Good afternoon, ladies and gentlemen, and welcome to the Capricor Therapeutics second quarter 2023 financial results and corporate update call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. As a reminder, this conference call is being recorded. I would now like to turn the conference over to our host, Mr. AJ Bergmann, Capricor's Chief Financial Officer.
Thank you, and good afternoon, everyone. Before we start, I would like to state that we will be making certain forward-looking statements during today's presentation. These statements may include 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, plans to present or report additional data, our plans regarding regulatory filings, potential regulatory developments regarding our product candidates, manufacturing capabilities, potential milestone payments, and other 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 and 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, AJ. Good afternoon, and thank you for joining our second quarter 2023 conference call. Today, I would like to begin by reiterating our deep commitment to optimizing patient-focused medicine, in the first half of 2023, we continued to make steady progress across our pipeline and are well positioned to deliver on important clinical and regulatory milestones for our Duchenne muscular dystrophy program, as well as continue to advance our exosome platform technology. I am extremely pleased with the recent additions of two new members to our board of directors, with the additions of Doctors Philip Gottwald and Paul Auwaerter. Dr. Gottwald most recently served as the Global Head Vice President of Business Development and Licensing at Novartis Institutes for BioMedical Research and has nearly 30 years of experience in drug development, research, corporate strategy, and business development. Dr.
Atwater brings over 30 years of internal medicine and infectious disease experience as the Sherrilyn and Ken Fisher Professor of Medicine at the Johns Hopkins University School of Medicine, serving as the Clinical Director for the Division of Infectious Diseases and the Director of the Sherrilyn and Ken Fisher Center for Environmental Infectious Diseases. Both Dr. Gottwald and Atwater's deep industry experience will be invaluable as we continue to enhance our strategic and business development priorities across both of our programs. Our late-stage clinical development program for CAP-1002 in patients with DMD continues to advance through development, and key priorities include enrollment of our phase III, HOPE-3 clinical trial, which I will give more details on in the next 2 minutes, as well as continuing discussions with the FDA regarding the proposed path towards submissions of a Biologics License Application.
Building on this momentum, we believe we are well positioned to execute our corporate objectives throughout the remainder of the year. I will now dive into our programs and provide an update on recent activities. Let me provide you an update on our recent FDA interactions. Earlier this year, as part of our RMAT designation, we held a Type B CMC, or chemistry, manufacturing, and controls, related meeting with FDA, where we outlined our plans for production of commercial scale GMP CAP-1002. The outcome of this meeting was positive in that FDA clearly outlined for us the deliverables necessary for the CMC portion of our BLA.
As we previously have reported, there also was a discussion concerning the possible inclusion of additional patients who would need to be treated with product from our San Diego GMP facility in order to support commercial product manufacturing at this site. As this request would have likely extended the timeline for the completion of our pivotal trial, and therefore the time to BLA, we requested a subsequent Type B clinical meeting with FDA to determine if there was a more efficient and expeditious path to BLA due to the great unmet medical need of this patient population. The advocacy community believes, as we do, that CAP-1002 attenuates disease progression, and they have continued to raise awareness of our program within the FDA and specifically CBER. As the FDA continues to highlight the importance of patient perspective, they have continued to pay close attention to our program.
To that end, the FDA granted our request to discuss our program in more detail, and this meeting occurred in July of this year. The goal was to further outline a plan for an expedited path to BLA for CAP-1002 for the treatment of later-stage DMD, and I am happy to share that FDA seemed generally supportive of this plan. Currently, we are awaiting the final minutes from FDA, which we expect this month. We have already had another informal meeting with FDA to further define certain aspects of our program, and we are greatly appreciative of the FDA's guidance to optimize the HOPE-3 clinical trial design to support our path to potential approval. Next, I will provide an update on HOPE-3, our phase III clinical trial.
