on an array of NIH and other grant review panels. I know we've been discussing this for a while, but to briefly remind you, exosome is a membrane-bound extracellular vesicle, secreted by virtually all cell types and are composed of a nanometer-sized lipid bilayer. Exosomes signal or communicate with cell and can potentially be modified to transport a therapeutic into cells. Exosomes can also be adapted to carry proteins on the outside or nucleic acids on the inside. This highlights the importance of harnessing the power of the exosome as a drug delivery vehicle. They speak the language of the cells who are better able to bring a therapeutic to a target of interest rather than a shotgun approach, which is how a liposome might work. So let me answer this question very importantly, why is Capricor developing an exosomal vaccine platform? While the vast majority of vaccines are comprised of purified recombinant proteins or live attenuated agents, killed pathogen or antigen and coding DNAs. While these other approaches are effective against many viruses, immunization with recombinant proteins and DNAs often yields relatively weak protection against infections. While immunization with killed virus or live attenuated strain poses health risks to both the vaccinated individuals and of those who produce the vaccine. Furthermore, the absence of a uniform approach to vaccine development makes it difficult to quickly develop and produce effective vaccines to newly emergent viruses such as COVID-19. Capricor is working to overcome these limitations by developing exosome-based vaccines. Due to IP concerns, we are choosing not to publicly disclose the details of the technology at this time. But we can say that our exosome-based vaccine platform technology combines the improved protection that comes from immunizing individuals with multiple antigens in a manner that mimics the advantages of conventional virus vaccines with the superior safety profile of virus-free vaccine. In addition, Capricor's exosome-based vaccines will be designed to elicit strong humoral and cellular immune responses through the simultaneous expression of antigens, which has been described in our patent filings. Capricor plans to develop multiple exosome-based vaccine platform for COVID-19 and other indications. These efforts represent early stage research projects, which are designed to help us optimize exosome-based vaccination strategy. The first step will be to produce our first experimental batches of exosome-based COVID-19 vaccines, which, if successful, will be followed up with safety and efficacy studies, which, of course, will be subject to FDA monitoring and approval. Additionally, there are many nondilutive grant opportunities from federal funding agencies that have recently been announced, which are focused on this area of great need, and we plan to actively pursue these opportunities as they become available. Please stay tuned for updates on this as we remain very focused on helping this area of great need for patients. Furthermore, I have asked Dr. Gould to join us on a call next week to discuss the unique opportunity of using an exosome as a vector for vaccine development, whether it be an infectious disease or in any other target such as cancer. Lastly, it is important to note that in these challenging times that the key assets of the company is our ability to build from bench to bedside. We have been working in conjunction with academic leaders since our inception, which has allowed us access to the science that drives the medicine. We are looking forward to building the same type of relationship with Dr. Gould in his laboratory. We will also continue to build our team here at Capricor to support the company's expanding platform. Now looking ahead, I will begin to highlight our key objectives for 2020. Our cell therapy program in DMD, we expect to report our CAP-1002 for DMD top line 12-month Phase II HOPE-2 study data in the second quarter. We expect to continue our active discussions with the FDA to discuss next steps for the DMD program after receipt of this final 12-month data. And in our Exosome program, we are focused on expanding our exosome technology platform and are now focusing on developing an exosome-based vaccine for COVID-19. While it is still early days for this program, stay tuned for more updates as they become available. In addition, we plan to file an IND for DMD using our CDC-exosomes in the second quarter. Finally, we will continue to pursue partnership and grant opportunities for each of our programs. With that, I will now turn the call over to A.J. Bergmann, our CFO.

Thank you, Linda. This afternoon's press release provided a summary of our fourth quarter and full year 2019 financials on a GAAP basis. You may also refer to our annual report on Form 10-K, which we expect to become available in the next few days and will be accessible on the SEC website as well as the financial section of our website. As of December 31, 2019, the company's cash, cash equivalents and marketable securities totaled approximately $9.9 million compared to approximately $7.3 million on December 31, 2018. As Linda mentioned, our cash position includes the approximate $5.1 million financing that was completed in December of 2019. Based on our current plans projection Capricor expects that its cash, cash equivalents and marketable securities will fund our research and development programs and other operations through at least the second quarter of 2021. Turning to the financials. In the fourth quarter of 2019, our net cash used in operating activities was approximately $1.8 million. For the fourth quarter of 2019, excluding stock-based compensation, our R&D expense was approximately $800,000 compared to approximately $2.7 million in Q4 of 2018. Again, excluding stock-based compensation, our general and administrative expense was approximately $800,000 in Q4 2019 and Q4 of 2018. Net loss for the fourth quarter of 2019 was approximately $1.5 million compared to a net loss of approximately $3.3 million for the fourth quarter of 2018. Again, net loss for the full year of 2019 was approximately $7.6 million compared to a net loss of approximately $15.2 million for the full year of 2018. As you can see, we remain financially disciplined and continue to diligently manage our expenses and are maximizing our resources to be used in the development of CAP-1002 for DMD and our exosome development program. We will now open the line up for questions.

