Greetings and welcome to the Capricor Therapeutics Inc. First Quarter 2020 Earnings Conference Call. During the presentation, all participations will be in a listen-only mode. Afterward, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Thursday May 14, 2020. I'd now like to turn the conference over to AJ Bergmann, Capricor CFO. Please go ahead.

Thank you. 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, our plans to present or report additional data, our plans regarding regulatory filings, potential regulatory developments involving our product candidates and our possible uses of existing cash and investment resources. These forward-looking statements are based on current information, assumptions and expectations that are subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These and other risks are described in our periodic filings made with the SEC. You're cautioned not to place undue reliance on these forward-looking statements. We disclaim any obligation to update such statements. With that, I'll turn the call over to Linda Marban, CEO.

Good afternoon. And thank you for joining us for our first quarter financial results and corporate update call. The first month of this most unusual and challenging year have been a productive time for Capricor. I am pleased to report that we have made significant progress in the midst of the coronavirus pandemic. And, as many of you know, we are not on the sidelines in the fight against this deadly virus. We are working to develop potential treatments and vaccines against COVID-19. Our lean product candidates CAP-1002 is currently being used to treat patients who have COVID-19, under the US FDA compassionate use pathway. I will discuss our efforts against COVID-19 in a few moments. On the call today, I'm going to spend a few minutes discussing CAP-1002 for the treatment of Duchenne Muscular Dystrophy, which are the major focus of this update will be on CAP-1002 as a potential treatment for COVID-19 patients. The rapid progress of our exosome program, which includes our vaccine initiatives, and finally, our objectives for 2020. So first let me update you on some of the company's recent highlights. Yesterday was a momentous day for Capricor, as we released our 12 months data from the HOPE-2 clinical trial. The data was resoundingly positive with P values below the 0.05 level, and multiple measures of upper limb, cardiac and respiratory function, and we believe, it supports accelerated approval. Dr. Craig MacDonald, hosted a call with me to discuss the data and its importance to the DMD community. We plan on presenting this data to the FDA this summer with the goal of accelerating the pathway to approval of CAP-1002 for DMD. I will present highlights and a bit more color on our HOPE-2 data later in this presentation. Regarding our COVID-19 program, on April…

Thanks, Linda. The afternoon's press release provided a summary of our first quarter 2020 financials on a GAAP basis. And you may also refer to our quarterly report on Form 10-Q, which we expect to become available very soon and will be available on the SEC website, as well as the financial section of our website. As of March 31, 2020, the company's cash, cash equivalents and marketable security totaled approximately $13.2 million, compared to approximately $9.9 million at December 31, 2019. In the first quarter, we completed a warrant inducement generating net proceeds of approximately $4.5 million. And in addition, from January 1, 2020 through May 13, 2020, we raised approximately $12.8 million in net proceeds under our aftermarket offering program. Turning quickly to the financials. In the first quarter of 2020, our net cash used in operating activities was approximately $1.2 million. For the first quarter of 2020, excluding stock-based compensation or research and development expense was approximately $1.1 million, compared to approximately $1.8 million in Q1 2019. Again, excluding stock-based compensation, our general and administrative expenses was approximately 900,000 in Q1 2020, compared to approximately 800,000 in Q1 2019. Net loss for the first quarter 2020 was approximately $2.1 million, compared to a net loss of approximately $2.5 million for the first quarter of 2019. In summary, as we move forward, we continue to manage our expenses diligently, but we continue to focus on the advancement of our core pipeline programs as Linda articulated. We will now open the line-up for questions.

[Operator Instructions]. And our first question comes from the line of Jason McCarthy with Maxim Group. Please proceed with your question.

Michael [indiscernible] on the line for Jason. Thanks for taking the question. So first off, I'd like to get your take on the data from earlier this week. Specifically some of stuff with the PUL 2.0 versus the PUL 1.2. You missed on the 1.2, but it is a very small margin, but I'd like to see what are some of the differences between the endpoints that led to the slight variation in the results? Is there a specific measure in the 2.0 that drove that more significant result?

