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

Thank you. Before we start, I would like to state that we will be making certain forward-looking statements during today’s presentation. These statements may include statements regarding, among other things, the efficacy, safety and intended utilization of our product candidates, our future research and development plans, including our anticipated conduct and timing of preclinical and clinical studies, our plans to present or report additional data, our plans regarding regulatory filings, potential regulatory developments involving our product candidates and our possible uses of existing cash and investment resources. These forward-looking statements are based on current information, assumptions and expectations that are subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These and other risks are described in our periodic filings made with the SEC, including our quarterly and annual reports. You are cautioned not to place undue reliance on these forward-looking statements and we disclaim any obligation to update such statements. With that, I will turn the call over to Linda Marbán, CEO. Linda Marbán: Thank you, AJ. This has been a busy quarter for Capricor with progress on all fronts. Today, we will review the progress of our two clinical programs with our lead asset, CAP-1002. The first program involves Duchenne muscular dystrophy, or DMD, and the second involves the treatment of the hyperimmune response caused by COVID-19. Then I will provide an update on our engineered exosome platform technology. Before I discuss our clinical updates, I would like to announce that we will be expanding our footprint to San Diego, California. We have selected a facility that will enable us to continue to build out our pipeline products, both CAP-1002 and the exosome. This expansion will include enhancements to our research, political…

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

Thank you. [Operator Instructions] We will take our first question from Emanuela Branchetti from H.C. Wainwright. Your line is open, please go ahead.

Good afternoon, guys and thank you for taking my questions. It’s very exciting to hear that CAP-1002 is moving forward. So, congrats on that. And maybe you can share more details from the trial endpoints. So, is the PUL 2.0 on primary endpoint and what about the target to measure, are you including those in the trial design as well? Linda Marbán: Yes, thank you for that question. Yes, the primary efficacy endpoint is going to be the PUL 2.0. As you know, from the top line data and we will see very soon from the published or presented data that the final dataset from HOPE-2 to was very positive and very compelling. So we are very confident in the selection of the PUL 2.0 as the primary. And yes, we are going to build and have built in the cardiac secondary endpoints of ejection fraction and volume, also very significant in HOPE-2. The P value for ejection fraction in HOPE-2 was 0.004. The P value for the PUL 2.0 and HOPE-2 was 0.04. So we are very excited to take this into its pivotal trial.

Thank you for that. And you mentioned that the patients enrolled in the HOPE-2 are going to be eligible for moving forward to HOPE-3. Are all the patients that completed HOPE-2 eligible to access HOPE-3 directly, how is that going to work? Linda Marbán: So they are not going to roll on to HOPE-3, the patients that were in HOPE-2 whether they received cells in the treated group or the placebo group and the patients still are blinded. So they don’t know what they received in the first iteration of the trial, are currently in the open label extension part of HOPE-2. They are currently receiving doses. Many of them are verbally reporting, feeling and seeing improvement since going back on to the cell. So we are very excited at the patient reports and this also gives us a lot of energy moving into Phase 3.

Got it. Thank you for that. And just last question about data, can you share your estimates on the cost of the study? Linda Marbán: So, I didn’t understand that last estimated...

The cost of the study for the HOPE-3, yes. Linda Marbán: Yes. So we haven’t disclosed that, but we are estimating that it will be around $15 million, which sounds low for a Phase 3 clinical trial, but we have been really careful to make sure we’re only measuring what we need to take it through to registration. We’ve worked with FDA on the Phase 3 protocol and feel very confident that it is a laser focused clinical effort to take this through registration.

