Good afternoon, ladies and gentlemen, and welcome to Capricor Therapeutics Fourth Quarter 2023 Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, February 29, 2024. I would now like to turn the conference over to AJ Bergmann, CFO of Capricor. Please go ahead.

Thank you, and thank you for joining today. 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 R&D plans, including our anticipated conduct and timing of preclinical and clinical studies, our enrollment of patients in our clinical studies, our plans to present or report additional data, our plans regarding regulatory filings, potential regulatory developments involving our product candidates manufacturing capabilities, potential milestone payments, our financial position 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'll turn the call over to Linda Marban, CEO.

Thanks, AJ. Good afternoon, and thank you for joining today's call. I'm encouraged with the progress we have made at Capricor in 2023 and into 2024. And today, I will outline our main priorities for our lead CAP-1002 program as well as provide a brief update on our exosome platform technology. 2023 was a big year for Capricor as we are now gearing up for biologics license application and commercialization. To that end, Capricor has assembled a team primarily focused on executing in four main areas in order to be prepared to bring our lead product, CAP-1002 to market for the treatment of DMD as expeditiously as possible. These are clinical, manufacturing, BLA readiness and commercial preparation. I will provide an overview of each area today. First, let me provide a clinical update on our Phase III HOPE-3 pivotal trial, enrolling late-stage ambulant and non-ambulant young men with DMD across the United States. Late last year, we announced completion of enrollment in our Phase III pivotal HOPE-3 clinical trial, where we enrolled 61 subjects randomized 1:1 to CAP-1002 for placebo. In December, we conducted a prespecified interim futility analysis, and we were very pleased to announce that the trial was successfully deemed to not be futile with a positive recommendation to continue the trial. This analysis was based on an assessment by the data safety and monitoring board otherwise known, of course, is the DSMB of 30 subjects, who reached the six-month time point and assessing their poll scores in a blinded fashion. This important positive outcome triggered our first milestone payment of $10 million from Nippon Shinyaku further strengthening our balance sheet and extending our cash runway. Now as you know, 2024 is a pivotal year for Capricor as we will have data from Cohort A of our Phase…

Thank you, Linda. This afternoon's press release provided a summary of our fourth quarter and full year 2023 financials on a GAAP basis. And you may also refer to our annual report on Form 10-K, which we expect to become available shortly and will be accessible on the SEC website as well as our website. Turning to the financials. Let me start with our cash position. We ended December 31st, 2023, with cash, cash equivalents, marketable securities of approximately $39.5 million. This excludes the $10 million milestone payment we received in January of '24 from Nippon Shinyaku under our distribution and commercialization agreement. Based on our recent operating results and projections, we expect our cash runway to extend into the first quarter of 2025, but this expectation excludes any additional potential milestone payments under our exclusive commercialization and distribution agreements with Nippon Shinyaku. In the fourth quarter of '23, our revenue was approximately $12.1 million compared to approximately $1 million for the fourth quarter of 2022, which was primarily attributable to the ratable recognition of the $40 million, which includes the upfront in milestone payment we have received in accordance with our US commercialization and distribution agreement with Nippon Shinyaku. Excluding stock-based compensation, our research and development expenses were approximately $9.4 million for the fourth quarter of 2023 compared to approximately $6 million for the fourth quarter of 2022. The increase in expenses of $3.4 million was primarily due to increased clinical and manufacturing costs associated with our Phase III HOPE-3 trial. Excluding stock-based compensation, our general and administrative expenses were approximately $1.9 million for both the fourth quarter of '23 and 2022. Net loss for the fourth quarter of '23 was approximately $800,000 compared to a net loss of $7.7 million for the fourth quarter of 2022 and net loss for the full year '23 was approximately $22.3 million compared to a net loss of approximately $29 million for the full year 2022. And with that, we will now open the line-up for questions. Operator, go ahead.

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] Your first question comes from Joe Pantginis from H.C. Wainright. Your line is now open.

Hi, Linda and AJ, thanks for taking the questions. Good afternoon. First off, so wanted to talk about your regulatory discussion. So last year, you had some pretty clear frameworks that you shared with us again today about the need for Cohort A and giving some manufacturing comparability from Cohort B out of the San Diego facility, and you keep talking about ways to potentially expedite. So I wanted to explore that a little bit. So the first question is, I mean, when you look at this, you have the RMAT status is one of the potentials here rolling BLA because you'll be able to start submitting data quicker as part of the filing and other options you might be considering?

