Capricor Therapeutics Inc

NASDAQ:CAPR

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Capricor Therapeutics' Second Quarter 2024 Earnings Call. [Operator Instructions] Also note that this call is being recorded on Wednesday, August 7, 2024.

And I would like to turn the call over to our CFO, AJ Bergmann for the forward-looking statements.

[Anthony Bergmann, executive]

Thank you, and good afternoon, everyone. Before we start, I would like to state that we will be making certain forward-looking statements during today's presentation. These statements may include statements regarding, among other things, the efficacy, safety, and intended utilization of our product candidates, our future 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, revenue and reimbursement estimates, 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 the 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.

[Linda Marbán, executive]

Thanks, A.J. Good afternoon, and thank you for joining today's second quarter conference call. Now over halfway through 2024, Capricor continues to make significant progress on bringing our lead asset, Deramiocel, which was previously referred to as CAP-1002, closer to the submission of a Biologics License Application or BLA, for the treatment of Duchenne muscular dystrophy as well as developing our pipeline of exosome products for clinical development.

Our published results in June independently conducted clinical trials and the recent long-term open-label extension results, we believe are some of the strongest data seen in the space. As Deramiocel addresses the inflammation and fibrosis caused by the cell death due to the lack of dystrophin, which typically protects muscle cells from damage. We believe it can serve as a potential backbone therapy for all boys and young men afflicted with DMD, with the product's ability to significantly slow disease progression from both a skeletal and cardiac standpoint.

Additionally, as the KOLs across the DMD fields have continued to message, DMD will require a multidrug paradigm to address all of the pathological consequences of this disease. So I want to remind everyone that as Deramiocel move towards potential approval and commercialization, our United States distribution agreement with Nippon Shinyaku provides for approximately $700 million in potential developmental and sales milestones that may become due to Capricor, which would enable us to invest in our commercial launch and give us the resources to strategically expand our focus to other diseases of inflammation and fibrosis.

In fact, we are preparing to discuss opportunities to potentially expand Deramiocel into Becker muscular dystrophy with the FDA later this year. We believe in Deramiocel's potential to become a transformational treatment for DMD and beyond. And we are positioning Capricor to become a world-class commercial and R&D operation with a robust pipeline of opportunities for growth, including the expansion of our StealthX exosome-based platform. My goal is to position the organization to deliver for that transformation, and I continue to be proud of the progress that we have made to date.

Now I'd like to take a moment to update you on our recent 3-year HOPE-2 Open-Label Extension or OLE study results, which were presented at this year's PPMD Annual Meeting. Treated subjects shows statistically significant benefit with a p-value of 0.001 and an improvement in 3.7 PUL points on the PUL 2.0 when compared to an external comparator dataset of similar DMD patients. This translates into an approximate 50% delay in disease progression in treated patients versus the external comparator.

Data also showed improvement in multiple cardiac measures, including left ventricular ejection fraction, as well as indexed left ventricular and left ventricular end systolic volume and end diastolic volume. These are measures of cardiac function and are considered highly relevant in terms of predicting long-term outcomes. In addition, greater improvements in cardiac function were observed in those patients that had ejection fractions greater than 45% at the beginning of the HOPE-2 randomized clinical trial.

Currently, as you know, there are no approved treatments specifically for DMD cardiomyopathy. Our HOPE-2 Open-Label Extension study continues to show a favorable safety profile, and we believe these 3-year results continue to underscore the potential long-term and consistent benefits of Deramiocel for the treatment of DMD.

Based on the favorable data from our clinical trials, I want to reiterate that our primary goal is to file a BLA as soon as possible, and we are actively working with FDA to accomplish that goal. Deramiocel is the only therapeutic to our knowledge that has shown statistically significant improvements in cardiac function and DMD associated cardiomyopathy, which is the leading cause of death for those with DMD.