I am very pleased to inform you that as of today, we have randomized 48 subjects across 17 active sites, and based on the currently designed sample size of 68 patients, we are on track to be fully enrolled early in the fourth quarter of this year. Furthermore, we remain on track to conduct an interim analysis on HOPE-3 in the fourth quarter of this year, which will primarily focus on a futility analysis. I am very enthusiastic about the rate of enrollment, which has been strong throughout the summer and propelled by the positive feedback from patients and families, including the anecdotal reports of disease attenuation. Additionally, we are extremely pleased by the safety profile of CAP-1002 and the overall support of our investigators and families.
Now, for an update on our most recent HOPE-2 open-label extension, or OLE, results presented at this year's Parent Project Muscular Dystrophy Annual Conference. To remind you, we presented positive, statistically significant two-year follow-up results from this study. As you may recall, the HOPE-2 OLE study previously met its primary endpoint at the one-year time point on the PUL 2.0 scale. At the 24-month time point, the data continued to show statistically significant differences in the PUL, Performance of the Upper Limb, 2.0 in the open-label extension treatment group when compared to the original rate of decline of the placebo group from HOPE-2 after one year. Even more profound were the cardiac findings we observed.
While the natural history of DMD cardiomyopathy suggests a steady decline in cardiac function as measured by ejection fraction, in HOPE-2 OLE, we observed improvements in heart function in six of nine patients. Over time, we also observed an increase in correlation with the Performance of the Upper Limb Version 2.0 and ejection fraction results. The two-year results from this open label study are tremendously impactful for DMD patients, showing cardiac and skeletal functional benefits, which underscores the potential long-term benefits of CAP-1002 treatments in DMD. The disease-modifying potential, together with the favorable safety and tolerability profile, further positions CAP-1002 as a potential anchor therapy for DMD patients. We are thankful to the patients and their families for their continuous commitment to working with us on demonstrating the potential benefits of CAP-1002. Now, turning to our partnership strategy.
Now that we have secured commercial and distribution rights in the U.S. and Japan with our partner, Nippon Shinyaku, we continue to focus on securing additional partners in other markets around the world, with Europe being a key priority, and now have several companies evaluating the opportunity. Another focus I would like to briefly touch upon is the opportunity to evaluate new indications where CAP-1002 might provide benefits to additional patients. While we haven't committed any resources to this development area yet, this opportunity would provide another potential avenue for partnering, licensing, or even sole development, leveraging on the capabilities we have built at Capricor for CAP-1002. Lastly, I would like to provide on our update on our GMP manufacturing facility. We have designed this GMP manufacturing facility to produce commercial scale GMP CAP-1002 doses.
We see this facility as a versatile and cost-effective way to bring CAP-1002 to market efficiently. In anticipation of CAP-1002 obtaining market approval, we built this facility because we believe having the ability to manufacture in-house will greatly increase our margins and will support the early launch of this product. I am pleased to report that the San Diego facility is up and running. Engineering runs are underway, and we remain on track to be able to release clinical doses in the third quarter of this year. Overall, I am very pleased with the progress of our DMD program. We look forward to sharing further updates from our interactions with FDA, our progress with HOPE-3, and the development of potential additional partnerships in new territories. We have two new additions to our senior leadership team, enhancing our regulatory and CMC internal expertise. Dr.
Yuxi Feng has assumed his role as Vice President of Regulatory, overseeing all regulatory activities. Dr. Feng previously worked at the FDA, Wave Life Sciences, and Kodiak Sciences. Each of these companies have overlapping areas with our areas of focus. Jonathan Tako has joined us as Vice President of Program Management and Business Operations, overseeing CMC development. Prior experience for Mr. Tako included Kite Pharma, where he played an integral role in the BLA approval of Yescarta, one of the first approved cell therapy treatments for large B-cell lymphoma. I am very pleased to welcome these two new members to our team. Turning to our exosome platform technology, which leverages the natural cell-to-cell communication of the body....
