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

Ladies and gentlemen, good day, and welcome to the Capricor Therapeutics, Inc. Second Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to A.J. Bergmann for the forward-looking statement. Please go ahead, sir.

Thank you. Before we start, I would like to state that we will be making certain forward-looking statements during today's presentation. These statements may include statements regarding, among other things, the efficacy, safety and intended utilization of our product candidates, our future research and development plans, including our anticipated conduct and timing of preclinical and clinical studies, our plans to present or report additional data, our plans regarding regulatory filings, potential regulatory developments involving our product candidates 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.

Thank you, A.J. This has been a busy quarter for Capricor with progress on all fronts. Today, we will review the progress of our 2 clinical programs with our lead asset, CAP-1002. The first program involves Duchenne Muscular Dystrophy or DMD and the second involves the treatment of a hyperimmune response caused by COVID-19. Then I will provide an update on our engineered exosome platform technology. Before I discuss our clinical update, I would like to announce that we will be expanding our footprint to San Diego, California. We have selected a facility that will enable us to continue to build out our pipeline products, both CAP-1002 and the exosome. This expansion will include enhancements to our research, clinical and executive team. As we evaluated the talent landscape, we felt that San Diego area would provide more opportunity for us to continue this expansion. Now let me start with DMD. As we have been talking about for a while, we have been working with the Office of Advanced Tissue and Therapeutics (sic) [ Office of Tissues and Advanced Therapies, ] otherwise known as OTAT, which is a division of CBER of the FDA to see if there was a path to accelerated or full approval for CAP-1002 in DMD based on the positive data from the HOPE-2 clinical study. I am delighted to tell you for the first time after the final statistical analysis of the data in our HOPE-2 clinical trial, we hit our primary efficacy endpoint of mid PUL 1.2. Our secondary endpoint of the full PUL 2.0 and secondary cardiac endpoint of ejection fractions. The full data set has been submitted for publication. We have, of course, shared this data with FDA and will provide further updates on it after its publication or presentation at a scientific meeting. Based on the strength of the clinical data, we had an end-of-phase meeting with OTAT. And although it was a productive discussion, the consensus was at we should proceed to a Phase III clinical study. The principal thinking was that the size of the HOPE-2 data set with 20 patients was relatively small. We now plan to move forward with a Phase III pivotal trial. Currently, we are treating patients in an open-label extension study of HOPE-2, in which all patients are eligible to receive CAP-1002. In order to track progression of these patients and to enhance our safety database, we are using the PUL 2.0 and a relatively new but exciting measure of function called the DVA or Duchenne Video Assessment tool. Recently, at the annual parent project for muscular dystrophy or PPMD meeting, we showed a video of a HOPE-2-OLE patients before receiving CAP-1002 and after treatment, changing his position in his bed, which is targeted as one of the most important domains related to quality of life in Duchenne muscular dystrophy. The video showed marked improvement including his visage, which was more relaxed as he more easily negotiated the task. This video is available on the PPMD conference website. This video has made its way through the DMD community. So the patients are more excited than ever about CAP-1002. We are committed to getting CAP-1002 to them as quickly as possible as we work towards potential registration. Now let me briefly summarize the design of the HOPE-3 trial. It will be a Phase III study with approximately 65 to 75 patients in a one-to-one randomization scheme. As is common, we are building in a prespecified interim analysis. The national principal investigator will again be Dr. Craig McDonald of UC Davis, who is one of the leading experts of DMD worldwide. Currently, we are planning on approximately 20 sites in the U.S. In terms of clinical readiness, we have begun engaging sites and securing clinical operations as our goal is to be ready to start the trial. In terms of manufacturing, we continue to work with Lonza, as we have previously discussed, to have commercial-ready clinical supply at the appropriate time. We plan on meeting with FDA to secure our CMC plan for commercialization. As we are gearing after the pivotal trial, we have also had multiple discussions with payers, who have been positive in terms of the reimbursement potential for CAP-1002 for DMD. Their projected price target is in line with other cell and gene therapies for rare diseases. This is instructive as we continue to evaluate the long-term value of CAP-1002 in DMD. Further, as we have previously stated, our plan is to secure a partner to take CAP-1002 through commercialization. To that end, our discussions with potential partners have accelerated and we look forward to providing updates to the extent that they materialize into a definitive agreement. Now let me turn my attention to INSPIRE, which is the clinical trial we are conducting in patients with COVID-19. As you know, very few if any of the therapies that have been tried to combat the active virus or a sequelae has been effective. Based on a series of emergency use authorization cases conducted by us in 2020 and published in a peer-review journal, Basic Research and Cardiology. We decided to conduct a randomized, placebo-controlled, double-blinded trial of CAP-1002 in these patients with severe but not critical COVID. Now what does that type of patient look like? They are in the hospital and are in need of oxygen supplementation, but are not on a ventilator. We carefully selected this particular patient population because they were the most responsive to CAP-1002's immunomodulatory properties in the emergency use series of patients. Plus, it is widely known that once patients are on a ventilator, the outcome is usually not positive, no matter which treatments have been utilized. The trial was designed to enroll up to 60 patients with a variety of exploratory endpoints. The purpose of which was to evaluate how CAP-1002 was helping in severe COVID-19. We have been careful in patient selection at our sites so that we will have the best data set possible to move forward with. Enrollment slowed for a while when COVID cases fell in the U.S., but now with the resurgence of the virus and the nature of the Delta variant, we are seeing increased enrollment and we'll be looking forward to seeing the impact of CAP-1002 on severe COVID. At this time, based on our current plan, we anticipate top line data in the near