[Operator Instructions] Our first questions come from the line of Joe Pantginis of H.C. Wainwright.

Linda and A.J., hope you're well and hope you stay well as well. The -- I have 2 questions for you. First, on the DMD program. So you had your Type B meeting with the FDA. Presumably, you got a lot of important guidance. You touched upon it a little bit. So when the 12-month data come out, I guess, can you sort of portray how much -- if the data point in the right direction to move forward with, how much is going to be sort of plug-and-play with regard to discussions you've already had with the FDA sort of just dotting the I's and crossing the T's with regard to the next study or even a filing path?

Yes, Joe, thank you. And thank you. As of right now, we are all well. And I hope you and yours are too. These are frightening times for sure. Thank you for your question. So we have had guidance from FDA. FDA was pretty directive at our last meeting in which they stated that they felt that the data was very encouraging. But they felt that because of the unblinding due to the interim analysis, the unblinding was just at a level of the company, remember the patients, physicians and any of the investigators and staff are completely blinded to this point. They felt that a Phase III clinical trial would be appropriate. We are going to take a look at the 12-month data and evaluate it. If it looks as good or better than the interim data 6 months, we're going to marshal all of our resources, all of the advocacy groups that are so supportive of our work, and talk to FDA about alternative strategies to move more quickly to registration. And that's not just from a corporate perspective of best interest of the company, so to speak, it's also for patients and the families traveling when you are a nonambulant boy in a wheelchair on an airplane to a clinical trial site is exhausting, expensive, time-consuming and sometimes depressing if you're in the placebo group at the end of it all. So what we're going to advocate with the FDA is that we give a chance to all patients to have access to this through some type of a registration. And then see about doing confirmatories on the back end. If that strategy -- and that's really 150% of my efforts, if that strategy does not work, we can fall back on the well-defined thought of a Phase III, but that's way in the back of my mind right now.

Got it. No, that's really helpful. And then my next question is on the latest release. It's, I think, quite encouraging to see the increased focus now for the exosome program, especially since this has been percolating in the background for quite some time. So my question is, I don't know if this is going to hit the realm of the proprietary nature. But as you develop these assets, how are you looking to sort of, I guess, identify the payloads that are going to go into the exosomes because they're not just -- they could be peptides, RNAs different modalities that you've discussed in the past?

Yes. So in the guise of chance favoring the prepared minds but the unprepared government, I'll say, just as a postscript, we decided awhile ago that we're going to look at vaccines. Exosomes are uniquely suited for vaccine development, whether it be for an infectious disease such as coronavirus or influenza, but also for immunotherapies that have -- need targeted delivery. What we were going to do and now have done in a focused way is focus on COVID-19. It's a great opportunity to help humanity and also develop that plug-and-play system that we are so interested in developing for vaccines. In terms of other payloads, we have a long list that we've developed with Dr. Gould. It's really a matching game of payloads and indications that we would like to specifically target. Our ultimate goal is to only develop a few internally for our own use, but to develop relationships with other partners that, for instance, do RNA-based therapeutics or enzyme replacement therapeutics and have had difficulty in getting their payload to their target, so to speak. And so we are opening several avenues, only one of which is our own development opportunity.

Our next question has come from the line of Jason McCarthy of Maxim Group.

I'm going to stick with the COVID-19, obviously, it is the subject that everybody's talking about. I want to take you in a different direction. You had shown data around your cell therapies in DMD, where cells migrate to the lung once they're infused, and that's where the exosomes are released. And now we're seeing some other groups in the cell therapy space, you know who they are moving towards COVID-19 on the cell therapy side. Have you thought about it from that perspective? Because I think you're the only group that's shown that lung migration data, if you would. And that speaks to treating pneumonia and the inflammation as that's what's killing people with COVID. Can you discuss that a little bit or kind of opine on that?

Yes. Thank you, Jason. And so I'm just going to take a minute to talk about exactly what you've just said. So we have shown that our cells track to the lungs that their mechanism of action is the releasing of the exosomes. We've shown both with our cells but also with our exosome, positive data in sepsis, in autoimmune diseases such as lupus and also in graft-versus-host disease. And we've recently submitted a paper in conjunction with our work with the United States Army on trauma. So a shock that comes along with it. So yes, we are actively and absolutely thinking about using our cells in the treatment of critical cases of COVID-19. I will tell you that we are actively discussing this with physicians and with the Food and Drug Administration at this time. And so look for that is something that we'll be talking more about, hopefully, in the coming days.

Okay. And are you aware of any emergency funding that the federal government or NIH is making available to support programs like this or any other programs that are out there because there are so many that are emerging? Are those types of nondilutive funding sources that you're thinking about internally?

