Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2022 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to Commission File Number: 001-34058 CAPRICOR THERAPEUTICS, INC. (Exact Name Of Registrant As Specified In Its Charter) Delaware 88-0363465 (State or ot ...

Financial Data and Key Metrics Changes - As of June 30, 2022, the company's cash, cash equivalents, and marketable securities totaled approximately $51.4 million, an increase from approximately $34.9 million on December 31, 2021 [28] - For the first half of 2022, net cash provided by operating activities was approximately $17.5 million, primarily driven by a $30 million upfront payment from Nippon Shinyaku [29] - The net loss for the first half of 2022 was approximately $14.9 million, compared to a net loss of approximately $9.9 million for the first half of 2021 [30] Business Line Data and Key Metrics Changes - The CAP-1002 program for Duchenne muscular dystrophy (DMD) has completed two successful clinical trials, demonstrating safety and tolerability in over 200 patients [6] - The ongoing Phase III pivotal study, HOPE-3, aims to enroll 70 patients across 15 to 20 investigative sites in the U.S., with seven patients already enrolled as of the call [7][8] Market Data and Key Metrics Changes - The target patient group for CAP-1002 comprises about 10,000 boys and young men in the U.S. who are largely non-ambulant and in the later stages of DMD [6] Company Strategy and Development Direction - The company is focused on executing the HOPE-3 clinical trial as a pivotal trial and preparing for potential commercial launch, including scaling up manufacturing [17][21] - A distribution and commercial agreement with Nippon Shinyaku includes a $30 million upfront payment and potential milestone payments up to $705 million [20] Management's Comments on Operating Environment and Future Outlook - Management emphasized the urgency of bringing CAP-1002 to market quickly, highlighting the importance of the open label extension data in demonstrating disease-modifying activity [34][35] - The company plans to meet with the FDA to present open label extension data and discuss the path forward for regulatory approval [15][37] Other Important Information - The company is developing an exosome platform technology for drug delivery, with potential applications in vaccines and RNA delivery [22][24] - The current cash position is expected to cover anticipated expenses into the second quarter of 2024, allowing the company to focus on core programs [28][46] Q&A Session Summary Question: What is the goal for the upcoming FDA meeting regarding the open label extension data? - The ultimate goal is to get CAP-1002 to market as quickly as possible, with a focus on demonstrating the data's significance to the FDA [33][35] Question: Is there a potential for CAP-1002 to be on the market before the HOPE-3 readout? - The company is preparing for commercialization and will evaluate the best path forward after discussions with the FDA [37] Question: What are the plans for manufacturing capacity beyond the current setup? - The company is working on a plan to scale up manufacturing and will assess needs as they become apparent [40] Question: Can you provide details on the exosome vaccine candidate? - The exosome-based vaccine candidate is a twist on a previous COVID candidate, with potential applications for various infectious diseases [42][44] Question: How will the company manage its cash and potential pipeline expansion? - The company is prioritizing CAP-1002 and the exosome pipeline while being judicious with cash spending [46]

PART I. FINANCIAL INFORMATION [Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements.) This section presents Capricor Therapeutics' unaudited condensed consolidated financial statements, including balance sheets, operations, equity, and cash flows, with notes detailing a significant **$30.0 million** upfront payment [Condensed Consolidated Financial Statements](index=7&type=section&id=Condensed%20Consolidated%20Financial%20Statements) The financial statements reflect a substantial increase in cash to **$58.3 million** and liabilities to **$40.3 million** due to a **$30.0 million** upfront payment, alongside a wider net loss of **$7.8 million** for the quarter Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $58.3 million | $34.9 million | | Total Assets | $64.9 million | $41.3 million | | Deferred Revenue (Current & Long-term) | $30.0 million | $0 | | Total Liabilities | $40.3 million | $10.0 million | | Total Stockholders' Equity | $24.6 million | $31.4 million | Condensed Consolidated Statements of Operations (Unaudited) | Account | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Total Revenue | $0 | $40.8 thousand | | Research and development | $5.1 million | $3.3 million | | General and administrative | $2.7 million | $1.9 million | | **Net Loss** | **($7.8 million)** | **($5.2 million)** | | Net loss per share, basic and diluted | ($0.32) | ($0.23) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Account | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $24.0 million | ($3.3 million) | | Net cash used in investing activities | ($625.4 thousand) | ($36.9 thousand) | | Net cash provided by financing activities | $27.5 thousand | $12.6 million | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes clarify the company's business, accounting policies, equity, and significant agreements, including the Nippon Shinyaku partnership and government grant liabilities - The company is a clinical-stage biotechnology company focused on the development of transformative cell and exosome-based therapeutics for treating Duchenne muscular dystrophy ("DMD") and other diseases[32](index=32&type=chunk) - In January 2022, the company entered into an Exclusive Commercialization and Distribution Agreement with Nippon Shinyaku for CAP-1002 in the U.S. It received an upfront payment of **$30.0 million**, which is recorded as deferred revenue to be recognized over the course of the HOPE-3 clinical study. The agreement includes potential for up to **$705.0 million** in additional milestone payments[153](index=153&type=chunk)[154](index=154&type=chunk)[156](index=156&type=chunk) - The company carries a liability of approximately **$3.4 million** for a CIRM grant award related to the HOPE-Duchenne clinical trial, as it has the right to convert the grant into a loan[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - No shares were sold under the company's "at-the-market" (ATM) equity program during the first quarter of 2022[83](index=83&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operational results, and business strategy, highlighting CAP-1002 development, increased operating expenses, and improved liquidity from the Nippon Shinyaku deal [Company Overview and Key Developments](index=43&type=section&id=Company%20Overview%20and%20Key%20Developments) Capricor is advancing CAP-1002 into a Phase 3 trial for DMD, secured a **$30.0 million** upfront payment from Nippon Shinyaku for U.S. commercialization, and discontinued CAP-1002's COVID-19 clinical development - The company is initiating the HOPE-3, Phase 3 pivotal clinical study for CAP-1002 in late-stage DMD patients, with the first patient enrollment anticipated in Q2 2022[168](index=168&type=chunk)[169](index=169&type=chunk) - Entered into an exclusive commercialization and distribution agreement with Nippon Shinyaku for CAP-1002 in the U.S., receiving a **$30.0 million** upfront payment with potential for up to **$705.0 million** in additional milestones[175](index=175&type=chunk) - Final one-year results from the HOPE-2, Phase 2 clinical trial were published in The Lancet, showing the trial met its primary efficacy endpoint[176](index=176&type=chunk) - Following a review of topline data from the INSPIRE Phase 2 study, the company will not pursue further clinical development of CAP-1002 for COVID-19[172](index=172&type=chunk) [Results of Operations](index=49&type=section&id=Results%20of%20Operations) The company reported a net loss of **$7.8 million** for the quarter, an increase from **$5.2 million** in the prior year, primarily due to increased R&D and G&A expenses Operating Expenses Comparison (Unaudited) | Expense Category | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | General & Administrative | $2.7 million | $1.9 million | | Research & Development | $5.1 million | $3.3 million | - R&D expenses increased by approximately **$1.8 million**, mainly due to a **$1.0 million** increase for the exosomes program and a **$0.5 million** increase for CAP-1002 clinical development activities[188](index=188&type=chunk) - G&A expenses increased by approximately **$0.8 million**, primarily from a **$0.3 million** rise in headcount, salaries, and recruiting costs, and a **$0.2 million** increase in stock-based compensation[187](index=187&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents significantly improved to **$58.3 million** from **$34.9 million** due to a **$30.0 million** upfront payment, providing funding into at least Q2 2024 Liquidity and Capital Resources Summary (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $58.3 | $34.9 | | Working capital | $46.4 | $32.3 | - Cash provided by operating activities was **$24.0 million** in Q1 2022, a major shift from the **$3.3 million** used in Q1 2021, driven by the **$30.0 million** upfront payment from Nippon Shinyaku[196](index=196&type=chunk) - The company estimates its cash of **$58.3 million** will fund its operating expenses and capital expenditure requirements into at least the second quarter of 2024[174](index=174&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity on its **$58.3 million** cash and equivalents, managed through short-term, high-credit-quality investments to mitigate significant impact - The company's market risk is primarily related to interest rate sensitivity on its **$58.3 million** in cash and cash equivalents[244](index=244&type=chunk) - The investment policy focuses on capital preservation through high credit quality, short-term maturity investments, mitigating significant impact from interest rate changes[245](index=245&type=chunk) [Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective at the reasonable assurance level as of the end of the reporting period[249](index=249&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[250](index=250&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=65&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material pending legal proceedings - We are not involved in any material pending legal proceedings[252](index=252&type=chunk) [Risk Factors](index=65&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 - There have been no material changes in our risk factors from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021[253](index=253&type=chunk) [Other Required Disclosures](index=65&type=section&id=Items%202%2C%203%2C%204%2C%205) This section confirms no unregistered equity sales, senior security defaults, mine safety disclosures, or other material information for the quarter ended March 31, 2022 - The report indicates "Not applicable" or "None" for Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, Mine Safety Disclosures, and Other Information[255](index=255&type=chunk)[257](index=257&type=chunk)[259](index=259&type=chunk)[261](index=261&type=chunk) [Exhibits](index=66&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the quarterly report, including corporate governance documents, CEO/CFO certifications, and iXBRL-formatted financial statements - A list of all exhibits filed with the Form 10-Q is provided, including required CEO and CFO certifications and financial data formatted in iXBRL[263](index=263&type=chunk)