future. One of the reasons we are encouraged about the potential impact of CAP-1002 in COVID-19 has been in the data from a recently co-published paper with the United States Army Institute of Surgical Research. The paper is called "Extracellular vesicles derived from cardiosphere-derived cells as a potential antishock therapeutic." The data from which supported our use of CAP-1002 in COVID-19. We have published that the mechanism of action of CAP-1002 is the exosomes at the cells release. And this paper highlights that mechanism by showing the impact of CDC-EVs or exosomes on shock and trauma. The pathophysiology of which is similar to that team in severe and critical COVID. Taken together, we are enthusiastically waiting for the data from INSPIRE to evaluate the clinical potential of CAP-1002 or in COVID and other indications of hyper immune activation. Now I'd like to provide an update on our Exosomes Platform Technology. A year ago, we announced that we would be expanding our portfolio of products to engineered exosomes. As we realize the power of the exosomes derived from CAP-1002, we also learned that they were nature's communication device, able to deliver messages from sell-to-sell and furthermore able to deliver payloads across the cell membrane, an area of active investigation and therapeutics for many years. We saw this as a great opportunity to capitalize on our knowledge of exosomes, but not be harnessed by any particular feature of the exosome. We envision the technology that would allow us to custom load the exosomes and deliver payloads of choice rather than happenstance. We have spent the last year laying the groundwork for that exciting opportunity. First, we have recruited a team of people who have experience with engineering exosomes, starting at the Vice President level, where we have recruited Dr. Kristi Elliott. Dr. Elliott received her PhD from Johns Hopkins University and has more than a decade of experience in exosomes for therapeutic development and who have assembled a team of approximately 10 scientists working on our Exosome Platform Technology. As I previously stated, this team will be primarily based in San Diego at our new research facility. This team is continuing to build out our vaccine program while advancing our exosome-based therapeutic pipeline. The research and development efforts continue to yield results. And in the second quarter, we have advanced the clinical development of our novel multivalent COVID-19 vaccine. As seen in recent months, mutations in the spike protein on SARS-CoV-2 have resulted in highly contagious variants. -- specifically the Delta variant. These mutations in viral spike protein may allow the virus to escape the immune response elicited by current vaccines. Therefore, annual vaccines are likely to become necessary to protect against variants of the coronavirus. It is becoming clear that existing vaccines will, therefore, need boosters to enhance immunity. That leads to the concept that new innovative vaccine approaches may be necessary to continue to combat this virus globally. As such, our hypothesis is that our vaccine may offer greater protection and less toxicity. And we are planning for COVID-19 vaccine to be administered as a booster to any currently available vaccine in a Phase I clinical trial. Now let me tell you what is different about our vaccine. First, our mRNA payload is delivered in an exosome. Exosomes are nature's delivery vehicle, which we believe may confer advantages to intracellular delivery of nucleic acids specifically and may lead to more natural antigen processing. Secondly, we have a multivalent construct of both the S and N protein. The N is highly conserved, which means it doesn't mutate as rapidly. And in fact, it is what is measured in traditional antibody testing of coronavirus. Our hypothesis is that the addition of the N protein may confer longer-lasting immunity to SARS-CoV-2. Because the spiked protein mutates rapidly, it may be more difficult to develop vaccines that protect against the rapidly mutating virus. It is important to announce both an antibody or B-cell response, which the current vaccines do very well, but for continued protection, it is important to have a T-cell or memory response as well. We believe that by delivering multiple RNAs, which are processed intracellularly by natural processes. We may have a vaccine that could potentially offer stronger protection against the variants of COVID-19. IND-enabling studies for our COVID-19 vaccines are underway, and we are on track to submit an IND in the fourth quarter of this year. Although this time line has been delayed from our original projections, we have worked through supply chain challenges and conducting multiple nonclinical CMC-related studies at FDA's request for one of the first exosome-based vaccine to our knowledge that may be moving into the clinic. Furthermore, this nonclinical work lays the groundwork for the development of exosome-based pipeline as the basic platform is the same, which is an exosome loaded with a biologic molecule. I continue to believe that exosomes present an opportunity for other vaccines beyond COVID. At this time, we were exploring the power of an exosome-based vaccine for other indications by conducting studies with a large pharmaceutical company with the hope that the data from such studies may be used to support the overall efficacy of an exosome-based vaccine approach. Finally, in addition, expansion of our exosome platform technology is ongoing. We have and are continuing to expand our R&D and product development teams to enable additional exosome-based programs. We are actively working to identify multiple indications over the next few quarters as part of our expanded exosome pipeline and some of these we plan to take into the clinic. We are investigating the use of both mRNA and sRNA as part of these therapeutic programs. Proof-of-concept studies for 2 new exosome programs are underway with initial data expected in the fourth quarter of this year. Taken together, it has indeed been a busy quarter for Capricor and we are anticipating finishing the year off strong with multiple clinical programs and the advancement of our engineered exosome platform technology. In addition, we recently added Karimah Es Sabar to our Board, who brings over 30 years of experience as a senior life sciences leader to our team. She successfully directed the global launch of 2 first-in-class vaccine and biotherapeutic products, and we look forward to her guidance as we embark on Capricor's next stage of growth. Lastly, please stay tuned regarding the announcement of a new leader to our senior management team. In closing, we will be presenting at various banking and corporate conferences later this year as well as several leading scientific and medical conferences, including the Cantor Fitzgerald Global Healthcare Conference and the Annual Cell & Gene Therapy Meeting on the Mesa. We look forward to providing continuing updates on all of our programs. Thank you. Now I will turn the call over to A.J. Bergmann, our CFO, for an update on the financials.