So, actually, we didn’t miss at all on the 1.2. Let me remind you that the study was originally powered to be a 76 patients study in order to detect a one point difference in the PUL. We ended up capping it at 20 patients primarily due to business reasons. And so we've consider these results utterly astounding. Our P value of 0.08 and a difference of more than two points in the mid-level is really clinically very meaningful. And the statistical significance as I just showed on the call when you remove the one outlier patients as double zero and a four for the mid-level. So we consider this very clinically significant and we don't feel like we missed at all, it's like the big success. Having said that, the second part of your question is very relevant and important. But PUL 1.2 is the first version of the metric and then PUL 2.0 is a newer version. So it's like your smartphone, it gets better every time. And what they were able to do in the 2.0, is they were able to take out some of the tasks that were redundant, change the scoring system, so became more quantifiable, and then removed for [indiscernible] effects. So the actual numbers are different, and the way that it's scored are different. So that's why you see a slight difference in how it is measured. From 1.2 to 2.0, they move some of the tasks that were in the mid-level to the distal level, which is the hand and so sort of reordered some of the shoulder tasks and so the scoring can look a little bit different. Success or failure by the patient might lead to a difference, total number of score, which then would ultimately impact the mean values and calculation of the statistical relevance.

Thank you very much. In that you actually answered my second question, but I actually want to have some clarification. When you said that your goal is to go to the FDA and seek approval with a confirmatory study, I just wanted to see if you were saying that you would be seeking accelerated approval and then running a confirmatory study? Or if you're seeing a confirmatory study prior to approval?

Yes, we're looking for accelerated approval with a confirmatory study on the back side. We believe the best thing that we can do for the patients is broad access and availability of the therapeutic, they could get it in an infusion center five minutes from their houses rather than putting boys and young men in a wheelchair to get another clinical trial. And the treatment effect appears to be so obvious and we hope that FDA sees that and recognizes that especially now, in this environment of COVID-19 traveling for clinical trial versus going to be virtually impossible. And the best thing to do would be to approve it, we can do a confirmatory study, we're willing to take it off the market if it doesn't meet the requirements of a efficacious therapeutic, which we think is not likely. But we absolutely have to see this through to approval.

Thank you. And then, I'd like to switch gears over to the COVID-19, because you saw some really encouraging data in the ARDS patients. And it seems like it's tracking generally what we've seen from some other cell therapy companies in the space. Cell therapy really seems to be working in this highly inflammatory condition. But so what I'd like to ask then for CAP-1002, are there any specific features that could make it particularly at the case in this setting? Recall that the cells tend to localize to one piece of could that make them a bit more ideal for treating ARDS versus other types of cell therapy.

Yes, It's a very important question. And yes, I think this is finally the coming of age of cell therapy in general. However, what I can tell you is, for many years, we have been working to understand the mechanism of action of ourselves. And as I've been saying, for the last year or two, what we've learned is that when we deliver the cells intravenously, they do travels for the long day, generally large in the micro vasculature of the lungs. And we know they're very safe because not only we use them in a lot of patients with diseases like Duchenne, but now we've used them in COVID-19, and there were no infusion difficulties at all. We know that then they release the exosomes that contain micro RNAs that are profoundly immunomodulatory. And we have never stopped trying to dig into the secret start of what makes us all the sector then what we found a while ago, is that in our exposome there are large proportion of these non-coding RNAs called micro RNAs, and Y RNAs that actually contract to control of inflammation. So, triggering release of IL-10, which is a calming cytokine, as well as some of the other types of responses that one would assume would happen with repair rather than attack. Now, when we did a direct comparison, and we just published this paper also last week on the met our [indiscernible] site. We show that the length of stem cell based exosome, which are some of the other cells that are out there being tried do not have this type of micro RNA profile, they have more key RNA transfer RNA. So may not have the same type of bio activity. So we are incredibly bullish on CAP-1002 as a treatment for COVID-19 hyper inflammatory states, both nominally for the ARDS, but also for the potential myocarditis that's occurring. And we also have very interesting pre-clinical data in [indiscernible] disease, which has become the talk of the town, as many young children now seem to be afflicted by a [indiscernible] syndrome post COVID.

Our next question comes from the line of Emanuela Branchetti with H.C. Wainwright. Please proceed with your question.

