Ladies and gentlemen, welcome to the Capricor Therapeutics, Inc. 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.
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. 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, 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, turn the call over to 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. 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 experiences 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 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. Excuse me. 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 15-20 investigational 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're encouraged by the pace of enrollment 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 2022.
2023.
2023. Sorry. 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 towards potential registration. As part of our continuing engagement with 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 space into a GMP manufacturing facility. We would expect, subject to FDA approval of CAP-1002, that this facility will be able to support 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 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 and 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 and DMD and will 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 non-dilutive 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 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 our bioengineered exosome platform, including those used for StealthX, will support our efforts toward 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 lipid 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, collaborative or business development.
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, 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 maturing 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 exert financial discipline across the organization and believe that our current organizational structure and balance sheet will support entering 2023 with strong momentum. I will now turn the call over to AJ Bergmann, our Chief Financial Officer, for a more detailed update on the financials. AJ.
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 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, that our available 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.
Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We'll pause a moment to give everyone an opportunity to signal for questions. We'll take our first question from Alan Leong with BioWatch News. Please go ahead.
Hi, Linda. Hi, AJ , just a question for you.
Alan, how are you?
I'm good. Amazing, amazingly well today.
Good. We're glad to hear that.
Thank you. Even, AJ, let's suppose something. Even if you don't get the partnerships, and by the way, I've always been amazed, Linda, at how you've been able to keep things non-dilutive over the years. Let's kind of play with this. If you don't get the partnerships and things are a bit delayed, you know, the amount of bridge that you'd need, I don't know, financially need, and correct me if I'm wrong, you're not looking at much. Even if the hypothesized milestone payments didn't come along, you know, things got delayed a little bit and the partnerships had to be delayed a bit. That's just my conjecture. I wonder if you could reflect on that a bit.
Yeah, 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. I guess my long-winded answer to that question is we are gonna continually be disciplined. We're gonna 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.
The kind of the third piece to that is, you know, there's other opportunities for partnering CAP-1002 outside of the United States and exosomes, of course. We're looking all around. We're well aware of the current financial, you know, status of the market. I think from a cash management perspective, we're doing everything we can to put the right energy into our programs.
Yeah, it's a smile. By the way, I have to smile about calling it the StealthX program. You have a number of aerospace and military companies out here, in a way that hold black box projects. Almost sounds like one of those. You have
It is on purpose actually.
Oh, really?
Yep.
Huh.
Yeah. That's how we see the exosomes as working because they evade detection by the immune system and deliver targeted messages to specific cell types. It was very, very strategic on our part. We see it as a very military strike of the exosome, so to speak.
Interesting. Well, let me ask you about 'cause you mentioned vaccinology and precision delivery of therapeutics, and I probably can be classy and just ask one question and address others when I can. The precision delivery of therapeutics, when you mention that, it almost sounds like it could be a business development exercise. Let me ask you, are you looking at existing drugs that sorely need better delivery, or are you looking at in-house development? Are you looking at some combination of both?
Yeah. 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's a lot of drug delivery that we've been wanting as a, you know, biotech industry, pharma industry even before that, to get beyond the cell membrane. We now have a tool to do that. You know, the exosome can allow targeted delivery of all kinds of molecules, including, for instance, lipophilic molecules that, you know, previous drug delivery systems haven't been able to do. We're looking at, you know, stuff that's out there that may need a sort of a kick in terms of working better or being able to use lower doses, for instance.
You know, 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. We've been able to demonstrate that with the StealthX, with the vaccine that we're developing, which is we're able to use nanogram amounts of the protein, the spike protein, as well as the nucleocapsid protein. Nanogram amounts, which allows us to be really well positioned for multiplexing of vaccines and other targets. We can use really small amounts to drive big biology, and that's one of the things we're excited about. We're looking at it both from a BD perspective and also from an internal development perspective.
Let me ask one quick question and 'cause I seem to recall you won't. AJ, you mentioned both of you mentioned having the manufacturing and you have this is for early commercial launch, and you have a you're portion out a part of the San Diego location for that. You got enough for early commercial reasons. Great. It gets it out there. Are you tempted if you're successful, if you can get that first one through the FDA, are you tempted to capture revenue and margins by building another?
Yeah. That's an issue, Alan, that we talk 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 plans include using the facility within our footprint for launch. We have the option to either tech transfer to a CDMO like Lonza, who we've been working with the past few years, so they're primed to manufacture our product or then to build facilities of our own. All of that will be based on, you know, demand, market conditions, opportunity and all the factors that are not predictable just yet.
Well, thanks. You've been generous in your answers, and good luck to us both.
You as well, Alan. Thank you very much.
Thanks, Alan.
Thank you.
We'll take our next question from Aydin Huseynov with Ladenburg Thalmann. Please go ahead.
Good afternoon, Linda. Good afternoon, AJ. Thanks for taking my question. I have several. Wanted to ask you regarding the HOPE-3 interim analysis in the middle of next year. What kind of data we should expect there? Is it the same data as the top-line data but with limited number of patients, or what you're looking for specific milestones or specific signals of activity?
Yeah. Currently the interim analysis is built purely as a sample size re-estimation. We don't want, you know, to ever lose out on the opportunity of achieving success in a clinical trial because we under-enrolled, you know, a few too few patients, so to speak. It'll be a sample size re-estimation where the DSMB, they obviously having access to unblinded data, will give us the go ahead to continue to the end or to add a certain proportion number of patients. That's fixed so that there's no risk of unblinding. We chose to do an interim analysis such as that based on feedback from FDA that they really wanted to see this trial go all the way to the end without a data reveal.