FDA is aware of the strength of Capricor's cardiac data and may allow for its inclusion in the label for Deramiocel, which FDA acknowledges as important to the DMD patient community. We have just met with FDA in a very positive pre-BLA meeting. And while we are awaiting final minutes from the meeting, I can share that we are discussing alternative paths to our BLA filing. One pathway would be filing our BLA with currently available data from the HOPE-2 and the HOPE-2 OLE studies to support an accelerated approval pathway with confirmatory data to be provided at a later date. Another option is a traditional full approval. We are pleased to announce FDA's acceptance of our rolling BLA submission, and based on that, Capricor intends to initiate the filing of our BLA shortly.

On the CMC front, as we reported last quarter, our San Diego manufacturing facility is fully operational and actively preparing for commercial runs necessary for the filing. Additionally, we have accelerated the pace of our preparations for commercial market entry. Our partner, Nippon Shinyaku, is focused on their role in getting Deramiocel ready for launch. We and they expect for rapid adoption of Deramiocel by payers and patients with DMD. We are actively engaged with them to ensure a smooth and successful launch. Capricor is focused on the areas of preparation for market access, reimbursement as well as opportunities for expanded label usage.

Now for an update on our exosomes program. While our primary focus is on advancing Deramiocel, we are committed to our StealthX exosome platform technology as part of our next-generation drug delivery platform. We have been planning for the success of Deramiocel for several years, and to that end has built a pipeline of engineered exosome products based on our foundational cell therapy experience. The goal has been to take advantage of our experience with scaling up and out cell therapies as well as to continue to refine cell-based products such as exosomes, in terms of their ability to be quantified based on mechanism of action as well as targeting them for more strategic treatment paradigm.

Our exosome platform focuses on the use of our proprietary StealthX technology to develop therapeutics by harnessing exosomes as delivery vehicles. This program requires the loading of specific cargoes into the exosomes and then attaching targeting moieties on the outside of the exosome to direct it where to go. We are currently ramping up our business development efforts with our exosome platform technology as we continue to develop the therapeutic opportunities of the platform.

Regarding our vaccine candidate, we are actively collaborating with United States government's Project NextGen, which aims to test vaccine candidates for COVID-19 prevention, and also to prepare for future pandemics. Currently, our vaccine candidate is in the manufacturing phase with plans to deliver to the National Institute of Allergy and Infectious Diseases by the end of 2024. Then NIAID will conduct and fully fund a Phase 1 clinical trial.

On the therapeutic front, we have recently made notable advancements with our exosome platform, which is in preclinical development. We presented data at the International Society for Cell & Gene Therapy in Vancouver, where we were selected for an oral presentation. Our preclinical data highlighted an exosome-based approach for targeted delivery to skeletal muscle in the mouse lower limb.

Subsequently, our research demonstrated that using an in-house developed proprietary exogenous loading technique, we can not only target exosomes to muscle cells, but also deliver antisense oligonucleotide, one of our payloads, with exosomes carrying a muscle targeting moiety. This work was featured in a poster presentation at the International Society for Extracellular Vesicles in Melbourne, Australia. The data from both conferences strongly suggest that exosomes of targeting moieties can direct delivery to skeletal muscle in the mouse lower limb, presenting potential for targeted delivery applications, including the treatment of Duchenne muscular dystrophy. Combined with earlier data on arginase-1 deficiency, which is being developed as a potential enzyme replacement therapy, these findings reinforce the potential of our platform. We believe there are significant opportunities for broad applications and our data from our StealthX program continues to support this belief.

Now I would like to take a few moments to provide our current corporate updates and priorities as we progress through 2024. Based on our significant progress over the last quarter and now a potential expedited path to BLA, this clarity gives us confidence that we are well positioned to bring additional capital into Capricor to strengthen our balance sheet and extend our cash runway. While there are various ways to accomplish this goal, our primary mission is to secure capital in the best interest of our shareholders. Therefore, we are pursuing multiple different business opportunity -- business development opportunities, and we are in active discussions with several parties, looking to potentially distribute Deramiocel in Europe for the treatment of DMD. We have been judicious with respect to partnering for the rights in the EMA as we knew the asset would garner greater value as we progress through clinical development and achieve clarity with FDA. I am very pleased to inform you that we are in late-stage discussions for these rights, and we will share updates as they become available.