My first question is related to the activities you are doing in preparation of the meeting with the FDA. I was actually wondering about any additional data therapy you are working on analyses that you are thinking about bring into the studio personnel the FDA, the order and activities in general as you're doing in preparation for this meeting?

Well, yes, of course. I mean, what we released yesterday was top-line data. We're continuing to do a deep analysis into the data to understand it. One of the sort of late breakers so to speak was on the understanding of our non-responder patient, which we'll call to the attention of FDA, and how that impacts the data. There's a lot of other data that we have not presented yet that we're still digging through that have a lot of products, for instance, there's some promise and some of the respiratory function data was very real trends and improvements in those patients that were treated versus placebo. So we'll put together a very strong data package and present that FDA and hope that they see the same hope in the therapeutic as we do.

And related to this question, I actually have the curiosity regarding the Chinese and the market review presented yesterday. I found that very interesting. And I was wondering, why did you choose specifically that market? And why that marker may be particularly significance for patients with [indiscernible] that you seen Duchenne Muscular Dystrophy?

So the CKMD is a specific enzyme that's released by cardiac cells that they've been damaged. Up until pretty recently was actually used in hospitals to diagnose patients who have come in with suspicion of a heart attack, the kind of thing that you don't see typically in a patient's blood unless they have some type of damage to their heart. We know that Duchenne patients, their hearts are under constant attack just like their skeletal muscle. But this is the very first time that we've been able to track an biomarker of injury and show that it is different in the blood of patients with Duchenne when they've been treated with a therapeutic, and that it correlates with some type of metric of global performance, such as ejection fraction and volume. So this is a story. And you called out actually the piece of data, that's one of my favorites, because it really is very objective proof that something different is happening in the bodies of the treated patients versus placebo patients, and the amount of damage to their heart is going down. And that's just so exciting for these families.

Thank you. And then switching over to the COVID-19 program, I was wondering, if you can give us a little bit more detail on the target population of the next study, like you mentioned severely diseased patients. I was wondering, like if you can give us a little bit more color on that?

Yes, so in the compassionate use program, of course, you only really are going to be providing the opportunity to those that are at high risk of losing your life. So those were the very critical patients. And what we've seen in terms of their survival is just astounding and certainly is very gratifying to me as a scientist as well as the human beings. But what we'd like to do now is back up a step. Can we keep people from being intubated? So in their study that we are going to be starting the extended exosome program, we'll be treating those patients that are either already intubated on this so critical ones also those are at risk of being intubated. So they're sick, they're getting oxygen. No, they're not doing well, but they're definitely not having ventilator support at that moment.

So, [indiscernible] patients, possibly already in the ICU, maybe not yet on the ventilator or something like that?

Exactly.

Got it. And lastly, just last question about the timeline for the vaccines, of course also very exciting. I believe you mentioned in the past 3Q and 4Q as a potential, like projected timeline for filling an IND, do you like configuring the progress you have made, did you think those are feasible timelines or you can anticipate that order?

No, we haven't provided guidance yet on the vaccine program specifically, except that we're moving very quickly. Obviously, we're as anxious as the entire world to get the vaccine candidate moving forward, especially when the work, that will be in animal studies soon and will provide clarity and updates as the data moves forward. And addition, I just wanted to add with the COVID-19 treatment with our standard access program, we also laser focus on those patients with cardiac dysfunction or myocarditis and implication of the COVID, which obviously none of the other cell therapies directly target the heart. So our patients are not only those with ARDS, but they are ones that I could potentially have myocarditis which can be in and of itself fatal.

[Operator Instructions]. Our next question comes from the line of Alan Leong with BioWatch News. Please proceed with your question.

Linda, I have to commend, you're pulling rather out I have to Capricor story. You have to abbreviate the trial. I was actually in a bit of a despair, I never thought you said any statistical significance. And this is a wonderful surprise this whole side. I want to frame the non-responder, but really give us as market. So the hints as I remember never seen the McDonald's presentation but there's a need for going younger with treatments that have a better side effect profile. And then commitment, the need to prevent cardiac deterioration for accelerated stops even at the very beginning of any signs. And although you target capital and CAP-1002 for non-ambulatory patients, there's ironically a need for the other end and especially thinking about the non-responder, I have to wonder about the potential for much earlier intervention with CAP-1002 and this is really a question about where you might go after you enter the non-ambulatory market?