Yes. So another really important and absolute question. So we have an internal grant writer whose entire job is to survey the landscape for these nondilutive funding opportunities. And they're coming out. They're actually, to be honest with you, not as quick as we thought that the U.S. government should respond. There's some coming through the Department of Defense through their MTEC program that we're looking into that should provide for some pretty rapid funding, although not rapid enough if any of relative of mine was in the hospital. And the NIH also is working in the same way. So I think everybody's trying. There's a whole lot of scrambling going on, as one can imagine because people are trying to work from home and also deploy at the same time. So we're looking into all of it. But there's nothing clear yet.

Our next questions come from the line of Alan Leong of BioWatch News.

In one of the announcements you've teased us about the operational advantages of creating exosomes and also exosome vaccine approaches. One of the things that we struggle with currently with the incumbent method is the cost of manufacturing versus sell price scale up and also the speed to candidate vaccines. Could you make any -- provide any color at this point in time? The promise around -- generally around exosome-based vaccines versus the incumbent -- the incumbent on an operational level?

Yes. Alan, thank you for that question. It's very important. One of the reasons why we decided to reach out and expand into vaccine development using exosomes for all the reasons that you annunciated. It allows for more of a sort of a plug-and-play technology, allows for sort of putting more potential payload in there, putting more antigens on the surface or nucleic acids inside the exosome, and it allows more for standardization over time as it's a cell-free system. So all of the reasons that you talked about and then several more is one of the reasons why whether for COVID-19, influenza or immunotherapy or any other reason one should think of needing a vaccine, one would like to be able to ultimately harness the power of the exosome. And we feel delighted to have the opportunity to work with Dr. Gould on this because he's been working on this type of strategy academically for a long time. And now he's able to take sort of his academic vision and turn it into a product development and potential therapeutic targeted pipeline

Yes. And one more question along those lines and a quick comment. I saw the patent and then you mentioned it on the call, with humoral and cellular protection. This suggests potential protection being generated in the [ COVID ] lining, which I've always speculate would be relevant towards coronavirus or other similar type illnesses.

Yes. Yes. I'm not going to comment on any of that at this time. It's still in early stages and prefer to be a little quiet on sort of where and how they're targeting, but do tune in next week, when Dr. Gould does a key opinion leader call talking about exosomes for vaccines. Basically, what we're going to be talking about with him is why exosomes are good for the development of the vaccine, whether it be for any indication. And some of that will be answered in his discussions.

Well, about investments in the vaccine technology, and we should have done this years ago. I hope you get the money.

Our next question comes from the line of Chen Lin with Lin Asset Management.

Many of my questions has been answered. I -- just hypothetically, if you get the funding from the government say next week, how soon can you develop the vaccine? And how soon are -- maybe you need to do animal tests first and then human test? I just like to know what the time frame we're talking about.

We are -- thank you so much for your question, and good to talk to you again. We are developing things as quickly as the research will allow us to do. We are in early stages. It's an early stage search project that has to be followed by animal testing and then, of course, clinical trials in humans and all through the regulatory process with FDA. Luckily, we're in a situation where a lot of the regulatory hurdles are being torn down in the emphasis of getting therapies or strategies to patients as quickly as possible. In terms of money from the government, we're also looking into those opportunities and dependence of our development pathway.

Great. You mentioned the DMD data in your presentation, you mentioned that you will finish the patient visit in the coming weeks. Did I hear correctly? So if I -- how long do they take to compile all the data amount or to get the data? I'm trying to see whether you will get the Phase II data out in early part of Q2 or later part of Q2?

Yes. So I'm going to take the public company head here and say that our guidance is that it's going to be out in Q2, and I'm very confident that it will be out in Q2. I'm not going to go any further than that especially during these trying times, we're getting people to work is a little bit more challenging than it has been in the past. But we are very confident that we'll have the data in the second quarter, and we'll release it in whatever guys we think is appropriate at that time.

Do you have a conference, your plan to release that in the second quarter? Or just release to the investors as soon as you have the data.

Yes. So we're reviewing opportunities regarding publishing, incredible journals, which may or may not have embargo policies. We're looking at presenting at relevant conferences. There are some very important DMD conferences that typically happen in the spring and early summer. Conferences at this point are all up in the air, so we don't know how that's going to play out in terms of some of the social isolation or social distancing that we're going through right now. So all of that is up in the air. But what I can say is that once we get the data and we have a plan in place, we will release the data in that venue, and we'll make sure everybody knows about it.

We have reached the end of the question-and-answer session. I will now turn the call back over to Linda Marbán for any closing remarks.

In closing, we continue to build on our recent progress, and we expect 2020 to be a productive year. We are committed to becoming a leading company in the development of cellular and exosome therapies for rare diseases. We are focused on advancing the development of CAP-1002 and implementing our strategic plan to build our product opportunities through our exosome technology platform. I want to thank everybody for calling in today. Please stay safe, stay healthy. And we look forward to bringing you updates on our programs as they become available. And thank you very much for your time today.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great evening.