Thank you, Linda. This afternoon's press release provided a summary of our second quarter 2021 financials on a GAAP basis. You may also refer to our quarterly report on Form 10-Q, 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 June 30, 2021, the company's cash and cash equivalents totaled approximately $38.1 million compared to approximately $32.7 million on December 31, 2020. Based on our current pipeline and operating plan, the company's cash position is expected to be sufficient to support operations for at least 2 years. Turning to the financials. In the first half of 2021, our net cash used in operating activities was approximately $7.8 million. For the second quarter of 2021, excluding stock-based compensation, our research and development expense was approximately $3.4 million compared to approximately $1.8 million in Q2 2020. Again, excluding stock-based compensation, our general and administrative expense was approximately $1.2 million in Q2 2021 and approximately $1 million in Q2 2020. Net loss for the first half of 2021 was approximately $9.9 million compared to a net loss of approximately $5.6 million for the first half 2020. As Linda noted earlier, we continue to explore business development opportunities with our CAP-1002 program and are committed to the development of our exosome program. We will now open the line for questions.

[Operator Instructions] We will take our first question from Emanuela Branchetti from H.C. Wainwright.

It's very exciting to hear that CAP-1002 is moving forward and so congrats on that. And maybe you can share more details on the trial end point. So is the PUL 2.0 primary endpoint? And what about the target measure? Are we -- are you including those in the target design as well?

Yes. Thank you for that question. Yes, the primary efficacy endpoint is going to be the PUL 2.0. As you know from the top line data, and we'll see very soon from the published or presented data, the final data set from HOPE-2 was very positive and very compelling. So we're very confident in the selection of the PUL 2.0 at the primary. And yes, we're going to build in and have built in the cardiac secondary endpoints of ejection fraction in volume, also very significant in HOPE-2. The P value for ejection fraction in HOPE-2 was 0.004. The p-value for the PUL 2.0 in HOPE-2 was 0.04. So we're very excited to take this into a pivotal trial.

And you mentioned that the patients enrolling in HOPE-2 are going to be eligible for moving forward to HOPE-3. Are all the patients that completed HOPE-2 eligible to access HOPE-3 directly? How is that going to work?

So they're not going to roll into HOPE-3. The patients that were in HOPE-2, whether they received in the treated group or the placebo group, and the patients still are blinded. So they don't know what they received in the first iteration of the trial. They are currently in the open-label extension part of HOPE-2. They are currently receiving doses. Many of them are verbally reporting feeling and seeing improvements since going back on to the cells. So we're very excited at the patient report, and this also gives us a lot of energy moving into Phase III.

Got it. And just last question about this. Can you share your estimate on the cost of the study?

I'm sorry, I didn't understand that last estimated...?

The cost of the study of the HOPE-3?