Financial Data and Key Metrics Changes - As of March 31, 2022, the company's cash and cash equivalents totaled approximately $58.3 million, compared to approximately $34.9 million on December 31, 2021, indicating a significant increase in liquidity [21] - The net cash provided by operating activities in Q1 2022 was approximately $24 million, primarily driven by a $30 million upfront payment from Nippon Shinyaku [21] - The net loss for Q1 2022 was approximately $7.8 million, compared to a net loss of approximately $5.2 million for Q1 2021 [22] Business Line Data and Key Metrics Changes - The CAP-1002 program for Duchenne muscular dystrophy (DMD) remains the primary focus, with a commercial partnership secured with Nippon Shinyaku, bringing in $30 million in upfront cash to fund the Phase III program [5][12] - Research and development expenses for Q1 2022 were approximately $4.9 million, up from approximately $3.2 million in Q1 2021, indicating increased investment in R&D [22] - General and administrative expenses were approximately $1.9 million in Q1 2022, compared to approximately $1.3 million in Q1 2021, reflecting a rise in operational costs [22] Market Data and Key Metrics Changes - The HOPE-3 Phase III clinical trial is designed to enroll approximately 70 patients in the U.S., targeting a patient population that comprises over half of the DMD market, or about 10,000 boys and young men per year [10][11] - The enthusiasm for the HOPE-3 trial is strong within the patient community, supported by positive anecdotal reports and published data from the Phase II HOPE-2 trial [12] Company Strategy and Development Direction - The company aims to partner with commercially talented companies to prepare for global expansion of the DMD program, while also advancing its bioengineered exosome platform [7][8] - The exosome platform is seen as a significant opportunity for drug delivery, with ongoing advancements in targeting capabilities and scalable manufacturing processes [15][16] - The company maintains a strong balance sheet with no near-term need for equity financing, providing at least two years of runway to execute its strategies [9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, highlighting the successful partnership with Nippon Shinyaku and the positive reception of the HOPE-2 trial results [5][19] - The company is focused on advancing both the DMD program and the exosome platform, with plans to present at various conferences and provide updates on progress [19][20] Other Important Information - The agreement with Nippon Shinyaku includes potential milestone payments of up to $705 million, which could be realized during the course of the HOPE-3 trial [12] - The company retains rights to a rare pediatric voucher coupon upon FDA approval, which has historically been a valuable asset for companies with approved products [13] Q&A Session Summary Question: Interest in funding or accelerating younger patient trials by Nippon - Management has not discussed younger patients specifically with Nippon Shinyaku but is excited about opportunities for both non-ambulant and ambulant patients [24] Question: Enrollment speed for HOPE-3 trial - Management expects the trial to enroll well due to strong community feedback and the positive perception of CAP-1002's efficacy [25][26] Question: Advancements in exosome platform - Management is optimistic about the exosome platform's future and is making significant progress in core technologies and identifying indications for development [27][28] Question: Accounting for the $30 million payment - The $30 million payment was received at the end of Q1 2022 and will be recognized ratably over the duration of the clinical development program [29]

Part I [Business](index=5&type=section&id=Item%201.%20Business) Capricor Therapeutics is a clinical-stage biotechnology company focused on developing cell-based (CAP-1002) and exosome-based therapeutics, with its lead program, CAP-1002 for Duchenne Muscular Dystrophy (DMD), advancing to a Phase III pivotal trial (HOPE-3) - Capricor's primary focus is its cell therapy candidate, **CAP-1002**, for the treatment of Duchenne Muscular Dystrophy (DMD), with the HOPE-2 Phase II trial completed and the HOPE-3 Phase III pivotal study initiating[14](index=14&type=chunk) - In January 2022, Capricor entered into an exclusive commercialization and distribution agreement with Nippon Shinyaku for CAP-1002 for DMD in the United States, including a **$30.0 million upfront payment** and potential future milestone payments up to **$705.0 million**, plus a share of product revenue[14](index=14&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) - The company is developing an exosome platform for therapeutics and vaccines, focusing on delivering nucleic acids like mRNA, supported by an exclusive license agreement with Johns Hopkins University (JHU) and collaborations with the Department of Defense (DoD) and National Institutes of Health (NIH)[19](index=19&type=chunk)[20](index=20&type=chunk)[24](index=24&type=chunk) - Capricor manufactures CAP-1002 for clinical trials at its leased facility at Cedars-Sinai Medical Center (CSMC) and has initiated a technology transfer with Lonza for potential commercial-scale production[101](index=101&type=chunk)[103](index=103&type=chunk) Product Development Pipeline Summary | Product | Indication/Population | Development Stage | | :--- | :--- | :--- | | **CAP-1002** | Duchenne Muscular Dystrophy | HOPE-3 Phase III – initiation underway<br>HOPE-2 Phase II completed | | **CAP-1002** | SARS-CoV-2 | INSPIRE Phase II enrollment complete | | **CDC-Exosomes (CAP-2003)** | Duchenne Muscular Dystrophy | IND submitted | | **Engineered Exosomes** | Evaluating | Preclinical | HOPE-2 Trial 12-Month Final Efficacy Data (CAP-1002 vs. Placebo) | Endpoint Category | Metric | Difference in Change from Baseline | p-value | | :--- | :--- | :--- | :--- | | **Skeletal-Muscle** | Mid-level PUL (v1.2) | 2.6 | 0.01 | | **Skeletal-Muscle** | Shoulder + Mid + Distal PUL (v2.0) | 1.8 | 0.04 | | **Cardiac Function** | LV Ejection Fraction % | 4.0 | 0.002 | | **Cardiac Function** | LV End-Systolic Volume, Indexed | -4.2 | 0.01 | | **Cardiac Biomarker** | Creatine Kinase-MB (% of total CK) | -2.2 | 0.02 | [Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks, including the need for significant additional funding, a history of net losses, dependence on clinical-stage candidates, potential trial failures, manufacturing challenges, reliance on third-party collaborators, and intellectual property protection issues - The company requires substantial additional funding to complete the development of its product candidates and has a history of significant net losses, which are expected to continue, with cash and cash equivalents approximately **$34.9 million** as of December 31, 2021[200](index=200&type=chunk)[201](index=201&type=chunk)[207](index=207&type=chunk) - The company's success is entirely dependent on the successful development and commercialization of its product candidates, CAP-1002 and its exosome technologies, which are still in clinical or preclinical development and have not yet received regulatory approval[211](index=211&type=chunk)[213](index=213&type=chunk) - Manufacturing is subject to significant risks, including reliance on a supply chain for donor hearts, the need for third-party manufacturers for commercial scale-up, and the ability to comply with cGMP regulations[195](index=195&type=chunk)[381](index=381&type=chunk)[387](index=387&type=chunk) - The COVID-19 pandemic poses a risk of disrupting business operations, including potential delays in clinical trial enrollment, supply chain issues, and disruptions to the workforce[221](index=221&type=chunk)[224](index=224&type=chunk) - The company depends on its exclusive distributor, Nippon Shinyaku, for the commercial sale of CAP-1002 for DMD in the United States, and its revenue will be largely dependent on this relationship[430](index=430&type=chunk)[431](index=431&type=chunk) - The company's intellectual property is critical to its success, and it faces risks in obtaining, maintaining, and enforcing its patents, also being dependent on intellectual property licensed from third parties such as JHU and CSMC[398](index=398&type=chunk)[426](index=426&type=chunk) [Unresolved Staff Comments](index=74&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved comments from the staff of the Securities and Exchange Commission - None[518](index=518&type=chunk) [Properties](index=75&type=section&id=Item%202.%20Properties) Capricor Therapeutics does not own any real property and conducts its operations from leased facilities, including its corporate headquarters and laboratory in San Diego, and a key laboratory and manufacturing facility at Cedars-Sinai Medical Center in Los Angeles Leased Facilities | Location | Purpose | Lease Expiration Date | | :--- | :--- | :--- | | San Diego, CA | Laboratory and office space (Corporate headquarters) | October 15, 2026 | | Los Angeles, CA | Laboratory and office space | July 31, 2022 | [Legal Proceedings](index=75&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in any material pending legal proceedings and is not aware of any material threatened legal actions against it - The company is not involved in any material pending or threatened legal proceedings[522](index=522&type=chunk) [Mine Safety Disclosures](index=75&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - Not applicable[523](index=523&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=76&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Capricor's common stock is traded on the Nasdaq Capital Market under the symbol "CAPR", with 136 holders of record as of March 9, 2022, and the company has never paid cash dividends nor intends to in the foreseeable future - The company's common stock trades on the Nasdaq Capital Market under the symbol "**CAPR**"[526](index=526&type=chunk) - As of March 9, 2022, there were **136 holders of record** of common stock[528](index=528&type=chunk) - The company has never declared or paid a dividend and does not anticipate paying cash dividends in the foreseeable future[528](index=528&type=chunk) [Reserved](index=77&type=section&id=Item%206.