We believe that Deramiocel is a highly valuable asset in the EU as well as other regions around the world, and our partnering efforts remain focused on securing these relationships. Additionally, our U.S. Agreement with Nippon Shinyaku, as I mentioned a moment ago, has approximately $700 million in potential milestone payments payable to Capricor, $90 million of which is up to the time of approval and are triggered upon certain regulatory-based achievements, some of them to be expected in the near-term. We believe that we can achieve these milestones as they will continue to support our balance sheet and further extend our cash runway. Furthermore, if we receive approval for Deramiocel, we will be eligible to receive a Priority Review Voucher, a PRV, based on our pediatric disease designation to which we retain full rights.

And finally, we were pleased to announce earlier this quarter to be added to the Russell 2000 and Russell 3000 Indexes, which should bring added visibility to our company as we continue to remain focused on bringing more institutional buy and sell-side support to our story.

In conclusion, this has been an extraordinary year for Capricor thus far. We have made significant strides in our regulatory pathway, getting closer to potential approval with each FDA meeting. Patients and families are fully supportive of our efforts and see the lasting power of Deramiocel and helping those with DMD to feel and function better. We have built, equipped, and are now producing doses from our manufacturing facility in San Diego for a fraction of the cost of other biotechnology companies. We have some of the strongest and most consistent data in terms of efficacy and safety in the DMD community with the HOPE-2 and the HOPE-2 Open-Label Extension datasets. We have a strong pipeline in our engineered exosome technology supported by StealthX. Capricor's goal is to continue to meet its milestones and deliverables as we have set forth, as we continue to focus our efforts on bringing Deramiocel towards potential commercialization and are investing judiciously across the organization to prepare for that endeavor.

Over the next several months, we will be presenting at various medical, scientific, and investor-related conferences, details of which will be shared as they become available. And of course, finally, I want to thank the patients, their families, and all of our investors for their continued support. Later this quarter, we plan to announce further details from our pre-BLA meeting, at which time we will be able to articulate more formal guidance on the upcoming pivotal milestones of our DMD program.

I will now turn the call over to AJ to run through our financials.

[Anthony Bergmann, executive]

Thanks, Linda. This afternoon's press release provided a summary of our second quarter 2024 financials on a GAAP basis. You may also refer to our quarterly report on Form 10-Q, which we expect to become available shortly and will be accessible on the SEC website as well as the financial section of our website.

Let me start with our cash position. As of June 30th, 2024, the company's cash, cash equivalents, and marketable securities totaled approximately $29.5 million compared to approximately $39.5 million on December 31st, 2023. Based on our current operating plan and projections, company's cash runway is expected to be sufficient to support operations into the first quarter of 2025. This expectation excludes any potential additional milestone payments under our Commercialization and Distribution agreements with Nippon Shinyaku.

Turning now to the financials. Revenue for the second quarter of 2024 were approximately $4 million compared with approximately $3.9 million for the second quarter of 2023. The source of revenue is the ratable recognition of the $40 million we've received from our U.S. exclusive Commercialization and Distribution Agreement with Nippon Shinyaku.

Moving to our operating expenses for the second quarter of 2024, excluding stock-based compensation, our R&D expense was approximately $11.7 million, compared to approximately $8.4 million in Q2 2023. The increase in expenses of $3.3 million was primarily due to increased clinical and manufacturing costs associated with our Duchenne muscular dystrophy program. Again, excluding stock-based compensation, our general and administrative expense was approximately $1.8 million in Q2 2024 and approximately $1.7 million in Q2 2023.