Always a pleasure. Thanks for the question. So I'm going to start answering by saying I've been working on this therapeutic for 19 years. And where we are right now is just so staggeringly exciting to me. It's sometimes hard to express, but what has been the best part of the last few months has been the careful attention that FDA has been paying to Capricor and to CAP-1002. They recognize the positive safety and efficacy data. They've looked at the Open Label Extension data, the HOPE-2 data and they're working very closely with us. So yes, all options are on the table right now in terms of how to get this across the line as fast as possible. As I mentioned, leadership within CBER is aware of our program and really working very closely with us. We have RMAT, we have rare pediatric disease designation, orphan disease designation. So we have a lot of the bells and whistles that will carry our program as quickly as possible into the arms of the DMD patients.

Got it. And then just curiosity for Cohort B, are you strictly needing to show manufacturing comparability? Or do these patients need to be follow-up for a certain time frame?

So we built-in and suspended the program by building in a full one-to-one randomized clinical trial with safety and efficacy built-in. So it basically is a mirror image of Cohort A. We're working with FDA on what they're going to actually ask us for. What we know and what we can guarantee on is that they're willing to accept the license application on Cohort A. What we're going to need from Cohort B is still what we're working with them on, but it really is almost -- something that we've not only been prepared for, but something that comes along very naturally. So the trial Cohort B, let me reemphasize, will be fully enrolled by second quarter of this year. And then we're going to be able to potentially position that as a post-marketing commitment for the program.

Got it. And then my last question, if you don't mind and thanks for bearing with me.

Absolutely.

We've been talking about this for several years because we've been excited about the data. So I guess how would you portray the role of the cardiovascular data you've been accumulating through HOPE-2 and beyond in the evolution of your regulatory discussions and how much that may or may not be coming into play to date.

Yes. So it's obviously one of the most important cornerstones of our regulatory strategy, but also in the eagerness of the community to get approval for CAP-1002. To remind you, and I stated this, we saw a 4% improvement in ejection fraction, the gold standard of cardiac function and HOPE-2. And HOPE-2 Open Label Extension, we didn't start measuring cardiac function until two years in. We'll have three years data in the second quarter of this year, so stay tuned for that on cardiac function. But we're pretty convinced that it's going to be one of the major parts of what we're going to look for on our label, and it's the primary secondary endpoints that has been built in to HOPE-3 both Cohort A and Cohort B.

Got it. Thanks for the added details, Linda.

Absolutely, Joe. Always a pleasure.

Your next question comes from Kristen Kluska from Cantor Fitzgerald. Your line is now open.

Hi, everyone. Good afternoon. Thanks so much for taking my question.

Hi, Kristen. How are you?

I'm well. How are you doing?

Good.

So thinking about the potential for combinations, I completely understand the need for this, but can you comment on what your expectation would be in terms of payer support and then gene therapy typically requires a lot more upfront timing to do the different testing, manufacturing, et cetera. Would it be your expectation that CAP-1002 would be the first therapy essentially given in this cascade? And would that be in an advantage in case there is some payer pushback?

So we've had really positive feedback from payers, not just at Capricor, but also NS Pharma has done significant work in preparing for market launch. And the way that we're understanding it is that there's going to be therapy that would be necessary for a sort of management of dystrophinopathy, right? So the exon-skippers and the gene therapies. And because there's not an approved gene therapy theoretically yet, we don't really know how they're going to approach choosing those or both or whatever. But what we do know is that there needs to be a junk of therapy that would manage and I've talked about this a lot, the immunomodulation or the inflammatory response caused by the constant breakdown of protein in the body due to the mutation as well as manage the fibrosis and help to support perhaps the framework laid down by a gene therapy or an exon-skipper, which would be a healthier protein. So we are very confident that payers would find it beneficial to cover both the dystrophinopathy management strategy as well as CAP-1002 for the management of the inflammation and the fibrosis. Now in terms of the order in which the therapeutics are given, that we would sort of have to talk to some of the KOLs. We're already starting to do some of that market research. Obviously, because we're going for our initial label for some of the later-stage patients at least based on the HOPE-3 data. We reserve the right to ask FDA to go as young as possible. Colloquially, we always say time is muscle. And the data has shown that once people get on CAP-1002, disease progression is significantly attenuated almost immediately. So in terms of the timing of how that's done, that remains to be seen, but we're very confident that it will be part of the overall treatment paradigm of Duchenne.

Thank you for that. And then we have seen quite a bolus of the four to five year-old on the Sarepta therapy, which I think underscores the unmet need here. So I wanted to ask what your thoughts are about the cadence you might see in terms of patients wanting therapy, especially because you are going after that nonambulatory population? And then what capacity would you be able to help with given this is half of the patients with DMD? Thanks again.