So the issue that you raised is obviously in our mind and have been putting together my remarks for today. I actually had, we were going after these later stage, non-ambulant patients in our first iteration or as our first label. And I took it out, because I thought, well, I think that's something that is implied. We always would like to go younger. Here's the thing that makes us very lucky. And one of the reasons why was a shortened trial with fewer patients, we were able to see a difference. The later stage patients, the patients that we are treating are on a steep slope of decline. And you are able to pick up changes much more easily and much more rapidly than in the little kids who decline more slowly. So once we get disapproved in the later stage patients and remember we've seen profound treatment effects. This is the level of, when you think about there is less than a 0.4% chance that you're going to the data that you're seeing is due to chance. You have a realistic understanding that something is happening in the treated patients versus a placebo that is inarguable. Once we get approved for the non-ambulance. The later stage patients, our goal will be to step back into the lower case and then do the appropriate studies, which are usually longer a couple of years to see if we can attenuate their decline, because of course our goal will be to keep them on their feet.

Switching gears on the vaccine approach. One of the things I was impressed with Dr. Gould in his presentation, he advocated, he have need to have sterilization and neutralization levels attend to T cell response. And I wonder if you could provide some color on what's seen in his lab with the animal models for exosome vaccines. And I know you probably won't be able to get into strong color about what's ongoing, but I assume that from your statements, Gould isn't seeing any major roadblocks for 10 years objectives right now. So I wonder, if you just provide some kind of general color.

As I think most of you know, I'm a scientist and I love the merging of science and medicine. And I can truly say that I have never seen a program that is going as smoothly as this one in transition from academia into potential product development. Steve is going full speed ahead. He himself is spending 20 hours a day in the lab. And so far knocking on wood which is my own head. We have seen absolutely nothing that gives us a hint that we're going to slow down we are moving fast and furious into animals, hopefully into nonhuman primates very soon and then directly into human beings of which I will be at the front of the line to get that vaccine.

This is really good news. I've been watching a few of the other coaches, and they're not looking at targeting such high levels of immune responses. Good work, and I'm really excited to thank you.

Our next question comes from the line of [Kim Chang] with Northland Securities. Please proceed with your question.

I remember that from the recent data set that you guys announced. My question really is, as you guys approached the FDA meeting, how important do you think it will be to have some of the patient advocacy groups also there at the meeting for instance PPMD. And it seems like from the presentation that Dr. McDonald gave, it seems like this study was given a lot of support from PPMD. So, if you comment on that?

Yes. So, the advocacy groups and you said are obviously incredibly important. So families are speaking loudly for their children and for their rights to have every possible therapeutics that could potentially augment their lives. And one of the mothers said to me a few weeks ago, the real world is now dealing with what we deal with every day, which is life and death levels everyday and we'll talk about COVID. To answer your question, yes, we will have -- we had PPMD, Pat Furlong with us at our meeting with the FDA in October. We plan on bringing her with us again when we go back to summer. We have other advocates that we are working closely with we have a variety of regulatory council that we are working with as well as lobbyists, and we are going to rally the troops and make sure the FDA is loud and clear that this data cannot be turned away from.

I guess just one follow-up, Linda. How long would it take to scale up commercially CAP-1002? I know that you guys, I think announced that you're you've hired a CMO to help you with that. But is that a lengthy process? Or are we talking six months or are we're talking a year to scale up?

So we're already in the process of the scale up, but we've planned it because we knew way back on the interim data that as the natural history of the patients continued to decline, which it is and we had good hope that the therapy would work. We kind of thought that we were going to need to be in commercial manufacturing. So we are working with a global CMO. We haven't announced who they are yet but they are very credible and we're hoping that it goes smoothly. My goal was to have commercial manufacturing ready at the same time we have the BLA ready so that there's no hedging and moving forward.

Ms. Marban there are no further phone questions at this time. I’ll now turn the call back to you. Please continue with your presentation or closing remarks.

In closing, we are excited about the continued progress that we expect to receive in 2020. And we look forward to updating you on our progress as we move forward in our program for COVID-19, as well as in our Duchenne Muscular Dystrophy program. Thank you and please stay safe and stay well.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.