We are harnessing exosomes to serve as a novel drug delivery system with broad therapeutic applications, and our proprietary StealthX expression platform is at the core of our exosome program, which is focused on the development of two broad modalities: infectious disease and precision therapeutics. As previously stated, we believe that exosomes are the future of drug delivery. They are able to deliver contents directly to the cell, avoid detection by the immune system, and can be targeted. However, one of the issues that the field has been grappling with is the ability to manufacture a large volume of a relatively homogeneous formulation, similar to lipid nanoparticles. We have focused a significant amount of time and energy into manufacturing and targeting exosomes, and I am delighted to share with you that we have made paradigm-shifting progress on these objectives.
This development step allows for rapid and efficient development of future exosome products. To that end, I'm very pleased to report that we have recently begun work with an undisclosed pharma company looking at enhancing delivery of ASOs using exosomes as the delivery vehicle. I look forward to providing more details on this in the coming months, as this is a very important step for Capricor as we begin to leverage our platform, StealthX. We look further to exploring the applications of our StealthX platform as we expand into precision-based therapeutics and are working in targets on, primarily in neuromuscular diseases at this time. Additionally, we recently published data in bioRxiv, a journal featuring two vaccine candidates that were generated with StealthX. Exosomes were engineered to express influenza H3 or SARS-CoV-2 spike.
When administered individually, both StealthX-H3 and StealthX-Spike introduced a strong immunization with the production of a potent humoral and cellular immune response. These effects were obtained with administration of nanograms of protein and without adjuvant or lipid nanoparticles. To test the potential benefits of the bivalent vaccine, hemagglutinin H3 and SARS-CoV-2 spike proteins were individually engineered on the exosome surface and mixed before injection. This combination approach also induced a strong immune response in mice with both antibody and T-cell response. Additionally, there were no detectable immune competition between antigens. By combining multiple targets in a single vaccine formulation, these results support the potential therapeutic utility and versatility of our StealthX platform in addressing a broad range of infectious diseases. Our current plans continue to focus on leveraging business development and partnering strategies, as well as non-dilutive grant funding for our exosome platform technology.
In closing, we are pleased with the advancements across our organization as we remain focused on becoming a commercial-scale company with CAP-1002 as our lead asset and development of our exosome technology. We are entering the second half of the year in a position of strength. I look forward to working with our new board members and capitalizing on their deep industry experience and forward-looking vision, which we feel will be invaluable as we continue to execute on the key priorities for CAP-1002 and our exosome platform. With that, I will turn the call over to our Chief Financial Officer, AJ Bergmann, to run through our financial results for the second quarter of 2023.
Thank you, Linda. This afternoon's press release provided a summary of our second quarter 2023 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 website. As of June 30, 2023, the company's cash, cash equivalents, and marketable securities totaled approximately $37.8 million, compared to approximately $41.4 million on December 31st, 2022. Based on our current operating plan, the company's cash position is expected to be sufficient to support operations through the third quarter of 2024. I would like to note that this expectation excludes any additional potential milestone payments under our exclusive commercialization and distribution agreements with Nippon Shinyaku that may become due, which would extend our cash runway.
Turning to the financials. Revenues for the second quarter of 2023 were approximately $3.9 million, compared with zero for the second quarter of 2022. The primary source of revenue was from the ratable recognition of the $30 million upfront payment in accordance with our U.S. exclusive commercialization and distribution agreement we received from Nippon Shinyaku. Moving to our operating expenses for the second quarter of 2023, excluding stock-based compensation, our research and development expense was approximately $8.4 million, compared to approximately $4.7 million in Q2 2022. Again, excluding stock-based compensation, our general and administrative expenses were approximately $1.7 million in Q2 2023 and approximately $1.4 million in Q2 2022.