Net loss for the second quarter 2024 was approximately $11 million, compared to a net loss of approximately $7.4 million for the second quarter of 2023. And net loss for the first half of 2024 was approximately $20.8 million, compared to a net loss of approximately $15.1 million for the first half of 2023.

We will now open the line up for questions.

[Operator]

[Operator Instructions] And your first question will be from Joseph Pantginis at H.C. Wainwright.

[Joseph Pantginis, analyst]

Two questions, if you don't mind. So Linda, in your prepared comments, you're talking about you just met with the FDA and it sounds like the key aspects were deciding on the 2 alternate paths for filing. I guess I wanted to get the latest update. And of course, I know this is before you get the minutes, is to what extent did the cardiovascular play into this latest meeting? And what do you consider the key outstanding questions or issues still?

[Linda Marbán, executive]

Yes, Joe, thank you. Thank you for the support over these many years. I really think we're going to get this across the line, and I'm super excited. The cardiovascular aspect of the program is finally getting the attention that it deserves from the FDA. I think it's really due to the combination of efforts of the KOLs and the Duchenne advocacy community that have highlighted that this is the #1 cause of death in these boys and young men. And yet, frankly, all the therapies that are available to them are ones that might go to some person who has adult-based cardiac disease, kind of joke, something your grandma might get. This would be the first therapeutic to treat the cardiomyopathy associated with Duchenne muscular dystrophy, which pathogenesis is extraordinarily different from others. So yes, it has become a key focus of the program. They're willing to consider Deramiocel as part of the label for cardiac. They're also, at least in writing, thus far, willing to consider expanding the label to all patients diagnosed with Duchenne muscular dystrophy. And so, we're really excited to see the results of these minutes and continue to push this towards BLA very quickly.

[Joseph Pantginis, analyst]

And if I could just switch swiftly, excuse me, to the exosomes program. Obviously, it's a platform that has broad reaching capabilities. So you mentioned your BD efforts, I guess, how would you describe sort of the proportion of, say, inbound versus outbound reaching with regard to BD?

[Linda Marbán, executive]

Yes. So the exosome program is really coming to light. I think you know and others that follow our story know that my goal is to launch Deramiocel and expand that into other indications as appropriate. But because of our long experience with cell therapy and making cells and using cells, expanding into an exosome-based program was critical. And the first thing that we had to do was make sure that we could make exosomes in large numbers easily and relatively cheaply because their main competitor would be a lipid nanoparticle. Now exosomes are way better than lipid nanoparticles because you can target them and load them. And so, there's a lot more opportunities plus they're very safe. They're not clogging up your liver. So that was our first goal. We achieved that. People thought we were quiet for a long time. Now that we're getting out and about with some of these opportunities, including potentially loading, for instance, a Duchenne-based antisense and exon skipper into the exosome, targeting it to skeletal muscle using our targeting moiety. This becomes now a very tangible product. And so yes, we have more incoming interest than we've had before. We're also planning in '25 a pretty extensive business development, external reaching efforts.

[Operator]

Next question will be from Leland Gershell of Oppenheimer.

[Leland Gershell, analyst]

Just hoping to get some clarity on the timeline here. Linda, you mentioned the pre-BLA meeting and plans that will be coming up around the data and thereafter. I wanted to understand, have you begun any aspects of the rolling submission? If not, when do you expect to begin that? And how long after the top line data from the HOPE-3 study would you expect to complete the rolling BLA submission?

[Linda Marbán, executive]

Yes. So our current plan is to begin submitting in the rolling BLA within the next 60 days. FDA has seen our timelines and have approved it as part of our communication plan at our most recent meeting. Should the HOPE-3 data be necessary for the BLA, we would anticipate that the submission would be complete at the end of the first quarter. We are also exploring, however, with the agency, the opportunity to complete the file without the HOPE-3 data, and then that would obviously accelerate submission to the end of 2024.

