Capricor Therapeutics, Inc. (CAPR) Q2 2017 Earnings Report, Transcript and Summary

Welcome to the Capricor’s Second Quarter 2017 Financial and Business Highlights Call. My name is Victoria and I’ll be your operator for today’s call. At this time, all participants are in a listen-only-mode and later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. And I will now turn the call over Leland Gershell. Leland, you may begin.

Thank you, operator and good afternoon. A short while ago Capricor issued a press release in which we announced our financial results for the second quarter of 2017 as well as provided an update on our business. This press release is available on our website at capricor.com. Joining me on today’s call are Dr. Linda Marbán, our President and Chief Executive Officer; and AJ Bergmann, our Vice President of Finance. During today’s call, we will be making certain forward-looking statements. 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 and our possibly usage 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 Securities and Exchange Commission 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’d now like to turn the call over to Linda Marbán. Dr. Linda Marbán: Thank you, Leland. Good afternoon and thank you for joining us today. On today’s call, I will devote the majority of my remarks to discussing our lead development candidate CAP-1002 for the treatment of Duchenne muscular dystrophy, which has been receiving a tremendous amount of attention from the patients, physician and advocacy community since we reported clinical data from our HOPE study earlier this year. I will also share a brief update on our exosomes program, which continues to move towards an IND submission for CAP-2003 that we anticipate will occur next year. And before we go to Q&A, Leland will provide a summary on our second quarter financials. I’d like to start by highlighting the positive results we announced in April from a pre-specified interim analysis of our randomized HOPE-Duchenne clinical trial. In that analysis, we observed improvement in skeletal and cardiac muscle function in patients who had received CAP-1002 as compared to usual care control. These improvements were over and above any which may be attributed to the use of critical steroids as all participants in HOPE were required to be out of preexisting steroid regimen at entry and which they continued during the study period. Unlike the majority of recent and ongoing clinical trials in Duchenne, which are designed to recruit patients who are younger and ambulant, the 25 patients in our HOPE trial represent those with advanced disease with an average age of about 18 years and over two thirds of them requiring wheel chair assistance for mobility. Despite having received with a single dose of 75 million cells, measurable differences between the active and control groups were observed to persist for at least three months from baseline. CAP-1002 was generally safe and well-tolerated in HOPE, similar to our clinical experience with these cells in other settings. We have reviewed these results in detail with a number of key opinion leaders in Duchenne to gain their perspective on the data itself, as well as feedback that might help guide us as we consider further development plan. The data were met with a resoundingly positive response and the specialists with whom we spoke were particularly impressed by the degree of improvement shown in skeletal muscle function in the upper limb. Specifically, in the CAP-1002 group compared to the usual care group, the average middle and distal dimension scores in the performance of the upper limb test, otherwise known as the PUL were 10.4% greater at week six and 8.1% greater at month three. To put this in context, in diseases like DMD, just achieving stabilization of function or even slowing the rate of decline are considered to be a success. To see the level of improvement that we saw in HOPE is encouraging and presents a rare opportunity to potentially make DMD patients functionally better than they had been prior to treatment. For those of you who may not be familiar with the PUL, it is a validated outcomes instrument that is designed to assess upper limb functions in patients with DMD, especially those that are non-ambulant. A principal motivation for its development was to enable non-ambulant boys and young men to be included in clinical trials in these indications which historically have focused predominantly on ambulant children doing a number of established tests that measure walking ability or other lower extremity gross motor score and be applied. The PUL was developed in an iterative, systematic fashion by an international clinical outcomes group consisting a variety of stakeholders in DMD, most importantly the children and families but also including clinicians, scientists and advocacy groups for whom an important objective was to have the individual task of the test to be clinically meaningful and relevant to the activities of daily living. The process was informed by guidelines published by the FDA on development of novel outcome assessments and modern psychometric methods were used to create a scale with robust internal reliabilities and validity. As we disclosed at the end of last month, we received meeting minutes from the FDA which summarize our Type B meeting that occurred in June. One of our key objectives for that meeting was to understand the agency’s sentiment toward our proposal to use an efficacy endpoint based on the PUL as one that can support registration. We were pleased to announce a few weeks ago that the FDA is indeed willing to accept the PUL as a primary efficacy endpoint for registrational purposes, and we expect our next study to feature the middle promotion [ph] of the PUL as a primary endpoint. We are currently deep in the planning stages for this next trial called RESTORE-DMD which will be designed in a randomized double-blind placebo-controlled study and which will have a few features that I would like to highlight here. First, subject to regulatory approval, we will be evaluating CAP-1002 as administered by peripheral intravenous infusion, a much simpler and lower risk delivery method as compared to infusing the dose into the coronary artery by catheterization as is done in HOPE and one which is far more amenable to a repeat dosing paradigm which we will be using. As [indiscernible] CAP-1002 affect their actions through the exosomes basically. The manner by which CAP-1002 was introduced into the circulation is actually of no particular importance. This has been confirmed through many preclinical studies in which similar outcomes were observed among animals injected with CAP-1002, a variety of intravascular delivery method. Second, as I just mentioned, participants will receive sequential