%20Reserved) This item is intentionally left blank - This item is reserved[534](index=534&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=78&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) For the year ended December 31, 2021, Capricor reported a net loss of **$20.0 million**, an increase from the **$13.7 million** loss in 2020, primarily driven by increased R&D and G&A expenses, ending 2021 with **$34.9 million** in cash and cash equivalents - The **$5.1 million** increase in R&D expenses in 2021 was primarily due to a **$2.5 million** increase in the exosomes program and a **$2.3 million** increase in technology transfer and manufacturing for CAP-1002[557](index=557&type=chunk) - The company expects to receive a **$30.0 million** upfront payment from its distribution agreement with Nippon Shinyaku in 2022, which will support the HOPE-3 trial[544](index=544&type=chunk)[562](index=562&type=chunk) - Management believes its cash resources as of December 31, 2021, are sufficient to fund operations for at least the next twelve months[575](index=575&type=chunk) - For 2022, the company anticipates spending approximately **$10.0 million to $14.0 million** on its DMD program and **$5.0 million to $7.0 million** on its exosomes program[561](index=561&type=chunk)[564](index=564&type=chunk) Financial Results Comparison (Years ended Dec 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | **Total Revenue** | $0.2M | $0.3M | | **R&D Expenses** | $13.6M | $8.5M | | **G&A Expenses** | $7.6M | $5.5M | | **Net Loss** | ($20.0M) | ($13.7M) | | **Cash & Cash Equivalents (EOY)** | $34.9M | $32.7M | [Quantitative and Qualitative Disclosures About Market Risk](index=88&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity related to its cash, cash equivalents, and marketable securities, totaling **$34.9 million** as of December 31, 2021, with an investment policy focused on high-credit-quality, short-term maturity instruments to mitigate risk - The company's main market risk exposure is from interest rate changes affecting its cash and cash equivalents, valued at approximately **$34.9 million** at year-end 2021[620](index=620&type=chunk) - The investment strategy is to use highly rated credit issuers and short-term maturities to limit default and market risk, and the company does not hedge its interest rate exposure[621](index=621&type=chunk) [Financial Statements and Supplementary Data](index=89&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for the fiscal years ended December 31, 2021, and 2020, including key figures such as total assets of **$41.3 million** and a net loss of **$20.0 million** for 2021, accompanied by the independent auditor's report and detailed notes Consolidated Balance Sheet Highlights (as of Dec 31, 2021) | Account | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $34.9 | | Total Assets | $41.3 | | Total Liabilities | $10.0 | | Total Stockholders' Equity | $31.4 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2021) | Account | Amount (in millions) | | :--- | :--- | | Total Revenue | $0.24 | | Research and development | $13.6 | | General and administrative | $7.6 | | Net Loss | ($20.0) | | Net loss per share | ($0.87) | Consolidated Statement of Cash Flows Highlights (Year ended Dec 31, 2021) | Account | Amount (in millions) | | :--- | :--- | | Cash used in operating activities | ($16.8) | | Cash used in investing activities | ($1.2) | | Cash provided by financing activities | $20.2 | | Net increase in cash | $2.2 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=115&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting principles, practices, or financial statement disclosure - None[802](index=802&type=chunk) [Controls and Procedures](index=115&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of December 31, 2021, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective, and its internal control over financial reporting was also effective, with no material changes identified during the fiscal year - Management concluded that disclosure controls and procedures were effective as of December 31, 2021[804](index=804&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2021[807](index=807&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal year ended December 31, 2021[810](index=810&type=chunk) [Other Information](index=116&type=section&id=Item%209B.%20Other%20Information) There is no information to report for this item - None[811](index=811&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=116&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) The information required for this item, concerning the company's directors, executive officers, and corporate governance practices, is incorporated by reference from the company's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the 2022 Proxy Statement[813](index=813&type=chunk) [Executive Compensation](index=116&type=section&id=Item%2011.%20Executive%20Compensation) The information required for this item, detailing executive and director compensation, is incorporated by reference from the company's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the 2022 Proxy Statement[814](index=814&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=116&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) The information required for this item, regarding security ownership by certain beneficial owners and management, as well as matters related to equity compensation plans, is incorporated by reference from the company's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the 2022 Proxy Statement[815](index=815&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=116&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) The information required for this item, covering related party transactions and director independence, is incorporated by reference from the company's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the 2022 Proxy Statement[816](index=816&type=chunk) [Principal Accountant Fees and Services](index=116&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) The information required for this item, regarding fees paid to and services provided by the principal accountant, is incorporated by reference from the company's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the 2022 Proxy Statement[817](index=817&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=116&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements included in the report and all exhibits filed as part of the Form 10-K, including material contracts, corporate governance documents, and required certifications from the CEO and CFO - The financial statements required by this item are included in a separate section of this Annual Report on Form 10-K beginning on page 89[819](index=819&type=chunk) - A comprehensive list of exhibits filed with the report is provided, including material contracts, corporate governance documents, and officer certifications[822](index=822&type=chunk)[824](index=824&type=chunk)[834](index=834&type=chunk) [Form 10-K Summary](index=121&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable, and no summary is provided - None[838](index=838&type=chunk)

Capricor Therapeutics, Inc. (NASDAQ:CAPR) Q4 2021 Earnings Conference Call March 10, 2022 4:30 PM ET Company Participants AJ Bergmann - Chief Financial Officer Linda Marban - Chief Executive Officer Conference Call Participants Emanuela Branchetti - H.C. Wainwright Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-as ...

[Special Note Regarding Forward-Looking Statements](index=4&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) [Forward-Looking Statements Disclaimer](index=4&type=section&id=Forward-Looking%20Statements%20Disclaimer) The report contains forward-looking statements with inherent risks and uncertainties that may cause actual results to differ - Forward-looking statements involve substantial risks and uncertainties, and **actual results may differ materially** from expectations[6](index=6&type=chunk)[7](index=7&type=chunk)[9](index=9&type=chunk) - The company **does not undertake to update** forward-looking statements unless required by law[10](index=10&type=chunk) - Data, estimates, and forecasts from independent industry publications are used but **not independently verified** by the company[11](index=11&type=chunk) [PART I — FINANCIAL INFORMATION](index=7&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and accompanying notes for Capricor Therapeutics, Inc [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (September 30, 2021 vs. December 31, 2020) | Metric | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :---------------------------------- | :----------------------- | :----------- | | Cash and cash equivalents | $40,839,158 | $32,665,874 | | Total Current Assets | $41,298,245 | $33,677,083 | | Total Assets | $43,100,521 | $34,618,796 | | Total Current Liabilities | $2,988,292 | $2,971,282 | | Total Liabilities | $6,364,551 | $6,419,012 | | Total Stockholders' Equity | $36,735,970 | $28,199,784 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) | Metric | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $0 | $16,863 | $244,898 | $252,420 | | Research and development | $2,513,915 | $2,629,267 | $9,307,512 | $5,711,896 | | General and administrative | $1,800,630 | $1,301,673 | $5,496,186 | $4,049,955 | | Total Operating Expenses | $4,314,545 | $3,930,940 | $14,803,698 | $9,761,851 | | Loss from Operations | $(4,314,545) | $(3,914,077) | $(14,558,800) | $(9,509,431) | | Total Other Income (Expense) | $382,738 | $3,953 | $726,804 | $30,335 | | Net Loss | $(3,931,807) | $(3,910,124) | $(13,831,996) | $(9,479,096) | | Comprehensive Loss | $(3,931,807) | $(3,910,124) | $(13,831,996) | $(9,478,339) | | Net loss per share, basic and diluted | $(0.17) | $(0.20) | $(0.61) | $(0.68) | | Weighted average shares, basic and diluted | 23,095,375 | 19,801,841 | 22,731,638 | 13,958,507 | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - Nine Months Ended September 30, 2021 | Metric | Common Shares | Stock Amount | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity | | :---------------------------------- | :------------ | :----------- | :------------------------- | :------------------ | :------------------------- | | Balance at December 31, 2020 | 20,577,123 | $20,577 | $116,216,966 | $(88,037,759) | $28,199,784 | | Issuance of common stock, net of fees | 3,365,349 | $3,368 | $19,972,425 | — | $19,975,891 | | Stock-based compensation | — | — | $2,185,542 | — | $2,185,542 | | Stock options exercised | 5,683 | $6 | $6,643 | — | $6,649 | | Net loss | — | — | — | $(13,831,996) | $(13,831,996) | | Balance at September 30, 2021 | 24,149,155 | $24,149 | $138,581,576 | $(101,869,755) | $36,735,970 | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30 | Metric | 2021 | 2020 | Change (2021 vs 2020) | | :------------------------------------------ | :----------- | :----------- | :-------------------- | | Net cash used in operating activities | $(11,181,741) | $(6,212,413) | $(4,969,328) | | Net cash provided by (used in) investing activities | $(827,615) | $5,727,327 | $(6,554,942) | | Net cash provided by financing activities | $20,182,640 | $31,886,098 | $(11,703,458) | | Net increase in cash and cash equivalents | $8,173,284 | $31,401,012 | $(23,227,728) | | Cash and cash equivalents at end of period | $40,839,158 | $35,300,340 | +$5,538,818 | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures for the financial statements, covering accounting policies, equity, and commitments [Note 1. Organization and Summary of Significant Accounting Policies](index=12&type=section&id=Note%201.