[Leland Gershell, analyst]

And then a question on the [ ex-U.S. ] potential partnership. Wondering, if there's any, based on where you may be in your discussions, if you can make any comment as to the view of having one or more partnerships in place by year-end? Just sort of want to understand kind of what the evolution of those discussions will be at this time frame?

[Linda Marbán, executive]

Yes. Our goal is to finalize those conversations before the end of this year. As I said, I know people have sort of wondered, we've been talking to EU partners for a while. The clarity with FDA has been critical. And also beginning conversations with regulatory authorities and consultants in Europe, we now have a much cleaner picture of what it's going to take to get it across the line there. We think it's going to be actually much easier than we originally anticipated, our partners think so also. So the goal would be to close these deals -- a deal before the end of this calendar year to strengthen the balance sheet and to support the approval and expansion from Deramiocel.

[Operator]

Next question will be from Aydin Huseynov at Ladenburg.

[Aydin Huseynov, analyst]

Congrats with the progress, the positive FDA meeting. It sounds that your discussions and finding another name for CAP-1002 with Deramiocel. So I have a couple of questions regarding the FDA meeting. So you mentioned that you had some discussions about expansion of the indication. And I was just curious to see if there's any preliminary feedback or reaction of FDA to potential Becker dystrophy expansion and any thoughts that they have, any hypothetical DMD trial design?

[Linda Marbán, executive]

Yes, Aydin, I know you've been really a big supporter of us expanding into DMD for a while. So thank you for that guidance. We have mentioned it as part of our conversations with FDA, obviously, it hasn't been a main focus on the meeting. The really exciting part for us right now is that as FDA is beginning to understand the impact of cardiomyopathies in these muscular dystrophies, it really gives us a window into how we can move forward, and for instance, Becker, where the cardiomyopathy is also the leading cause of death. We haven't really talked about trial design yet, because I want to get through this stage with FDA, see where it comes down, cardiac implications, and then strategically build a program. We plan to meet with FDA on DMD before the end of the year, so that we can get their guidance, and we're putting together sort of our KOL panels and plans as we speak. So yes, this is a great opportunity, obviously, for the therapy, but also for the patients with Beckers.

[Aydin Huseynov, analyst]

And for potential DMD label for Deramiocel, how we should think about the FDA label? Do you think it would be pretty broad label that would include DMD patients similar to the ones you recruited in the HOPE-2 and HOPE-3 trial? Or do you think the FDA may sort of specify patients with cardiomyopathy only? And how do you think that they will approach this?

[Linda Marbán, executive]

Yes. So the cardiomyopathy is going to be an and/or, right? So that's how we've positioned it. I think that's how the label will read, it will be for those with skeletal muscle and cardiac myopathy or skeletal muscle or cardiomyopathy because as you know and has been well published, the disease does not progress similarly both in cardiac and skeletal muscles. So some kid might have a bad heart and good skeletal muscle or vice versa. So we will be an opportunity for stabilization of disease both in skeletal and cardiac. In terms of labeling, our goal is all those diagnosed with Duchenne muscular dystrophy, our preliminary feedback from FDA suggests that they are open to that opportunity. And we will certainly push that as hard as we can. Certainly, the precedent that has been set by some of the others that have gotten approval in the space with very broad labels, gives us a door open into that opportunity as well, which could double our market opportunity at launch.

[Aydin Huseynov, analyst]

And regarding the sort of advanced discussions regarding partnerships in Europe. So would you like to pursue a partnership deal before the topline readout in the fourth quarter 2024 or after the readout? So this is purely an economic question. Is it cash now or more cash later?

[Linda Marbán, executive]

Well, it's an interesting question. We're talking to the partners right now. We feel that the offers that are coming our way are reasonable and appropriate, almost assuming approval of the BLA. So Europe has another regulatory structure. We're very confident now based on some of our conversations with authorities over there that we will meet their criteria, either with small clinical trial or no clinical trial. We're not sure yet. And so, I guess, the short answer to your question is we'll close the deal when we reach the best economics to support our balance sheet to drive the company forward, and also to give credit to the asset as it is due.