doses of the study medication over time. Duchenne is lifeline disease and the goal for any treatment strategy is to sustain its potential benefits for as long as possible. In HOPE we observed that the cells’ effect last out for about three months, which is a time course consistent with our preclinical data. We expect dosing to occur at three months intervals in the upcoming trial. We will update you on the RESTORE-DMD study design once it has been finalized and we plan to submit it the IND to the FDA for consideration towards the end of this quarter. In addition, we will soon be announcing the national principal investigator of this trial who is a world-famous thought leader in treating DMD and implementing functional measures as a means of determining disease progression. We are confident that with the support of our key opinion leaders, the advocacy community and the FDA, we will have the best chance to see success in this next clinical study. Along with this submission, we will also be including a request for Regenerative Medicine Advanced Therapy or RMAT designation. This designation, which was legally introduced as part of the 21st Century Cures Act was established to foster the development and approval of cell therapies among other innovative technologies. We did recently announce that the FDA has granted CAP-1002 the rare pediatric disease designation. The FDA defines a rare pediatric disease as one that primarily affects children of 18 years of age or younger and which affects fewer than 200,000 persons in the U.S. Upon the potential market approval of CAP-1002, the treatment of Duchenne muscular dystrophy, Capricor will be eligible to receive a Priority Review Voucher that can be used to obtain priority review for a subsequent NDA or BLA or it may be sold or transferred. A number of companies have monetized these vouchers since this program was instituted a few years ago. For the benefit of those who maybe newer to the Capricor story, I’d like to now delve a little deeper into the science of our technology as well as Capricor’s evolution. The slide here shows that it was known for sometime about cardiosphere-derived cell or CDC, which is a cell that in their allogeneic form we cal CAP-1002. That is CDCs are potent modulators of several disease processes including inflammation, fibrosis and apoptosis. These abilities have been reported in numerous peer-reviewed articles dating back to the original disclosure of these cells in 2007 out of the lab of our scientific founder. Now, as you can see here on slide four, this timeline depicts the tandem evolution of our understanding of how cell growth and the progression of our clinical development strategy. We started out thinking that the cells in graft can become part of their target tissue similar to the way stem-cells do, which is why we delivered them locally in our early studies. We then learned that works with paracrine mechanism, which led us to belief that their affects are mediated by cytokines and growth factors that are locally on neighboring cells. However, the persistence of the cells affect long after they themselves have disappeared, suggested that other mechanisms will play. So, we continued our research and discovered that exosomes are actually the primary mediator of the biologic effect of CDCs. Exosomes, as you may recall are a class of nonoscale extracellular vesicles by which cells communicate with each other. The exosomes released by our CDCs are packed with RNAs proteins, which are internalized by their target cells and stimulate broad changes in cellular behavior through epigenetic modulation of protein expression. This explains the diversity of their effects on muscle structure and function. So, these years of work have finally culminated in a flushed out mechanism of actions that fully explains the anti-fibrotic, anti-inflammatory, anti- apoptotic and pro-regenerative effects our cells. The foundational work on CAP-1002 was first on an animal model and then in clinical trials in patients with adult heart disease, which is still the number one killer of Americans and is a multi-billion dollar drain on public healthcare dollars. However, the fundamental biology of heart failure [ph] is that a continuous cycles of fibrosis, apoptosis and inflammation just like DMD. Let me explain. Duchenne muscular dystrophy is a rare disease in which the body is unable to make the muscle protein known as dystrophin due to a mutation in a gene that goes for it. They structurally and physiologically disrupt the individual muscle cells and the resulting chronic muscle damage leads to progressive weakness. Then muscle cells may exhibit complete loss of function as patients get older. While missing dystrophin is the root cause in muscular dystrophy, the relentless cycles of inflammation, fibrosis, oxidative stress and other disease response mechanisms set out by muscle injury, as well as the interplay among them, collectively represent the final common end-point [ph] in the disease process in all people with DMD irrespective of their particular mutation. As dystrophin is absent throughout musculature, the same processes occur in skeletal, cardiac and respiratory muscles. Now, you can understand why having embarked on a program to study the CDCs and DMD makes clear logic sense. The heart disease from DMD would appear to be very similar in its pathology to the heart disease suffered by adults with heart failure. And with heart failure being the most common cause of death in the DMD population alongside the wealth of evidence supporting the effects [ph] of CDCs in heart disease, the stage was set to dedicate efforts and resources to explore CDCs as a potential treatment option for DMD cardiomyopathy. Our cells were first studied in the Duchenne context about five years ago. What was in fact observed from a series of experiments in mdx mice, the standard preclinical model of DMD with the CATCs [ph] not only improved cardiac functions but also result in improvements in skeletal muscle functions as evidenced by the increased ability of the mice to run on a treadmill. Systematic evaluation revealed a significant effect on skeletal muscle function in an isolated muscle prep, which was further elucidated on a molecular level by the detection of also gene and protein levels in these muscles, suggesting that repair was occurring. Exosomes injected directly into the muscle, re-perpetuated these observations, providing validation to the then emerging concept with the cells exerted effects through exosome signals. Taken together, the careful scientific analysis is creative to the idea that the cells improved cardiac and skeletal muscle performance in DMD. The results from HOPE then confirmed the preclinical observations. Now, we’re poised to move into potentially registration of clinical