Net loss for the second quarter of 2023 was approximately $7.4 million, compared to a net loss of approximately $7.1 million for the second quarter of 2022. Net loss for the first half of 2023 was approximately $15.1 million, compared to a net loss of approximately $14.9 million for the first half of 2022. With that, we will now open the line up for questions. Thank you very much.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. Again, that's star followed by the number one. If you would like to withdraw your request, please press star followed by the number two. Your first question comes from the line of Joe Pantginis from H.C. Wainwright. Please go ahead.
Hi, good afternoon, Linda and AJ. Thanks for taking the questions. I, I know there's a lot of working parts here, and I know my questions will revolve around some things that you might not be able to detail because the FDA minutes are not out yet, but I'm still gonna ask them. With that said, I guess as San Diego comes online this quarter, if I heard you correctly, do you have a general range of, of the number of patients that would be required from that facility to start with?
Yeah. Joe, hey, good to, good to talk to you. You're correct. There's very little we can say until we get the final minutes, but what I can tell you is that once we get them, we plan on, you know, doing a public release in some way, either via press release and/or a call, to sort of update the market and the community as to exactly, the path forward. What I can tell you is that FDA has worked really closely with us. They're very supportive of this program. Several of our patients' families have reached out to FDA, in order to, to ask them to take a really careful look at Capricor to help move the program forward because they feel that their sons are feeling and functioning better.
We're confident that the answers that we get back from FDA will be the best ones possible to move the product towards BLA.
That makes sense. I, I guess for my next question, it's sort of in the same realm, but I'll ask it sort of scenario-based. You do have the minutes that you're awaiting right now. You also have the upcoming interim analysis in the fourth quarter for HOPE-3, which you said is primarily based on futility. However, does one of the potential scenarios include the positive feedback from the minutes with regard to the data you might see in the interim that could allow for the acceleration or resetting of the timelines positively for HOPE-3?
Yeah. That was a pretty impressive question asked, Joe. Good work. I can tell you've been doing this a long time. The answer to that is, futility is the, the metric that we're looking at for the interim analysis. FDA has been pretty clear with us that they want to keep this trial very tightly regulated, really carefully monitored, because they believe in the product too. We can tell from their feedback from us, for us, and so, we're probably not going to use the interim for accelerated approval opportunity. I can tell you, that I am laser focusing on opportunities where we may be able to take advantage of, of an earlier look, to look for an accelerated approval. I cannot disclose now, how we might do that, but that is something we're definitely thinking about.
Got it. I guess my other questions are more, are strictly logistical. In the conduct of HOPE-3, you're obviously encouraged by the enrollment rates that you've been seeing, if I understand correctly. What are the prominent reasons for screening failure of patients, or what does the patient and also, what does the patient pipeline, look like for potential enrollment?
Joe, great, great question. Screening failure, which is really come down a lot, thanks to our really very strong new clinical team that we put in place. The primary reasons that people fail out typically is that they don't have inclusion criteria of the Performance of the Upper Limb score 2-5. What we typically see is some of these guys whose scores are too low. Let me just say, from a human level, it's heartbreaking because they have to have the ability to use their hand to bring it to their mouth unassisted. We probably get 2 or 3 calls a week from people saying, "Well, you know, if they-- what if they need help? What if they use their other hand to, to boost it?" People want CAP-1002 desperately.
That leads into the, the answer to your second question. The pipeline of potential patients is very rich. There's a lot of energy around this open label extension data. At the PPMD meeting, we were by far, one of the busiest booths, you know, second only to Sarepta with the gene therapy. We are looking to build with Sarepta, with all of the gene therapies that could come along as anchor therapy for CAP-1002, and so the families see it that way as well. We do not see any potential turndown or downturn, not turndown, turndown, downturn in patient opportunities moving forward.
Got it. Then lastly, going away from HOPE-3 and DMD, you did give us a little bit of a tease again about additional CAP-1002 opportunities. I was just curious here, any potential for going back to any of the prior indications that you've worked on in the cardiovascular arena or any teasing you might wanna give us now with regard to newer indications, or is this a wait and see?