%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines Capricor's business, basis of presentation, and significant accounting policies including liquidity and COVID-19 impacts [Description of Business](index=12&type=section&id=Description%20of%20Business) - Capricor Therapeutics, Inc is a biotechnology company developing transformative **cell and exosome-based therapeutics** for a broad spectrum of diseases[30](index=30&type=chunk) - The company has **multiple active drug and vaccine candidates** in various stages of development[30](index=30&type=chunk) [Basis of Presentation](index=12&type=section&id=Basis%20of%20Presentation) - Unaudited interim condensed consolidated financial statements are prepared in accordance with **U.S. GAAP** and Form 10-Q instructions[31](index=31&type=chunk) - Interim results are **not necessarily indicative** of the results expected for the full year[31](index=31&type=chunk) [Basis of Consolidation](index=12&type=section&id=Basis%20of%20Consolidation) - Consolidated financial statements include the Company and its **wholly-owned subsidiary**, with all intercompany transactions eliminated[33](index=33&type=chunk) [Liquidity](index=12&type=section&id=Liquidity) - The Company's cash and cash equivalents increased to approximately **$40.8 million** as of September 30, 2021, from $32.7 million at December 31, 2020[35](index=35&type=chunk) - Future expenditures and capital requirements are **substantial** and depend on R&D, manufacturing, and commercialization costs[38](index=38&type=chunk) - The Company will require **substantial additional capital** and cannot assure availability on favorable terms[39](index=39&type=chunk)[40](index=40&type=chunk) [Business Uncertainty Related to the Coronavirus](index=13&type=section&id=Business%20Uncertainty%20Related%20to%20the%20Coronavirus) - **COVID-19 has impacted** clinical trial enrollment, contract performance, workforce stability, and supply chain[41](index=41&type=chunk) - The Company received a **$318,160 PPP loan** in April 2020, which was forgiven in April 2021[42](index=42&type=chunk)[81](index=81&type=chunk) - The Company recorded **$367,168 in Employee Retention Credit (ERC)** as other income for the nine months ended September 30, 2021[43](index=43&type=chunk) [Use of Estimates](index=13&type=section&id=Use%20of%20Estimates) - Financial statements require management to make estimates and assumptions, particularly for **stock-based compensation expense**[44](index=44&type=chunk)[45](index=45&type=chunk) [Cash and Cash Equivalents](index=15&type=section&id=Cash%20and%20Cash%20Equivalents) - Highly liquid investments with a maturity of **less than 30 days** at purchase are considered cash equivalents[47](index=47&type=chunk) [Marketable Securities](index=15&type=section&id=Marketable%20Securities) - All marketable securities are classified as **available-for-sale**, carried at estimated fair values[48](index=48&type=chunk) [Property and Equipment](index=15&type=section&id=Property%20and%20Equipment) - Property and equipment are stated at cost and depreciated using the **straight-line method** over 5 to 7 years[49](index=49&type=chunk) - Depreciation expense was **$164,887** for the nine months ended September 30, 2021, compared to $98,567 for the same period in 2020[49](index=49&type=chunk) Property and Equipment, Net | Category | September 30, 2021 | December 31, 2020 | | :------------------------ | :----------------- | :---------------- | | Furniture and fixtures | $55,440 | $48,676 | | Laboratory equipment | $2,294,559 | $1,473,708 | | Leasehold improvements | $47,043 | $47,043 | | Less accumulated depreciation | $(883,467) | $(718,580) | | **Property and equipment, net** | **$1,513,575** | **$850,847** | [Intangible Assets](index=15&type=section&id=Intangible%20Assets) - Intangible assets are amortized over 5 to 15 years; all capitalized intellectual property was **fully amortized** as of September 30, 2021[50](index=50&type=chunk) - Amortization expense was **$2,165** for the nine months ended September 30, 2021, compared to $3,247 for the same period in 2020[50](index=50&type=chunk) - **No impairment** was recorded for goodwill and intangible assets for the nine months ended September 30, 2021 and 2020[51](index=51&type=chunk) [Leases](index=15&type=section&id=Leases) - The Company adopted ASC Topic 842, requiring recognition of most leases on the balance sheet with a **right-to-use (ROU) asset** and lease liabilities[52](index=52&type=chunk)[55](index=55&type=chunk) - All current leases for office and laboratory space are classified as **operating leases**[56](index=56&type=chunk)[57](index=57&type=chunk) [Revenue Recognition](index=17&type=section&id=Revenue%20Recognition_Note1) - The Company applies **ASU 606**, Revenue from Contracts with Customers, for all contracts[59](index=59&type=chunk) [Government Research Grants](index=17&type=section&id=Government%20Research%20Grants_Note1) - Government research grants are recognized as income when related expenses are incurred, but the **CIRM Award is classified as a liability**[60](index=60&type=chunk) [Miscellaneous Income](index=17&type=section&id=Miscellaneous%20Income_Note1) - Revenue from miscellaneous income is recognized **upon delivery of doses** developed from past R&D efforts[61](index=61&type=chunk) [Research and Development](index=17&type=section&id=Research%20and%20Development_Note1) - R&D costs are expensed as incurred, amounting to approximately **$2.5 million for Q3 2021** and **$9.3 million for the nine months** ended September 30, 2021[62](index=62&type=chunk) [Comprehensive Income (Loss)](index=17&type=section&id=Comprehensive%20Income%20(Loss)_Note1) - Comprehensive loss was approximately **$3.9 million for Q3 2021** and **$13.8 million for the nine months** ended September 30, 2021[64](index=64&type=chunk)[65](index=65&type=chunk) - Other comprehensive income (loss) is related to **net unrealized gain (loss)** on marketable securities[65](index=65&type=chunk) [Clinical Trial Expense](index=19&type=section&id=Clinical%20Trial%20Expense_Note1) - Clinical trial expenses are accrued based on the **progress of the trial**, patient progression, and timing of services[66](index=66&type=chunk) - Accrual estimates depend on **timely and accurate reporting** from CROs and other third-party vendors[66](index=66&type=chunk) [Stock-Based Compensation](index=19&type=section&id=Stock-Based%20Compensation_Note1) - Stock-based compensation expense is recognized based on estimated fair values using the **Black-Scholes model**[67](index=67&type=chunk)[68](index=68&type=chunk) - Key assumptions for the Black-Scholes model include **expected volatility, expected term, and dividend yield**[68](index=68&type=chunk) [Basic and Diluted Loss per Share](index=19&type=section&id=Basic%20and%20Diluted%20Loss%20per%20Share) - Basic and diluted loss per share are computed by dividing net loss by the **weighted-average number of common shares** outstanding[69](index=69&type=chunk)[70](index=70&type=chunk) - Warrants and options to purchase **3,968,546 shares (2021)** were excluded from diluted EPS calculation due to their anti-dilutive effect[70](index=70&type=chunk) [Fair Value Measurements](index=21&type=section&id=Fair%20Value%20Measurements) - Carrying amounts of cash, accounts payable, and accrued expenses **approximate fair value** due to short maturity[73](index=73&type=chunk) [Recent Accounting Pronouncements](index=21&type=section&id=Recent%20Accounting%20Pronouncements_Note1) - The Company adopted ASU 2019-12 (Income Taxes) in Q1 2021, which **did not have a material impact** on financial statements[74](index=74&type=chunk) - Other recent pronouncements are **not believed to have a material impact**[75](index=75&type=chunk) [Note 2. Note Payable](index=21&type=section&id=Note%202.%20Note%20Payable) This note details the Paycheck Protection Program (PPP) loan received by Capricor and its subsequent forgiveness - Capricor received a **$318,160 PPP loan** in Q2 2020, which was used for covered payroll costs[76](index=76&type=chunk) - The loan was **forgiven by the SBA** in April 2021, and the Company recognized a gain on forgiveness in Q2 2021[81](index=81&type=chunk) [Note 3. Stockholder's Equity](index=23&type=section&id=Note%203.%20Stockholder's%20Equity) This note describes the Company's various equity programs, public offerings, and warrant inducements as key sources of capital [ATM Programs and Other Offerings](index=23&type=section&id=ATM%20Programs%20and%20Other%20Offerings) - The Company uses **"at-the-market" (ATM) programs** to sell common stock and has completed public offerings to raise capital[82](index=82&type=chunk) [August 2019 ATM Program](index=23&type=section&id=August%202019%20ATM%20Program) - This program **expired on May 4, 2020**, and was replaced by the May 2020 ATM Program[83](index=83&type=chunk) August 2019 ATM Program Summary | Metric | Value | | :-------------------- | :---------------- | | Shares sold | 360,316 | | Average price per share | ~$3.07 | | Gross proceeds | ~$1.1 million | | Commissions & fees | ~$0.1 million | [May 2020 ATM Program](index=23&type=section&id=May%202020%20ATM%20Program) - This program **expired on June 21, 2021**, and was replaced by the June 2021 ATM Program[84](index=84&type=chunk) May 2020 ATM Program Summary | Metric | Value | | :-------------------- | :---------------- | | Aggregate offering price | Up to $40.0 million | | Shares sold | 6,027,852 | | Average price per share | ~$6.15 | | Gross proceeds | ~$37.1 million | | Commissions & fees | ~$1.2 million | [June 2021 ATM Program](index=23&type=section&id=June%202021%20ATM%20Program_Note3) June 2021 ATM Program Summary (as of Sep 30, 2021) | Metric | Value | | :-------------------- | :---------------- | | Aggregate offering price | Up to $75.0 million | | Shares sold | 1,267,475 | | Average price per share | ~$5.89 | | Gross proceeds | ~$7.5 million | | Commissions & fees | ~$0.3 million | | Remaining to be sold | ~$67.5 million | [December 2019 Financing](index=23&type=section&id=December%202019%20Financing) December 2019 Public Offering Summary | Metric | Value | | :-------------------------------- | :---------------- | | Common stock issued | 531,173 shares | | Warrants to purchase common stock | 4,139,477 shares | | Pre-funded warrants | 3,608,304 shares | | Combined purchase price | $1.226 per share/warrant | | Aggregate purchase price | ~$5.1 million | | Net proceeds (after fees) | ~$4.4 million | | December 2019 Common Warrants outstanding (Sep 30, 2021) | 61,173 | [March 2020 Warrant Inducement](index=25&type=section&id=March%202020%20Warrant%20Inducement) - The Company issued **4,000,000 new warrants** in connection with the exercise of 4,000,000 December 2019 Common Warrants, generating gross proceeds of approximately **$4.9 million**[89](index=89&type=chunk)[91](index=91&type=chunk) - New Warrants have an exercise price of **$1.27 per share** and a term of 5.5 years[89](index=89&type=chunk)[90](index=90&type=chunk) - As of September 30, 2021, **65,000 March 2020 Placement Agent Warrants** remained outstanding[91](index=91&type=chunk) [Outstanding Shares](index=25&type=section&id=Outstanding%20Shares) - As of September 30, 2021, the Company had **24,149,155 shares** of common stock issued and outstanding[92](index=92&type=chunk) [Note 4. Stock Awards, Warrants and Options](index=27&type=section&id=Note%204.