trial with an approvable endpoint that is relatively easy to measure with a candidate that has multiple pathways within the pathophysiology of Duchenne muscular dystrophy. As the understanding of the mechanisms which underlie the clinical picture of DMD has matured, the role played by information has become increasingly clear. Over and over, investigators are showing in animal models that merely increasing dystrophin expression is not enough and we know that while steroids have extended life by nearly a decade, they attenuate the client but do not provide improvement and also come with a laundry list of side effects that are undesirable. Our goal is to become a valuable option for Duchenne patients regardless of their genetic etiology, by adequately demonstrating the ability of CAP-1002 to grow functional benefit by virtue of immunomodulatory, anti-fibrotic and regenerative properties. We’re optimistic that CAP-1002 will have long-term treatment potential and it can well be used in conjunction with therapies directly targeting dystrophin as well as other therapeutics under investigations for DMD. Before closing my update on activities related to CAP-1002, I would like to touch on our Phase 2 ALLSTAR clinical trial for which we reported six months interim data in May. As many of you know, we’ve been developing CAP-1002 for the treatment of adult heart disease. ALLSTAR is a value-adding CAP-1002 in adult who have suffered a large myocardial infarction, more commonly known as a heart attack. Although we have no plan at this time to continue to pursue such indications in fair way, I would just like to spend a few moments here to briefly review the ALLSTAR results and provide some interpretation. This comes not only because the ALLSTAR trial has been a headline program for Capricor but also because the same asset remains the focus of the Company’s ongoing clinical activities. As a reminder, ALLSTAR is a randomized, double-blind, placebo-controlled clinical trial conducted at 30 centers in the U.S. and Canada in patients who have experienced a large myocardial infarction and suffered residual cardiac dysfunctions. 142 patients received single intracoronary fusions of either 25 million cells of CAP-1002 or placebo and were to be followed for 12 months. As we reported, we did not see evidence of improvement and change in left ventricular size in the treated group relative controls at our six months interim analysis as measured by [indiscernible] MRI. In addition, a futility analysis indicated that seeing a significant reduction in scar in 12 months will be highly. As these data were late [ph] offer primary efficacy endpoint, this is needless to say, very disappointing. When we reviewed the data, we noticed that the lack of an efficacy difference was largely because the scar size reduction and the control was as good as that among the treated. However, we know from firs principles of physiology that this is not likely, in fact one of the reasons, cell therapy presents such an employing opportunity is that once heart cell dies, they don’t get naturally replaced, except in a very low number. Therefore, when the heart is injured, the objective of current therapies is only to help the damaged heart continue to meet the needs of the body. Reduction in scar, as we have seen in a small trial done at two centers, was still appealing at an endpoint because it meant the heart would be playing with a better hand, so to speak and can slow the progression to heart failure. In order to actually measure scar, a dice [ph] called gadolinium is used and then the images are carefully reviewed to measure scar before and after treatment. In small numbers of patients done at very few top notch centers, these images were able to be read and analyzed with the high grade of accuracy. We think this carefully created assay of scar measurement by gadolinium enhanced MRI into many centers in larger clinical trials, the assay could not hold up and the noise exemplified that the reduced scar size in the control overcame the potential signal. We know that the use of gadolinium to measure scar by MRI is still an emerging technique. Conversely, ventricular volumes are assessed by imaging methods that do not involve gadolinium and patients treated with CAP-1002 did show strong signs of improvement as six months on left ventricular end-systolic and end-diastolic volumes. These were pre specified secondary end points and ones that reflect the functional visibility of the heart better than any surrogates, because they relate directly to remodeling, the changing of dimension of the heart and response to injury and reversing or slowing remodeling is associated with the reduction in clinical events. While scar size often is predicted by on the risk of developing functional impairment, it is not in and of itself a functional measure. Over the next year, we will continue to look for the right partner to work with us in developing the cells for adult heart disease, but for now we will remain focused on our DMD program, which provides us with a potential near-term registration opportunity. Now, a few minutes on our exosomes program, which we continue to actively dedicate efforts towards as part of an NIH branch. We are on track for the entry of CAP-2003 into the clinic next year for the treatment of hypoplastic left heart syndrome or HLHS. HLHS is a very rare congenital condition that results from a birth defect of the heart in which the left ventricle which is the chamber that is responsible for pumping blood to the body’s systemic circulation is severely underdeveloped or absent. HLHS is responsible for approximately 23% of neonatal deaths and to have any chance of survival by on this early period babies born with HLHS undergo surgical interventions shortly after birth. In any case, those who are able to survive beyond the neonatal period will suffer significant and lifelong morbidity, often ending up meeting a heart transplant down the road. Recently, we obtained results from our studies of exosomes in a large animal model of HLHS and there -- exosomes recovered right ventricular function to near normal as measured by right ventricular fractional area change during the study period. This is statistical significance despite a small sample size. We are now gearing up for clinical trial in HLHS with our exosomes next year. This study and its clinical follow-up is exciting, because there is published clinical data showing that CDCs improved outcome in a similar patient population in Japan. So, we are eager to see how the exosomes perform in this similar type of clinical initiative. We are presently conducting pre-IND studies in CAP-2003 with the goal of submitting an IND in the HLHS indication in 2018. I will now turn over the call to Leland for his review of our financials.