[Aydin Huseynov, analyst]

And the last question I have is regarding the potential milestones from Nippon Shinyaku. So we know there's $90 million waiting up until BLA approval. But should we expect anything before the FDA approval? Should we expect anything based on the topline readout at the end of this year?

[Linda Marbán, executive]

So as you know, we're not able to disclose the actual cadence of the milestone payments. We built them into our personal balance sheet estimations. And so, we're aware of those milestones coming in. And that's really all I can say right now, but there is $90 million coming up to and including approval of the BLA.

[Operator]

[Operator Instructions] And your next question will be from Kristen Kluska at Cantor.

[Richard Miller, analyst]

This is Rick Miller on for Kristen. We've got 2 for you here. What are you hearing from physicians and caregivers about the potential for non-ambulant DMD patients now receiving gene therapy on an accelerated basis? How confident is the space in this, especially as it relates to these cardiac issues that you were talking about?

[Linda Marbán, executive]

Yes, really great question. So yes, I mean, everybody is laser-focused on the implications of gene therapy for the non-ambulant. And whether, A, it will actually work, are you knocking on a closed-door, dead muscle is a dead muscle? Or are you going to really preserve what's there? And I certainly hope for those guys with DMD, it preserves what's there. We actually presented to FDA a comparison of Deramiocel and Elevidys and its pathogenesis or delay in the pathogenesis of the disease. And we were able to show that Deramiocel performs at least as well as gene therapy in year 1 and better than gene therapy in year 2 when compared with non-ambulant patients.

The cardiomyopathy becomes a real problem with post-gene therapy patients for multiple reasons. One, physicians are concerned about potential inflammatory processes as part of the gene therapy and could that have negative implication on the heart. Two, if these guys are more active, is that going to put more strain on their hearts and will their hearts fill faster? And 3, there seems to be sort of a correlation between gene therapy and some are worsening with the cardiomyopathy. So I think this is a great opportunity for Deramiocel, which have shown preclinically that there is no negative impact of Deramiocel treatment in conjunction with microdystrophin treatment. And so we believe that they will be great partners together with the gene therapy, restore the muscle, and let Deramiocel protect it.

[Richard Miller, analyst]

Maybe just one more question then from us. Switching to Becker. Can you help us kind of frame the cardiomyopathy opportunity that you're thinking about here? I think sometimes the field thinks sort of naively about Becker as being a less severe form of DMD. So how does the kind of cardiac burden and Becker breakdown as it relates to DMD? Is it sort of more proportional, more severe, thoughts there?

[Linda Marbán, executive]

Yes. Great question. And certainly, one that the KOLs, cardiologists basically laser focusing on. According to some of the key opinion leaders that we've talked to, we participate actively in PPMD's cardiomyopathy meetings, which they hold once a year for both Becker and Duchenne. The Becker cardiomyopathy actually begins at about age 14, not so unsimilar or dissimilar to the Duchenne muscular dystrophy cardiomyopathy. The progression of skeletal muscle myopathy is lower. These guys end up with a pretty severe cardiomyopathy heart failure paradigm and most of them die 40s and 50s as a result of the heart disease. I think now that the whole field is becoming more aware of the cardiac dysfunction as a mediator of potential death. It will open the door, as I mentioned in a question earlier, to treating the cardiomyopathy associated with Becker. And yes, while it's less severe in terms of dying at 20 versus dying at 50, nobody wants to die at 50 either. So let's keep those guys go onto.

^Operator^ And at this time, I would like to turn the call back over to Capricor management for final thoughts.

[Linda Marbán, executive]

Thank you very much for attending our earnings call today, and thank you for your thoughtful questions. I look forward to updating all of you on our programs, as we continue through 2024. Have a nice evening, and we'll talk to you soon.

[Operator]

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.