Yeah. So thank you. So we plan on swinging the door wide open in terms of what we ask FDA for. The benefit here, unlike many therapeutics, we're going to come into BLA with four, five years' worth of safety data tracking children from theoretically age 10 and beyond. So we're going to open the door and see what the opportunity is. Obviously, if I had a child with DMD, I want to get my child on CAP-1002 as young as possible. There's really no downside and potentially could even have impact on who knows, things like steroid dosing and things that may have ultimate impacts and side effects. In terms of what we're looking for, I think that was your second question, we're looking for utilization of CAP-1002 as early as it becomes available to the community. We're right there with it.

Thank you.

Thank you. Thank you for your time.

Your next question comes from Aydin Huseynov from Ladenburg. Your line is now open.

Good afternoon, everyone. Good afternoon, Linda, AJ. Congratulations with the progress this quarter and staying on track with the guidance, with the top line in the fourth quarter '24. I have a couple of questions. First, I wanted to ask you about the potential expansion of indication. I think you mentioned something on your -- in your remarks. And we -- this -- the most natural expansion, I think we talked about it, it was the Becker dystrophy that we see tremendous increase in value in other bigger companies. And given your cardiomyopathy focus on improving skeletal or cardiac muscle function, could you expand a little bit on your -- any potential efforts that you're making regarding that expansion?

Thanks, David, and always good to talk with you. So we've been talking about this for a while. Obviously, there's tremendous opportunities for expansion. As I mentioned, the manufacturing paradigm is set. We have a potency assay that's been accepted by FDA. We understand the mechanism of action and how to make the cells. And we certainly are poised to expand our efforts. Becker is certainly one that's of great interest, especially since the primary manifestation later life is the cardiomyopathy, which as we've talked about, is one of the main targets that CAP-1002 seems to ameliorate. Having said that, we are right now focusing almost all of our efforts on getting CAP-1002 across the line for DMD. We're working on the BLA. We're working on a launch strategy, commercialization strategy. And so indication expansion will come behind that. And we'll provide more color to you and to the market as those opportunities become available.

Okay. Understood. Another question I have is regarding the our HOPE-2 open extension -- Open Label Extension trial, results in the second quarter. So what are your expectations regarding this data?

Well, we have three-year data coming out in the second quarter of this year, as I said. The two-year data was extraordinary. We presented that most recently at PPMD and then I will be sharing some more data at the Muscular Dystrophy Association meetings next week in Orlando. We have every expectation based on the anecdotes that we hear from the subjects and their families that this trend of stabilization of disease and attenuation of disease progression will continue. We're really looking forward to seeing the MRI data because that will be two years of sequential cardiac function data. And we have every reason to believe that we should be able to stabilize heart function as well. So we also have so many families that call us that tell us that their sons are able to do what they weren't able to do before or they can't wait for their next infusion, can we please get in sooner because we feel it wearing off after three months. So I'm very much looking forward to seeing that data and then ultimately sharing it with all of you.

Understood. Thank you for that. And the last question is regarding the European discussions, discussions with potential European parties. So in your discussions with them, first of all, if you could give us a little bit of insight? Are these like established players or these new players? And what are the typical questions that they answered. What is the -- which part of CAP-1002 value they are most interested in, if you could expand a little bit on this?

Yes. So I think the European community is as interested in getting therapies across the line for DMD as the US authorities. They have a little bit different strategy in Europe. As you probably are aware, there is a little bit of different way of going about it. The parties that we're talking to are some new and some established. I think we've been on the radar for several larger companies for a long time now. And with the data coming around the corner, they're paying more attention. Perhaps one of the best things is that our San Diego manufacturing facility can be EMA qualified. So we can make doses here and ship them to Europe, which is an added benefit. And in terms of the questions that we get, I think, would be the typical ones, which is regulatory strategy, getting CAP-1002 across the line, what clinical trial work will be needed. From our standpoint, it's probably going to be fairly straightforward, and we definitely look forward to making CAP-1002 available worldwide.

Okay. Thank you so much and congratulations for the progress this quarter.

Thanks, Aydin. Take care.

[Operator Instructions] There are no further questions at this time. I'm turning it over to the management for closing remarks.

Before we conclude today's call, I want to extend my sincere gratitude to the patients, their families, the clinicians and our partners at Nippon Shinyaku and NS Pharma and of course, at FDA who continue to work with us to bring CAP-1002 closer to potential approval. Again, thank you to everyone, who joined us this afternoon, and I look forward to seeing you at meetings in the future.

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.