Thank you, Linda. Please refer to the today’s press release for a presentation of our second quarter 2017 financials. You may also refer to our quarterly report on Form 10-Quarter, we expect to become available in the next few days and can be accessed in the financial section of our website at capricor.com. During the second quarter excluding the effect of stock-based compensation, we incurred approximately $3 million in research and development expenses and approximately $950,000 in general and administrative expenses. At June 30, 2017, we held cash, cash equivalents and marketable securities totaling approximately $12.3 million, as compared to approximately $16.2 million at December 31, 2016. We expect our current resources to last us through the second quarter of 2018. And with that, I’ll now turn the call back over to Linda for her closing comments. Dr. Linda Marbán: Thank you, Leland. Well, with no summer slowdown here at Capricor, we make headway both with our cell and exosomes programs. With regard to upcoming items, we have submitted the six months data from both HOPE and ALLSTAR for presentation at medical conferences later this year and we will announce the details for each, once we have them. We are on track to submit our IND for our RESTORE-DMD trial of intravenous CAP-1002 by the end of this quarter with the goal of having commenced the trial by the end of the year. Finally on the topic of manufacturing, we expect assuming a well-established contract manufacture and begin the tech transfer process. So, that if and when we are able to commercialize our product, we will be prepared to scale up the manufacturing process to meet the anticipated demand. I will now turn the call over to the operator to open up the call for questions. Operator?