Got it. Got it. Thank you. And switching to the booster vaccine, I think that’s very smart strategy, but could you share your thoughts around a little bit around the clinical development, since this is a booster some sequence to other vaccines? Are there are particular requirements that you have to meet for the IND approval and for moving forward? I just wanted to have your thoughts on that? Linda Marbán: Yes, so we have been exploring it actively. We will have more feedback once we file the IND. We had a pre-IND meeting, which we announced in the spring and we have been finishing up those IND enabling studies. It seems like it might have taken a long time but the reality is it sets the foundation for exosome based platform therapeutics both in the vaccinology space, but also in the therapeutic development space. So, it’s been a really good use of our research team’s time. And in terms of the acceptance of a booster strategy, well I can’t disclose exactly how we have been working with the U.S. government on their perception of need for viral vaccine boosters and they seem supportive of this opportunity and the work that we are doing to prepare for it. So we haven’t completely baked in with the FDA and we won’t heave that huge sigh of relief till we have the IND, but our current plan is to provide a booster to anybody that’s been vaccinated with any of the previously available vaccines.

Got it. Thank you very much and congrats on the progress. Linda Marbán: Thank you.

We will take our next question from [indiscernible] Capital. Your line is open. Please state your question.

Hi, Linda. Nice to hear from you and nice to hear the wonderful presentation. Couple of questions. With regard to your booster vaccine planning, what would be the proposed route of administration of that? I am asking, because does it mean the administration IV of a modified CAP-1002 type cell one or some of the route of administration of prepared exosomes? Linda Marbán: So, it’s a straight intramuscular injection, it’s exactly the same if you have been vaccinated with either the Pfizer or the Moderna vaccine, it would be the same type of thing, a quick shot in the arm that you don’t even know happens.

Okay, alright. Does the company plan to if the data are positive in the COVID-19 trial, to submit CAP-1002 for EUA? Linda Marbán: Well, we are open to all possibilities. We have built that trial based on, as I said in my prepared remarks, the Emergency Use Authorization set of patients that we did way back at the beginning of the pandemic. And the data was very positive both in terms of preservation of life and also biomarkers. And so we will see what this dataset teaches us, certainly, especially in this patient population, where literally nothing has been successful. We will work very carefully with FDA to see if we can move this forward as rapidly as possible should the data be positive.

Okay. Can the epigenetic modification profile wielded by the CAP-1002 exosomes, is it any good at suppressing IL-6 expression, has that been quantified or examined? Linda Marbán: I mean, we have seen that in a lot of preclinical work that we have done. We have worked on CAP-1002 for many, many years. And it seems to suppress sort of the cytokines IL-1, IL-2, IL-6 and augments IL-10 in some of the inflammatory suppressing cytokines, but we haven’t seen it in this study, we are measuring it. We did see some interesting data in the Emergency Use Authorization patients in terms of biomarkers. But in those days, let me emphasize, we were treating all-comers. And so a lot of the patients by the time we got to them, they had been in ventilator for a while we know now that those patients, as I mentioned, sadly don’t do very well. So we are really going to be able to look at the data in a very careful way from the study. And I hope you are as excited as I am about it, because I think it could give us some really interesting clues on how to treat COVID.

And pathophysiology and so yes, I agree totally. Changing subjects a little bit, it’s been some time since we have talked, but I – the last interaction I guess I had understood there to be a really avid gung-ho plan to seek a kind of priority for pre-emptive authorization, CAP-1002 and VMZ. And now I am hearing the plan to pursue Phase 3. Are you doing, is it a two-pronged approach that you are pursuing both or is it the plan just to primarily move ahead with Phase 3 now? Linda Marbán: So, we spent about a year working with FDA in multiple conversations. And I know, many of our investors as well as the Duchenne community were sitting on the edge of their seats waiting to see what happened. And basically, FDA, it’s the OTAT which is the Office of Tissue and Advanced Therapeutics of CBER have come down and said, listen, this was really interesting data, but it was a small dataset, we really need you to do this Phase 3 to validate what you have seen. And so we are rather than to continue to push the envelope and potentially keep fighting a battle that we might not win, I want to just jump right in, let’s get this trial done. And let’s get this product registered and commercialized. And I will say, as I mentioned, but I want to highlight, we are going not going to start the study until we identify an appropriate partner to take it through with, we need to validate that we get the appropriate funding, and that we have a path all the way through to commercialization. So we’re ready to go and actively talking to partners now.