%20Stock%20Awards,%20Warrants%20and%20Options) This note details the Company's stock option plans, warrant activity, and stock-based compensation expense [Warrants](index=27&type=section&id=Warrants) Outstanding Warrants to Purchase Common Stock (September 30, 2021) | Type | Grant Date | Warrants Outstanding | Exercise Price per Share | Expiration Date | | :---------------- | :--------- | :------------------- | :----------------------- | :-------------- | | Common Warrants | 12/19/2019 | 61,173 | $1.10 | 12/19/2024 | | Common Warrants | 3/27/2020 | 65,000 | $1.5313 | 3/27/2025 | | **Total** | | **126,173** | **$1.32 (Weighted Avg)** | | [Stock Options](index=27&type=section&id=Stock%20Options) - The Company has five stock option plans with **3,836,588 options available for issuance** as of September 30, 2021[94](index=94&type=chunk)[103](index=103&type=chunk) - Stock options are granted with an exercise price equal to the closing price on the grant date and generally **vest over one to four years**[104](index=104&type=chunk) - Total unrecognized fair value compensation cost related to non-vested stock options was approximately **$8.5 million** as of September 30, 2021, expected to be recognized over ~1.5 years[111](index=111&type=chunk) Weighted Average Fair Value of Options Granted | Period | Weighted Average Fair Value per Share | | :---------------------------------- | :------------------------------------ | | Three months ended Sep 30, 2021 | ~$4.03 | | Three months ended Sep 30, 2020 | ~$5.23 | | Nine months ended Sep 30, 2021 | ~$3.40 | | Nine months ended Sep 30, 2020 | ~$3.91 | Black-Scholes Option-Pricing Model Assumptions | Assumption | September 30, 2021 | September 30, 2020 | | :------------------ | :----------------- | :----------------- | | Expected volatility | 123% - 124% | 104% - 123% | | Expected term | 6 years | 5 - 6 years | | Dividend yield | 0% | 0% | Employee and Non-Employee Stock-Based Compensation Expense | Category | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | General and administrative | $654,744 | $418,147 | $1,913,005 | $1,287,474 | | Research and development | $65,537 | $68,630 | $272,537 | $191,460 | | **Total** | **$720,281** | **$486,777** | **$2,185,542** | **$1,478,934** | Stock Option Activity (Nine Months Ended September 30, 2021) | Metric | Number of Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | | :---------------------------------- | :---------------- | :------------------------------ | :------------------------ | | Outstanding at December 31, 2020 | 2,361,873 | $1.89 | $4,236,737 | | Granted | 1,636,324 | $3.95 | | | Exercised | (5,883) | $1.39 | $22,761 | | Expired/Cancelled | (149,941) | $3.89 | | | **Outstanding at September 30, 2021** | **3,842,373** | **$2.69** | **$5,737,004** | | Exercisable at September 30, 2021 | 1,454,788 | $1.92 | $3,161,020 | [Note 5. Concentrations](index=31&type=section&id=Note%205.%20Concentrations) This note addresses the Company's cash concentration risk in uninsured bank deposits [Cash Concentration](index=31&type=section&id=Cash%20Concentration) - The Company maintained approximately **$40.6 million of uninsured deposits** as of September 30, 2021, across two financial institutions[112](index=112&type=chunk) - The Company believes it is **not exposed to significant credit risk** on cash, cash equivalents and marketable securities[112](index=112&type=chunk) [Note 6. Government Grant Awards](index=31&type=section&id=Note%206.%20Government%20Grant%20Awards) This note details government grant awards for the HOPE-Duchenne clinical trial and CAP-2003 manufacturing [CIRM Grant Award (HOPE)](index=31&type=section&id=CIRM%20Grant%20Award%20(HOPE)) - Capricor received a **~$3.4 million CIRM Award** in 2016 to fund its Phase I/II HOPE-Duchenne clinical trial for DMD[113](index=113&type=chunk) - The CIRM Award is **classified as a liability** because Capricor has the right to convert it into a loan[116](index=116&type=chunk) - As of September 30, 2021, the liability balance for the CIRM Award was approximately **$3.4 million**[117](index=117&type=chunk) [U.S. Department of Defense Grant Award](index=33&type=section&id=U.S.%20Department%20of%20Defense%20Grant%20Award) - Capricor received a **~$2.4 million DoD grant** in 2016 for developing CAP-2003 manufacturing, utilizing ~$2.3 million[118](index=118&type=chunk) - No revenue was recognized from this award in 2021, and **final close-out documentation was completed** in Q3 2021[118](index=118&type=chunk) [Note 7. Commitments and Contingencies](index=33&type=section&id=Note%207.%20Commitments%20and%20Contingencies) This note outlines the Company's commitments including leases, legal contingencies, and other funding obligations [Leases](index=33&type=section&id=Leases_Note7) - Capricor has a month-to-month lease for corporate offices and extended a facilities lease with CSMC **through July 2022**[119](index=119&type=chunk)[120](index=120&type=chunk) - A new lease agreement for office and laboratory space in San Diego commenced October 1, 2021, with an estimated **ROU asset/liability of ~$2.7 million**[121](index=121&type=chunk) Future Minimum Rental Payments Under Operating Leases (as of Sep 30, 2021) | Year | Operating Leases | | :--- | :--------------- | | 2021 (3 month) | $32,120 | | 2022 | $74,946 | Operating Lease Expenses | Category | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Unrelated parties | $39,219 | $48,687 | $117,657 | $146,061 | | Related parties | $37,218 | $47,415 | $132,048 | $142,245 | [Legal Contingencies](index=35&type=section&id=Legal%20Contingencies) - The Company is **not currently a party** to any material legal proceedings[127](index=127&type=chunk) [Accounts Payable](index=35&type=section&id=Accounts%20Payable) - Estimated liabilities are recorded for vendor payment disputes that are **probable and estimable**[128](index=128&type=chunk) [Other Funding Commitments](index=35&type=section&id=Other%20Funding%20Commitments) - The Company has agreements requiring **future payments for licensed technology milestones or royalties**[129](index=129&type=chunk)[130](index=130&type=chunk) [Employee Severances](index=35&type=section&id=Employee%20Severances) - The Board approved severance packages for specific employees, but **no liability has been recorded** as of September 30, 2021[131](index=131&type=chunk) [Note 8. License Agreements](index=35&type=section&id=Note%208.%20License%20Agreements) This note details Capricor's license agreements for intellectual property related to its core technologies [Capricor's Technology - CAP-1002 and Exosomes](index=35&type=section&id=Capricor's%20Technology%20-%20CAP-1002%20and%20Exosomes) - Capricor holds **exclusive license agreements** for intellectual property related to cardiac-derived cells (CAP-1002) and exosomes[132](index=132&type=chunk) - The Company also has a **non-exclusive license** with JHU for COVID-19 imaging-based serology technology[132](index=132&type=chunk) [University of Rome License Agreement](index=37&type=section&id=University%20of%20Rome%20License%20Agreement) - Capricor has an exclusive, worldwide, royalty-bearing license from the University of Rome, requiring annual minimum royalties of **20,000 Euros**[134](index=134&type=chunk)[135](index=135&type=chunk) - The agreement includes a **right of first negotiation** for new cardiac stem cell patents[134](index=134&type=chunk)[136](index=136&type=chunk) [The Johns Hopkins University License Agreements](index=37&type=section&id=The%20Johns%20Hopkins%20University%20License%20Agreements) This section outlines Capricor's multiple license agreements with Johns Hopkins University for its core technologies [License Agreement for CDCs](index=37&type=section&id=License%20Agreement%20for%20CDCs) - Capricor holds an **exclusive, worldwide, royalty-bearing license** from JHU for CDC technology[137](index=137&type=chunk) - Payments include an initial license fee, minimum annual royalties, and **low single-digit running royalties** on net sales[138](index=138&type=chunk) - Development milestone payments up to **$1,850,000** are required, with $250,000 accrued as of September 30, 2021[138](index=138&type=chunk) [License Agreement for Serology Diagnostic](index=39&type=section&id=License%20Agreement%20for%20Serology%20Diagnostic) - Capricor has a **non-exclusive, worldwide, non-royalty-bearing license** from JHU for COVID-19 serology diagnostic technology[141](index=141&type=chunk) [License Agreement for Exosome-based Vaccines and Therapeutics](index=39&type=section&id=License%20Agreement%20for%20Exosome-based%20Vaccines%20and%20Therapeutics) - Capricor entered an **exclusive, worldwide, royalty-bearing license** with JHU for exosome-mRNA vaccines and therapeutics[142](index=142&type=chunk) - The agreement includes an upfront license fee, development milestones, **low single-digit royalties** on sales, and a double-digit percentage of sublicense consideration[143](index=143&type=chunk) - **Minimum annual royalties** will be due starting the third year[143](index=143&type=chunk) [Cedars-Sinai Medical Center License Agreements](index=39&type=section&id=Cedars-Sinai%20Medical%20Center%20License%20Agreements) This section details Capricor's exclusive license agreements with Cedars-Sinai Medical Center for its core technologies [License Agreement for CDCs](index=39&type=section&id=License%20Agreement%20for%20CDCs_CSMC) - Capricor has an **exclusive, worldwide, royalty-bearing license** from CSMC for CDC technology[145](index=145&type=chunk)[148](index=148&type=chunk) - Obligations include **low single-digit royalties** on sales and meeting certain spending and development milestones[149](index=149&type=chunk)[150](index=150&type=chunk) - The agreement can be terminated for reasons including **material breach or failure to exploit patent rights**[151](index=151&type=chunk) [License Agreement for Exosomes](index=41&type=section&id=License%20Agreement%20for%20Exosomes_CSMC) - Capricor holds an **exclusive, worldwide, royalty-bearing license** from CSMC for exosomes technology[153](index=153&type=chunk) - Obligations include a license fee, meeting development milestones, **low single-digit royalties** on sales, and a single-digit percentage of sublicense consideration[154](index=154&type=chunk)[155](index=155&type=chunk) - Numerous amendments have added patent applications and modified deadlines, with **failure to meet milestones** potentially leading to termination[158](index=158&type=chunk) [Sponsored Research Agreement with Johns Hopkins University](index=43&type=section&id=Sponsored%20Research%20Agreement%20with%20Johns%20Hopkins%20University) - Capricor entered a Sponsored Research Agreement with JHU to fund research for its **exosomes program**[159](index=159&type=chunk) [Note 9. Related Party Transactions](index=43&type=section&id=Note%209.