We're doing this exactly in a strategic fashion mandated by FDA. It's a small trial perspective wise. You know, 68 treated patients is what we're looking for at this point. My motto to my team is heads down HOPE-3, and that's exactly what we're doing.
Okay, got it. In terms of the patients that have been recruited so far, I think you mentioned 18 patients. Can you describe these patients? Are they completely non-ambulatory patients or with partial ambulation? Just if you could give us some color on this.
Absolutely. Thanks for the question. Of course, all of the clinical trial criteria are on ClinicalTrials.gov. For anybody who's interested in catching up on that, it's available. We're very careful to maintain 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 The Lancet, was very relevant both clinically in terms of clinical relevance as well as statistically significant improvement. Currently we look for patients that have a Performance of the Upper Limb score of two-five as our inclusion criteria. They can sometimes be late stage ambulatory and still have reduced upper limb function. The torso muscles sometimes can go before the leg muscles.
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.
Okay. Understood. Thank you for that. And help me understand one thing. 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. 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 how this may look like for the late-stage drug like yours. The reason I'm asking this because of the ex-U.S. BD opportunity, trying to understand how the upfront and overall market may look like. 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.
Absolutely. I'm gonna 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're 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, you know, 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. With current therapeutics, primarily focusing on steroids and certain types of ventilation procedures, these people are living really to their late twenties or early thirties. We're looking at somewhere between 50% of the patients and treating them 4 x a year for 15 or more years. There's a very robust revenue opportunity, both in the United States as well as outside the United States.
Okay. Thank you very much. This is very helpful. Appreciate it.
Thank you so much. Thank you for your time. We look forward to seeing you in the city at some point.
Absolutely.
Ladies and gentlemen. As a reminder, star one for questions or comments, please. Star one. We'll take our next question from Brian Cordy with Bull Bear Partners. Please go ahead.
Hi, Linda. Hi, AJ. How are you? Great report.
Hey, Brian. Good to hear your voice.
Oh, thank you. Yours too. I had a couple of questions and some clarity 'cause 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, 'cause I know some of those dates didn't match up before. If you could kinda touch on that.
Yeah. We have been pretty clear in our messaging. We continue to work with FDA. We have, you know, 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, you know, has a tremendous efficacy, and our current open label extension data shows what we and others consider to be disease modification. Time is muscle, and we wanna get it to the patients as soon as possible. Now, having said all that, FDA has been very clear in what they want us to do. What they've told us to do is to do HOPE-3. As I said a minute ago, I'll say it again, heads down HOPE-3.
Our focus entirely is on enrolling this trial and achieving what FDA has asked us to do, 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 RMAT designation, as well as, you know, other types of preferred opportunities for accessing FDA. We will, at certain targeted points not yet disclosed, continue to meet with FDA and see if there is a way to push forward for accelerated approval, if that's helpful at all, Brian.
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. If you were looking sooner than that, correct?
Yeah. I'm sorry, I didn't realize that that's what you're referring to, so forgive me for that. Yeah. Our current plan is that we anticipate finishing enrollment in HOPE-3 by the third quarter of 2023. It's a 12-month, you know, set the clock and collect the data. That's the so-called third to fourth quarter of 2024. We're looking for BLA submission in the first quarter of 2025. That was not accelerated approval. Accelerated approval could come any point before that. That's our drop-dead date for when we anticipate achieving approval based on HOPE-3.
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. Thank you. Now, in terms of the follow-up videos that you were gonna have for some of the patients, where are you at with that? 'Cause I know that's so powerful to see.
Yeah. 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. We use them to quantify the clinically relevant improvement in function that we see mathematically via statistical assessment of the Performance of the Upper Limb. It really is corroborating clinical meaningfulness or clinical relevance. Families, as you can imagine, are sensitive about those being released, so at appropriate times, we might, you know, be able to use those, but right now we're using them primarily for regulatory approval.
Okay. My last question is I know you've been looking at roughly $600,000, give or take, for a pricing structure. 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?
AJ, wanna take this one?
Yeah. I mean, obviously we're looking at that, Brian, over the next, you know, the duration as we move towards potential approval, we'll evaluate that. I think $600,000 is right now on the base case of what we believe we could charge, based on some early payer discussions we had. I think you're aware of the current drugs on market are a little bit in excess of that. I think it's a good price target, but of course, everything we can do in that arena, we will do the best of our ability.
Okay, 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?
Yeah. At this point, we're still not able to disclose more granular details of how many of them that they 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. Unfortunately, I'm not in a position as of today to disclose the exact amount of milestones moving up to regulatory approval.
All right. Sounds great. I appreciate it. Let's keep going for. Oh, one last thing. Sorry. In terms of-
It's okay.
Sorry, Linda. You know me. In terms of submitting pre-BLA to the FDA, do you think those discussions will continue until you get the readout, or are they telling you to wait completely until then?
No. 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 FDA on our release criteria for the cells, and we anticipate that going very well.
Okay, great. Thank you. Appreciate it.
As a reminder, star one for questions, please. Star one. With no further questions in the queue, I will now turn the call back to Capricor management for closing remarks.
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.
Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now.