Yes, I was going to ask AJ had mentioned $38 million in 2 years of funding with that – with the cost of this trial be subsumed, but he answered it in a different way. So thanks for that. That’s all I have. It was great hearing from you. Thank you very much. Linda Marbán: Thank you for your time.

We will take our next question from Alan Leong from BioWatch News. Your line is open. Please go ahead.

Linda and AJ, congratulations on the San Diego expansion and for grabbing Dr. Elliott out of Johns Hopkins along with her team. To me and I think, everyone this is a major signpost. So congratulations. Linda Marbán: Thank you.

Thank you.

Yes, yes, a couple. Yes, it’s actually been waiting for that shoe to drop and really happy. Good. Yes. I am going to asking about the pivotal trial. You mentioned that interim looks, are they safety only or going no-go signal are there any other extremely like, where you get a full peak at the ongoing endpoints? Linda Marbán: Good. Our HOPE-3 trial, so we are in the process of deciding how to pursue that interim now. We haven’t disclosed that. And we will give you more information as it becomes available. What we want to do is make sure that the trial is as airtight as possible for approval. And so we will follow the guidance of FDA on how to build that interim.

I see. So, the FDA is pretty much wanting to look at the 12 months or 18 month primary endpoint, an early peak would move their hand for any early approval? Linda Marbán: Yes. So, the primary is going to be 12 months. And the performance of the upper limit is measuring shoulder, arm and hand function. And then we have built in some other measures of skeletal muscle performance as well as the cardiac muscle measurements in terms of function. And that will be similar to what we did in HOPE-1 and HOPE-2. So, we are very confident about the cardiac impact of CAP-1002 as well as the skeletal muscle impact. We don’t believe we need to go out 18 months FDA, its 12 months is representative of long-term effectiveness.

Wonderful. I want to get your thoughts [indiscernible] thoughts on the INSPIRE trial. It looks that treating severe COVID respiratory deterioration, are you thinking about generalizing to respiratory deterioration overall, requiring a C-path? Several years ago, there were several failed trials for respiratory recovery. And, frankly, those type of companies have given the right arm for your results. I can see for example, the military. Can you talk about that using for general respiratory deterioration for trauma or is it now just confined to severe – you are thinking just confined and focus confined to severe COVID for now? Linda Marbán: So, COVID has done many terrible things globally, which none of us I think would argue against. But it really has opened the door in a large way to the expansion of biopharmaceuticals and the treatment of different diseases. And one of them is really this laser focus on respiratory distress. And so once we get the data from the INSPIRE trial, we will be able to decide a path forward. And yes, we have absolutely not ruled out the possibility that this could be generalizable for many different types of respiratory disruptions.

Thanks. And just one more question, if I may. And I recognize this is an old question, but I am getting lots of inquiries. Can you comment on the projected ease in relative terms, either manufacturing costs and scalability of exosomes, there is a little bit of fear that this is actually more complicated and/or is complicated as usual cell therapy manufacturing? Linda Marbán: We are in scale-up mode, we have, as I mentioned, built a new team of research and development. And part of that is the scale-up team. I am very confident that this is an engineering problem that can be solved. One of the reasons we decided to move into engineered exosomes originally was because we felt that it would be much easier to manufacture synthetic exosome with a payload as opposed to trying to convince a natural cell to do exactly what you wanted to do. I think when the field talks about the different difficulties and scaling up manufacturing, it’s the people that are taking cells like CAP-1002 and turning them into CDC exosomes, which is one of our products and one of the ones that we reserve for rare diseases, because they are harder to manufacture. But we plan on building this out as a generalizable manufactured product. And I think the world is following along, I think long as to have exosome manufacturing program now as well as many of the other global manufacturers. So, I have a lot of confidence in this space.