%20Related%20Party%20Transactions) This note discloses transactions with related parties, including lease agreements, consulting services, and clinical trial support [Lease and Sub-Lease Agreement](index=43&type=section&id=Lease%20and%20Sub-Lease%20Agreement) - Capricor leases facilities from CSMC (a related party) and previously had a sublease with a company **wholly owned by a director**[160](index=160&type=chunk)[161](index=161&type=chunk) - Sublease income from the related party was **$0** for the nine months ended September 30, 2021, compared to $20,000 in 2020[161](index=161&type=chunk) [Consulting Agreements](index=43&type=section&id=Consulting%20Agreements) - Capricor has a consulting agreement with Dr Frank Litvack, Executive Chairman, for **$10,000 per month**[162](index=162&type=chunk) [Payables to Related Party](index=45&type=section&id=Payables%20to%20Related%20Party) - Payments to CSMC for R&D, clinical trials, and rent were approximately **$292,400** for the nine months ended September 30, 2021[164](index=164&type=chunk) Accounts Payable and Accrued Expenses to Related Parties (CSMC) | Date | Amount | | :----------------- | :----------- | | September 30, 2021 | $497,080 | | December 31, 2020 | $8,972 | [Related Party Clinical Trials](index=45&type=section&id=Related%20Party%20Clinical%20Trials) - Capricor provided CAP-1002 for two CSMC-sponsored clinical trials, receiving approximately **$1.7 million in total compensation**[165](index=165&type=chunk) - Revenue recognized from these trials was approximately **$245,000** for the nine months ended September 30, 2021[165](index=165&type=chunk) - Enrollment for these studies is complete, and **no further material revenues are expected**[165](index=165&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses the company's financial condition, operational results, liquidity, and critical accounting policies [Overview](index=46&type=section&id=Overview_MD&A) - Capricor Therapeutics is a clinical-stage biotechnology company focused on developing **cell and exosome-based therapeutics**[169](index=169&type=chunk) [Cell Therapy (CAP-1002) Program](index=46&type=section&id=Cell%20Therapy%20(CAP-1002)%20Program) This section details the CAP-1002 cell therapy program's development for Duchenne Muscular Dystrophy and COVID-19 [CAP-1002 - Duchenne Muscular Dystrophy Program](index=46&type=section&id=CAP-1002%20-%20Duchenne%20Muscular%20Dystrophy%20Program) - CAP-1002 is being investigated for **immunomodulatory activity and cellular regeneration** in DMD[170](index=170&type=chunk) - The **Phase II HOPE-2 trial met its primary efficacy endpoint** (Mid-level PUL 1.2) and secondary cardiac endpoints[170](index=170&type=chunk) - A Phase III trial protocol has been submitted to the FDA, but enrollment is **contingent on securing a partner or additional capital**[170](index=170&type=chunk) [CAP-1002 - COVID-19 Program](index=46&type=section&id=CAP-1002%20-%20COVID-19%20Program) - An Expanded Access program for severe COVID-19 patients showed some biomarker improvements, but **efficacy was not demonstrated**[171](index=171&type=chunk) - The Phase II INSPIRE trial for severe/critical COVID-19 patients **completed enrollment of 63 patients** in November 2021[172](index=172&type=chunk)[173](index=173&type=chunk) - The Company is **actively seeking partners** for the COVID-19 program[173](index=173&type=chunk) [Exosomes Program](index=48&type=section&id=Exosomes%20Program_MD&A) This section outlines Capricor's exosome program, including vaccine development and therapeutic applications [Exosomes-Based Vaccine](index=48&type=section&id=Exosomes-Based%20Vaccine) - The Company is developing a **multivalent exosome-mRNA vaccine** candidate for COVID-19 prevention[175](index=175&type=chunk) - A **pre-IND meeting with the FDA has occurred**, and an IND filing is planned[175](index=175&type=chunk) [Exosome-Based Therapeutics](index=48&type=section&id=Exosome-Based%20Therapeutics) - Capricor is developing its exosomes platform as a next-generation therapeutic for **delivering nucleic acids** (e.g., mRNA)[176](index=176&type=chunk) - The Company recently **licensed intellectual property** related to exosome-mRNA vaccines and therapeutics from JHU[177](index=177&type=chunk) [CDC-Derived Exosomes (CAP-2003)](index=48&type=section&id=CDC-Derived%20Exosomes%20(CAP-2003)) - An IND for CAP-2003 in DMD patients was filed, but the FDA has **requested more manufacturing information**[178](index=178&type=chunk) - CAP-2003 is also being evaluated for **trauma-related injuries** in collaboration with the U.S. Army[179](index=179&type=chunk) - The exosomes pipeline is supported by **collaborations with JHU, DoD, NIH, and CSMC**[180](index=180&type=chunk) [Our Technologies](index=49&type=section&id=Our%20Technologies) This section describes Capricor's core technologies, Cardiosphere-Derived Cells (CAP-1002) and Exosomes [Cardiosphere-Derived Cells (CAP-1002)](index=49&type=section&id=Cardiosphere-Derived%20Cells%20(CAP-1002)) - CAP-1002 is an allogeneic cardiac-derived cell therapy with **immunomodulatory activity**, being developed for DMD[183](index=183&type=chunk)[187](index=187&type=chunk) - Preclinical studies show CDCs **stimulate cell proliferation**, blood vessel growth, and inhibit cell death/scar formation[184](index=184&type=chunk) - CDCs are small enough for **intracoronary or peripheral venous infusion**[185](index=185&type=chunk)[187](index=187&type=chunk) [Exosomes](index=49&type=section&id=Exosomes_MD&A) - Exosomes are nano-scale vesicles that mediate therapeutic activities like **cell survival, proliferation, and tissue regeneration**[188](index=188&type=chunk)[189](index=189&type=chunk) - Preclinical data indicates CDCs mediate most therapeutic activities through **exosome secretion**[188](index=188&type=chunk) - Exosomes are considered a new class of therapeutic agents due to their **size, low immunogenicity, and cell-free nature**[189](index=189&type=chunk) [Background on Duchenne Muscular Dystrophy](index=51&type=section&id=Background%20on%20Duchenne%20Muscular%20Dystrophy) - DMD is a rare, progressive muscular dystrophy affecting **15,000-20,000 males in the US**[191](index=191&type=chunk) - DMD patients experience progressive muscle weakness, loss of ambulation, and abbreviated lifespan, with **cardiomyopathy being the leading cause of death**[192](index=192&type=chunk) [Phase II HOPE-2 Clinical Trial](index=51&type=section&id=Phase%20II%20HOPE-2%20Clinical%20Trial) - The HOPE-2 trial was a randomized, double-blind, placebo-controlled Phase II study in **20 DMD patients**[193](index=193&type=chunk)[194](index=194&type=chunk) - The primary efficacy endpoint was the **Performance of the Upper Limb (PUL) test**[195](index=195&type=chunk) - CAP-1002 was **generally safe and well-tolerated**, with hypersensitivity reactions mitigated by pre-medication[202](index=202&type=chunk) HOPE-2 12-Month Final Efficacy Data (CAP-1002 vs. Placebo) | Metric | Change from Baseline (Δ) | p-value | | :---------------------------------- | :----------------------- | :------ | | **Skeletal-Muscle (Upper Limb Function)** | | | | Mid-level PUL (version 1.2) | 2.6 | 0.01 | | Shoulder + Mid + Distal PUL (version 1.2) | 3.2 | 0.02 | | Shoulder + Mid + Distal PUL (version 2.0) | 1.8 | 0.04 | | **Cardiac Function** | | | | LV Ejection Fraction % | 4.0 | 0.002 | | LV End-Diastolic Volume, Indexed mL/m² | -12.4 | 0.03 | | LV End-Systolic Volume, Indexed mL/m² | -4.2 | 0.01 | | Creatine Kinase-MB (% of total CK) | -2.2 | 0.02 | [Phase I/II HOPE-Duchenne Clinical Trial](index=53&type=section&id=Phase%20I/II%20HOPE-Duchenne%20Clinical%20Trial) - The HOPE-Duchenne trial evaluated a **one-time intracoronary infusion** of CAP-1002 in 25 DMD patients[203](index=203&type=chunk) - 12-month data showed **significant improvement in mid-distal PUL subscales** for lower-functioning patients and reduced heart muscle scarring[204](index=204&type=chunk) - CAP-1002 was **generally safe and well-tolerated** in this trial[207](index=207&type=chunk) [Regulatory Designations for CAP-1002 for the treatment of DMD](index=55&type=section&id=Regulatory%20Designations%20for%20CAP-1002%20for%20the%20treatment%20of%20DMD) - CAP-1002 received **Orphan Drug, Rare Pediatric Disease, and RMAT designations** for DMD[208](index=208&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk) - These designations provide incentives such as **market exclusivity and eligibility for a Priority Review Voucher**[208](index=208&type=chunk)[209](index=209&type=chunk) - RMAT designation **expedites development and review**, including potential for accelerated approval[210](index=210&type=chunk) [CAP-1002 for the Treatment of SARS-CoV-2](index=55&type=section&id=CAP-1002%20for%20the%20Treatment%20of%20SARS-CoV-2) - CAP-1002 is being investigated for SARS-CoV-2 treatment due to its potential to **attenuate cytokine storm and cardiac complications**[211](index=211&type=chunk) - Enrollment for the **INSPIRE Phase II clinical trial** in SARS-CoV-2 patients has been completed[211](index=211&type=chunk) [CAP-1002 for the Treatment of Cardiac Conditions](index=55&type=section&id=CAP-1002%20for%20the%20Treatment%20of%20Cardiac%20Conditions) - The Company has completed trials for CAP-1002 in heart failure and post-MI cardiac dysfunction but has **decided not to pursue these indications**[212](index=212&type=chunk)[213](index=213&type=chunk) - **No further material expenses** are expected for these cardiac programs[214](index=214&type=chunk) [CAP-1002 - Investigator Sponsored Clinical Trials](index=57&type=section&id=CAP-1002%20-%20Investigator%20Sponsored%20Clinical%20Trials) - Capricor provided CAP-1002 for two CSMC-sponsored trials, both of which have **completed enrollment**[215](index=215&type=chunk) - **No further material revenues** are expected from these investigator-sponsored trials[215](index=215&type=chunk) [Exosomes Program (Detailed)](index=57&type=section&id=Exosomes%20Program%20(Detailed)) This section details the expanded exosomes program, including vaccines, engineered platforms, and CDC-derived exosomes [Exosomes-Based Vaccine Platform](index=57&type=section&id=Exosomes-Based%20Vaccine%20Platform) - The Company is developing exosome-based vaccines for COVID-19, aiming for **multivalent exosome-mRNA vaccines**[219](index=219&type=chunk)[220](index=220&type=chunk) - **Positive preclinical data** for an exosome-mRNA vaccine approach was announced in December 2020, and an IND filing is planned[220](index=220&type=chunk) - A non-exclusive license for an **imaging-based serology test platform** for COVID-19 was obtained from JHU[221](index=221&type=chunk) [Engineered Exosomes Platform](index=59&type=section&id=Engineered%20Exosomes%20Platform) - Capricor is actively developing an engineered exosomes platform for **delivering nucleic acids**, including mRNA[223](index=223&type=chunk) - Published data demonstrated