[Operator Instructions] Our first question comes from Joe Pantginis from Rodman and Renshaw. Please go ahead.

Couple of questions if you don’t mine. First on RESTORE, but first congratulations on all your positive interactions with the FDA, obviously for this continuing unmet need. So, my first question is, I guess, when you look at your overall goals today, before the FDA interaction, a lot of the focus has been on the potential for the impact on cardiomyopathy and that was certainly one of the endpoints in the HOPE study, as well as the PUL data as well. So, just curious with PUL being now the primary endpoint, are you going to be looking at cardiac impact as a secondary endpoint and if not, how come? Dr. Linda Marbán: So, one of the things that was beautiful about the whole study is that we were able to see improvement in skeletal muscle function which gives us a clinically relevant outcome that is actually one that can be used for approval. So, whereas the impact on the cardiovascular system was noted in HOPE, we had both improvements in scar and measure of cardiac function, none of those are endpoints that the FDA would consider for full approval. So, we were lucky to be able to have one that we can hang our hats on in terms of in terms of getting approval. And of course we will study heart and continue to look for improvement in cardiovascular structure function which we fully expect to see.

It’s actually really helpful. Thanks. And then with regard to PUL, obviously as you mentioned too, it is a clinically validated endpoint. Just wanted to talk about the -- I guess, how widespread knowledge of the exam is or the test is, and will physicians need any particular additional training for it? Dr. Linda Marbán: Yes, so that’s another really important and one that we really dug into deeply with the FDA. So, they were very interested in the same thing. So, the measures have been very well-validated. There are trainings at -- typically the physical therapies go through [ph] the test design in a reliable and repeatable fashion. And one of the things that’s nice about it as it’s become a validated measure is that it is highly repeatable and highly reliable in terms of its variation between measurement points.

Got it. And I guess a couple of just logistical standpoints and then I’ll jump back in the queue. So, first, you’ve had a lot of success to-date from non-dilutive funding from grants for all of your indications. I was just curious if you’re seeking any additional funding for the future of DMD? Dr. Linda Marbán: Yes. So, obviously that’s been something that we’ve used all the way aligned, we’re going to access it again. The CIRM has been a fabulous partner for us all along the way and supported HOPE. And as many of you may have seen, even one of the patients from HOPE has been featured on YouTube videos talking about its participation in the trial at CIRM. So, we’re going to talk to CIRM and stay in touch and hopefully I will be able to tap into that source again.