Congratulations, Linda, and AJ, for making the strategic term and being able to carry it out. So, I am looking forward to your next year. Linda Marbán: Thank you.

[Operator Instructions] We will take our next question from Brian Corde [indiscernible] Partners. Your line is open. Please state your question.

Hi Linda and AJ, great job. Thanks for the update. I had a question for you regarding the program for Dr. McDonald, where you said you are going to have 65 to 75 patients. Are you planning? How many are you planning to enroll per month? Do you have several on the waiting list, because I know you told me that there is – in the past, you have told me there is people that really want to join this study. And will you be giving updates on enrollment throughout the next three months to six months? Linda Marbán: Yes. Thanks and Brian, great to hear from you. So, we typically don’t provide enrollment updates. We are really moving quickly getting the sites up and running. As I mentioned, we are not going to start the trial until we found a partner or have funding that come in, in a non-diluted fashion so that we can continue to build out this program efficiently. In terms of the wait list, yes, my email blows up every day, more with patients and families that want CAP-1002 and even investors. And so I am very confident that the field will meet this trial with great expectation. I will provide a cautionary tale that the clinical trial arena is quite complicated. And a lot of times even amazing therapeutics take a long time to get up and running because sites are so slow. But we are working with sites that we have already had. We are working with investigators that are very excited. And of course, we will let you know sort of milestones along the way.

Alright. And the San Diego addition where you are bringing in 10 scientists, are they going to be full-time for Capricor? Are they subbing out? And did you build the facility? Did you buy the facility? Are you leasing it? And the last part of that is the total cost you think it’s going to be? Linda Marbán: So, we leased previously occupied lab space. I am extremely excited to be moving into this really nice space, it’s important time San Diego, it allows us to expand our research and development group, which we needed to do. We already have six of them working for full-time. We anticipate adding about four more full-time working for Capricor, primarily on our exosomes, but also on some of the late stage product work we need to do for CAP-1002. And we would encourage you to come visit us. We can go take a walk to the beach.

Good. Last question and I would like to come out there. Question on the exosome platform when you said you were conducting talks with a large pharmaceutical company, what would be your ideal scenario to develop out of that full costs or partnership with royalties? What are you envisioning? Linda Marbán: So right now, I am really excited by this program. I can’t talk much about it. But we are actually working on exosome based vaccine technologies for other diseases besides COVID. My vision is that this would be something and we have been talking about this, really, since we started building out the exosome platform, that these are ripe and ready for licensing, right that this particular partner, or some combination of partners, would be interested in licensing in the technology that we have built of using exosomes, loading it with mRNA, or some other type of way of eliciting an immune response and then driving vaccinology.

So, are you going to look at partnering for regions or selling off worldwide? How do you envision that? Linda Marbán: Yes. So, right now, what I am envisioning is showing that it works, that the strategy is effective, which I am fully expecting. And then we will provide more updates as we sort of flesh out our plans with our potential partners.

Alright. And the last question I had for you is, any update on the peer reviewed journal? Linda Marbán: Yes, but it’s still in review, which we think is a really good sign [indiscernible] a very major, highly credible journal. And we expect to have that published either there or somewhere equally exciting over the next few months. In addition, we plan on presenting the data at a meeting in the near future.

Alright. Well, I appreciate it and keep up the good work. Linda Marbán: Thank you, Brian. We appreciate your time and attention.

[Operator Instructions] It appears we have no further questions. I will hand over the call back to Linda for any additional closing remarks. Please go ahead. Linda Marbán: Thank you for your time and attention today. We look forward to hopefully seeing you out and about in person or at the very least in Zoom meetings as the quarters roll forward, and please stay healthy and well during these very challenging times. Thank you very much.

That concludes today’s conference call. Thank you everyone for your participation. You may now disconnect.