exosome-mediated mRNA delivery with **enhanced expression and lower toxicity** compared to lipid nanoparticles[223](index=223&type=chunk) [CDC-Exosomes (CAP-2003)](index=59&type=section&id=CDC-Exosomes%20(CAP-2003)_Detailed) - CAP-2003 has **promising preclinical data** in indications like DMD, sepsis, GVHD, and trauma[224](index=224&type=chunk) - An IND for CAP-2003 in DMD was filed, but the FDA **requires more manufacturing information** before potential acceptance[225](index=225&type=chunk) [Financial Operations Overview](index=59&type=section&id=Financial%20Operations%20Overview) This section reviews Capricor's financial operations, highlighting its reliance on equity financing and significant R&D expenses [Revenue](index=59&type=section&id=Revenue_FinOps) - The Company has **no commercial product sales** to date and does not expect to generate revenue for several years, if ever[227](index=227&type=chunk) [Operating Expenses](index=59&type=section&id=Operating%20Expenses_FinOps) - R&D expenses include salaries, supplies, **clinical trial costs, and manufacturing costs**[228](index=228&type=chunk) - G&A expenses cover **executive, finance, and administrative salaries**, professional fees, and insurance[229](index=229&type=chunk) - Non-cash stock-based compensation expense is recorded for stock options and warrants, expensed over their vesting period using the **Black-Scholes model**[230](index=230&type=chunk)[231](index=231&type=chunk) [Products Under Active Development](index=63&type=section&id=Products%20Under%20Active%20Development) - Expected R&D spending for CAP-1002 in 2021 is **$6.0 million to $8.0 million**[241](index=241&type=chunk) - Expected R&D spending for exosome technologies in 2021 is **$6.0 million to $8.0 million**[242](index=242&type=chunk) - Future expenditures are **highly uncertain** and depend on trial results, funding, and strategic partners[243](index=243&type=chunk) [Results of Operations](index=61&type=section&id=Results%20of%20Operations) This section analyzes revenue and operating expenses for the three and nine months ended September 30, 2021, versus 2020 [Revenue](index=61&type=section&id=Revenue_Results) This subsection details changes in grant, miscellaneous, and other income for the reported periods [Grant Income](index=61&type=section&id=Grant%20Income) - The decrease in grant income is due to the **expiration of the DoD Grant Award** in September 2020[232](index=232&type=chunk) Grant Income | Period | 2021 | 2020 | Change | | :------------------------------ | :--- | :------- | :----- | | Three months ended Sep 30 | $0 | ~$17,000 | -$17,000 | | Nine months ended Sep 30 | $0 | ~$0.2 million | -$0.2 million | [Miscellaneous Income](index=61&type=section&id=Miscellaneous%20Income_Results) - The increase in miscellaneous income was related to providing CAP-1002 for **CSMC-sponsored clinical trials**[233](index=233&type=chunk) Miscellaneous Income | Period | 2021 | 2020 | Change | | :------------------------------ | :----------- | :----------- | :------- | | Three months ended Sep 30 | $0 | $0 | $0 | | Nine months ended Sep 30 | ~$0.2 million | ~$0.1 million | +~$0.1 million | [Other Income](index=61&type=section&id=Other%20Income_Results) - Other income for 2021 was related to the **Employer Retention Credit** under the CARES Act[234](index=234&type=chunk) Other Income | Period | 2021 | 2020 | Change | | :------------------------------ | :----------- | :--- | :----------- | | Three months ended Sep 30 | ~$0.4 million | $0 | +~$0.4 million | | Nine months ended Sep 30 | ~$0.4 million | $0 | +~$0.4 million | [Operating Expenses](index=61&type=section&id=Operating%20Expenses_Results) This subsection analyzes changes in G&A and R&D expenses for the three and nine months ended September 30, 2021 [General and Administrative Expenses](index=61&type=section&id=General%20and%20Administrative%20Expenses) - The increase in G&A expenses for Q3 2021 was primarily due to a **~$0.2 million increase in stock-based compensation**[235](index=235&type=chunk) - The nine-month increase was mainly driven by a **~$1.0 million increase in salaries, recruiting, and stock-based compensation**[236](index=236&type=chunk) General and Administrative Expenses | Period | 2021 | 2020 | Change | | :------------------------------ | :----------- | :----------- | :----------- | | Three months ended Sep 30 | ~$1.8 million | ~$1.3 million | +~$0.5 million | | Nine months ended Sep 30 | ~$5.5 million | ~$4.0 million | +~$1.5 million | [Research and Development Expenses](index=61&type=section&id=Research%20and%20Development%20Expenses) - The Q3 2021 decrease was due to a net **~$0.7 million decrease in CAP-1002 clinical development**, offset by a ~$0.6 million increase in exosome R&D[237](index=237&type=chunk) - The nine-month increase was primarily due to a **~$1.9 million increase in exosome program R&D** and a **~$1.3 million increase in CAP-1002 manufacturing**[240](index=240&type=chunk) Research and Development Expenses | Period | 2021 | 2020 | Change | | :------------------------------ | :----------- | :----------- | :----------- | | Three months ended Sep 30 | ~$2.5 million | ~$2.6 million | -~$0.1 million | | Nine months ended Sep 30 | ~$9.3 million | ~$5.7 million | +~$3.6 million | [Liquidity and Capital Resources](index=63&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Capricor's liquidity, cash flow, and capital-raising efforts, highlighting the need for additional capital [Financing Activities by the Company](index=67&type=section&id=Financing%20Activities%20by%20the%20Company) This subsection details the Company's equity financing activities, including ATM programs and public offerings [June 2021 ATM Program](index=67&type=section&id=June%202021%20ATM%20Program_LiqCap) - Initiated on June 21, 2021, for up to **$75.0 million** in common stock sales[255](index=255&type=chunk) June 2021 ATM Program Sales (June 21 - Sep 30, 2021) | Metric | Value | | :-------------------- | :---------------- | | Shares sold | 1,267,475 | | Average price per share | ~$5.89 | | Gross proceeds | ~$7.5 million | | Commissions & fees | ~$0.3 million | | Remaining to be sold | ~$67.5 million | [May 2020 ATM Program](index=67&type=section&id=May%202020%20ATM%20Program_LiqCap) - Initiated on May 4, 2020, for up to **$40.0 million** in common stock sales, which expired on June 21, 2021[256](index=256&type=chunk)[258](index=258&type=chunk) May 2020 ATM Program Sales (May 4, 2020 - June 21, 2021) | Metric | Value | | :-------------------- | :---------------- | | Shares sold | 6,027,852 | | Average price per share | ~$6.15 | | Gross proceeds | ~$37.1 million | | Commissions & fees | ~$1.2 million | [March 2020 Warrant Inducement](index=69&type=section&id=March%202020%20Warrant%20Inducement_LiqCap) - Generated **~$4.9 million in gross proceeds** from the exercise of 4,000,000 warrants[259](index=259&type=chunk)[261](index=261&type=chunk) - New Warrants have an exercise price of **$1.27 per share** and a 5.5-year term[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk) [December 2019 Public Offering](index=69&type=section&id=December%202019%20Public%20Offering) - Issued common shares and warrants for aggregate proceeds of **~$5.1 million** (net ~$4.4 million)[262](index=262&type=chunk) - As of September 30, 2021, **61,173 December 2019 Common Warrants** remained outstanding[262](index=262&type=chunk) [August 2019 ATM Program](index=70&type=section&id=August%202019%20ATM%20Program_LiqCap) - Sold 360,316 common shares, generating **~$1.1 million in gross proceeds**[264](index=264&type=chunk) - This program **expired on May 4, 2020**, and was replaced by the May 2020 ATM Program[264](index=264&type=chunk) [Financing Activities by Capricor, Inc.](index=71&type=section&id=Financing%20Activities%20by%20Capricor,%20Inc.) This subsection details government grant awards received by the Company and their financial implications [CIRM Grant Award](index=71&type=section&id=CIRM%20Grant%20Award_LiqCap) - Capricor received a **~$3.4 million CIRM Award** in 2016 for the HOPE-Duchenne clinical trial[265](index=265&type=chunk) - The award is accounted for as a **liability** due to the option to convert it into a loan[266](index=266&type=chunk) - As of September 30, 2021, the CIRM Award liability balance was approximately **$3.4 million**[267](index=267&type=chunk) [U.S. Department of Defense Grant Award](index=71&type=section&id=U.S.%20Department%20of%20Defense%20Grant%20Award_LiqCap) - Capricor received a **~$2.4 million DoD grant** in 2016 for CAP-2003 manufacturing, utilizing ~$2.3 million[268](index=268&type=chunk)[269](index=269&type=chunk) - No revenue was recognized from this award in 2021, and **final close-out documentation was completed** in Q3 2021[270](index=270&type=chunk) [Off-Balance Sheet Arrangements](index=73&type=section&id=Off-Balance%20Sheet%20Arrangements) - The Company did **not have any off-balance sheet arrangements** during the periods presented[271](index=271&type=chunk) [Critical Accounting Policies and Estimates](index=73&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines critical accounting policies requiring significant judgment, including leases, revenue, R&D, and stock compensation [Leases](index=73&type=section&id=Leases_CritAcc) - The Company adopted ASC 842, recognizing **ROU assets and lease liabilities** for operating leases[273](index=273&type=chunk)[275](index=275&type=chunk)[276](index=276&type=chunk) - The Company elects to account for **lease and non-lease components together** for real estate leases[277](index=277&type=chunk) [Revenue Recognition](index=73&type=section&id=Revenue%20Recognition_CritAcc) - The Company applies **ASU 606**, Revenue from Contracts with Customers, for all contracts[278](index=278&type=chunk) [Grant Income](index=73&type=section&id=Grant%20Income_CritAcc) - Grant income is recognized when **reimbursable expenses are incurred**[279](index=279&type=chunk)[281](index=281&type=chunk) [Miscellaneous Income](index=75&type=section&id=Miscellaneous%20Income_CritAcc) - Miscellaneous income is recognized **upon delivery of doses** from past R&D efforts[282](index=282&type=chunk) [CIRM Grant Award](index=75&type=section&id=CIRM%20Grant%20Award_CritAcc) - CIRM grant disbursements are accounted for as **long-term liabilities** due to the right to convert the award into a loan[283](index=283&type=chunk) [Research and Development Expenses and Accruals](index=75&type=section&id=Research%20and%20Development%20Expenses%20and%20Accruals) - R&D expenses are **expensed as incurred**[284](index=284&type=chunk) - Cost accruals for R&D activities are based on **estimates of services received** and efforts expended[285](index=285&type=chunk)[286](index=286&type=chunk) - Estimates may differ from actual invoiced amounts, but **no material adjustments** have been recognized[285](index=285&type=chunk)[289](index=289&type=chunk) [Stock-Based Compensation](index=77&type=section&id=Stock-Based%20Compensation_CritAcc) - Non-cash stock-based compensation expense is recognized **over the vesting period**[290](index=290&type=chunk)[291](index=291&type=chunk) - Fair