Yeah. I think the best way to answer that is we are very pleased with the progress of CAP-1002 and DMD. I think it's very clear that there seems to be a disease-modifying and a very strong treatment effect that persists after years. Our patients have done really well on a repeated exposure. We have open-label extension patients that are in their third year and coming into their fourth year of treatment. It's very safe. The infusions are easy. We are opening the door internally to look at potential opportunities for CAP-1002. We're exploring those now, and we'll provide updates as we have them to where we will likely deploy CAP-1002 next.
What I can tell you, you know, if you're sort of looking into your crystal ball, you know, we've seen really nice data in an inflammatory cardiomyopathy, skeletal muscle disease, neuromuscular disease. We know that, you know, CAP-1002's primary mode of action is immunomodulatory and pro-regenerative. We're going to continue to explore indications that, so the disease pathogenesis would be highlighted by those two processes.
Got it. Thank you, Linda. Appreciate it.
Thanks, Joe. Take good care. I'll see you soon.
Ladies and gentlemen, just a reminder, if you have a question, please press star followed by the number 1 on your touchtone phone. Your next question comes from the line of Alan Leong from BioWatch News. Please go ahead.
Linda, AJ, it's great to be back, and what wonderful commentary. Linda, your commentary extends way beyond the release, and love to hear it. Also, shout out to Joe, the last analyst, for a great question. I have a couple sets of questions. You are into really low volume, high margin products, although, Linda, you caught my ear about the breakthroughs into scalability. Is the pilot manufacturing model a possible template for Capricor's future path towards vertical integration? In other words, are you considering this your usual modus operandi going forward? You could simply replicate pilot-sized facilities. Your products seem to be in that sweet spot, so I wonder if you could provide any commentary on that.
Are you talking, Alan? First, by the way, it's great to hear your voice, and I hope you're continuing to do well. Are you, are you talking primarily about exosomes or CAP-1002 in terms of pilot manufacturing expansion?
Both. If I understand the manufacturing, you don't need a large footprint for either to accomplish what you need.
Right. They're, they're similar but different, obviously. With CAP-1002, we really have put several manufacturing, scale-out, and scale-up opportunities in place so that we can reduce the footprint necessary and create more cells. That's been pretty effective, and that's largely been the focus of, of the transfer to the San Diego GMP facility. We're working really closely with FDA and their CMC group, in order to make sure that the product is the same as we produce in the pilot facility, which is, you know, why we're, we're, working right now to, to get those out there and into the clinic.
Yes, we expect that we can expand this, and it won't exactly be, as I think you're envisioning, which is we take you know, 10 little pilot facilities and turn it into 100 little pilot facilities. It'll be an expanded facility, the manufacturing processes will be largely the same. You know, cell, cell therapy manufacturing opportunities has really expanded in the past couple decades, there's a lot of good opportunity there. Not exactly how you envisioned, but almost. In terms of exosomes, that is one of the areas of great pride for us. As I mentioned in my prepared remarks, you know, one of the, one of the things that have held back exosomes is how are you gonna make these? How are you gonna make them homogeneous?
How are you going to turn them into a product? We believe, that, we have done that. We've taken sort of the state-of-the-art and what is known about exosomes, making lipid nanoparticles as well as some of the other engineering constructs, and are building a really good manufacturing paradigm that also should be buildable and not really pilot plant expansion. That one will be more like, you know, big bubbling bioreactors and that kind of thing, as we move it forward. That's a procedure that can easily go from, you know, a couple mils to 100 mils to liters, you know, into, to larger volumes than that, if that that makes any sense to you, Alan.