Yes. So we haven't disclosed that, but we're estimating that it will be around $15 million which sounds low for a Phase III clinical trial, but we've been really careful to make sure we're only measuring what we need to take it through to registration. We've worked with FDA on the Phase III protocol and feel very confident that it is a laser-focused clinical effort to take this through registration.

Got it. Got it. And switching to the booster vaccine. I think that is a very smart strategy, but could you share your thoughts around a -- little bit around the clinical development since this is a booster subsequent to other vaccines? Are there particularly requirements, you have to meet for the IND approval and for moving forward? I just wanted to have your thoughts on that.

Yes. So we've been exploring that actively. We'll have more feedback once we file the IND. We had a pre-IND meeting, which we announced in the spring, and we've been finishing up those IND-enabling studies. Seems like it might have taken a long time, but the reality is it sets the foundation for exosome-based platform therapeutics, both in the vaccinology space, but also in the therapeutic development space. So it's been a really good use of our research team's time. And in terms of the acceptance of a booster strategy, well, I can't disclose exactly how we've been working with the U.S. government on their perception of need for viral vaccine boosters and they seem supportive of this opportunity and the work they were doing to prepare for it. So we haven't completely baked in with the FDA, and we won't feel that huge sigh of relief till we have the IND, but our current plan is to provide a booster to anybody that's been vaccinated with any of the previously available vaccine.

We'll take our next question from Dr. Mark Swaim from Torrey Hills Capital.

Linda, nice to hear from you, and nice to hear the wonderful presentation. A couple of questions. As regards to your booster vaccine planning, what would be the proposed route of administration of that? I'm asking because does it mean administration IV of a modified CAP-1002 type cell line or some of the route of administration of prepared exosomes?

So it's a straight intramuscular injection. It's exactly the same if you've been vaccinated with either the Pfizer, the Moderna vaccine. It would be the same type of thing, a quick shot on the arm that you don't even know happen.

Okay. All right. Does the company plan to -- if the data are positive in the COVID-19 trial to submit CAP-1002 for EUA?

Well, we're open to all possibilities. We built that trial based on as I said in my prepared remarks, the emergency use authorization set of patients that we did way back at the beginning of the pandemic. And the data was very positive, both in terms of preservation of life and also biomarkers. And so we'll see what this data set teaches us. Certainly, especially in this patient population, where literally nothing has been successful, we'll work very carefully with the FDA to see if we can move this forward as rapidly as possible should the data be positive.

Can the epigenetic modification profile wielded by CAP-1002 exosomes? Is it any good at suppressing IL-6 expression? Has that been quantified or examined?

I mean we've seen that in a lot of preclinical work that we've done. We've worked on CAP-1002 for many, many years. And it seems to suppress sort of the angry cytokine 1L-1, IL-2, IL-6 and augment IL-10 and some of the inflammatory suppressing cytokines. But we haven't seen it in this study. We are measuring it. We did see some interesting data in the emergency use authorization patients in terms of biomarkers. But in those days, let me emphasize, we were treating all comers. And so a lot of the patients by the time we got to them, they had been on ventilator for a while. We know now that those patients, as I mentioned, sadly don't do very well. So we're really going to be able to look at the data in a very careful way from the study. And I hope you're as excited as I am about it because I think it could give us some really interesting clues on how to treat COVID.

In pathophysiology insights, yes, I agree totally. Changing subjects a little bit. It's been some time since we've talked, but the last interaction, I guess I've understood there to be a really avid gung-ho plan to seek a kind of priority for preemptive authorization CAP-1002 and DMD. And now I'm hearing the plan to pursue Phase III. Are you doing -- is it a two-pronged approach that you're pursuing both? Or is it the plan just to primarily move ahead with Phase III now?

So we spent about the year working with FDA in multiple conversations. And I know many of our investors as well as the Duchenne community were sitting on the edge of their seats waiting to see what happened. And basically, FDA's OTAT, which is the Office of Tissue and Advanced Therapeutics of CBER, have come down and said, "Listen, this is really interesting data, but it was a small data set. We really need you to do this Phase III to validate what you've seen." And so we are -- rather than to continue to push the envelope and potentially keep fighting a battle that we might not win, I want to just jump right in. Let's get this trial done, and let's get this product registered and commercialized. And I will say, as I mentioned, but I want to highlight we are going -- not going to start the study until we identify an appropriate partner to take this through with. We need to validate that we get the appropriate funding and that we have a path all the way through to commercialization. So we're ready to go and actively talking to partners now.

Yes, I was going to ask A.J. mentioned $38 million and 2 years of funding with that -- with the cost of this trial be subsumed, but you've answered it in a different way. So thanks for that. That's all I have. Great hearing from you.

We'll our next question from Alan Leong from BioWatch News.