value of stock options is determined using the **Black-Scholes model**[291](index=291&type=chunk) - Awards vest based on **time-based or performance-based conditions**, and forfeitures are accounted for upon occurrence[291](index=291&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk) [Clinical Trial Expense](index=77&type=section&id=Clinical%20Trial%20Expense_CritAcc) - Clinical trial accrual process **estimates expenses from vendor contracts** and clinical site agreements[294](index=294&type=chunk) - Accrual estimates are based on **patient progression and trial timing**, adjusted if actual results differ[294](index=294&type=chunk) [Recently Issued or Newly Adopted Accounting Pronouncements](index=77&type=section&id=Recently%20Issued%20or%20Newly%20Adopted%20Accounting%20Pronouncements_CritAcc) - The Company adopted ASU 2019-12 (Income Taxes) in Q1 2021, which **did not have a material impact**[297](index=297&type=chunk) - Other recent accounting pronouncements are **not expected to have a material impact**[298](index=298&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=79&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the Company's exposure to market risk, primarily from interest rate sensitivity [Interest Rate Sensitivity](index=79&type=section&id=Interest%20Rate%20Sensitivity) - The Company's market risk exposure is primarily from **interest rate changes** affecting marketable securities and cash[299](index=299&type=chunk) - The investment policy aims to limit risk by investing in **high-rated credit issuers and short-term maturities**[300](index=300&type=chunk) [Item 4. Controls and Procedures](index=79&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and reports no material changes in internal controls [Changes in Internal Controls over Financial Reporting](index=79&type=section&id=Changes%20in%20Internal%20Controls%20over%20Financial%20Reporting) - **No material changes** in internal control over financial reporting occurred during the quarter ended September 30, 2021[303](index=303&type=chunk) [PART II — OTHER INFORMATION](index=81&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=81&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not involved in any material pending or threatened legal proceedings - The Company is **not involved in any material pending or threatened legal proceedings**[306](index=306&type=chunk) [Item 1A. Risk Factors](index=81&type=section&id=Item%201A.%20Risk%20Factors) This section refers to risk factors previously disclosed in the Company's Annual Report, stating no material changes - **No material changes** in risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[307](index=307&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=81&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable to the current report - **Not applicable**[309](index=309&type=chunk) [Item 3. Defaults Upon Senior Securities](index=81&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the current report - **Not applicable**[311](index=311&type=chunk) [Item 4. Mine Safety Disclosures](index=81&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the current report - **Not applicable**[313](index=313&type=chunk) [Item 5. Other Information](index=81&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - **None**[315](index=315&type=chunk) [Item 6. Exhibits](index=82&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q - The report includes exhibits such as merger agreements, certificates of incorporation, bylaws, officer certifications, and **financial information in iXBRL format**[317](index=317&type=chunk) [Signatures](index=84&type=section&id=Signatures) This section contains the required signatures for the Quarterly Report on Form 10-Q - The report is signed by Linda Marbán, Ph.D., Chief Executive Officer, and Anthony J Bergmann, Chief Financial Officer, on **November 10, 2021**[322](index=322&type=chunk)

Financial Data and Key Metrics Changes - As of September 30, 2021, the company's cash and cash equivalents totaled approximately $40.8 million, compared to approximately $32.7 million on December 31, 2020, indicating a positive cash flow situation [40] - For the first nine months of 2021, the net cash used in operating activities was approximately $11.2 million, with a net loss of approximately $13.8 million compared to a net loss of approximately $9.5 million for the same period in 2020 [41][42] Business Line Data and Key Metrics Changes - The research and development expense for Q3 2021, excluding stock-based compensation, was approximately $2.4 million, a decrease from approximately $2.6 million in Q3 2020 [41] - General and administrative expenses for Q3 2021, excluding stock-based compensation, were approximately $1.1 million, compared to approximately $900,000 in Q3 2020, indicating an increase in administrative costs [42] Market Data and Key Metrics Changes - The company is focused on two main pipeline programs: CAP-1002 for Duchenne muscular dystrophy (DMD) and severe COVID-19, and an emerging platform technology involving exosomes as drug delivery vehicles [5][22] Company Strategy and Development Direction - The company is committed to advancing CAP-1002 for DMD and has received FDA clearance to proceed with the HOPE-3 trial, aiming to enroll approximately 70 patients [10][11] - The company is also developing an exosome platform technology for drug delivery, which is seen as a cornerstone for future vaccine development and other therapeutic applications [26][34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the data from the HOPE-2 trial and is actively working on initiating the HOPE-3 study [44] - The company is in a strong position regarding manufacturing readiness and supply chain management, indicating no expected issues for the upcoming studies [45][46] Other Important Information - The company has secured important regulatory designations, including RMATs for CAP-1002, and is working closely with the FDA to ensure commercial supply readiness [11][46] - The company has relocated its R&D headquarters to San Diego, California, and has assembled a strong team to advance its exosome platform [35] Q&A Session Summary Question: Update on HOPE-3 study and potential partnership - Management is encouraged by HOPE-2 data and is developing plans to initiate HOPE-3, with a focus on enrolling patients [44] Question: Manufacturing readiness and supply chain impacts - Management confirmed that they are well-prepared for manufacturing and do not anticipate issues related to global supply chain challenges [45] Question: Next steps pending INSPIRE trial data - Management will evaluate next steps based on the data from the INSPIRE trial and will keep stakeholders updated [47] Question: Visibility on exosome platform development - Management indicated that they have several targets in development and will provide updates on the exosome platform in early 2022 [49]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2021 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to Commission File Number: 001-34058 CAPRICOR THERAPEUTICS, INC. (Exact Name Of Registrant As Specified In Its Charter) Delaware 88-0363465 (State or ot ...

Financial Data and Key Metrics Changes - As of June 30, 2021, the company's cash and cash equivalents totaled approximately $38.1 million, an increase from approximately $32.7 million on December 31, 2020, indicating a positive cash flow situation [21] - The net cash used in operating activities for the first half of 2021 was approximately $7.8 million, with a net loss of approximately $9.9 million compared to a net loss of approximately $5.6 million for the first half of 2020 [22] Business Line Data and Key Metrics Changes - Research and development expenses for Q2 2021 were approximately $3.4 million, up from approximately $1.8 million in Q2 2020, reflecting increased investment in clinical programs [22] - General and administrative expenses for Q2 2021 were approximately $1.2 million, compared to approximately $1 million in Q2 2020, indicating a slight increase in operational costs [22] Market Data and Key Metrics Changes - The company is planning to expand its footprint to San Diego, California, to enhance its research capabilities and attract talent, which is expected to support its clinical programs [5][19] - The company is engaging with payers regarding the reimbursement potential for CAP-1002, with projected price targets in line with other cell and gene therapies for rare diseases [10] Company Strategy and Development Direction - The company plans to proceed with a Phase 3 pivotal trial for CAP-1002 in Duchenne muscular dystrophy (DMD) after a productive end-of-phase meeting with the FDA [7] - The company is also advancing its engineered exosome platform technology, with plans to develop a multivalent COVID-19 vaccine and explore other therapeutic indications [14][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential impact of CAP-1002 in treating severe COVID-19, citing positive data from previous studies and ongoing enrollment in the INSPIRE trial [13][12] - The company is committed to securing a partner for the commercialization of CAP-1002 and is actively discussing potential partnerships [10][36] Other Important Information - The company has recruited a team of experienced scientists for its exosome platform technology, which is expected to drive innovation in vaccine development [15] - The company anticipates submitting an IND for its COVID-19 vaccine in the fourth quarter of 2021, despite delays due to supply chain challenges [18] Q&A Session Summary Question: Details on trial endpoints for CAP-1002 - The primary efficacy endpoint for the Phase 3 trial will be the PUL 2.0, with secondary endpoints including cardiac measures [24] Question: Eligibility of HOPE-2 patients for HOPE-3 - Patients from HOPE-2 will not roll directly into HOPE-3 but will continue in an open-label extension study [25] Question: Estimated cost of HOPE-3 study - The estimated cost for the HOPE-3 study is around $15 million, which is considered low for a Phase 3 trial [28] Question: Clinical development of the booster vaccine - The company is actively exploring the booster vaccine strategy and has received supportive feedback from the U.S. government [29] Question: Route of administration for the booster vaccine - The booster vaccine will be administered via intramuscular injection, similar to existing vaccines [32] Question: Plans for EUA submission if COVID-19 trial data is positive - The company is open to all possibilities regarding EUA submission based on the trial data [33] Question: Epigenetic modification profile of CAP-1002 exosomes - Preclinical work has shown that CAP-1002 may suppress certain cytokines, but further data from the current study is being analyzed [34] Question: Focus of the INSPIRE trial - The company is currently focused on severe COVID-19 but may explore broader applications for respiratory distress in the future [42] Question: Manufacturing costs and scalability of exosomes - The company is confident in solving manufacturing challenges for engineered exosomes and is in scale-up mode [44]