It does. You know, you also caught my ear about the ASO undisclosed pharma interest. I want to go more general. Can I get more commentary on the general pharma and suitor interest? Because I've been watching this. How much pursuit from suitors for combination trials? Because if I read some of the literature right. If I'm wrong, feel free to bat me on the head. There's an absorption, serious absorption issues of the current gene and cell therapies, and this is where CAP-1002 potentially becomes 1 + 1 equals 3 and not 2. That exerts a lot of interest from those who are in that space. Can you further comment on that in general?
You mean with, with the exosomes in terms of their partnering potential?
Yes.
Yeah, absolutely.
Right.
You know, that's. This is one of the great opportunities in biotechnology, and pharma is well aware of it. I think everybody knows that lipid nanoparticles can only take you so far. We've been working as a field, and I say we, because this even predates my own career in science, on, you know, delivery and targeted delivery of therapeutics to cells. We know how important that is, that we can now harness something that the body makes naturally to do that. That's why Capricor has really turned our focus in the past few years towards an engineered exosome platform. Not working specifically with a exosome made by a cell. CAP-1002 makes perfectly wonderful exosomes. We think they mediate the mechanism of action of CAP-1002.
What we really wanna do is turn exosomes into a drug product. You engineer an exosome, you put what you want on the inside, and you tell it where to go on the outside. It's like putting a zip code on it. Of course, pharma is very interested in that, and we have a very active business development program right now, and, and one of the main hurdles was this manufacturing step, which we have succeeded in doing. We look forward to great opportunities with the exosomes moving forward.
Last question, this is for AJ, I guess for both of you. This will be a fun question, but it does get to some interesting things. You got $10 million more up front cash from the last agreement. If you got a grant or another agreement that brings in another $10 million, how would you like it used?
Yeah, thanks, Alan. Nice to hear from you. I mean, obviously, bringing in non-dilutive capital is a, is a big focus for us, as you heard Linda articulate, both from potential in our approach to vaccinology as well as the next steps, which is targeted therapeutics. Where exactly would we like to deploy it? I mean, if you, you know, if I had my wish list, it would be great to, to use that non-dilutive capital to move into these types of new indications that we're hinting at here, whether it's new neuromuscular targets or potentially using the exosome as a targeted vehicle. That would be my wish list, and taking those non-dilutive capital dollars in the door is a, is a big area that we're putting a lot of energy in. I don't know if Linda wants to articulate anything else.
Yeah. You know, cash is king, as you are in product development mode, and so, you know, what we would definitely do is use it in a laser-focused, targeted way to move our programs forward. CAP-1002 is at the front of the line right now. All, you know, major dollars being spent are being spent on getting, you know, CAP-1002 approved, and then, the few, you know, dollars left over go towards the exosome program as we move that forward. If the dollars come in and are specifically requested to build a program, we would obviously work on that. For instance, if there was a deal where they wanted to build an engineered exosome, that's where a good proportion of those dollars would go.
To that end, you know, we are focusing on what we need to do. AJ maintains a very tight ship in terms of managing our resources, and that explains why we've been able to stay alive through some pretty difficult times.
Well, I look forward in the intermediate future, Linda, to walk into your office. The future looks bright for both of us, and.
Oh, that's wonderful news.
That's what I hear. Yeah.
That's wonderful news.
It's all good.
Well, the future is bright for Capricor, but if the future is bright for you, that's great news, Alan, so let's see each other soon.
Thank you. Looking forward to it.
All right. Take care.
Take care, Alan.
Take care.
Ladies and gentlemen, just a reminder, should you have a question, please press star followed by the number one on your touchtone phone. There seems to be no further questions at this time. I'd now like to turn the call back over to Capricor management for any closing remarks.
Thank you. Overall, I am confident that the company's upcoming catalysts provide a solid foundation for execution and value creation. We remain focused on driving our late-stage clinical development program forward for CAP-1002 and DMD. Before we conclude today's call, I want to extend my sincere appreciation to the clinicians, patients, and their families who are working with us to bring CAP-1002 closer to potential approval. Again, thanks to everyone who joined us this afternoon, now you may disconnect your lines.