Great. And then the last housekeeping, if you don’t mind, I appreciate your patience. With regard to ALLSTAR, you mentioned obviously upcoming data at a medical conference. Is this going to be sort of publication of the data that you already have or are we going to be able to glean anything new from the study, ahead of the 12-month data? Dr. Linda Marbán: Yes. So, we’re actively working on publication and presentation. We expect to present the 6 and potentially 12 months data in very short order. You’ll see those announcements coming alive very soon. But yes, there will be new data and I think it will further help to clarify the story, which by the way, let me just say, one of the things that we see is that the cells bioactive, the patients that got the cells compared to this [indiscernible] in ALLSTAR had better volumes than other measures of cardiac structure and function. And so I think our goal of over time will be to understand how that interplays and then also use of its knowledge for moving forward our other clinical programs with the cells.

Our next question comes from Gregory [indiscernible] Please go ahead.

So, I had two questions. One, a long list trial, first, given the sort of -- the lack of continued affects after the first three months to six months, is there any reason to anticipate that the 12-month data is going to show any continued efficacy? And related to that, I am sure you mentioned your plans to do repeat dosing in the potential trial that you’re going to file with the FDA later this year. Can you remind us about what results you saw within the mouse model with the repeat dosing and what your sort of thought process is in terms of repeat dosing can do and what you were hoping to see as a result of the repeat dosing? And then separately, if you wouldn’t mind just updating us, I thought you were doing something on exosomes in the eye and I am just -- an indication on the eye and I’m just wondering what happened with that; is that still moving forward or was there some result with that that made you o switch to this other HLHS on? Dr. Linda Marbán: Yes. So, hopefully I’ll get these all in order. So, in terms of the 12-month HOPE data, yes, we are very excited to get that data. I think it can be very interesting for us, either we’ll be able to continue to track improvements potentially, declines, stabilization, all of it will be very important in building RESTOR and understanding what we will be met and what the long-term opportunities provided by the cells. [Ph] In terms of skeletal muscle function, we do see a decline between three and six months. And so, it will be interesting to see if there is an attenuation of that in some way or another. So, stay tuned for the 12-month data from HOPE. I think it’s going to be very, very exciting. We also have biomarker data that we haven’t talked about and that potentially could offer some very exciting opportunities as well. As soon as all that comes in, of course we will keep our investment community updated as it becomes clear to us as well. In terms of repeat dosing, what the mouse model has shown is nearly reflective of what we have seen thus far in the humans, which is that the effect begins to attenuate somewhere between 8 and 12 weeks, and then with re-dosing, you see a re-boosting of the effect. And what we see in the cardiac function parameters is that there is actually a synergistic improvement in function in terms of [indiscernible] in the mice. And so, muscle performance, we see stabilization. So, we see that there is -- as it begins to drop off, it comes back to where it was and stays there along the way. So, this is what we are thinking works in humans. I guess, if -- we can look at it from both sides, we can hope for stabilization of the improvement as we’ve seen it in the animals, which would be fabulous and improvement with stabilization long-term or we could we see an improvement that continues and then ultimately look to a greater beneficial effect over time. We will keep you updated as we get that preclinical and clinical data flushed out further. And then, in terms of our exosomes in the eye program. No, we remain very excited about that. We are not switching to the HLLS. But, as you and many others recall, when we announced the ALLSTAR data, we took a pretty big hit in terms of our valuation and so we made a lot of internal cuts to conserve cash and one of the programs that has been put on the backburner although, similar what the exosomes in the eye program. The HLHS program continues to roll forward because as I stated in my remarks, I am excited by an NIH branch, so it’s off the balance sheet that we are able to develop this. Should a partner or a financing opportunity come forward for the eye, we remain incredibly interested and excited by that preclinical data and would love to take into patience, as soon as we get on our feet financially again.

[Operator Instructions] I am showing no further questions at this time. Dr. Linda Marbán: Thanks everyone for joining us. We look forward to keeping you informed as we make progress with our programs. Operator, you may now disconnect.

Thank you. Ladies and gentlemen, this concludes today’s call.